THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW BAYS' AMERICAN COMMERCIAL LAW SERIES VOLUME I. CONTRACTS. VOLUME II. NEGOTIABLE PAPER. VOLUME III. SALES OP PERSONAL PROPERTY. VOLUME IV. AGENCY; PARTNERSHIP. VOLUME V. CORPORATIONS. VOLUME VI. INSURANCE; SURETYSHIP. VOLUME VTI. DEBTOR, CREDITOR; BANKRUPTCY. VOLUME VIII. BANKS AND BANKING. VOLUME IX. PROPERTY. 9 Volumes, $12.00. Separately, per volume, $1.50. CASES ON . COMMERCIAL LAW CONTRACTS, AGENCY, SALES, NEGOTIABLE PAPER, PARTNERSHIPS, CORPORATIONS By ALFRED W. BAYS Author of "Bays' Commercial Law Series," Member of Chicago Bar and Professor of Commercial Law in Northwestern University School of Commerce CHICAGO CALLAGHAN AND COMPANY 1914 COPYRIGHT 1914 BY CALLAGHAN & COMPANY T PREFACE These cases have been prepared for the use of students in Commercial Law. When the writer took charge of the Commercial Law classes in Northwestern University, some years ago, he doubted whether he could profitably use cases as material for assigned lessons, and he therefore relied upon mimeographed notes in the form of a text, using cases only in brief paraphrase as illustrations, and these notes were afterwards put in type and published in the form of small hand books. But it was noticed that when the writer dwelt in his lectures on the facts of actual cases and stated the court's decision and read from the opinion, the stu- dent seemed deeply interested, and retained the matter better in his memory than other part's of the work. From this experience, the writer became convinced of the value of the use of cases, in his classes, and he has used them in mimeograph form in connec- tion with text for some time with considerable success. The ' ' case system ' ' of law study for those whom we may term professional law students has been so widely adopted and approved in law schools that anything said in its behalf would seem superfluous and presumptious. A word or two in its justi- fication may seem desirable when applied to those who are taking up the study temporarily and briefly for business and general cultural purposes. That there are differences of an important nature between the professional and non-professional student of law, and that these must be dealt with in practical ways, is very true. For, the law student makes the study of the law the beginning of his life work ; its importance is direct and vital. His ambitions, plans, hopes, his keenest self-interests all center around his study. Usually, also, he devotes his entire working time to its pursuit. He realizes that the chief objective of his student career is to train his mind for a work that will begin after he leaves school. The non-pro- fessional student takes up the study of law in an entirely different 74.86 ' "< vi PREFACE view point. His chief interests are elsewhere. Usually, only a fraction of his time is devoted to its study. And in his school work he not only makes a beginning but an ending of his study of the subject. He has, therefore, an entirely different goal to be attained than that of the professional law student. To teach this student, under these circumstances, law in any final sense, is of course beyond the bounds of possibility. The writer once heard from one of his students of a prodigy who had learned commercial law. He had read the book thereof and mastered the subject. He could solve any problem that could be put to him. Unfortunately, the rest of us are limited in our powers. And it seems to the writer that one of the first things that the student should be taught is this: that he is entering upon the study of a subject that is as broad as human endeavor, of endless application, and of ever changing condition, and that even by a life time of study there is no such thing as finally mastering it or any of its branches. To offset this discouraging information, he should be advised that in its study he may hope to learn certain fairly permanent principles and rules and to acquire information that will enable him to answer for himself many questions that will present themselves, and, what is per- haps of greater importance, that he may recognize legal problems, as problems, and avoid pitfall by seeking professional advice, where necessary; and that he can find no better subject as a study for general cultural purposes. To recapitulate, the stu- dent should acquire : (1) A realization of the character, source and universality of law; (2) A practical working knowledge, enabling him to be more efficient and safe in his business affairs ; (3) The general broadening and enlightenment of his mind. In the accomplishment of these ends, the cases as the chief part of his study seem better adapted than mere text or lecture. In the case, the student sees law in its relationship to life ; he learns that it is principle applied to varying sets of facts; he under- stands the character of law and the nature of its development. The case not only informs him, but it has a dramatic value that arouses and holds his interest. The stage is set with real characters. No longer is the truth unconnected with actual human conduct. The student sees men situated as he has been, or may be situated. And it is in con- nection with these facts that the judge's exposition of the law PREFACE vii is made, wherein at some length he announces the principle, applies it, and limits, distinguishes, and harmonizes. The case system enables the student, and to an extent requires him, to make some original research in first hand material. It encourages independence of thought. The case is to him somewhat as the cadaver is to the medical student. But the instructor must remember in using the case system that his vision is not the vision of the student. The student must be led ; he must be shown the way ; he must be kept within the proper bounds. He must be led up into the high places and shown the field that he is to traverse so that the whole may be properly correlated to its parts; the teacher must accompany the inquirer upon the journey, explaining, asserting and guiding. Hence the value of lecture, of text, of quiz. Without these helps the student gropes blindly. In this book there has been an attempt to arrange the cases under such an outline and with such explanatory and connecting notes as to give unity and completeness to the subjects covered. Two difficulties have been encountered. One is to present the subjects covered within the range of a moderately priced volume, and the other is, the final spurt that w r as required to furnish the book within the time planned for. But on the whole the editor has produced a book fairly satisfactory for his own purposes and trusts it will prove so to those who have indicated or may indicate a purpose to use it. The book contains nearly eleven hundred pages, and the development of some phases has been necessarily limited, but topics of a merely technical or peculiarly confusing character or having a remote importance have been purposely omitted or slighted. The book should be useful in all schools teaching the subjects included, except perhaps in courses of very elementary nature. It should be accompanied with such text, or other helps, as the instructor deems advisable. Questions follow each case, and it is thought these will be very helpful. It is perhaps unnecessary to add that the editor of these cases has made very free paraphrases of the facts, and made omissions from lengthy opinions. ALFRED W. BAYS. NORTHWESTERN UNIVERSITY, Chicago, November, 1914. TABLE OF CONTENTS DIVISION A. CONTRACTS PART I. THE FORMATION OF CONTRACTS Chapter 1. Introductory 2 Chapter 2. Capacity of parties to contract A. Capacity of parties in general 4 B. Capacity of minors 4 C. Capacity of other parties under disability. ... 24 Chapter 3. Offer and acceptance A. "What in form constitutes offer and acceptance 30 B. The validity of the assent in the offer and the acceptance (mistake, fraud, duress, undue influence) 48 Chapter 4. Consideration A. Theory and nature of consideration 77 B. Examples of consideration 80 Chapter 5. Legality of Contracts A. Legality of contracts an essential element .... 101 B. Particular classes of illegal agreements 102 C. The connection of the illegality with the agree- ment 118 D. Judicial remedies in illegal agreements 122 Chapter 6. Form and evidence of contract A. Contracts under seal 132 B. The statute of frauds 156 C. The parol evidence rule 168 D. Oral and implied contracts 179 PART II. THE INTERPRETATION OF CONTRACTS Chapter 7. General rules of interpretation 185 Chapter 8. Interpretation with respect to time of per- formance 188 iz x CONTENTS Chapter 9. Interpretation of provisions as to damages or penalties 191 PART III. THE OPERATION OF CONTRACTS Chapter 10. The general rule, operation of contract as between the parties 200 Chapter 11. Operation as to undisclosed principals. . . 200 Chapter 12. Operation as to beneficiaries 201 Chapter 13. Operation as to assignees 203 Chapter 14. Operation to create rights of non-inter- ference by third persons 217 PART IV. DISCHARGE OF CONTRACTS Chapter 15. Meaning of discharge 225 Chapter 16. Discharge by performance, breach, tender and impossibility 226 Chapter 17. Discharge by agreement, novation, altera- tion and operation of law 246 Chapter 18. Remedies upon discharge 248 DIVISION B. PRINCIPAL AND AGENT PART V. THE NATURE AND FORMATION OF THE RELATION Chapter 19. Definitions and distinctions 266 Chapter 20. Capacity to act as principal and agent. . 274 Chapter 21. The authority conferred by prior act. . . . 278 Chapter 22. The authority conferred by ratification. 282 PART VI. MUTUAL RIGHTS AND DUTIES OF PRINCI- PAL AND AGENT Chapter 23. The rights of the principal against the agent 306 Chapter 24. The right of the agent to compensation and damages 330 PART VII. THE RIGHTS AND OBLIGATIONS OF THIRD PERSONS Chapter 25. Rights of third persons against the agent 337 Chapter 26. Rights of third persons in contract against a disclosed principal 354 CONTENTS xi _ Chapter 27. Rights of third persons against an undis- closed principal 376 Chapter 28. Knowledge of the agent as knowledge of the principal 382 Chapter 29. The admissions and declarations of the agent 390 Chapter 30. Responsibility of principal for torts of agent 392 Chapter 31. Rights of the principal against third per- sons 404 PART VIII. TERMINATION OF AGENCY Chapter 32. Termination by agreement 411 Chapter 33. Revocation of authority 412 Chapter 34. Termination by operation of law 423 DIVISION C. SALES OF PERSONAL PROPERTY PART IX. FORMATION OF CONTRACT OF SALE Chapter 35. Definitions 432 Chapter 36. Capacity of parties and formalities. . . . 446 Chapter 37. Subject matter of contract 447 Chapter 38. The price 453 Chapter 39. Conditions and warranties A. Conditions and their effect 459 B. Express warranties 460 C. Implied warranties 469 PART X. TRANSFER OF TITLE Chapter 40. Transfer of title as between buyer and seller A. Rules governing transfer of title 489 B. Reservation of title by means of documents. . . 513 C. Transfer of title in auction sales 516 D. Risk of loss 520 Chapter 41. Transfer of title as affecting third per- sons A. Estoppel of true owner 522 B. Provisions of recording acts, etc 529 C. Sale by one having voidable title 532 D. Retention of possession as fraud 533 Chapter 42. Documents of title 539 xii CONTENTS / PART XI. PERFORMANCE OF THE CONTRACT Chapter 43. The performance of the contract 542 PART XII. RIGHTS OF UNPAID SELLER AGAINST THE GOODS Chapter 44. Remedies of unpaid seller 560 Chapter 45. Unpaid seller's lien 561 Chapter 46. Stoppage in transitu 563 Chapter 47. Resale and rescission by seller 567 PART XIII. ACTIONS FOR BREACH OF CONTRACT OF SALE Chapter 48. Remedies of the seller 568 Chapter 49. Remedies of the buyer 571 DIVISION D. NEGOTIABLE PAPER PART XIV. FORMATION OF NEGOTIABLE CONTRACT Chapter 50. Formal requisites: (1) In general 606 Chapter 51. Same: (2) The writing and signature. . 607 Chapter 52. Same: (3) Unconditional promise or order 609 Chapter 53. Same: (4) Certainty of sum and pay- ment in money 624 Chapter 54. Same: (5) Certainty of time of pay- ment Demand paper 637 Chapter 55. Same: (6) Words of negotiability 644 Chapter 56. Sundry provisions and omissions 651 Chapter 57. Execution, delivery and consideration. . 657 PART XV. NEGOTIATION, RIGHTS AND LIABILITIES Chapter 58. Negotiation 665 Chapter 59. Holder in due course who is 674 Chapter 60. Personal defenses 702 Chapter 61. Real defenses 712 Chapter 62. Liability of parties 721 PART XVI. PROCEDURE TO FIX LIABILITY Chapter 63. Presentment for payment 732 Chapter 64. Notice of dishonor . 744 CONTENTS xiii PART XVII. DISCHARGE OF PAPER AND PARTIES THEREON Chapter 65. Discharge of negotiable paper 759 PART XVIII. BILLS OF EXCHANGE PARTICULARLY CONSIDERED Chapter 66. Definitions and general provisions 767 Chapter 67. Acceptance 770 Chapter 68. Presentment for acceptance 779 Chapter 69. Protest 783 Chapter 70. Acceptance and payment for honor 786 Chapter 71. Bills in a set 789 PART XIX. PROMISSORY NOTES AND CHECKS PAR- TICULARLY CONSIDERED Chapter 72. In particular of promissory notes and checks 792 DIVISION E. PARTNERSHIPS PART XX. GENERAL NATURE AND FORMATION OF PARTNERSHIPS Chapter 73. Partnerships defined 806 Chapter 74. The formation of the partnership 824 PART XXI. FIRM NAME AND PROPERTY Chapter 75. The firm name 831 Chapter 76. The firm property 836 PART XXII. MUTUAL RIGHTS AND OBLIGATIONS OF PARTNERS Chapter 77. Partners must act toward each other in good faith 841 Chapter 78. Sundry rights of partners in going concern 852 PART XXIII. THE PARTNERSHIP AND THIRD PER- SONS Chapter 79. The power of the partner to bind his partners 858 Chapter 80. Liability of partner for torts of his co- partner 868 Chapter 81. The duration of the liability 875 xiv CONTENTS Chapter 82. Remedy of partnership creditors in courts of law 880 Chapter 83. Rights of creditors of partners in courts of equity 888 PART XXIV. DISSOLUTION OF THE PARTNERSHIP Chapter 84. Dissolution by what acts 896 Chapter 85. Dissolution by lapse of time, agreement and transfer 897 Chapter 86. Dissolution by death of partner 899 Chapter 87. Dissolution by bankruptcy and court decree 907 Chapter 88. Liquidation and accounting on dissolution 909 DIVISION F. CORPORATIONS PART XXV. INTRODUCTORY Chapter 89. Definition and theory 917 PART XXVI. CORPORATE CAPACITY AND POWERS Chapter 90. General corporate capacities 951 Chapter 91. Powers of contractual nature 960 Chapter 92. Effect of acts ultra vires 979 PART XXVII. STOCK AND STOCKHOLDERS Chapter 93. Capital stock, shares and certificates 985 Chapter 94. Subscriptions to stock 989 Chapter 95. Liability of shareholders 996 Chapter 96. Transfer of shares 1008 Chapter 97. Various rights of shareholders in going concern 1025 PART XXVIII. DIRECTORS AND ADMINISTRATIVE OFFICERS Chapter 98. Directors 1043 Chapter 99. Administrative officers 1057 PART XXIX. FOREIGN CORPORATIONS Chapter 100. Foreign corporation defined; its general status 1059 Chapter 101. Same subject ; continued 1063 DIVISION A CONTRACTS CASES ON COMMERCIAL LAW DIVISION A CONTRACTS Part I. The Formation of Contracts. Part II. The Interpretation of Contracts. Part III. The Operation of Contracts. Part IV. The Discharge of Contracts. Chapter One. Introductory. Chapter Two. Competency of Parties. Chapter Three. Offer and Acceptance. Chapter Four. Consideration. Chapter Five. Legality of Object. Chapter Six. Form and Evidence of Contract. 1 CHAPTER ONE INTRODUCTORY 1. Definition. 2. Kinds of contracts. Sec. 1. Definition. Case No. 1. Sir William B. Anson. Principles of the English Law of Contracts (Knowlton's Edition). Pages 1 to 10. " * * * Contract results from a combination of the two ideas of Agreement and Obligation. Contract is that form of Agreement which directly contemplates and creates an Obligation: the contractual Obligation is that form of Obligation which springs from Agreement. * * * Agreement requires for its existence at least two parties. There may be more than two. The parties must have a distinct intention common to both. * The parties must communicate to one another their common intention. * * * The inten- tion of the parties must refer to legal obligations. * * * It must have reference to legal rights and duties as opposed to those of a social character. The consequence of Agreement must affect the parties themselves. * But Agreement * * * seems to be a wider term than contract. It includes acts in the law of two kinds besides those which we ordinarily term Contracts. These are: (1) .Agreements the effect of which is concluded so soon as the parties thereto have expressed their common consent. Such are conveyances and gifts (2) Agreements which create ob- ligations incidental to transactions of a different and 2 INTRODUCTORY 3 wider sort. * * * Marriage for instance, So, too, a settlement of property in trust. These obligations are the result of Agreement, yet they are not Contract. * * * Obligation is a legal bond whereby constraint is laid upon a person or group of persons to act or forbear on behalf of another person or group. * * * And so we are now in a position to attempt a definition of contract, or the result of the concurrence of Agreement and Obligation. And we may say that it is an Agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.' f Question 1: Define a contract. What are the "two ideas" from which contract results? Sec. 2. Kinds of Contracts. (Note: To indicate the scope and nature of contractual lia- bility, we may classify contracts from various standpoints. The great historic and basic division of contracts is that into formal and informal contracts. Formal contracts are characterized by their form, and are binding because of that form without regard to consideration, which is the essential characteristic of informal contracts. Formal contracts include so-called contracts of rec- ord, as judgments and recognizances and contracts under seal, also called specialties. Informal contracts are those contracts not of record or under seal, whether in writing, oral or implied. Informal contracts are the more important in modern commercial life, and in some jurisdictions formal contracts have ceased to exist as such and in most jurisdictions have lost some of their characteristics. The great majority of mercantile contracts are simple or informal contracts. Contracts may be also regarded as bilateral, when in their inception they consist in mutual prom- ises, or unilateral when they consist of an act done on one side to support an unperformed promise on the other. Contracts are also executory or executed, and may be executory on both sides (bilateral) or on one (unilateral). Contracts are also express when they consist in written or spoken word, and implied when inferred from conduct. The differences herein indicated will be elaborated in the subject matter to follow. ) CHAPTER TWO CAPACITY OF PARTIES TO CONTRACT A. Capacity of parties in general. C. Capacity sf other parties under B. Capacity of minors. disability. A. Capacity of Parties in General. (Note: In our definition of a contract as a certain type of agreement between two or more parties, we assume that the state in its public policy permits parties to enter by agreement into obligations toward each other. To the question "Who may make a contract ? " we must return the obvious answer that any person in the community, of normal legal status may freely contract. Who are those of abnormal legal status those upon whom for some reason, the law has imposed a limitation with respect to freedom of contract? They may be conveniently grouped into two general classes those who have not yet reached the age at which the law confers upon them the full legal powers of the individual (whom we call minors or infants} ; and those who, without respect to age, are, on grounds of public policy, deprived by positive law of full legal powers.) B. Capacity of Minors. 3. Who are minors. 7. What constitutes ratification. 4. The general rule: Contracts of 8. Minor's contracts for neces- minors voidable by them. saries. 5. Minor's contracts voidable un- 9. Minor's liability in tort in cases der what conditions. connected with contracts. 6. Minor's contracts voidable at what times. CAPACITY OF PARTIES 5 Sec. 3. Who Are Minors. (Note : A minor is one who has not reached the age fixed by law at which he comes into full legal powers. At common law this age was twenty-one both for males and females. By statute in some states females are of age at eighteen years.) Sec. 4. The General Rule Contracts of Minors Void- able by Them. Case No. 2. Coursole v. Wyerhauser, 69 Minn. 328. Facts: In 1856, there was issued by the U. S. govern- ment to plaintiff, a half-blood Sioux Indian, 320 acres of land in what was commonly called "half-breed script." In January, 1870, when the plaintiff was 20 years of age, he, representing himself to be of age, for a valuable con- sideration made out two powers of attorney purporting to constitute one Dorr his agent to select and locate the land and to sell and convey the same. Dorr, in 1874, located the land in controversy and sold it to Brown, who resold it to various parties until it came by mesne con- veyances to the present defendants. Plaintiff now in 1895, brings this suit to contest defendant's title, claim- ing that his power of attorney in 1870 was void on ac- count of his infancy, and that his conduct since that time cannot be considered as ratification on the principle that a void act cannot be ratified. Points Involved: Whether contractual acts of minors in general are void or voidable. Specifically, whether the act of a minor in appointing an agent to sell his real estate is merely voidable and therefore subject to rati- fication by him, or absolutely void, and therefore of no legal effect. MITCHELL, J. : * * The rule is that the act to be ratified must be voidable merely, and not absolutely void; and the question remains which to our minds is the most important one in the case whether the act of a minor in 6 appointing an agent or attorney is wholly void, or merely voidable. Formerly the acts and contracts of infants were held either void, or merely voidable, depending on whether they were necessarily prejudicial to the infant. Latterly the courts have refused to take this responsi- bility, on the ground that, if the infant wishes to deter- mine the question for himself on arriving at his majority, he should be allowed to do so, and that he is sufficiently protected by his right of avoidance. Hence the almost uni- versal modern doctrine is that all the acts and contracts of an infant are merely voidable. Upon this rule there seems to have been ingrafted the exception that the act of an infant in appointing an agent or attorney, and con- sequently all acts and contracts of the agent or attorney under such appointment, are absolutely void. This ex- ception does not seem to be founded on any sound prin- ciple, and all the text writers and courts who have dis- cussed the subject have, so far as we can discover, con- ceded such to be the fact. " On principle, we think the power of attorney of an infant, and the acts and contracts made under it, should stand on the same footing as any other act or contract, and should be considered voidable in the same manner as his personal acts and contracts are considered void- able. If the conveyance of land by an infant personally, who is of imperfect capacity, is only voidable, as is the law, it is difficult to see why his conveyance made through an attorney of perfect capacity should be held absolutely void. It is a noticeable fact that nearly all the old cases cited in support of this exception to the gen- eral rule are cases of technical warrants of attorney to appear in court and confess judgment. In these cases the courts held that they would always set aside the judg- ment at the instance of the infant, but we do not find that any of them go as far as to hold that the judgment is good for no purpose and at no time. 1 'The courts have from time to time made so many exceptions to the exception itself that there seems to be very little left of it, unless it be in cases of powers of at- CAPACITY OF PARTIES 7 torney required to be under seal, and warrants of attor- ney to appear and confess judgment in court. See Free- man's note to Craig v. Van Bebber, 18 Am. St. Rep. 629 (s. c., 100 Mo. 584, 13 S. W. 906) ; Schouler, Dom. Eel. Sec. 406; Ewell's Lead. Gas. 44, 45, and note; Bishop, Cont. Sec. 930; Metcalf, Cont. (2d Ed.) 48; Whitney v. Dutch, 14 Mass. 457-463; Bool v. Mix, 17 Wend. 119-131. ''Hence, notwithstanding numerous general state- ments in the books to the contrary we feel at liberty to hold, in accordance with what we deem sound principle, that the power of attorney from plaintiff to Dorr, and the deed to Brown under that power, were not absolutely void because of plaintiff's infancy, but merely voidable and that they were ratified by him after attaining his majority. ' ' Question 2: (1.) State the facts, the specific question pre- sented and the Court's decision in the above case. (2.) Why was it important to determine in the above case whether the power of attorney was void or voidable f (3.) What was the early test whether an infant's contract was binding on him ? (4.) What constituted ratification in the above case? (5.) State the present general rule as to a minor's power to make a contract. (6.) Is it your opinion that the other party to the contract may raise the point of the infancy of the minor, in order to avoid his contract, if the minor himself does not raise it? (Note : While the courts of the United States are in unison in holding the general rule to be that the contracts of a minor are voidable and not void [except the implied contracts to pay for necessaries received by the minor which are neither voidable nor void, but binding] , they differ as to the power of a minor to appoint an agent, especially agents with formal powers to con- fess judgments, sell real estate, etc. See the authorities cited in the above opinion. See also Hiestand v. Kuns, 8 Blackf. (Ind.) 345; Cole v. Pennoyer (obiter), 14 111. 158, contra to above case.) Case No. 3. Wuller v. Chuse Grocery Co., 241 111. 398. 8 CONTRACTS Facts: Wuller, while a minor, subscribed and paid for 15 shares of stock in the Grocery Co. at the par value of $1,500. He also acted as secretary and treasurer, and was a salesman and bookkeeper of the corporation at a salary of $12.00 and $15.00 a week for about two years and a half. At the end of that time, being still a minor, he brings a suit to recover the $1,500 so paid, tendering back the stock. He had judgment below and the Grocery Com- pany appeals. Points Involved: Whether the executed contract of a minor in reference to personal property is voidable by him. Whether being emancipated or in business makes any difference. DUNN, J. : "The position of the appellant (defendant) is that an infant, having advanced money upon a contract voidable because of his infancy, cannot rescind the con- tract and recover the money. * * If the fact that the payment of money upon his contract was voluntary precluded its recovery, the right to avoid the contract would be no protection to an infant against his inexperi- ence and the wiles of swindlers and cheats. Such vol- untary payment may be recovered upon the avoidance of the contract. The consideration, or such part of it as remains in the possession or control of the minor must be returned, but if he has lost or expended it, so that he cannot restore it, he is not obliged to make restitution. Contracts concerning personal property and executory agreements may be avoided by the infant either during or after his minority. The shares of capital stock of a corporation are personal property, the same as promis- sory notes or bonds. An infant's purchase of such stock is voidable, and he may, at his election, avoid it and re- cover the purchase money. The appellee having offered to return the stock which he had received under the con- tract, was entitled to the return of the purchase money he had paid. The certificate of stock held by the appellee was merely the evidence of his rights as a stockholder. The contract by which he became a stockholder having CAPACITY OF PARTIES 9 been avoided, the decree properly provided for the can- cellation of the certificate, which amounted, in effect, to the surrender of the stock by appellee and its restoration to appellant. "The contract of an infant is, in general, voidable by him, and gains no additional force from the fact that he is engaged in business for himself or is emancipated. The exercise of his right to disaffirm his contract may oper- ate injuriously and unjustly against the other party, but the right exists for the protection of the infant against his own improvidence and may be exercised entirely in his discretion. The fact that the contract has been ex- ecuted is immaterial; there is no distinction between executed and executory contracts so far as the right of disaffirmance is concerned." Question 3: (1.) State the facts, the question presented and the decision of the court in the above case. (2.) May a minor avoid his contract as to personal property before he becomes of age? After he becomes of age? (3.) Does the fact that a minor is in business for himself affect his contracts? Suppose he is emancipated? (4.) Does the fact that a minor cannot restore what he has received, under the contract, affect his right? (See note, p. 11.) (Note : In a few states (e. g., Georgia, Iowa) it is provided, that where a minor is in business for himself, his contracts in respect to such business shall be binding upon him. But it is held that one who merely works for another is not in business for himself within the meaning of such a statute. Bieckler v. Guen- ther, 121 la. 419.) Case No. 4. Derocher v. Continental Mills, 58 Maine, 217. Facts: This is a suit brought by a minor against Con- tinental Mills for 25i/ days' work at $1.25 per day. The minor had agreed to work at least six months and not to leave except upon giving two weeks' notice. He left before the time agreed upon had expired and without 10 CONTRACTS giving any notice. The defendant contended and the trial court held that the defendant was entitled to have the damages caused by plaintiff's leaving deducted from the wages he would otherwise be entitled to recover. The minor appeals. Point Involved: Whether a minor's contract to perform personal services is voidable by him. Whether upon abandoning such contract he is entitled to recover the value of his services. WALTON, J. : ' ' * * * To compel the minor thus to make good the loss occasioned by the non-performance of his contract is virtually to enforce the contract; and thus to enforce the contract is in effect to abrogate the rule of law that a minor is not bound by his contract. We presume no one would undertake to maintain that an action would lie against an infant to recover damages for the breach of such a contract ; and yet it seems to us that there can be no difference in principle between de- ducting the damages from the amount which the infant would otherwise be entitled to recover in a suit brought by him and recovering the same in a suit brought against him. Stripped of all its sophistical surroundings, we think the doctrine contended for in defense amounts to simply this, that the minor's contract not to leave with- out giving two weeks' notice was obligatory, and having violated it, he must pay the damage. Such a doctrine cannot be maintained. * * * * "Having avoided his contract to work not less than six months and not to leave without giving two weeks' notice, the plaintiff had a right to have his case tried and determined precisely as if no such contract had ever been made." (New trial granted.) Question 4: (1.) State the facts and the court's decision in the above case. (Note : See case No. 5 for right of minor to avoid his contracts with reference to real estate.) CAPACITY OF PARTIES 11 Sec. 5. Minor's Contracts Voidable Under What Con- ditions. (See also case No. 3.) Case No. 5. Green v. Green, 69 N. Y. 553. Facts: Plaintiff sues defendant for trespass to his real estate. Defendant answers that the land is his own. Defendant, who is the son of plaintiff, transferred the land to his father for $400, defendant being at that time 18 years of age, now an adult. Before becoming of age defendant had wasted the money received for the land. After becoming of age he entered the land to reassert title thereto, which act is the alleged trespass for which he is now sued. Point Involved: Whether a minor as a condition to the avoidance of his voidable contracts must restore the bene- fits he has received, or account for their value. CHUKCH, C. J. : * * * * * The right to repudiate is based upon the incapacity of the infant to contract, and that incapacity applies as well to the avails as to the property itself, and when the avails of the property are improvidently spent or lost by speculation or otherwise during minority, the infant should not be held responsible for an inability to restore them. * * The right to rescind is a legal right established for the protection of the infant, and to make it dependent upon performing an impossibility, which impossibility has resulted from acts which the law presumes him incapable of performing, would tend to impair the right and withdraw the protec- tion. ^othugpn^utfepjrity--^nd principle, we think a restoration of the consideration could not be exacted'as a condition to a rescission ~~* *^~ (Note: Where a minor has received the benefit of a fair con- tract, the weight of authority is, that if he cannot restore what lid has received he cannot sustain his own suit to rescind, though, had he not performed, he would have a perfect defense in a suit against him, notwithstanding his inability to restore. Thus in Case No. 11 doubtless the minor could not have prevailed in a suit to recover had he paid the tradesman.) 12 CONTRACTS Question 5: State the facts, the specific question presented and the court's decision in the above case. Sec. 6. Minors' Contracts Voidable at What Times. (See also Case No. 3.) Case No. 6. Scott v. Buchanan et al., 30 Tenn. 468. Facts: Suit to eject defendants from certain lands. Defendants claim title through a deed given by plaintiff during her minority. Plaintiff is now an adult. Point Involved: That the deed of an infant is void- able ; the time at which it may be avoided, and the man- ner of avoidance. Also what constitutes a ratification by which the right to avoid is lost. TOTTEN, J. : "* * The better opinion seems to be that a sale of chattels by an infant may be avoided during infancy, but that a sale of lands cannot be avoided by him till he become of age. The act of avoidance in relation to his personalty is allowed him during in- fancy, as it may be the more necessary to his personal interest, but is not allowed him as to his realty, because of his supposed indiscretion to exercise it, and as its exercise during infancy may not be so material to his interest. * * * ' The deed of an infant may be avoided after he come of age, by executing a deed to a third person for the same land, that being an act of like character and notoriety with the first; or by making an entry upon the land, reclaiming it and declaring his dissent to his deed [See case No. 5, supra] ; or, as we apprehend, by suit for the land, without having made any previous entry. "In the next place, what will amount to an affirmance of the voidable deed? The court instructed the jury that this might be by express ratification, or by acts which reasonably imply an affirmance, or by an omission to dis- affirm the deed in a reasonable time. * * * "We see nothing unjust or inconvenient in the rule which requires the party within a reasonable time after he arrive at full age, to make his election whether he will CAPACITY OF PARTIES 13 stand to or abide by his voidable contract made during infancy. On the contrary, it would be highly unjust and inconvenient to the other party, who is bound by the contract and has no right to avoid it, to be held subject to an indefinite period to his right of election. Question 6: (1.) When can a minor disaffirm his deeds of conveyance ? (2.) May he avoid his other voidable contracts before becom- ing of age ! (3.) In what ways may an infant avoid his deed of convey- ance? (4.) In what ways may one ratify his deeds, voidable on the ground of infancy ? Note: By statute or judicial decision in many states the "reasonable" time in which an infant may disaffirm after he becomes of age has been crystallized into a certain time, as, say, three years, but he may of course deprive himself of the full statutory period by a ratification before that time. It should always be borne in mind that an act of ratification is irrevocable. When one has ratified what was before that time voidable, his right to avoid has gone. Sec. 7. What Constitutes Ratification. (a) A minor cannot ratify. (b) Failure to disaffirm as ratifica- tion. (a) A Minor Cannot Ratify. Case No. 7. Sanger v. Hibbard et al., 104 Fed. 455. Facts: Sanger, while a minor, purchased goods from Hibbard Brothers and others, for use by him as a retail dealer. Later, Hibbard Brothers and others sued out attachment proceedings against the goods. Sanger, under statutory authority, gave a bond to dissolve the attachment, one of his creditors becoming surety there- on, and such creditor afterwards receiving the proceeds from the sale of the goods in satisfaction of his claim. It is asserted that by giving the bond the minor (who H CONTRACTS is still under age) ratified his contract or estopped him- self from setting up his minority. Point Involved: Whether a minor, while still a minor, can ratify his voidable contracts or estop himself to set up his minority. CALDWELL, CIRCUIT JUDGE : ' * * * * The rule is well settled that an infant has an absolute right to disaffirm and avoid his contract for the purchase of property with which to enter into trade. He can repudiate his contract to pay for property purchased for such a purpose, and the seller has no redress unless the property purchased remains in the possession and control of the infant. In such case the infant 's repudiation of his contract revests the title to the property sold in the vendor, who may recover it in a proper action for that purpose. It is not claimed that he (the minor) ratified the contract or did any act to estop him setting up his defense after he had attained his majority, and the claim that the execution of the bond to dissolve the attachment during his infancy operated as an affirmance of the contract or as an estoppel is untenable. A minor can neither make nor affirm a contract of this character dur- ing his infancy. The rule which precludes him from making a [binding] contract precludes him from ratify- ing it. * * *" Question 7 : Can a party who has contracted with a minor set up that the minor has lost his right to avoid his contract because while still a minor he ratified it ? Why ? (b) Failure to Disaffirm as Ratification. (Note : Mere failure to disaffirm after becoming of age (except in respect to deeds of conveyance, as we noticed) is not ratifica- tion, but there must be some accompanying act or circumstance inconsistent with disaffinnance, as a sale or use of the property. Thus, A sells B a bicycle. B uses and destroys the bicycle while still a minor. On becoming of age, B 's failure to positively dis- affirm, is not ratification by him. But if B sold the bicycle after becoming of age, or by his conduct or language fairly showed that CAPACITY OF PARTIES 15 he meant to stand by his contract, he would thereby ratify the contract. See also Case No. 6 on this subject.) Sec. 8. Minor's Contracts for Necessaries. Case No. 8. Nash v. Inman, (1908), 2 K. B. 1, 1 Brit- ish Ruling Cases 143. Facts: Defendant, a minor, was a freshman at Trin- ity College, Cambridge, in October, 1902. The plaintiff, a tailor, sent a traveling salesman to Cambridge to solicit orders. The salesman heard that the defendant was spending money very freely and he called upon him, and between Oct. 29, 1902, and June 16, 1903, the defendant had run up a bill of $1,451 for clothing of an extravagant and ridiculous style. Defendant was already adequately supplied with clothing by his father. Plaintiff sues for the price and defendant pleads infancy. Defendant had judgment below and plaintiff appeals. Points Involved: What is the nature of the liability of a minor'to pay for necessaries furnished him? What are necessaries? Is the test solely the nature of the goods sold, or must the minor's actual present needs in respect to such goods also be considered? FLETCHEB-MOULTON, L. J. : * ' I think that the difficulty and at the same time the suggestion of hardship to the plaintiff in such a case as this disappear when one con- siders what is the true basis of an action against an in- fant for necessaries. It is usually spoken of as a case of enforcing a contract against the infant, but I agree with the view expressed by the court in Rhodes v. Rhodes (1890) 44 Ch. D. 94, 59 L. J. Ch. N. S. 298, 62 L. T. N. S. 342, 38 Week Rep. 385, in the parallel case of a claim for necessaries against a lunatic, that this language is somewhat unfortunate. An infant, like a lunatic, is in- capable of making a contract of purchase in the strict sense of the words; but if a man satisfies the needs of the infant or lunatic by supplying to him necessaries, the law will imply an obligation to repay him for the 16 CONTRACTS services so rendered, and will enforce that obligation against the estate of the infant or lunatic. The conse- quence is that the basis of the action is hardly contract. Its real foundation is an obligation which the law im- poses on the infant to make a fair payment in respect of needs satisfied. In other words, the obligation arises re and not consensu. I do not mean that this nicety of legal phraseology has been adhered to. The common and convenient phrase is that an infant is liable for goods sold and delivered, provided that they are necessaries, and there is no objection to the phraseology so long as its true meaning is understood. But the treatment of such actions by the courts of common law has been in accordance with that principle I have referred to. That the articles were necessaries had to be alleged and proved by the plaintiff as part of his case, and the sum he re- covered was based on a quantum meruit. If he claimed anything beyond this he failed, and it did not help him that he could prove that the prices were agreed prices. All this is very ancient law, and is confirmed by the provisions of No. 2 of the sale of goods act, 1893, an act which was intended to codify the existing law. That section expressly provides that the consequence of nec- essaries sold and delivered to an infant is that he must pay a reasonable price therefor. "The sale of goods act, 1893, gives a statutory defi- nition of what are necessaries in a legal sense, which entirely removes any doubt, if any doubt previously existed, as to what that word in legal phraseology means. (The Lord Justice read the definition.) Hence, if an action is brought by one who claims to enforce against an infant such an obligation, it is obvious that the plain- tiff in order to prove his case must show that the goods supplied come within this definition. * * * That is to say, the plaintiff has to show, first, that the goods were suitable to the condition in life of the infant ; and, secondly, that they were suitable to his actual require- ments at the time, or, in other words, that the infant had not at the time an adequate supply from other CAPACITY OF PARTIES 17 sources. There is authority to show that this was the case even before the act of 1893. it* * * fa e j u dge came to the conclusion, to use the language of the court in Ryder v. Wombwell, supra, that there was no evidence on which the jury might prop- erly find that these goods were necessary to the actual requirements of the infant at the time of the sale and delivery, and therefore, in accordance with the duty of the judge in all cases of trial by jury, he withdrew the case from the jury and directed judgment to be entered for the defendant. In my opinion he was justified by the practice of the court in so doing, and this appeal must be dismissed." Question 8: (1.) State the facts in the above case, the spe- cific question presented and the court 's decision thereupon. (2.) Suppose that a minor buys an overcoat, admittedly a necessary for him, and agrees to pay the sum of fifty dollars therefor, can he be held to that price ? Why ? (3.) Where the minor purchases an article that would be a necessary for him were he not already adequately supplied, is the burden of proof on the seller to show both that the article comes within the class of goods that may constitute necessaries and also that the purchasing minor was as a fact not adequately supplied ? (Note. Answer to question 8 (3). The above case holds that the burden of proof is on the seller to show that the goods were necessaries to the minor (taking into consideration his station in life), and also that the minor was not being supplied from other sources. In a note to this case in 1 British Ruling Cases, at page 159, it said: ''To summarize, it may be said that while the decisions are harmonious, where it appears that an infant lives with his parents or is under the care of a guardian, that one who seeks to charge the infant for articles otherwise con- ceded to be necessaries must, in order to overcome the presump- tion that he was properly supplied, show that such is not the case, there is a conflict of opinion whether or not, where the infant does not live with his parents, nor is under the care of a guardian, the burden is upon the plaintiff to show that the infant was not sufficiently provided.") 18 CONTRACTS Case No. 9. Coke upon Littleton, 172 (a) "An in- fant may bind himself to pay for his necessary meat, drink, apparel, necessary physic, and such other neces- saries, and likewise for his good teaching and instruc- tion whereby he may profit himself afterward.'* Question 9: How did Lord Coke classify necessaries? Case No. 10. Gregory v. Lee, G4 Conn. 407. Facts: Lee, a minor aged 19 years, was a student at Yale college. He engaged rooms of Gregory for the school term of 40 weeks at $10 per week. He occupied the rooms only about three months and then engaged rooms elsewhere. G. was unable to rent the rooms for the balance of the term and now sues L. for such period. Points Involved: Generally, what are necessaries? Specifically, can a minor be held on an executory con- tract for necessaries? TORRANGE, J. : "* * * Under the facts stated it must be conceded that this room, at the time the defend- ant occupied it and during the time he hired it, came within the class called 'necessaries,' * for lodg- ing comes clearly within the class of necessaries, and the room in question was a suitable and proper one. Things necessary are those without which an individual cannot reasonably exist. In the first place, food, raiment, lodging and the like. About these there is no doubt. So long then as the defendant actually occupied the room as his sole lodging room it was clearly a necessary to him, for the use of which the law would compel him to pay * * *. The question now is whether he is bound to pay for the room after Decem- ber 20, 1892 (when he abandoned it). The obligation of an infant to pay for necessaries actually furnished to him does not seem to arise out of a contract in the legal sense of that term, but out of a transaction of a quasi- contractual nature; for it may be imposed on an infant too young to understand the nature of a contract at all. CAPACITY OF PARTIES 19 * * * And where an infant agrees to pay a stipulated price for such necessaries, the party furnishing them recovers not necessarily that price, but only the fair and reasonable value of the necessaries. This be- ing so, no binding obligation to pay for necessaries can arise until they have been supplied to the infant; and he cannot make a binding executory agreement to pur- chase necessaries. In this case the defendant gave up the room and repudiated the agreement so far as it was in his power to do so, in the most positive and equivocal manner. The plea of infancy, then, under the circumstances, must prevail. * * *" Question 10: State the facts in the above case, the specific question involved and the court 's decision thereupon. Case No. 11. Wharton v. McKenzie, 5 Q. B. 606. Facts: A was a minor, attending college away from home and boarding at the University Commons. He was a gentleman of rank and fortune and from time to time gave dinners in his lodgings to his acquaintances, and for that purpose obtained on his credit from B, a trades- man, meats, fruits and confectionery. Failing to pay his account, B sued him, and he pleaded infancy. Point Involved: Are expensive dinners purchased by a minor of rank and fortune for the entertainment of his friends, necessaries? LORD DENMAN, C. J. : * * * * * For a young man in some situations in life, not only clothes may be consid- ered necessaries, but a watch and the like articles, which he is expected to wear in that condition of life ; but with respect to the articles here supplied, it is an outrage to common sense to say they can possibly be necessaries. It may perhaps seem harsh and illiberal to refuse pay- ment for these things. But it is the duty of tradesmen to make themselves acquainted with the circumstances of the parties they are supplying. * * * Suppose the son of the richest man in the kingdom to have been supplied with diamonds and race horses, the judge ought 20 CONTRACTS to tell the jury that such articles, cannot be necessaries. * * * It is said we are to look at the circumstances of each defendant. True; we must do so. But the articles supplied must be necessaries, not mere comforts * ^fc dfc i t or conveniences. Question 11: (1.) Suppose A, the son of a wealthy society leader, becomes a member of a social club, are his dues recover- able as for necessaries ? (2.) Suppose he purchases an automobile, can he be held for the price ? (3.) What does the court say in respect to his purchase of a watch? (Expensive jewelry not necessary. Ryder v. Wombell, L. R. 4 Ex. 32.) Case No. 12. Ryan v. Smith, 165 Mass. 303. Facts: Suit by Ryan, a minor, to repudiate his con- tract with Smith for the purchase of a barber shop busi- ness and the furniture therein, and to recover back his money paid on account thereof. Plaintiff is a minor with no means of support except out of his own earnings. Point Involved: Whether the purchase of a business by a minor who has to support himself out of his own earn- ings is binding upon him? KNOWLTON, J. : "The only question in this case is whether the judge should have ruled, at the request of the defendant, that the articles purchased by the plain- tiff were necessaries. They were a barber shop and chair and divers other articles of furniture designed to be used in furnishing a barber shop. The plaintiff was a minor and he had no means of support except what he earned. The law does not contemplate that a minor shall open a shop and become a trader, or the proprietor of a business which involves the making of a variety of contracts. This has long been settled by the authorities. *. It is clear that the articles in question were not necessaries. If they had been hand tools, to a reason- able amount, such as are ordinarily provided by a jour- neyman and necessary for use in his trade or business, the case would be different." CAPACITY OF PARTIES 21 Question 12: (1.) State the facts, the question presented and the court's decision in the above case. (2.) What sort of trade tools would be regarded as neces- saries under certain conditions? Sec. 9. Minor's Liability in Tort in Cases Connected with Contracts. Case No. 13. Fitts v. Hall, 9 N. H. 441. Facts: Plaintiff, having a large quantity of hats for sale, sold them to defendant, first inquiring of defend- ant if he were of age and being informed that he was. Plaintiff sued defendant for the price and defendant set up and proved lie was a minor. Plaintiff now brings suit for damages sustained by reason of the deceit and fraud practiced upon him by defendant. Point Involved: Is a minor who procures benefits through false misrepresentation as to his age, under a contract voidable by him, answerable in damages for the deceit ? PABKEE, C. J. : "The general principle is that an infant is liable in actions ex delicto [in tort] *. But a matter of contract is not- to be turned into a tort in order to charge the infant by change of the form of action. "But if the tort is subsequent to the contract and not a mere breach of it, but a distinct, wilful and positive wrong of itself, then, although it may be connected with a contract, the infant is liable. " * * * If infancy is not permitted to protect fraud- ulent acts, and infants are liable ex delicto, there is no sound reason that occurs to us why an infant should not be liable in damages for a fraudulent repre- sentation whereby another has received damage. * The representation * * * wa s not part of the con- tract. * * * No contract was made about defend- ant's age. * * *" Question 13: (1.) State the facts in the above case, the specific question involved and the court's decision. 22 CONTRACTS (2.) A sells goods to B, a minor, who is 20 years of age, but looks to be 25. Nothing is said about B's age. Is B guilty of fraud in not disclosing his age ? (Note to Case 12. There are some authorities that hold a con- trary view to the above decision. Thus, the minor is not held in the English cases: Johnson v. Pye, 1 Keble, 913. Also, see Slayton v. Barry, 175 Mass. 513. "an unfortunate reversion to the old rule." Note in 57 L. R. A., p. 678. See the cases col- lected in that note, beginning page 675.) Case No. 14. Towne v. Wiley, 23 Vt. 355. Facts: The facts are given in the opinion. Point Involved: Is a minor liable for wilful injury to the property of another, procured by him under his void- able contract with that other ? EEDFIELD, J. : ' ' This is an action on the case, in trover, for the conversion of a certain horse. The facts which appeared on the trial were that the defendant, being an infant of twenty years, hired of the plaintiffs, who were livery stable keepers at Bellows Falls, the horse in ques- tion, to go to Brattleboro' and back the same day. He went to Brattleboro' and returned by a circuitous route, nearly doubling the distance, which, in a direct course, is twenty- three miles, at about eight o'clock in the evening went to a house in Westminster, and remained until four o'clock the next morning, the night being cold and windy, and the horse exposed, during the whole night, without shelter or covering of any kind. This was on the thirteenth of July, and the horse, when returned to the plaintiffs, the next morning, was sick, ate nothing, and died in five or six days, from the over driving and exposure. The court charged the jury, that these facts constituted a conversion by the defendant, and that his infancy was no bar to the action, and that the plaintiffs were entitled to recover the value of the horse, at the time of the conversion, which would be when the defend- ant departed from the use for which he hired the beast. ' * The cases upon the subject of the liability of infants, CAPACITY OF PARTIES 23 for torts, when viewed with reference to their facts, may not seem altogether consistent; but when the principle, upon which the courts profess to proceed, is examined, they will all be found to be placed upon the same ground ; and no case is to be regarded as authority, except for the principle, upon which the courts professed to pro- ceed in deciding it. In all the cases, then, upon this subject, it will be found that the courts profess to hold infants liable for positive substantial torts, not for viola- tions of contract merely, although, by construction, the party claiming redress may be allowed, by the general rules of pleading, to declare in tort, or contract, at his election. Jennings v. Rundall, 8 T. R. 335, was entirely of this character. The form of the action was trespass on the case, for immoderately driving a mare, let to hire by the plaintiff to the defendant, and trover for conver- sion. The defendant pleaded infancy to the counts for immoderately driving, and the plaintiff demurred, and Lord Kenyon, in giving judgment, speaks of the de- fendant as a lad. But in every view of the case, the de- fendant was guilty of a mere omission, a nonfeasance, or breach of the implied contract, to use the "beast dis- creetly and carefully, and he had judgment. * ''Applying these general principles to the case before us, it seems to us that the distinction taken in the court below is the true one. So long as the defendant kept within the terms of the bailment, his infancy was a pro- tection to him, whether he neglected to take proper care of the horse, or to drive him moderately. But when he departs from the object of the bailment, it amounts to a conversion of the property, and he is liable as much as if he had taken the horse in the first instance without per- mission. And this is no hardship ; for the infant as well knows that he is perpetrating a positive and substantial wrong when he hires a horse for one purpose and puts him to another, as he does when he takes another's prop- erty by way of trespass." 24 CONTRACTS Question 14: (1.) State the facts in the above case, the specific question presented and the court's decision. (2.) A minor hires a horse to drive from Chicago to Evans- ton, but drives it from Chicago to Wheaton (another direction) and injures it on the way. Can the owner recover damages? (3.) A, a minor, hires a horse to drive from Chicago to Evanston, and drives it immoderately. Can the owner recover damages ? (4.) A, a minor, made a contract with B, an adult, that he would thresh his grain for him. A was negligent in the per- formance of his contract and the grain was thereby destroyed by fire. Is A liable to B? (Lowery v. Gate [Term.] 57 L. R, A. 673.) 0. Capacity of Other Parties Under Disability. 10. Insane parties. 12. Aliens. 11. Married women. 13. Corporations. Sec. 10. Insane Persons. Case No. 15. Eonan v. Bhihm, 173 111. 277. Facts: Thomas Eonan, was the owner of Lot 10, etc., in Chicago. On April 25, 1882, Eonan conveyed this property to one Thomas Carbine. Carbine did not go into possession of said property, but on the day following conveyed it to his daughter. Two days thereafter, Mary Eonan, daughter of Thomas Eonan, filed a petition in the County Court alleging that Thomas Eonan was and had been for over two years a confirmed drunkard and of unsound mind and asking for the appointment of a conservatrix ; and she was appointed. A few days there- after she, as such conservatrix, filed suit, asking that her father's conveyance to Carbine and Carbine's convey- ance to his daughter be set aside, the deed to the daughter being colorable and without consideration. The bill did not offer to return the consideration received by Thomas Eonan. Point Involved: Is a deed by an insane person who has not legally been declared insane at the time the deed was given, binding, void or voidable? CAPACITY OF PARTIES 25 ME. JUSTICE BOGGS delivered the opinion of the Court : The doctrine that a contract may not be rescinded by the court except the party in whose interest the rescission is awarded shall restore that which was received by the virtue of the contract, is applicable, in general, only to contracts made by persons compos mentis and under no disability. Whether it is applicable, or, if applicable, to what extent it should be modified to meet particular cases where persons non compos have received money or property as the consideration for an agreement, has been much discussed by text writers and is the sub- ject of many, not altogether harmonious, judicial decis- ions. The rule which seems to commend itself to our sense of justice, and which is supported by what we conceive to be the weight of authority, is that a completed contract of sale of lands by a grantor who is insane but has not been judicially declared insane, for a fair consid- eration in money or property, to a grantee who entered into the contract without fraudulent intent and without knowledge or notice of the disability of the grantor, will not be set aside in favor of the grantor or his represent- atives unless the purchase price be returned or the prop- erty parted with by the grantee be restored. ( Scanlan v. Cobb, 85 111. 296 ; Boswell on Insanity, sees. 413, 414.) If the grantee, with notice of the incapacity of the insane grantor to manage his estate, invests such grantor with the possession of money or property in exchange for lands, and the said money or property, by reason of the mental incapacity of the grantor, is wasted and lost, or if the grantee, with such knowledge, obtains a convey- ance of the lands from such a grantor for a consideration so inadequate as to be inequitable and to evince that it was his intention to take advantage of the infirmity of the grantor and to defraud him, such a grantee would have no standing to invoke the equitable rule that 'he who asks equity must do equity,' and demand that under the operation of that maxim a court of equity should refuse to set aside the conveyance except upon the im- position of such terms as would amply protect him from 26 CONTRACTS any loss. Such a rule would be but to guarantee that, although the attempt to fraudulently procure the prop- erty of an insane man might fail, yet the perpetrator of the fraud would be protected by law from any loss in the transaction. ' ' Question 15: (1.) Has an insane person the right to avoid his contract? Must he restore the consideration? . (Note: See also, Blinn v. Schwartz, p. 275.) Sec. 11. Married Women. Case No. 16. Snell v. Snell, 123 111. 403. Facts: Ellen J. Snell, wife of Philip Snell, joined with him in a deed of mortgage to Jane Snell, to waive and re- lease her right of homestead and dower. The mortgage misdescribed the land. Later the mortgagee, Jane Snell, filed a bill to correct and foreclose the mortgage. The present suit is by Ellen J. Snell as widow of Philip Snell, and her two minor children, for assignment of homestead, claiming that no interest therein passed by the deed of mortgage. Point Involved: Generally, what was the effect of a married woman's contract at common law? by the stat- utes of Illinois? MBS. JUSTICE MULKEY: "* * Coming now to the merits of the case, it may somewhat aid us to advert hastily, and in a general way, to the legal disabilities of married women, as they existed here and in England be- fore the commencement of the reform legislation which has resulted in so radical a change in the present law on the subject. Their contracts, by the common law, as it existed in England, and in this State prior to the com- paratively recent legislation on the subject, commencing in 1861, were absolutely void at law, and were equally so in equity, so far as imposing any personal obligation is concerned. They might, however, by such contracts, sub- ject to certain limitations, bind their separate estate, but they imposed no personal obligation whatever. The right of a married woman to have a separate estate in CAPACITY OF PARTIES 27 personal property was purely a creature of equity, and the power to bind it (the estate, not herself), by a con- tract fairly entered into in respect to the estate, and on her own account, was regarded as a mere incident of such ownership. As her contract imposed on her no personal obligation, either at law or in equity, it there- fore followed, as a logical result and legal sequence, that a bill would not lie to reform a contract or conveyance alleged to have been made by a married woman. As a conveyance of land by deed was a species of contract, it followed that an instrument executed by a married woman, purporting to convey real property, was abso- lutely void, both at law and in equity, and consequently could not be enforced or reformed. While at common law a married woman could not convey her own real estate, or release her inchoate right of dower or other interest in the lands of her husband, yet she might, through the instrumentality of a fictitious suit, called a fine or fine and recovery, permit another to recover whatever right she had in the land proposed to be con- veyed, and thus, by a species of estoppel, bar her rights. At common law this was the only mode by which a mar- ried woman could dispose of her own lands, or any in- terest she might have in those of her husband. This cumbrous and expensive mode of conveying her inter- ests in real property was abolished by an act of the British Parliament (3 and 4 William IV, chap. 74), under the provisions of which the wife was enabled to accomplish the same ends as she has been able to do here from a very early period, by joining her husband in an ordinary deed of conveyance, subject to certain pre- scribed formalities, which, in all cases, had to be strictly complied with. But these statutory enactments, which en- abled a married woman to make a valid transfer or con- veyance of real property, did not at all affect her dis- abilities in other respects. As to her, the deed only operated as a conveyance; therefore, all covenants con- tained in it were, in law, the covenants of the husband only. It followed, that if her deed was not sufficient, on 28 CONTRACTS its face, to pass her property, there was no relief but to induce her to make another ; and if she declined to do so, equity would not compel her, nor would it reform the instrument, for such a suit could not, in any case, be maintained for either purpose, except upon the theory that a contract for a deed had existed between the par- ties. This, of course, could not be done in the case of a married woman, for the simple reason she could not make such a contract, nor, indeed, any at all ; and of this the court would take judicial notice. * * * The law, however, in respect to the right and dis- abilities of married women, has of late years undergone a radical change. By the acts of 1861, 1869 and 1874, married women are to-day, and were at the time of the execution of the mortgages in question, placed upon a common footing with married men in respect to all prop- erty rights, including the means to acquire, protect and dispose of the same. They may own, buy, sell, transfer and convey any and all kinds of property, to the same extent as married men or single women may, and sub- ject to no other or different conditions or restrictions. Not only so, but their duties and obligations in respect to these rights and powers are the same as those of others sui juris. Like other persons, they must perform their contracts ; and if they fail to do so, they are amen- able to legal process to the same extent as if they were unmarried. If, in the execution of a deed by a married woman a mistake occurs, so that it does not truly state the contract between the parties, a court of equity will correct it against her, just as readily as it would against any other person. Question 16: What was the power of a married woman to contract at common law ? in modern law ? Sec. 12. Aliens. (Note : Alien friends may freely contract with the citizens of our country, and acquire personal property. Their power to hold real estate in this country depends on the state laws. At common law they could hold no such estate. CAPACITY OP PARTIES 29 An alien enemy cannot make a commercial contract and all such as exist when hostilities are declared, are dissolved.) Sec. 13. Corporations, Partnerships, Agents, Etc. (Note: See under appropriate Divisions, post.) CHAPTER THREE OFFER AND ACCEPTANCE A. What, in form, constitutes offer form constituting an offer and and acceptance. acceptance. B. The validity of the assent in A. What, in Form, Constitutes an Offer and Acceptance. (a) Offer and acceptance necessary (b) What constitutes offer; and to contract. the term thereof. (c) What constitutes acceptance. (a) Offer and Acceptance Necessary to Contract. Sec. 14. No Contract in Fact Without Offer and Acceptance. Case No. 17. Bartholomew v. Jackson, 20 Johns., 28. Facts: J owned a stubblefield in which B had a stack of wheat. J sent word to B to remove the wheat, as he wished to burn the stubble. B was not at home, but B 's sons stated that the wheat would be removed by 10 o'clock the next morning. J waited until that time, and, expecting B to appear and remove the wheat, set fire to a remote part of the field. The fire spread rapidly and threatened the wheat, whereupon J to save it, removed it. He then sued for his labor and had judgment, but B appealed to the present court. Point Involved: If one person does work for another without the knowledge or consent of that other, is there a contract? 30 OFFER AND ACCEPTANCE 31 PRATT, J. : " * * * The plaintiff performed the serv- ice with out privity or request of the defendant, and there was in fact no promise, expressed or implied. If a man humanely bestows his labor, and even risks his life in voluntarily aiding to preserve his neighbor's house from destruction by fire, the law considers the service rendered as gratuitous and it therefore forms no ground of action. The judgment must be reversed. ' ' Question 17: State the facts in the above case, the question involved and the court's decision. Case No. 18. Broadax v. Ledbetter, 100 Texas, 375. Facts: Plaintiff sued upon a claim for a reward of- fered by defendant, alleging that defendant was a sheriff and as such had in his custody one Vann, convicted of murder and condemned to death ; that Vann, pending his appeal to the higher Court, had broken jail and escaped. That defendant offered a public reward for his recap- ture; that the plaintiff made the recapture and thus earned the reward. Defendant objected that plaintiff did not state that he had knowledge of the offer of re- ward when he made the capture. The court gave plain- tiff leave to amend, but the plaintiff declined to do so and appealed, standing upon the sufficiency of his claim without such averment. Point Involved: If an offer is made, and the person to whom such offer was addressed, without knowledge of the offer, does the thing called for by the offer, is there a contract? WILLIAMS, J. : ' ' * * * The liability for a reward of this kind must be created, if at all, by contract. There is no rule of law which imposes it except that which en- forces contracts voluntarily entered into. A mere offer or promise to pay does not give rise to a contract. That requires the assent or the meeting of two minds, and therefore is not complete until the offer is accepted. Such an offer as that alleged may be accepted by any- one who performs the service called for when the ac- 32 CONTRACTS ceptor knows that it has been made and acts in per- formance of it, but not otherwise. He may do such things as are specified in the offer, but, in so doing, does not act in performance of it, and therefore does not ac- cept it, when he is ignorant of its having been made. There is no such mutual agreement of minds as is essen- tial to a contract. The offer is made to any one who will accept it by performing the specified acts, and it only becomes binding when another mind has embraced and accepted it. The mere doing of the specified things without reference to the offer is not the consideration for which it calls. This is the theory of the authorities which we regard as sound. * * *" Question 18: (1.) State the facts in the above case, the ^question presented and the court's decision. (2.) A and B discuss the sale of a horse from A to B. No bargain is struck. A then leaves town and from a distance mails B a letter offering the horse for sale for $100. Before B gets this letter he writes A he will buy the horse on the identical terms that are proposed in A's letter, though he does not yet know that letter has been written. The two letters cross in the mails. Is there a contract ? Why ? (b) What Constitutes Offer; and the Term Thereof. 15. Intention to make offer. 19. Notice of withdrawal neces- 16. Certainty of offer. sary. 17. Lapse of offer by expiration 20. Rejection of offer as terminat- of time. ing it. 18. Withdrawal of offer before ac- 21. Lapse of offer by death or in- ceptance. sanity of the offerer. Sec. 15. Propositions Not Intended as Offers. Case No. 19. Keller v. Holderman, 11 Mich. 248. Facts: Plaintiff sued on a check for $300.00. The defendant had, in a spirit of jest, given the check for an old watch worth $15, and both parties knew the entire transaction was a joke, and that no sale was intended. 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 OFFER AND ACCEPTANCE 33 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. * * *" Question 19: (1.) Suppose the promisee had not known that the promisor was joking. Could the promise be enforced? Plate v. Durst, 42 W. Va. 63. Case No. 19a. Anderson v. Wisconsin Bwy. (Remarks of Elliot, J., p. 518, post.) Question 19a: (1.) A merchant advertizes a bargain sale at a certain time quoting articles and prices. B, at some expense, attends. The sale is not held. B demands certain of the articles at the prices quoted. Is there a contract ? Has B any action for damages ? (2.) A, a salt dealer, sends to all his old customers a printed circular letter ' ' offering ' ' a certain grade of salt at certain prices and requesting orders. B, in response, orders a reasonable quantity. Can B hold A on the order? Why? Sec. 16. The Proposition to Constitute an Offer Must Be of Reasonable Certainty. Case No. 20. Sherman v. Kitsmiller, Adm'r., 17 S. & R. (Pa.) 45. Facts: Elizabeth Sherman, nee Koons, lived as house- keeper for the deceased until her marriage, upon his promise to convey her 100 acres of land for her services. No particular 100 acres were stated. This is a suit against the administrator for the enforcement of the alleged contract. DUNCAN, JUSTICE: "* * Express promises ought to be explicit, to a common intent at least. In the present case * the prom- isor himself would not know what to convey, nor the promisee what to demand. If it had been a promise to give her 100 pieces of silver, this would be too vague * ; for what pieces ? * * * what denomina- 34 CONTRACTS tionf One hundred cows would be sufficiently certain, because the intention would be that they should be of middling quality ; but 100 acres of land, without locality, without estimation of value, without relation to anything that could render it certain, does appear to me to be the most vague of all promises; and if any contract can be void for its uncertainty this must be. One hundred acres on the Rocky Mountains, or in the Conestoga manor 100 acres in the mountain of Hanover County, Vir- ginia, or in the Conewango rich lands of Adams county 100 acres of George Sherman's mansion place at $80 per acre, or 100 acres of his barren lands at $5 1 "This vague and void promise, incapable of specific execution * * would not prevent the plaintiff from recovering .* * * for the value of the woman's services until her marriage," (i. e., though the offer of 100 acres of land was too uncertain for its acceptance to constitute a contract, yet for services actually per- formed, she could recover a reasonable compensation as on an implied offer and acceptance. Ed.) Decision of the Court : For defendant, on the express contract as too indefinite; for the plaintiff on an implied contract for services rendered. Question 20: (1.) State the facts in the above case, the question presented and what the court held. (2.) What did the court say in reference to a promise to give 100 cows for the services of complainant? Why any dis- tinction in such a case ? (3.) Was the claimant allowed to recover anything for her services ? On what theory ? Sec. 17. Lapse by Expiration of Time. Case No. 21. Maclay v. Harvey, 90 111. 525. Facts: John Harvey, defendant, owner of a millinery store in Monmouth, on March 21, 1876, wrote plaintiff, a milliner in Peoria, Illinois, offering her a position in his shop at $15 per week during the season, which was OFFEft AND ACCEPTANCE 35 to begin about the 5th to the 10th of April and to end about July 1st. He ended by saying: "You will confer a favor by giving me your answer by return mail." Plaintiff on March 23rd answered this letter accepting position, and gave the answer to a boy to post. The postmark showed it was not put in the post- office until March 25th. Defendant not receiving plain- tiff's answer by return mail or several mails thereafter, made other arrangements. Plaintiff sued for breach of contract. Point Involved: If acceptance to an offer is requested within a certain time, does this limit the life of the offer? SCHOFIELD, J. : l ' * If a contract was consum- mated between the parties, it was by the mailing of ap- pellant's (plaintiff'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 answer by return mail. * * * There were two daily mails between Peoria and Mon- mouth. and it did not require more than one day's time between the points. Appellee's (defendant's) letter * * bears date March 21st. * * * (Plain- tiff) received appellee's letter on the evening of the 22nd. Appellee was, therefore, entitled to expect a reply mailed on the 23rd, 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 25th. It does not relieve appellant of fault that she gave the postal card to a boy on the 23rd to have him mail it. * * * The boy was her agent, and his negligence was her negligence. Question 21: State the facts in the above case, the question presented and the court's decision. Case No. 22. Hagardine Co. v. Reynolds, 64 Fed. 560. Facts: Defendant, at New York, offered to sell plain- tiff, at St. Louis, a certain quantity of cotton warp. The 36 CONTRACTS offer reached plaintiff September 28, 1892, and the letter of acceptance was mailed by it October 4, 1892. No time was stated in which the acceptance must be made. A con- siderable correspondence had been carried on by the parties, letters always being answered by both parties within three days. Defendant claims that the offer had expired because a reasonable time had elapsed, under the circumstances, before plaintiff attempted to accept the offer. Point Involved: If the life of the offer is not expressly limited, what elements enter to determine its length of continuance ? PRIEST, DISTRICT JUDGE : " * The defendants in- sist more strongly that the acceptance was not within a reasonable time, and I am of opinion that this defense is well taken. Up to this time the correspondence had been prompt. Both parties had been ready with and made replies upon receipt of each other 's letters. Never more than three days had intervened between the mailing of a letter and the posting of its reply. The defendants had the right, therefore, to presume, from the un- usual delay, that the plaintiff concluded to negative their offer. They would not have been justified in holding goods then ripe for an opening market to await the un- certain action of the plaintiff beyond that time usually and reasonably necessary for the formation and trans- mission of a rejoinder. * * * What is a reasonable time must be determined by circumstances and situation of both parties. The defendants were not concerned with, nor could they know of, Mr. McKittrick's absence from business. There are cases and circumstances in which the question of ' reasonable time ' is one for the determination of a jury but this, in my opinion, is not one of them. * * *" (See also case 24.) Question 22: (1.) What were the facts in the above case, the question presented and the court's decision? (2.) On Saturday afternoon, P offered D by telegram a large quantity of oil at 58c. The telegram reached D Monday morn- OFFER AND ACCEPTANCE 37 ing, between 8 and 9 o'clock A. M. On Tuesday about 9 A. M. D deposited a telegram purporting to accept the offer, which reached P in due time. The market on oil was very unsettled, and the price had for a month previous been subject to great and sudden fluctuations, ranging from 55c to 75c per gallon. P refuses to fill the order and promptly notifies D to this effect. Can D hold P ? (Minnesota Oil Co. v. Collier & Co., 4 Dillon (U. S. Circuit Court) 431.) Sec. 18. Withdrawal of Offer Before Acceptance. Case No. 23. Bossliardt Co. v. Oil Co., 171 Pa. St. 109. Facts: The Oil Co. on July 31, 1893, made a written offer to supply oil, ending as follows : ' ' We extend to you a refusal of making the contract on the above basis for the term of sixty days from this date. * * * " On Sept. 25, 1893, the Oil Co. wrote: ' ' We wish to advise you that we withdraw our offer of July 31st. You will therefore consider the same cancelled." Point Involved: May an offer be withdrawn before the period of its expiration by mere lapse of time? Does an express promise to keep it open a certain length of time bind the offeror to keep it open for such time? MR. JUSTICE McCoLLUM : " * * There being no con- sideration for the offer in this case, the defendant had a clear right to withdraw it at any time before there was an acceptance of it. Question 23: (1.) State the facts in the above case, the question presented and the court's decision. (2.) Why has one a legal right to break his promise to keep an offer open? (3.) Suppose, in the case stated, the offeree had paid the sum of $10.00 to the offeror as a consideration for keeping the offer open for 60 days. Could it then have been withdrawn ? Sec. 19. Notice of Withdrawal Necessary. Case No. 24. Kempner v. Kohn, 47 Ark. 519. Facts: The facts are as follows: Jan. 30, 1885, P, at Little Rock, offered his lot to D at Hot Springs. Feb. 7, 38 CONTRACTS 1885, D wrote accepting offer on terms proposed. Febru- ary 7, 1885, P wrote withdrawing his offer. February 9, 1885, P received D's acceptance. Assume P's revocation was placed in postoffice prior to D's letter of acceptance. Point Involved: Where an attempted revocation of an offer is made, must the knowledge of such revocation actually reach the offeree before his acceptance? Inci- dentally, when is an acceptance complete? SMITH, J. : * * * * * The defendant, having caused the question to be submitted to the jury, under an instruc- tion drawn by his counsel, and having met with an adverse decision, now asks us to declare as a matter of law, that Kohn's acceptance was unreasonably delayed. But we think the question was properly resolved in favor of the plaintiff. The subject of negotiation was real estate, which requires more deliberation than if it had been a transaction in cotton or other particle of merchandise. It is also less subject to sudden and violent fluctuations in price. Five days was not an unreasonable time. # * * "Then as to the attempted retraction: An offer made by letter which is to be answered in that way, cannot be withdrawn unless the withdrawal reaches the party to whom it is addressed before he has accepted. The acceptance was effectual to complete the contract notwithstanding Kempner had previously mailed a letter to Kohn announcing the retraction of the offer. ' ' Question 24: State the facts in the above case, the question presented and the court's decision. Sec. 20. Rejection of Offer as Terminating It. Case No. 25. Fox v. Turner, 1 111. App. 153. Point Involved: Does a rejection of an offer terminate it? Is a counter offer a rejection? BAILEY, J. : ' ' * An acceptance, to be good, must in every respect meet and correspond with the offer, OFFER AND ACCEPTANCE 39 neither falling within, nor going beyond, the terms pro- posed, but exactly meeting them at all points, and closing with them just as they stand. Potts v. Whitehead, 23 New Jersey Eq. 572. But a proposal to accept, or an ac- ceptance of an offer, on terms varying from those pro- posed, amounts to a rejection of the offer and a substitu- tion in its place of a counter proposition, which cannot become a contract until assented to by the first proposer. It is equivalent to saying, "I am not satisfied with your proposition but I will take it and make certain modifica- tions in it, and submit it to you, as a proposition of my own for your acceptance." The original offer thereby loses its vitality, being, so to speak, passed by in the negotiation, so as to be no longer pending between the parties, and it becomes an open proposition again only when renewed by the party who first made it. Hence a party who has submitted a counter proposition, cannot without the assent of the other party, withdraw or aban- don the same and then accept the original offer which he has virtually rejected. * * *" (Citing cases.) Question 25: State the question involved in the above case and the answer thereto. Sec. 21. Lapse of Offer by Death or Insanity of Offerer. Case No. 26. Beach v. M. E. Church, 96 111. 177. Facts: Lorenzo Beach in February, 1874, signed the following paper: "Fairbury, February 14, 1874. "We, the undersigned, agree to pay the sum set oppo- site our respective 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 thousand dollars ($10,000) to twelve thousand dollars ($12,000). " To which he attached and subscribed the following: 40 CONTRACTS "Fairbury, 1874. "Dr. Beach gives this subscription on the condition that the remainder of eight thousand dollars is sub- scribed. "Lorenzo Beach $2,000." Beach was adjudged insane and conservators appointed in April, 1875; other subscriptions to the amount of $8,000.00 were received and the building begun in Sep- tember, 1876; in 1878 Beach died. This suit was begun shortly before Beach's death against his conservators; dying before trial, his heirs were made parties. Point Involved: If, after an offer is made, and before its acceptance, the offerer becomes insane, or dies, does the offer thereby lapse ? Incidentally, what is the nature of a charitable subscription to pay money f MR. CHIEF JUSTICE DIOKEY : " * * There is nothing in the record tending to show that the church, in this case, took any action, upon the faith of the subscription, until after Dr. Beach was adjudged insane, or that the church paid money, or incurred any liability. His in- sanity, by operation of law, was a revocation of the offer. In Pratt, Administratrix, etc., v. The Trustees of the Baptist Society of Elgin, 93 111. 475, 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 (of this kind) which gives the 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 follows that the death of the prom- isor, before the offer is acted upon, is a revocation of the offer. The continuance of an offer is in the nature of its repetition, which, of course, necessarily re- quires some one capable of making a repetition. Ob- viously, this can no more be done by a dead man than a contract can, in the first instance, be made by a dead man. ' OFFER AND ACCEPTANCE 41 ' * Conservators of the person and property of an insane man may perform personal contracts of their ward legally subsisting, under some circumstances ; but in this case there was no contract between Dr. Beach and the church. The paper signed by Dr. Beach was of such a nature that no binding 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 that his conservators made the payments, they had no lawful authority to make the same, and the estate of Dr. Beach was not bound thereby." Question 26: (1.) What is the reason given by the court that death or insanity should terminate a continuing, unaccepted offer? (2.) Why was there no contract in this case prior to Dr. Beach 's insanity ? (Note : Charitable subscriptions are unenforceable until acted upon, because they are not upon consideration, that is, the promisee has made no corresponding enforceable promise to do anything and has sustained no detriment. This is generally conceded. If, however, the subscription is acted upon by the promisee, the subscription thereupon becomes binding. This, also, is the law everywhere. If there are promises by several subscribers made mutually dependent, some courts enforce them. See exhaustive note on this subject in 48 Lawyers' Reports Annotated, N. S., p. 783.) (c) What Constitutes Acceptance. 22. It completes the contract. 24. Acceptance may be shown by 23. It must be in the terms of conduct. the offer. 25. When acceptance complete. Sec. 22. Acceptance Completes the Contract. (Note: Whenever is given that which constitutes an ac- ceptance to an existing proposition so stated and made that it legally constitutes an oifer, the contract is complete. The con- tractual tie has been formed. Neither party can withdraw without the other's consent; neither party can insist upon modi- fications. An offer unaccepted is withdrawable before acceptance; an 42 CONTRACTS acceptance completes the contract. For this reason, when counter propositions are made it may become very important to deter- mine which proposition constitutes the offer and which the acceptance.) Sec. 23. The Acceptance Must Be in the Terms of the Offer. Case No. 27. Four Oil Co. v. United Oil Producers, 145 Cal. 623. Facts: Suit to recover for breach, of alleged contract to buy oil. The evidence showed an offer to sell petrol- eum of a 'guaranteed gravity of not less than 15 degrees Beaume,' and a reply to that offer stating, 'but we wish this distinctly understood under this agreement to be 15 degrees Beaume at a temperature of 60 degrees Fahrenheit. ' Point Involved: If the offeree responds upon terms and conditions not stated in the offer, is the response an acceptance of such offer? HINSHAW , J., delivered the opinion of the court : * * * ^ n O ff er imposes no obligation unless it is accepted upon the terms upon which it was made. A qualified acceptance is a new proposal. Under these principles of law it is clear that the minds of the parties had not met in the creation of a legal obligation, and for the reason that the accept- ance of the defendant was conditional and imported into the contract a term not found in the original proposal, and one requiring the assent of the plaintiff before either could be bound." Question 27: (1.) State the facts in the above case, the question presented and the court's decision thereupon. (2.) A wrote B offering B a certain price for his old corn and a certain price for his new corn. B replied accepting as to the new corn. Is there a contract? (Miller v. Sharp, 100 N. E. 108.) (3.) A offered a reward for the apprehension and evidence leading to B 's conviction. C, after B 's apprehension by another, furnished the information upon which B was convicted. Is he OFFER AND ACCEPTANCE 43 entitled to the reward? Fitch v. Snedaker, 38 N. Y. 248; Wil- liams v. R'w'y, 191 111. 610. Sec. 24. Acceptance May Be Shown by Conduct. Case No. 28. Hobbs v. Massasoit Whip Company, 158 Mass. 194. Facts: Plaintiff, Hobbs, had sent eel skins to the de- fendant, on several different occasions, and had been paid for them. He then sent the eel skins in question, and received no reply from the Company which kept them for several months till they became worthless. Plaintiff then sued for the price. The defendant claims there was no contract and that having no contract with the plain- tiff it was under no duty to go to the expense and trouble of notifying him of the rejection of skins which it had never ordered and did not want or make use of. Plain- tiff claims that owing to his prior relations with the de- fendant, the defendant was under obligations to notify him of its rejection and that its failure so to do was evi- dence of its acceptance from which a jury might properly find a contract. Point Involved: May silence by an offeree who is in receipt of goods from the offerer, be considered as an acceptance of the offer if the prior dealings of the par- ties have been such that the offerer is justified in believ- ing that he will be notified if there is a rejection of his offer? 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 defendant declined to accept the skins. The case comes before us on exceptions to an instruction to the jury, that, whether there was any prior contract or not, if the skins are sent to the defendant, 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 44 CONTRACTS nothing about it, then, if it fails to notify, the jury would be warranted in finding 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 be at the expense, of notifying the sender that he will not buy. The case was argued for the de- fendant on that interpretation. But, in view of the evi- dence, we do not understand that to have been the mean- ing 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 testi- mony, it is fair to assume that, if it had admitted the eel skins to be over twenty-two inches in length, and fit for its business, as the plaintiff testified, and the jury found that they were, it would have 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 re- quirements, and even if the offer was not such that the contract was made as soon as skins corresponding to its terms were sent, sending them did impose on the defend- ant a duty to act about them; and silence on its part, coupled with a retention of the skins for an unreason- able time, might be found by the jury to warrant the plaintiff in assuming that they were accepted, and thus to amount to an acceptance. See Bushnell v. "Wheeler, 15 Q. B. 442 ; Benjamin on Sales, 162, 164; Taylor v. Dex- ter Engine Co., 146 Mass. 613, 615. The proposition stands on the general principle that conduct which im- ports acceptance or assent is acceptance 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. * * * " OFFER AND ACCEPTANCE 45 Question 28: (1.) State the facts in the above case, the question involved and the court 's decision. (2.) Did the court hold as a matter of law that there was a contract in this case ? What did it hold ? (3.) A subscribes for the B magazine. His subscription ex- pires but the magazine continues to come. It is received by A for another year. Is he liable for this additional year ? Sec. 25. When Acceptance Complete; Contract by Mail or Telegraph. Case No. 29. Lucas v. W. U. Tel. Co., 131 Iowa Ke- ports, 669. Facts: Lucas on the evening of Nov. 11, 1912, received a letter from one Sas offering to exchange real estate and stating: "I will have to know at once as I have another deal pending. ' ' Lucas replied by telegram at 9 :10 A. M. the following day. The telegraph company did not send the message until 4:41 P. M. and Sas received reply at 6.03 P. M. Sas had sold the property at 3 :30 P. M. to another party and wrote that, not hearing from Lucas, he had decided Lucas did not want the property. Lucas sued the telegraph company for loss of the contract by its negligent delay. The trial court held that by the negotiations a contract had resulted notwithstanding the delay and therefore Lucas had no case against the tele- graph company, but should pursue his action against Sas for breach of contract. Lucas appeals. Points Involved: If an offerer in making an offer to one at a distance authorizes the use of a certain agency for transmission of the reply and such agency is made use of, when is the acceptance complete ; if another means of transmission than the one authorized is used by the offeree, when is the acceptance complete? Does the use of a particular agency of transmission by the offeror impliedly direct its use by the offeree f LADD, J. : "The proposition of an exchange was made to plaintiff by letter. In committing it, properly ad- dressed to the mails for transmission, the postoffice be- came the agent of Sas to carry the offer, he taking the 46 CONTRACTS chances of delays in the transmission. 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 circum- stances are such that it must have been within the con- templation of the parties that the post would be used in making the answer. * The contract is com- plete in such a case when the letter containing the ac- ceptance is properly addressed and deposited in the United States mails. This is on the ground that- the offerer, by depositing this letter in the post- office, selects a common agency through which to conduct the negotiations, and the delivery of the letter to it is in effect a delivery to the offerer. 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 withdrawal will not invalidate the contract previously entered into. But the plaintiff did not adopt this course. On the contrary, he chose to indicate his acceptance by transmitting a telegram to Sas by the defendant com- pany. 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 the plaintiff. The latter might have withdrawn 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 inten- tion 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 had made the offer, or to someone expressly or im- pliedly authorized to receive it ; and this rule is not com- plied with by delivering it to the writer's own agent or messenger even with direction to deliver to the offeror. * # # "The party making the offer may be entirely satisfied to trust the mails, and not be willing to chance the use of OFFER AND ACCEPTANCE 47 the telegraph. * It is very evident on authority and principle that, in the absence of any suggestion, one transmitting an offer by mail cannot be bound by an ac- ceptance returned in some other way until it is received or he has notice thereof. The plaintiff, then, did not ac- cept the offer of Sas until the telegram 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. Like 'forthwith' and 'immediately,' 'at once' does not mean instantaneously, but requires action to be taken within a reasonable time. * * It is doubtful whether the same vigilance should be exacted in the acceptance of an offer to exchange or purchase real estate as in trans- actions relating to the transfer of chattel property. See Kemper v. Cohn, 47 Ark. 519, 58 Am. Eep. 775, S. W. 869. 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 letter that he was contemplating another deal, and we think ordinary minds fairly differ as to whether, in these circumstances, an acceptance twenty-three or twenty-four 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 determine." Question 29: (1.) State the question presented in the above case and the court's decision. (2.) What two criteria are named by the court as denoting the means by which the offerer intends his offer to be accepted? (3.) If an acceptance is sent in any other manner than that authorized by the offerer, when is, if ever, the offer complete ? (4.) A wired an offer to sell oil to B. The telegram was sent at 9 A. M. and received by B in due course at 11 :15 A. M. B wired his acceptance at 12:45 P. M., and it reached A in due course at 4 :15 P. M. At 2 P. M. of the same day A had wired a revocation of his offer, which reached B at 3 P. M. Was there a contract ? If so, at what time ? (5.) H wrote the X corporation, asking that certain shares 48 CONTRACTS be allotted to him and offering to pay a certain price therefor. The directors of the X Co. instructed their agent through the mail to allot H such shares, and the shares were registered as H 's. On these facts is there a contract? (Hebb's Case L. R. 4 Eq. 9.) (6.) A, from Peoria, Illinois, calls on B at his office in Chi- cago. B offers A an automobile for $500. A desires time to consider, and B says, "Think it over and let me know within 3 days. ' ' B knows that A comes from out of town and is going back home that day. A, on reaching Peoria, within 3 days mails B his acceptance. The letter is lost and never reaches A. Is there a contract ? (Note: See also, on this question, Adams v, Lindsell, 1 B. & Aid. (Eng.) 681 ; Trevor v. Wood, 36 N. Y. 307 ; Household Ins. Co. v. Grant, 41 L. T. N. S. 298.) B. The Validity of the Assent Contained in the Offer and Acceptance. (Note : Having now seen what constitutes offer and acceptance, and assuming that words have been spoken or acts done which constitute in form an offer and an acceptance, yet we may find, by evidence aliunde that a binding contract does not exist. There may be extrinsic circumstances of mistake, fraud, undue influ- ence, etc., that impair the validity of the assent that has in form been given. ) (a) Mistake preventing formation (c) Fraud, misrepresentation, duress of contract. and undue influence making (b) Fraud preventing formation of contract voidable (not void). contract. (a) Mistake Preventing Formation of Contract. 26. Mutual mistake as to existence 27. Mutual mistake as to value, or identity of subject mat- quality, etc. ter, etc. Sec. 26. Mutual Mistake as to Existence or Identity of Subject Matter or Identity of Terms Used. Case No. 30. Eiegel v. Amer. Life Ins. Co., 153 Pa. 134. MISTAKE 49 Facts: One L had an insurance policy on his life in the A. L. Ins. Co. in favor of R, his creditor. L dis- appeared and R kept up the premiums. Finally, find- ing the matter burdensome, R surrendered the policy to the insurance company and took out a paid-up policy in a much less sum in return therefor. As a matter of fact, L was dead at the time of the agreement. Both parties had acted on the assumption that he was alive. This is a suit brought to have that settlement set aside and give R the full benefit of the former policy. Point Involved: If an agreement is made based on a mutual mistake as to the condition or existence of the subject matter, does a contract result? MR. JUSTICE STERRETT : " * 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 of course must be material to the act or contract *. The principle is illustrated by familiar examples, em- ployed 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 is 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 the fact. The contract, not being for the sale of the land on which the house stood, was not enforceable. "It cannot be doubted that in exchanging the old for the new policy both parties acted on the basis that Leisenring was then alive. * * * * 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 cancelled, and that the original policy of insurance be reinstated, as of the date of its surrender; and that the defendant company pay to the plaintiff the sum of $6,000. * * * " Question 30: State the facts in the above case, the question presented and the court 's decision. 50 CONTRACTS Case No. 31. Indiana Fuel Supply Co. v. Indianapolis Basket Co., 84 Northeastern Reporter (Ind.) 776. Facts: "* * * This action was brought by ap- pellant before a magistrate to recover the contract price of coal, the appellee contending as a defense, among other things, (1) that because of a misunderstanding between the buyer and the seller as to the grade of coal the contract called for, the buyer having in mind Indiana domestic egg coal, double screened, and the seller hav- ing in mind Indiana steam egg coal, screened but once, that the minds of the contracting parties never met and that there was therefore no contract between them; * * * EABB, JUSTICE: "Mutual assent is necessary to the formation of every contract, and any mistake of the parties by which one of the contracting parties has in mind one thing as the subject matter of the contract, and the other party has in mind something entirely dif- ferent, and where the terms of the contract are such that it will mean either the one or the other, there is no meeting of the minds of the contracting parties, and therefore no contract. If in this case the terms of the contract entered into by the parties would properly de- scribe domestic egg coal, and could be understood by either of the parties as meaning domestic egg coal, and would also describe steam egg coal, and could be under- stood by either of the parties as meaning steam egg* coal, and if one of them had in mind when he, contracted for egg coal the higher grade of coal, and the other had in mind when entering into the contract the lower grade of coal, and each party believed that by the terms of the contract he was contracting for the particular kind of coal he had in mind, then no contract was entered into between the parties. 24 A. & E. Ency. of Law, P. 1034, and cases cited." (Note : See also Case No. 256, as to Mistake as to Price.) MISTAKE 51 Question 31: (1.) State the facts in the above case, the ques- tion presented and the court's decision. (2.) Two ships Peerless sail out of Bombay with* similar cargoes. A sells B the cargo on the ship Peerless out of Bombay. A means a certain one of the ships, but B has in mind the other. Is there a contract ? Baffles v. Wichelhouse, 2 H. & C. 906. Sec. 27. Mutual Mistake as to Collateral Matters of Value, Quality, Etc. Case No. 32. Wood v. Boynton, 64 Wis. 265. Facts: Wood found a small uncut diamond worth $700 to $1,000. Thinking it was a topaa she sold it for $1.00 to Boynton, who also thought it was a topaz and was igno- rant of its true character. When Wood discovered that the stone was in fact a diamond she tendered back the $1.00 with interest and demanded possession. Boynton refused, and Wood brought suit. Question: If there is a mutual mistake as to the qual- ity and value of the subject matter of an agreement, does such mistake affect the validity of the contract! TAYLOR, J. : "* There is no pretense as to mistake in the identity of the thing sold. It was * * * exhibited to the vendee before the sale was made, and the thing sold was delivered to the vendee when the pur- chase price was paid. When this sale was made the value of the thing sold was open to the investi- gation of both parties ; neither knew its extrinsic value, and, so far as the evidence in this case shows, both sup- posed that the price paid was adequate. * * *" (Judgment for defendant) Question 32: State the facts in the above case, the question presented and the court's decision. (b) Fraud Preventing Formation of Contract. (Fraud Consisting in Trickery as to the Very Nature of the Act Done.) Sec. 28. This Fraud Defined; Elements Thereof. 52 CONTRACTS Case No. 33. I. D. & W. E. Co. v. Fowler, 201 111. 152. Facts: Fowler, the plaintiff, who sues for damages for personal injuries, was a passenger on one of defend- ant's trains, going from Willow Hill to Ste. Marie. Dur- ing the journey a bridge gave way and he was injured. Nine days later, while Fowler was still suffering from the injuries received, the company's superintendent, lawyer, and physician, called at his home and secured his mark as a signature to a paper purporting to be a release of all claims for damages for the personal in- juries received on account of the wreck, with a receipt for $35.00 subjoined. This release is interposed as a de- fense to the present suit. Fowler claims he did not know what he was signing and that his signature was obtained by fraudulent assertions as to the character of the paper. The jury found for plaintiff and the de- fendant appeals. Point Involved: That a release secured by fraud as to its legal character is not binding. MR. JUSTICE CARTER: "* The question whether the release was executed by appellee with full knowl- edge of its purport and under circumstances that would bind him is one of fact, and has been settled by the jury *. If the release was obtained by fraud [as to the character of the paper signed] it was absolutely void. It never had any binding force. * Question 33: State the facts in this case and the point in- volved. (Note: Where an instrument negotiable in form is secured by fraud of this character, and is sold to an innocent party, other questions arise. See also Case No. 484.) (c) Fraud, Misrepresentation, Duress and Undue In- fluence Making Contract Voidable (Not Void), 29. The elements in fraud. 31. Duress. 30. Silence and concealment as 32. Undue influence. fraud. 33. Conditions of disaffirmance. FRAUD 53 Sec. 29. The Elements in Fraud. (Note : To constitute fraud there must be : (1.) A false representation; (2.) Of a material fact; (3.) Known to be false or carelessly made without regard to truth; (4.) With intent to deceive ; (5.) Relied upon; (6.) To promisee's damage.) \ Case No. 34. Nat. Cash Beg. Co. v. Townsend, 137 N. C. 652. Facts: Plaintiff Townsend bought a cash register on the statement that its use would save the expense of a bookkeeper and a half of a clerk's time. He now al- leges that these assertions are false and seeks to rescind the sale on the ground of fraud. Point Involved: Is a statement of an opinion or a commendation a fraudulent representation? Generally, what constitutes fraud? BROWN, J. : " * The material elements of fraud, as laid down by the text writers, are, first, mis- representation or concealment; second, an intention to deceive, or negligence in uttering falsehoods with in- tent to influence the actions of others ; and third, the suc- cess of the deceit in influencing the action of the other party. To constitute legal fraud which will warrant the rescission of a contract, there must be a false representa- tion of a material fact. There are cases in the books where courts of equity have afforded relief from the consequences of innocent misrepresentation. Contracts induced thereby have in some instances, and under pecu- liar circumstances, been set aside; but in all the cases the misrepresentation was of a material and subsisting fact. No particular rule can be laid down as to what false representation will constitute fraud, as this must necessarily depend upon the facts of each case, the rel- 54 CONTEACTS ative situation of the parties, and their means of infor- mation. But all the authorities are to the effect that where the false representation is an expression of com- mendation, or is simply a matter of opinion, the courts will not interfere to correct errors of judgment. Walsh v. Hall, 66 N. C. 236. The law will not give relief un- less the misrepresentation be of a subsisting fact. Hill v. Gettys, 135 N. C. 375, 47 S. E. 449. What has been called 'promissory representation,* looking to the future, as to what the vendee can do with the property, how much he can make on it, and, in this case, how much he can save by the use of it, are on a par with false affirmations and opinions as to the value of prop- erty, and do not generally constitute legal fraud. Ben- jamin, Sales, 7th ed. 483 et seq., Gordon v. Parmelee, 2 Allen, 212; Long v. Woodman, 58 Me. 52, and cases cited. Mr. Clark, in his work on Contracts, states, in substance, that commendatory expressions or exagger- ated statements as to value or prospects, or the like, as where a seller puffs up the value and quality of his goods, or holds out nattering prospects of gain, are not regarded as fraudulent in law. Pp. 332-334. It is the duty of the purchaser to investigate the value of such expressions of commendation. He cannot safely rely upon them. If he does he cannot treat it as fraud, either for the purpose of maintaining a deceit, or for the pur- pose of rescinding a contract at law or in equity. Saund- ers v. Hatterman, 24 N. C. (2 Ired. L.) 32; 37 Am. Dec. 404; 14 Am. & Eng. Enc. Law, p. 34, and cases cited. Mr. Kerr, in his work on Fraud and Mistake, at page 83, says: 'A misrepresentation to be material should be in respect of an ascertainable fact, as distinguished from a mere matter of opinion. A representation which merely amounts to a statement of opinion * * * goes for nothing, though it may not be true, for a man is not justified in placing reliance on it.' Again: 'man who re- lies on such affirmations made by a person whose inter- est might so readily prompt him to invest the property FRAUD 55 with exaggerated value does so at his peril, and must take the consequences of his own imprudence/ * ''It is possible that, if the defendant and his clerks persevere in their efforts to master this machine, he may agree with his brother that 'the cash register is a good thing.' But if it turns out that he has sustained loss, not from any mechanical defect in the machine, he must attribute it to his own negligence and indiscretion. He did not exercise that diligence in making inquiry which the law expects of a reasonable and careful per- son. Vigilantibus et non dormientibus jura subveniunt." Question 34: (1.) State the facts, the question presented and the court 's decision in the above case. (2.) Why was the statement in this case one of opinion rather than fact? Case No. 35. Brady v. Cole, 164 111. 116. MR. JUSTICE PHILLIPS: "* It is not sufficient that Cole made statements that she was making a good trade and bettering her condition and that she could sell enough lots off the tract of land purchased by her to pay for the house. Those statements were mere mat- ters of opinion and the mere expression of an opinion held by a party cannot, standing alone, be held a mis- representation. * * The reason of this rule is that while the person to whom the representations were made has a right to rely upon them, he is assumed to be equally able, from his own opinion, to come to as correct a decision as the other party, and therefore can- not claim to be misled by such opinion. Promises for the future and hope of realizing speculative profits are not present fraud. * * *" Question 35: "What were the facts in this case and what did the court decide? Is this statement of value, a statement of opinion or fact ? Case No. 36. Biewer v. Mueller, 254 111. 315. Facts: Biewer owned certain lots in Chicago, which 56 CONTRACTS he conveyed to Mueller for certain hotel property sit- uated in Logansport, Indiana. A suit brought by a third party was pending at the time, which sought to estab- lish a lien on the Logansport property. As security against the possible successful outcome of this suit, Mueller gave Biewer two deeds to Minnesota property, which Biewer had never seen, and which Mueller repre- sented to be worth $16,000, subject to a $4,000 mortgage. As a matter of fact, this land was not worth $4,000, the amount of the incumbrance upon it. Point Involved: Can value ever be stated as a fact rather than an opinion? Under what circumstances'? MB. JUSTICE DUNN : ' * * "It is argued for the appellants that the value of the property was equally open to the investigation of both parties and was a matter of opinion, against the false statement of which equity will not relieve. It is true that Biewer might have gone to Minnesota and seen the land, but it is not true that the parties had, at the time the trade was made, equal means of knowledge. Mueller owned the land, had seen it and would be pre- sumed to know something of its value, while Biewer had never seen the land, which was in a distant state. One cannot, by taking advantage of such a situation, induce another to accept his false statement of a fact and escape the consequences of his fraud by saying the other had no right to believe him. The property about the mis- represensation of the value of which complaint is made was not the property directly involved in the trade. It was collateral to the principal transaction, part of whose terms it was designed to secure, and the representation was made not to induce the appellee to purchase the property, but to accept it as security. The general rule is that statements as to the value of a business or of property, made to induce one to buy or invest money, are treated as expressions of opinion, only, and if so in- tended and understood do not constitute fraud, in the absence of any concealment or misrepresentation of ma- terial, extrinsic facts. 'The reason of the rule is that FRAUD 57 such statements are expressions of opinion; but where they are made with the intention that they shall be under- stood as statements of fact, and not as the expressions of opinion, they will constitute fraud.' (Leonard v. Springer, 197 111. 532 ; Murray v. Tolman, 162 id. 417 ; Allen v. Hart, 72 id. 104.) The false statement of value was here made by Mueller, having superior means of knowledge, and was relied upon as a matter of fact and not opinion. It constituted fraud, which violated the agreement entered into partly in reliance upon it." Question 36: (1.) State the facts in the above case, the ques- tion presented and the court's decision. (2.) How do you distinguish this case from cases (34) and (35) ? Sec. 30. Silence and Concealment as Fraud. Case No. 37. Grigsby v. Stapleton, 94 Mo. 423. Facts: Suit for the contract price of 100 head of cat- tle. Defense, that the seller knew and did not disclose to the buyer, who did not know, that the cattle had 11 Texas Fever," a latent disease not readily discover- able on inspection. Point Involved: If a seller knows of a defect in the thing sold, and the defect is of a character not ascertain- able by the buyer on reasonable inspection, is the seller's mere silence with respect to such defect a fraud on the buyer? BLACK, J. : "* Caveat emptor is the general rule of the common law. If defects in the property sold are patent and might be discovered by the exercise of ordinary attention, and the buyer has an opportunity tc inspect the property, the law does not require the vendor to point out defects. But there are cases where it be- comes the duty of the seller to point out and disclose latent defects. * * * When an article is sold for a particular purpose the suppression of a fact by the vendor, which fact makes the article unfit for the pur- pose for which it was sold, is a deceit ; and, as a general 58 CONTRACTS rule, a material latent defect must be disclosed when the article is offered for sale, or the sale will be avoided. 1 Whart. on Cont., sec. 248. The sale of animals which the seller knows, but the purchaser does not, have a con- tagious disease, should be regarded as a fraud when the fact of the disease is not disclosed, Cooley on Torts, 481. Kerr says: 'Defects, however, which are latent, or cir- cumstances materially affecting the subject matter of a sale, of which the purchaser has no means, or at least has no equal means of knowledge, must, if known to the seller, be disclosed.' Kerr on Fraud and Mis. (Bump's ed.) 101. * * * "There is no claim in this case that the defendant knew these cattle were diseased. It seems to be con- ceded on all hands that Texas fever is a disease not easily detected, except by those having had experience with it. The cattle were sold to the defendant at a sound price. If, therefore, plaintiff knew they had the Texas fever, or any other disease materially affecting their value upon the market, and did not disclose the same to the defendant, he was guilty of a fraudulent concealment of a latent defect. It is not necessary to this defense that there should be any warranty or representations as to the health or condition of the cattle. Indeed, so far as the case is concerned, if the cattle had been pro- nounced by some of the cattlemen to have the Texas fever, and, after knowledge of that report came to plain- tiff, some of them to his knowledge died from sickness, then he should have disclosed these facts to the defend- ant. They are circumstances materially affecting the value of the cattle for the purposes for which they were bought, or for any other purpose, and of which defend- ant, on all the evidence, had no equal means of knowl- edge. "To withhold these circumstances was a deceit in the absence of proof that defendant possessed such in- formation." Question 37: (1.) State the facts, the question presented and the decision of the court in the above case. FRAUD 59 (2.) A offered for sale a mule to B, and B, about to examine the animal, desisted on A's statement that the mule would kick, and thereby did not discover lameness and malformation, which the examination would have revealed. A 's statement was made to prevent B 's inspection. Was there fraud ? Kenner v. Harding, 85 111. 264. Case No. 38. The Clandeboye, 70 Fed. 631. Facts: The facts are stated in the opinion. Question: Whether if one of the contracting parties, having from his superior position, knowledge of facts that are practically inaccessible to the other, and which materially affect the contract, merely remains silent as to such facts (making no misstatements and doing noth- ing otherwise to conceal such facts, or otherwise mislead- ing) he is by his mere suppression of the truth guilty of fraud. SEYMOUR, DISTRICT JUDGE : ' ' The material facts of the case are as follows: The Clandeboye, a large and val- uable British steamer, had become disabled by breakage of machinery, and had arrived off the Little Bahama Islands. Her mate had been sent by a ship's boat for assistance, and had on the 15th of May, 1894, arrived at Savannah. In pursuance of telegraphic instructions cabled to him by the owners, he had engaged the services of the Morse of New York, then, however, lying at the port of Philadelphia, which had agreed to proceed forth- with to the Little Bahamas and tow the Clandeboye to Vera Cruz, her port of destination, for the sum of $5,000. Leo Lomm, the libellant, part owner and master of the tug Dauntless, lying at the time at its home port of Brunswick, Ga., having learned from the Savannah papers of the arrival at that port of the mate of the Clandeboye, and of the condition and location of that vessel, on the 17th of May telegraphed, through his agents, to Savannah, and received a reply stating that the tug Morse of New York had been chartered to go to the assistance of the Clandeboye. The distance from New York and that from Philadelphia is about the 60 CONTRACTS same to Stranger's Cay, where the Clandeboye was lying, is more than 1,000 miles. From Brunswick the dis- tance is about one-third as great. Captain Lomm's boat was lying idle. He concluded that he could beat the Morse in a race to the Clandeboye, and that, the master of the latter not knowing of tl^e employment of the Morse, he could obtain a profitable job of salvage. The telegram announcing the employment of the Morse by the Clandeboye 's owners reached Brunswick at a little after 3 P. M. of the 17th. Shortly after dark of the same day the Dauntless started for the Bahamas. She arrived at Stranger's Cay before noon of the 19th. Her master had the interview, and made with the master of the Clandeboye the contract, which is a matter in litiga- tion, immediately thereafter, and in a couple of hours the vessels left for Newport News, one in tow of the other. Between three and four days afterward the Morse reached the spot where the Clandeboye had been lying at anchor, to find that she had gone. The conver- sation between the masters of the steamer and of the tug at Stranger's Cay contains the contract entered into between them and the words that led up to it. The material facts in the testimony are that Captain Lomm told Captain Strickland of the arrival of his mate in Savannah, but did not tell him of the employment of the Morse for his relief. "The result of the enterprise of Captain Lomm will be disastrous to the owners of the Clandeboye if the decree of the District Court is allowed to stand. Cap- tain Lomm declined to take the Clandeboye to Vera Cruz, the port to which her cargo wa consigned, and did tow her to Newport News, where she was repaired. Fifteen hundred tons of her cargo had to be unloaded and then reloaded before she proceeded to Vera Cruz. Her owners were compelled to pay to the owners of the Morse the sum of $1,900 for the services of that tug, and salvage compensation amounting to $10,000 double what the Morse had agreed to charge for towing the Clandeboye to Vera Cruz has been awarded to the Dauntless. But FRAUD 61 the master of the steamship, in charge of his vessel, and not in communication with his owners, was fully em- powered to contract with the owners of the Dauntless. The contract made was binding, unless invalidated by the conduct of Captain Lomm in concealing the fact that the owners of the Clandeboye had engaged the services of the Morse. * * * "The arrangement entered into between the two masters constituted a contract, and is subject to the principles which regulate the validity of contracts. If valid, the courts of admiralty are bound to. enforce it ; if not, to set it aside, in accordance with the general rules affecting all contracts. The law of contracts re- quires of the parties to them mutual good faith. Is there any principle of mercantile law by which that obliga- tion to good faith which required Captain Lomm to in- form Captain Strickland of the hiring of the Morse is relaxed, and is not of so stringent a force as to make the omission fraudulent? The general rule, both of law and equity, in respect to concealments, is that mere silence with regard to a material fact which there is no obligation to divulge will not avoid a contract. Thus if A, knowing that there is a mine in the land of B, of which B is ignorant, should contract to purchase the land without divulging the fact, it would be a valid con- tract, although the land were sold at a price which it would be worth without the mine, because A is under no legal obligation, by the nature of the contract, to give any information thereof. Fox v. Macreth, 2 Brown, Ch. 400, 1 White & T. Lead. Cas. eq. *172. ' Without some such general rule the facilities of sale would be greatly impeded, and there would be no security to the vendor* or to the vendee. Story, Cont. P. 517. "It will be noticed that the general rule of law is a requirement of good faith in mutual dealings, and that the doctrine of caveat emptor is an exception to such requirement, founded upon special reasons, viz., the ne- cessities of commerce, and the impossibility of so limiting any other doctrine as to do justice. As Chief Justice 62 CONTRACTS Marshall says, 'it would be difficult to circumscribe the contrary doctrine within proper limits. ' The necessities of commerce require that enterprise should be encour- aged by allowing diligence at least its due reward, and not interfering with any proper and reasonably fair com- petition for intelligence. Any other course would set the active and the slothful upon an equality. 'Vigilant- ibus non dormientibus jura subveniunt.' "Even more weighty is the second reason given in support of the doctrine. The law works with b^unt tools. Fallible memories, prejudiced statements, intentional falsehood, the bias of self-interest, ignorance, and stupid- ity, are all concomitants of much of the testimony from which she has to make up her judgments. General rules, applicable to the majority of cases, but sometimes hav- ing an oppressive bearing upon particular ones, make up the principles upon which, of necessity, she founds her decisions, for the law must be workable. It must be comprehensible to men who live under its rule, and must not be so 1 complex as to overburden the memory with minutiae. Further, were it open, in all cases of con- tracts, for a dissatisfied party to cry off, by saying that the other party had known better than he the value of the subject-matter, or the market price, or some other extrinsic circumstance, there would be no finality in human dealings, and the only limitation to the litigation that would ensue would be that imposed by the diminu- tion of business caused by such want of finality and cer- tainty. "But caveat emptor is not applied (1) to cases of active fraud, one variety of which consists in misrepresentation of facts, including what is often equiv- alent, partial statements; it is not applied (2) to cases in which trust is implied by reason either of the relations to one another of the parties, or the nature of the con- tract; nor (3) to cases in which, in the absence of laches in the party injured, the persons dealing with one an- other do not deal upon mutually equal terms, by reason FRAUD 63 of there being special knowledge in the possession of one party which is inaccessible to the other. (1.) The case of actual or implied misrepresentation needs no illustration. (2.) That of trust includes all the known fiduciary relations, such as those of attorney and client, guar- dian and ward, agent and principal, and generally of all who stand in the relation of trustee and cestui que trust. It also includes dealings with regard to all mat- ters which from their nature demand mutual confidence. * * * (3.) The case of information possessed by one party and absolutely unobtainable by the other, though of rarer occurrence, is one in which the enforcement of the rule of good faith is fully as imperative as it is in the two classes of cases first mentioned. It is perhaps not prop- erly an exception to the doctrine of caveat emptor, but rather a case outside of its terms. The purchaser can- not look out for what he cannot have knowledge of. * * * ' * The case at bar is the first of the kind that has come before a court of admiralty, but it is as striking a one as could be imagined or invented. It is one in which one party to the bargain has knowledge of a fact which, if known to the other, would have prevented the making of the contract. The ignorance of the fact on the part of the second party is one which cannot be made a sub- ject of controversy, and this ignorance was known to the party suing upon the contract. To give him the benefit of it, to the injury of the claimants, would be, in our opinion, a startling violation of the fundamental principle of all law, that equity is equality. We think that the agreement between the masters of the two ves- sels, made in the case at bar, is infected with all three of the vices stated, and is, therefore, not within the doc- trine of caveat emptor. It must, therefore, be declared void under the principle that requires good faith in mutual dealings. " (1.) Without placing as much stress upon the point 64 CONTRACTS as upon the other two, we yet think it may be fairly held that in telling a part, but not the whole, of the truth to Captain Strickland, Captain Lomm was guilty of that suppressio veri which the law calls fraud. " (2.) The relation of salvor and saved, while not one of the fiduciary relations generally referred to in the law books, and accurately defined, as well as classified, is yet a fiduciary one. "(3.) Were the other reasons of declaring the con- tract void absent, we should unhesitatingly do so on the third ground, viz., because the parties were not dealing on terms of equality. There was on the part of Captain Lomm an intentional suppression of a material fact, in relation to which he was informed, while Captain Strick- land had not access to any means of obtaining informa- tion of it. Looking at the position of the two parties to the bargain from another point of view, there appears to have been a striking inequality between them. The master of the Clandeboye had, when the Dauntless ar- rived at Stranger 's Cay, been for nearly four weeks in a disabled vessel. He had lain helpless at his anchorage for eleven days. His only assistant, who was a navigator (the mate of the vessel), was absent, and he was alone in authority over the Clandeboye. He was suffering from the pressure of anxiety, responsibility and delay. The master of the. Dauntless, aware of all the circumstances, intent solely upon gain, fresh from home, with a mind disengaged and at ease, had an unfair advantage over him. In the short period during which he considered and agreed to accept the services proffered to him, Cap- tain Strickland can hardly be supposed to have had the time or grasp of the facts that would have enabled him to have drawn all the inferences from the fact of his mate's opportunities in Savannah that have been imag- ined by counsel. During that hurried interview between the masters of the two vessels, it doubtless confusedly occurred to the master of the Clandeboye that his mate was trying to do something for him, and that tugs would be at hand in a short time, prepared to tow him some- DURESS 65 where. Probably he thought of the nearest ports. His conversation shows that thoughts of this kind were in his mind. He was anxious to get away, and with the words 'first come, first served,' he made terms with Captain Lomm, whose tug had arrived first. But it would be un- just to suppose that he expected or had in his mind any thought of the possible existence of what was actually the fact, viz., a contract under which a powerful tug had been employed by his owners to tow him to the place to which he desired to be taken (Vera Cruz), and was al- ready on the way to Stranger's Cay, near the Little Ba- hamas, where he was lying. We see no reason to doubt his statement that, if he had known of the employment of the Morse, he would not have employed the Dauntless. The parties were not dealing on equal terms, and their contract cannot be enforced. * * *" Question 38: (1.) State the facts in the above case, and what the court decided. (2.) What did the court say is the general rule with respect to concealment of a material fact as constituting fraud? (3.) What reason did the court give for the doctrine of caveat emptorf (4.) If A, knowing that there is a mine in the land of B of which he knows B to be ignorant, and should contract with B for the purchase of the land at a price that is merely the value of the land without the mine, would the contract be valid? How would you distinguish such a case from the case of the Clandeboye? How would you distinguish it from the case of the cattle with "Texas fever?" (5.) What three classes of cases did the court say are not within the rule of caveat emptor? Sec. 31. Duress. Case No. 39. Galusha v. Snerman, 81 N. W. (Wis.) 495. Point Involved: What is meant by the term duress? What tests have been applied? MARSHALL, J. : "* * * It (duress) is a branch of the 66 CONTRACTS law, that, in the process of development from the rigorous and harsh rules of the ancient common law, has been so softened by the more humane principles of the civil law, and of equity, that the teachings of the older writers on the subject, standing alone, are not proper guides. The change from the ancient doctrine has been much greater in some jurisdictions than in others. There are many adjudications, based on citations of authorities not in themselves harmonious, and many statements in legal opinions based on the ancient theory of duress, which to- gether create much confusion on the subject, not only as it is treated by text writers, but by judges in legal opinions. "Anciently, duress in law by putting in fear could exist only where there was such a threat of danger to the ob- ject of it as was deemed sufficient to deprive a constant or courageous man of his free will, and the circumstances requisite to that condition were distinctly fixed by law ; * * * "Early in the development of the law, the legal stand- ard of resistance that a person was bound to exercise for his own protection was changed from that of a con- stant or courageous man to that of a person of ordinary firmness. "Duress, in its broad sense, now includes all instance? where a condition of mind of a person caused by fear of personal injury or loss of limb, or injury to such per- son's property, wife, child, or husband, is produced by the wrongful conduct of another rendering such person incompetent to contract with the exercise of his free will power, whether formerly relievable at law on the ground of duress or in equity on the ground of unlawful compulsion. "The true doctrine of -duress, at the present day, both in this country, and England, is that a contract obtained by so oppressing a person by threats regarding his per- sonal safety or liberty, or that of his property, or of a member of his family, as to deprive him of the free exer- cise of his will and prevent the meeting of minds neces- DURESS 67 sary to a valid contract, may be avoided on the ground of duress, whether the oppression causing the incom- petence to contract be produced by what was deemed duress formerly, and relievable at law as such, or wrong- ful compulsion remediable by an appeal to a court of equity. The law no longer allows a person to enjoy, without disturbance, the fruits of his iniquity, because his victim was not a person of ordinary courage ; and no longer gauges the acts that shall be held legally sufficient to produce duress by any arbitrary standard, but holds him, who, by putting another in fear, shall have produced in him a state of mental incompetency to contract, and then takes advantage of such condition, no matter by what means such fear be caused, liable at the option of such other to make restitution to him of everything of value thereby taken from him. * * *" Question 39: (1.) Define duress; (2.) What was the ancient test, the later test and present day test of duress ? (3.) What effect has duress upon a contract? Case No. 40. International Harvester Co. v. Voboril, 187 Fed. 973. Facts: The Harvester Company sued Anna Voboril on her promissory notes which wer$ given by her to pay the debts of her husband. Her defense was that her sig- nature was obtained through threats by representatives of the Company, that, unless she signed, her husband would be arrested and imprisoned. It was contended that even if these threats were made, they would con- stitute no duress, because the husband had committed no crime for which he could be arrested. It appeared that Mrs. Voboril was an ignorant foreigner, the mother of seven children, and at the time pregnant with an eighth. Point Involved: Whether a mere threat to arrest a near relative who has committed no crime can constitute duress if as a matter of fact the contracting party was, owing to the circumstances, peculiarly susceptible to fear in that regard. 68 CONTRACTS HOOK, CIRCUIT JUDGE: "* * It is contended, * *, that even if the threats were made they could not in law have caused duress, because defendant's husband had committed no off ense, there was no officer present to make the arrest, and no warrant had been issued or proceed- ing commenced against him. The contention is unten- able. Duress may be caused by threats of a criminal prosecution of a husband, wife, child, or other near rela- tive of the person whose action is thereby controlled, though no crime has in fact been committed or prosecu- tion begun. If the contracting party has been so put in fear as to be deprived of the free will power essential to contractual capacity, the transaction thereby induced may be avoided. A valid contract implies mutual voluntary assent of the parties ; and if one of them overcomes the mind and will of the other by moral compulsion, and so obtains his concurrence, though the form and shell of a contract exist the very essence of it is wanting. " Susceptibility to coercive influence is not uniform, and, in determining the question of duress, sex, age, state of health, family conditions, etc., may be considered with the other circumstances. In the case at bar the plaintiff had no claim against the defendant. The debtor was her husband, who had failed in business. Primarily she was neither legally nor morally responsible. The representa- tives of the plaintiff sought to obtain her guaranty of his obligations and to bind her separate estate for their pay- ment. She was of Bohemian extraction and apparently ignorant of business affairs. She was the mother of seven children, the eldest of whom was 14 years of age, and was pregnant with an eighth. We must assume from the verdict and evidence that threats were made to have her husband arrested and jailed unless she signed and guaranteed the notes, and we cannot say as matter of law they were insufficient under the circumstances to deprive her of that freedom of will essential to voluntary action. All men appreciate how susceptible the mind of a wife and mother is to such influence, and how she may be coerced to give up her property when the liberty of hus- UNDUE INFLUENCE 69 band and father is believed to be at stake. It should be mentioned in this connection that the court excluded some of the testimony as to the condition of defendant and the state she was put in by the threats, which should have been admitted. It bore upon the vital feature of the defense." Question 40: (1.) State the facts and the decision of the court in the above case. (2.) Suppose the maker of the notes in the above case were an experienced business man, who signed the notes to pay his son 's debts upon the threat that unless he signed, the son would be arrested, the son having committed no crime. Would your answer be the same ? (3.) Suppose in the case just put the son had committed a crime and he were threatened with arrest unless the father signed the notes. Would your answer be the same ? (Note : Answer to (3) above : In the case put, the courts difffr, but the better rule is that to threaten to arrest a near relative for a crime committed may be duress. Shattuck v. Watson, 53 Ark. 147. It may be duress to threaten one with arrest for the purpose of coercing him into a contract ; but if the threat is made bana fide, and a contract thereby secured, the courts differ.) Sec. 32. Undue Influence. / Case No. 41. Mors v. Peterson, 261 111. 532. Facts: Sarah Mors and others, as heirs and devisees of Mrs. Elizabeth Spruill, deceased, file their bill against Clarissa Peterson to set aside a deed executed by Mrs. Spruill to Clarissa Peterson, August 23, 1911, con- veying to her 190 acres jof land estimated to be worth $50 per acre. The bill alleged that fraud, and undue influ- ence- was practiced on Mrs. Spruill, as well as her mental incapacity, as grounds for relief. Mrs. Spruill died April 23, 1912, aged 80 years. Her husband had been dead 20 years and she never had any children. During the last 10 years of her life Mrs. Spruill lived at the home of the defendant, Clarissa Peterson, who was her niece, and paid her for keeping her. During the last years of 70 CONTRACTS her life she gradually declined and required constant at- tention which was rendered by Miss Peterson who also toward the last took charge of all of Mrs. Spruill's busi- ness generally. Just before the death of Mrs. Spruill, Miss Peterson called up an attorney and had him pre- pare a deed, which was then signed. Other facts appear in the opinion. Point Involved: The nature of undue influence. Under what circumstances it will be presumed; what evidence required to overcome the presumption when entertained ? MR. JUSTICE VICKERS : " * * * The evidence as to the mental condition of Mrs. Spruill during the last few years of her life is conflicting. It can not be said that the weight of the evidence shows that her mental powers were more impaired than would ordinarily be expected in one of her age and condition of health. The evidence on this point shows that she had the physical and mental weakness that are usually incident to old age. Her mental condi- tion is proper to be considered as strengthening the in- ference of undue influence which the law draws from an established fiduciary relation. The constant and intimate association of appellant with this feeble and helpless old lady for the last ten years of her life gives rise to an ir- resistible conclusion that there was trust and confidence on the one hand and influence and domination on the other. While the bill sets out all the circumstances con- nected with the execution of the deed and alleges undue influence and mental incapacity and prays for a cancella- tion of the deed, it is not, strictly speaking, a bill, as ap- pellant's counsel appear to treat it, for the rescission of a contract on the ground of mental incapacity of the party to enter into it. The bill alleges a state of facts which are fully established by the proof, which show that a fiduciary relation existed between these parties ; that while such re- lation existed the deed in question was executed without any adequate consideration ; that by said deed appellant acquired title to real estate worth between $9,000 and $10,000, and the bill calls on the appellant to rebut the presumption which the law draws from the fiduciary re- UNDUE INFLUENCE 71 lation established, and show, by clear and convincing proof, that she acted with good faith and did not betray the confidence reposed in her. The decree below can- celing this deed is merely an adjudication that appellant has wholly failed to remove the suspicions which neces- sarily grow out of the nature of the transaction and the relation of the parties. "Courts of equity have refused to set any bounds to the circumstances out of which a fiduciary relation may spring. It not only includes all legal relations, such as guardian and ward, attorney and client, principal and agent, and the like, but it extends to every possible case in which a fiduciary relation exists in fact, and in which there is confidence reposed on one side and resulting domination and influence on the other. (Beach v. Wil- ton, 244 111. 413.) It is not necessary that the relation and duties involved be legal. They may be either moral, social, domestic, or merely personal. (Boby v. Colehour, 135 111. 300; Walker v. Shepard, 210 id. 100.) When a confidential or fiduciary relation is established between parties, courts of equity scrutinize very closely any trans- action or contract between the parties by which the dom- inant party secures any profit or advantage at the ex- pense of the person under his influence. All transactions between parties in this relation are presumptively fraud- ulent and void, and before a court of equity will permit such contract to stand, the proof must be clear and con- vincing and satisfy the conscience of the chancellor that good faith has been exercised and that the confidence re- posed in the beneficiary of the contract has not been betrayed by him. Beach v. Wilton, supra, and authorities there cited. "The circumstances connected with the execution of the deed in question, as disclosed by the evidence, are : Appellant called upon an attorney and had him prepare a deed. After having the deed written up, the appellant telephoned Sidney Bagley and asked him to come over to the house. Bagley was a justice of the peace. He went to appellant's house and after consulting with appellant 72 CONTRACTS a notary public was called. The matter of executing the deed was discussed by appellant, Bagley and the notary public. The deceased was in another room. After the matter had been talked over among the three parties Bagley entered the sickroom where the old lady was and presented the deed to her and she made her mark, and thereupon Bagley placed a silver dollar in her hand, which had been given him a few minutes before by appel- lant. J. E. Keisling, the notary public, says that after the deed was executed it was read over to Mrs. Spruill, and Bagley says that he asked her, before she made her mark to the deed, if she wanted to give the land, or deed the land, to appellant, and was answered, 'Yes.' There- upon the notary added his certificate of acknowledgment and the deed was handed to appellant. Before the exe- cution of this deed Mrs. Spruill had made a will in which she disposed of all her property, including the land in controversy. By her will appellant was given ll/20ths of the estate and the balance was disposed of among other relatives. "When all of the circumstances surrounding this trans- action are considered we can come to no other conclu- sion than that reached by the court below, that there was here an unusually intimate fiduciary relation existing be- tween these parties, and that the conveyance to appellant of substantially all of the property that the deceased owned must be held to be the result of a violation of the confidence and trust reposed by this old lady in appel- lant. At all events, the evidence introduced on behalf of appellant fails to convince us, any more than it did the chancellor below, that this transaction is free from any suspicion of undue influence. "The deed contains a covenant on the part of appellant that she would take care of Mrs. Spruill as long as she lived and provide her with a good home, board, food, shel- ter and care during her life. Appellant contends that even though the court properly set aside the deed it was error to set it aside unconditionally, without requiring the payment to appellant of reasonable compensation DISAFFIRMANCE 73 for taking care of the old lady from the time the deed was executed until her death. The evidence shows that not- withstanding this covenant in the deed appellant contin- ued to demand of Brown compensation for taking care of the old lady at the rate of $10 per week under her con- tract. Numerous letters written by appellant to Brown demanding money are in the record. The last of these was about two weeks before the death of Mrs. Spruill. This evidence shows that appellant was .relying on her contract for compensation for taking care of the deceased, and that she did not furnish her a home, board, food and shelter as a consideration for the conveyance. If appel- lant has any claim against the estate, under her contract with Brown, for compensation she has not been deprived of that by the decree in this case. There was no error in the decree in this respect. ' ' There being no error in the decree of the circuit court of Fayette county it will be affirmed. Decree affirmed." Question 41 : Enumerate the relationships stated in the above case in which undue influence will be presumed. In case of a presumption of undue influence, may the contract still stand not- withstanding such presumption? How? Sec. 33. Conditions of Disaffirmance of Contracts Voidable for Fraud, Etc. Case No. 42. Tarkington v. Purvis, 128 Ind. 182. Facts: On August 15, 1887, Jos. S. Tarkington, ex- changed his interest in the firm of T. H. Ellis & Co., hardware dealers, for certain real estate and $600 in cash, with Sanford B. Purvis, who agreed to pay Tarkington 's share of the firm's indebtedness. Tarkington falsely represented that the assets of the firm were largely in excess of its liabilities. As a matter of fact, the reverse was true, so that Tarkington 's interest was of no value whatever. On August 27th Purvis discovered the fraud practiced upon him and immediately demanded rescission, 74 CONTRACTS tendering back all he had received. On August 30, Pur- vis received $341 in cash out of proceeds arising from a sale of some of the assets of the firm, such sale being evidently made to prevent waste of the assets. On Sep- tember 1st, he again demanded rescission, offering also this $341 collected by him. It is contended that in deal- ing with the partnership property in the manner shown the plaintiff ratified the contract. Point Involved: What facts constitute ratification of a fraudulent contract? Dealing with the subject matter as ratification. MITCHELL, J. : ' ' The doctrine is fully established that a contract induced by fraud is only voidable, and if one who has been defrauded after discovering the deceit acquiesces in the sale either by express words or by any unequivo- cal act, such as treating the property as his own, with an intent to condone the fraud, he will be deemed to have elected to affirm the contract, and he cannot afterwards rescind. One who, uninfluenced by the fraud, deals with the property as his own, after having fully discovered that fraud has been practiced upon him in the contract or transaction by or through which he acquired the prop- erty, thereby waives his right to rescind. St. John v. Hendrickson, 81 Ind. 350; Higham v. Harris, 108 Ind. 246, 5 West. Rep. 643; Worley v. Moore, 97 Ind. 15; Do- herty v. Bell, 55 Ind. 205; Gatling v. Newell, 9 Ind. 572; Comparet v. Hedges, 6 Blackf . 416 ; Shaeffer v. Sleade, 7 Blackf. 179; Benjamin, Sales, sec. 675. "Equivocal acts, however, which do not clearly evince a purpose, with complete knowledge of the fraud, to retain the property as his own, will not defeat the right of the person defrauded to rescind. The act must be unequivocal and must show an election to retain the prop- erty, after discovering the deceit, before the right to rescind is gone. "In the present case the right to claim a rescission had been fully perfected by the appellee, by tendering back everything that had been received, and by offering to place the fraudulent vendor in statu quo. That the plain- DISAFFIRMANCE 75 tiff below afterwards received money arising from the sale of some of the assets of the firm in no way militates against his right to compel the rescission since it does not appear that the property was sold in the course of the business of the firm, and the money received was fully accounted for without loss to the appellant. One who has perfected his right to rescind a fraudulent con- tract cannot lose it by merely taking care of the property received, or by preserving it in case it is of a perishable nature, unless what he does is done with the intent to confirm the contract. He is not bound to preserve per- ishable property, but if he acts in good faith in preventing reasonable apprehended loss or destruction and waste of the property, his perfected right of rescission will not be lost in a court of equity, if he fairly accounts for the property without loss to the vendor, and places him in statu quo as nearly as may be. Pierce v. Wilson, 34 Ala. 596; Neblett v. Macfarland, 92 U. S. 101 (23 L. ed. 471) ; Wharton, Cont. sec. 285. 1 'Where subsequent acts are relied upon as a defense in a case where fraud is clearly established, it is said the act must stand upon the clearest evidence, and must evince a purpose to waive or forgive the fraud, and must amount to a clear election not to rescind. If what is done is merely for the purpose of saving the plaintiff from fur- ther loss, without any purpose to give up whatever right he may have either at law or in equity to rescind, the right or rescission will not be affected. Montgomery v. Pickering, 116 Mass. 227; Morse v. Royal, 12 Ves. Jr. 355-373." Question 42: State the rule of this case. Show why the acts of the defrauded party in this case were not a ratification of the contract. (Note : A party who desires to rescind a voidable contract may be barred by his mere delay. He must act with reasonable dili- gence where from all the circumstances he would reasonably be deemed by the other to have waived the ground on which he might avoid. What constitutes reasonable diligence depends on 76 CONTRACTS the circumstances. In Burwash v. Ballou, 230 111. 34, where the suit was to rescind a sale of mining stock, the court said : ( i * * * rpkg ru j e j g faofc a p ar ty wno desires to rescind a sale for fraud must act promptly ; that he cannot be permitted to stand passively by and speculate as to the result of an invest- ment in mining stock, which usually fluctuates in value, and after the future has disclosed his investment was a mistake, rescind the contract of purchase for fraud and recover back the consideration paid for the stock * * *" For a case discussing the duty to be diligent in rescinding, and conduct amounting to affirmation, see Case No. 184, post. It is also necessary that a party seeking rescission place or offer to place the other in statu quo where that is possible. He must tender back what he has received under the contract.) CHAPTER FOUR CONSIDERATION A. Theory and nature of considera- B. Examples of consideration, tion. A. Theory and Nature of Consideration. 34. Consideration defined. 35. Adequacy of consideration. Sec. 34. Consideration Defined. Necessary in Simple Contracts. Case No. 43. Eann v. Hughes, 7 Term Rep. (Eng- land) 346. Facts: Suit against an administratrix upon a written unsealed promise on her part to pay a debt of the deceased. Point Involved: Whether a written, unsealed promise to pay the debt of another, not induced by some act or promise, is of a contractual character, i. e., whether a simple contract is enforcible without consideration. LORD CHIEF BARON SKINNER : " * * * It is undoubt- edly true that every man is by the law of nature bound to fulfill his engagements. It is equally true that the law of this country supplies no means, nor affords any rem- edy, to compel the performance of an agreement made without sufficient consideration; such agreement is nudum pactum ex quo non oritur actio; and whatsoever may be the maxim in the civil law, it is in the last men- tioned sense only that it is to be understood in our law. 77 78 CONTRACTS " All contracts are by the law of England distinguished into agreements by specialty, and agreements of parol; nor is there any such third class as counsel have endeav- ored to maintain as contracts in writing. If they be merely written and not specialties, they are parol and a consideration must be proved. * * *" Question 43: (1.) State the facts in the above case, the question presented and the court's decision. (2.) Is there any distinction between oral and written con- tracts so far as necessity of consideration is concerned ? Case No. 44. Page, Contracts, Sec. 274, 276. "A valuable consideration is some legal right ac- quired by the promisor in consideration of his promise, or forborne by the promisee in consideration of such promise. A common form of stating the same principal is that a valuable consideration for a promise may con- sist of a benefit to the promisor, or a detriment to the promisee. "The use of ' benefit ' and ' detriment' in this connec- tion need explanation. While correct if properly under- stood, it is liable to misconstruction. 'Benefit' does not refer to any pecuniary gain arising out of the transac- tion nor 'detriment' to any pecuniary loss. * 'Benefit' as used in this rule means that the promisor has, in return for his promise, acquired some legal right to which he would not otherwise have been entitled; 'detri- ment' means that the legal right which he would other- wise have been entitled to exercise. * * *" (276) "* We observe that in most cases that something that is the 'benefit' to the promisor, is also a 'detriment' to the promisee, the former acquiring what the latter parts with. This, however, is not necessary. It is sufficient if there is a 'benefit' to the promisor, with- out any 'detriment' to the promisee, * * *. It is equally sufficient if there is a 'detriment' to the promisee without any 'benefit' to the promisor. * * *" Question 44: (1.) Define consideration. CONSIDERATION 79 (2.) What is meant in this definition by the terms 'benefit' and 'detriment'? (Note: Illustration of consideration. A contracts to sell B a horse for $50. The consideration for A's promise is B's promise and vice versa. A in his capacity of promisee sustains a detriment, i. e., as promisee, or one to whom the promise was made, he has in return for such promise, made a promise of his own, which, when suit arises, may or may not have been per- formed by him. In this case, both A and B are promisors and promisees. Take another case. A sells B a horse on credit for $50, B taking immediate possession of the horse. A here is the sole promisee, his detriment consisting in his parting with his right to keep the horse on the strength of B's promise. Take Case No. 43 where the administratrix promised to pay the debt of her intestate. The creditor was the promisee, but had sus- tained no detriment on account of the promise, in other words had parted with nothing, had not promised to part with anything and had done nothing by reason of the promise. The debt or detriment was already existing. Had the creditor given up his right to present his claim, or withheld suit a definite time, or in any way suffered a loss of rights to which he was legally entitled, the promise of the administratrix would have been enforceable. See following cases for examples of consideration. Ed.) Sec. 35. Adequacy of Consideration. Case No. 45. Schnell v. Nell, 17 Ind. 29. Facts: For and in consideration of one cent, Schnell agreed to pay $600 to Nell and others. Point Involved: Whether adequacy of consideration is material to the validity of the contract. PERKIXS, J. : ' ' The consideration of one cent will not support the promise of Schnell. It is true that as a gen- eral proposition, inadequacy of consideration will not vitiate an agreement. * * * But this doctrine does not apply to a mere exchange of sums of money, of coin whose value is exactly fixed, but to the exchange of some- thing of, in itself, indeterminate value for money, or per- haps, for some other thing of indeterminate value. In this case had the one cent mentioned been some particu- 80 CONTRACTS lar one cent, a family piece, or ancient, remarkable coin, possessing an indeterminate value, extrinsic from its simple money value, a different view might be taken. * * # Question 45: State the rule with reference to whether the adequacy of consideration is material. (Note to Case No. 45: In various ways inadequacy of consid- eration may become very material. (1.) If fraud is alleged the inadequacy of the consideration may with other evidence tend to show the fraud. (2.) If specific performance of a contract is sought, the fact that the complainant has driven an unfair bar- gain will deprive him of this equitable remedy and he must seek his remedy at law for damages. From the mere standpoint of the validity of the contract in- adequacy is immaterial. As one may give away his property and rights, it follows he may sell for whatever price he chooses. Were it otherwise, there could be no freedom in private bar- gaining.) B. Examples of Consideration. 36. Promises as consideration. 38. Performance of or promise to 37. Geilerally of sustaining detri- perform executory contract. ment. 39. Part payment of debt as con- 38. Past act and promise to per- sideration for discharge of form moral obligation. whole. 39. Performance of or promise to 40. Compromise and settlement. perform obligations imposed by law. Sec. 36. Promises as Consideration. Case No. 46. American Cotton Oil Co. v. Kirk, 68 Fed. 791. Facts: This was an agreement to sell 10,000 barrels of oil at a stipulated price, in such quantities per week as the buyer might desire. Action for the breach of the alleged contract : Point Involved: A promise is a valid consideration if of sufficient certainty to be enforceable. What consti- tutes sufficient certainty? CONSIDERATION 81 BUNN, DISTRICT JUDGE : ' t * * There are several questions * * but we have found it necessary to determine but one, and that is whether the contract * is a valid contract for the sale and delivery of 10,000 barrels of oil, or is it invalid for want of mutuality in its provisions ? A promise on the part of the defend- ant to sell and deliver 10,000 barrels, without a corre- sponding agreement on the part of the plaintiffs to pur- chase and receive it, would clearly be void for want of mutuality. Where, in this contract, as testified to by the plaintiffs, is there any agreement to order and receive 10,000 barrels ? It is clear that the time of ordering, as well as the quantity, is left wholly to the discretion of the plaintiffs. Deliveries are to be made per week, as Kirk & Company desire. But suppose Kirk & Company do not desire, and do not order, or order in such quanti- ties as would require a hundred years to complete the delivery, is there any way open to the defendant to put plaintiffs in default? We think not, and that there is no mutuality of promise for the sale of a definite or ascertainable quantity of oil. Suppose the plaintiffs had decided upon ordering six barrels of oil per week or one barrel for every working day. That would require 32 years for the fulfillment of the contract. And we can discover no way, by the terms of the contract, whereby the defendant could put the plaintiffs in default for fail- ure to order more oil each week, because the amount and times of ordering are left wholly to the plaintiffs. If the market price of oil should fall below the contract price, then, according to their contention as to the terms of the contract, the plaintiffs could purchase their supply of oil elsewhere and at the lower price, resorting to the contract when, and only when, the price stated was lower than the market price and this without respect to time. Such a contract is one-sided, and without mutuality. If the contract had been that the plaintiffs should order and receive, and the defendant should ship, all the oil which would be required in the plaintiff's business for a defi- nite period, not exceeding 10,000 barrels, there would be 82 CONTRACTS a mutual obligation. The plaintiffs could not, in such case, order oil from other sources, and could be put at fault for not ordering and receiving all which was reason- ably required to run their plant. The case would then come within the principle of National Furnace Company v. Keystone Manufacturing Company, 110 111. 427. In that case the National Furnace Company agreed to sell to the Keystone Company all of certain quality of pig iron, known as Lake Superior Charcoal Iron, which the Keystone Company would need, use or consume in its business during the coming season from July 9, 1879, to July 1, 1880, such amount supposed by the parties to be about 700 tons. This was held to be a good contract. The Court says : 'It cannot be said that the appellee (Key- stone Company) was not bound by the contract. It has no right to purchase iron elsewhere for use in its busi- ness. If it had done so, appellant might have main- tained an action for breach of the contract. ' "In the case at bar, there was no agreement on the part of plaintiffs to purchase from defendant all the oil they required in their business. They might order as lit- tle as they pleased, and supply the bulk of what they needed from other sources. The contract had the effect merely to bind the plaintiffs to receive and pay for at the stipulated price all the oil which might be shipped upon their order, from time to time, by the defendant, not ex- ceeding 10,000 barrels. Further than that it can have no binding force, for want of mutuality. * * * " Question 46: (1.) State the facts, the question presented and the decision of the court in the above case. (2.) What was the difference between the facts in this case and the facts in the National Furnace Company case cited and discussed in the above opinion? (3.) A agreed to sell and B agreed to buy, at specified prices, 2,000 cases Old Walker Whiskey, in 1909, 3,000 cases in 1910, 4,000 cases 1911, and 5,000 cases 1912, and the contract provided : "If for any unforeseen reason, the party of the second part find they cannot use the full amount of the above named goods, the party of the first part agrees to release them from the contract CONSIDERATION 83 for the amount desired by the party of the second part." A then refused to deliver whiskey to B under this agreement, and B sues for damages. Should he recover? Rehm-Zeiker Co. v. F. G. Walker Co., 156 Ky. 6 ; 49 L. R. A. new series, 694. Sec. 37. Generally of Sustaining Detriment. Case No. 47. Hamer v. Sidway, 124 N. Y. 538. Facts: A, uncle of B, promised B, who was then a minor, that if B would refrain from drinking, using to- bacco, swearing and playing cards or billiards until 21 years of age, he would pay B $5,000. To this B assented. The promisor is now dead and one Sidway, who has se- cured B's claim, seeks to enforce it against the executor of A's estate. Point Involved: If one induces another by a promise of reward to pursue a certain way of life, which is of no benefit to the promisor and possibly of much actual ben- efit to the promisee, does the acceptance of such promise constitute a legal detriment to such promisee! PARKER, J. : ' ' The defendant contends that the contract was without consideration * and therefore in- valid. He asserts that the promisee * was not harmed but benefited ; and insists that * unless the promisor (the uncle) was benefited, the contract was without consideration. 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 prom- ise made to him. Anson's Prin. of Con. 63. 'In general a waiver of any legal right at the request of another party is a sufficient consideration for a promise.' Parsons on Contracts, 444. "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 84 CONTRACTS testator that for such forbearance he would give him $5,000. * * *" Question 47: (1.) State the facts, the question presented and the court's decision in the above case. (2.) A manufactured a certain medicine for asthma and advertised that if any one troubled with that disease would take a certain dose every day for three months, and remained uncured, he would pay such person $500. B read the advertisement, and took the medicine as directed. Being uncured, he sued A. Could he recover ? (3.) A promised B, that if B would name his son C after A, he, A, would pay him $10,000. B accepted and did so. Can B recover the money? Gardner v. Dennison, 105 N. E. (Mass.) 359. Sec. 38. Past Act; Promise to Perform Moral Obliga- tion. Case No. 48. Mills v. Wyman, 3 Pick. (Mass.) 207. Facts: Defendant's adult son fell sick among strangers. Plaintiff cared for him. Defendant hearing of this prom- ised to pay plaintiff for what he had done, but after- wards refused. This is a suit to enforce defendant's promise. Point Involved: Is a promise to pay for a past act, gratuitously performed, enforceable as a contract. PAKKEE, C. J. : ' ' General rules of law established for the protection and security of honest and fair minded men, who may inconsiderately make promises without any equivalent, will sometimes screen men of a different character from engagements which they are bound in fora conscientife to perform. * * * The rule that a mere verbal promise, without any consideration, cannot be enforced by action, is universal in its application and cannot be departed from to suit particular cases in which a refusal to perform such a promise may be disgraceful. "The promise made in this case appears to have been made without any legal consideration. The kindness and services toward the sick son of the defendant were not bestowed at his request. The son was in no respect CONSIDERATION 85 Tinder the care of the defendant. He was twenty-five years old, and had long left his father's family. On his return from a foreign country he fell sick among strangers, and the plaintiff acted the part of the good Samaritan, giving him shelter and comfort until he died. The defendant, his father, promises in writing to pay the plaintiff for expenses he had incurred. But he has determined to break his promise. "It is said that a moral obligation is a sufficient con- sideration to support an express promise, * ; but we are satisfied that the universality of the rule cannot be supported, *. The cases of debts barred by the statute of limitations, or debts incurred by infants, or debts of bankrupts, are generally put for il- lustrations of the rule. Express promises founded on such pre-existing equitable obligations may be enforced ; there is a good consideration for them; they merely re- move an impediment created by law to the recovery of debts honestly due, but which public policy protects the debtors from being compelled to pay. * * In all these cases there is a moral obligation founded upon an antecedent valuable consideration. * * *" [The Court holds this promise to raise merely a moral and not a legal obligation and therefore unenforceable.] Question 48: How did the court distinguish from this case, the cases of promises to pay debts barred by the statute of limi- tations, debts incurred by infants, and debts of bankrupts ? Sec. 39, Performance of or Promise to Perform Obliga- tions Imposed by Law. Case No. 49. Hogan v. Stophlet, 179 111. 150. Facts: Hogan was sheriff of P. County. A building belonging to Stophlet having been destroyed by an in- cendiary fire, Stophlet offered a reward for the appre- hension and conviction of the culprit. Hogan now sues to recover the reward. Point Involved: If the law imposes on one a duty to do 86 CONTRACTS a certain thing, is the performance of that duty sufficient to support a promise by another to pay for it? MR. JUSTICE MAGRUDER : * * * It being 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 re- ward sued for in this case. It is against public policy to allow a man to recover a reward for doing his duty as a public officer. A promise 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. * * *> "The claim that extra services have been rendered fur- nishes no warrant in such cases for the charge of extra compensation. If a constable for making ex- traordinary efforts to perform an ordinary official act, may collect by law a compensation beyond what the statute allows for the act, any other officer may do the same ; and sheriffs, legislators and judges might find their 'extraordinary efforts' in the market to be had by the highest bidder. This is a sickening and revolting view of the subject. "There are some decisions * * to the contrary where the officer arrested the offender beyond his territorial jurisdiction. * * *" Question 49: (1.) Upon what two grounds did the court in the above case deny the plaintiff his case ? (2.) A is a fireman whose sworn duty is to do his utmost to put out fires. B 's house takes fire and B offers a reward of $500 if A will rescue B 's wife who is on an upper story in the burning building. A at the risk of his life accomplishes the rescue. Can he force B to pay the reward? Sec. 40. Promise to Perform Executory Contract. Case No. 50. Johnson's Adm'r v. Seller's Adm'r, 33 Ala. 265. CONSIDERATION 87 Facts: Johnson agreed to teach school at Camden and bring his wife as an assistant. Afterwards, threatening not to bring her, he was promised additional compensa- tion to do so. The promisor now refuses to pay the addi- tional compensation. Point Involved: If one induces a promise of extra benefit by threatening to break his contract unless such benefit is forthcoming, is there any consideration for the promise ? WALKER, J. : " * The ninth and tenth charges assert the proposition that if Johnson contracted to bring and associate his wife with him in teaching school and then refused to comply with that contract, a promise by Sellers to give him $2,500, in order to induce him to com- ply, would be without consideration. In our judgment these charges are correct. Johnson by his contract was legally bound to bring his wife to teach in the school if the contract was such as the charge supposes. He had no right to violate that contract and compensate the in- jured party in damages.* * ' If two parties make a contract, one of them may waive the performance of the contract by the other, and assume some new and additional obligation as the consideration for the performance by the other. Such obligation would be binding. It is competent for the parties to a contract to waive their rights growing out of it as originally made, and engraft upon it new terms. * * * " Question 50: State the facts, the question presented and the court's decision in the above case. (Note : It is generally agreed that a mere promise by one to perform his contract is not a consideration to support a promise to pay him additional compensation for so doing. Such cases arise where one party refuses to go on with his contract unless some greater inducement is offered than that for which he under- took to perform. Yet, consistently with this doctrine, the parties to a contract may always agree to modify its terms, or to aban- don it altogether and then make a new contract. 88 CONTRACTS In some states the doctrine has had an exception made to it, as shown in the following case.) Case No. 51. Linz v. Shuck, 106 Md. 220. Facts: Plaintiff made a written contract to dig a cel- lar for defendant for $500. After beginning work, he discovered a large quantity of soft mud beneath the sur- face of the ground, the existence of which was unsus- pected by either party, and which made the digging of the cellar much more expensive and difficult. Plaintiff alleges that he then refused to complete the contract and that defendant thereupon induced him to do so by prom- ising to pay the additional expenses caused by draining, etc. Point Involved: Whether when one is under a contract to do certain work, and in doing it, certain difficulties arise that were unforeseen by both parties, a promise to pay additional compensation for the completion of the contract is enforceable. BOYD, J. : "* * The principal question in the case is whether the plaintiff was entitled to recover for the additional costs and expenses incurred, (here the court sets out plaintiff's fifth 'prayer'). That prayer seems to have followed quite closely the language used in King v. Duluth, M. and N. R. Co., 61 Minn. 487, 63 N. W. 1105, which case, notwithstanding unfavorable criticism by some writers, in our opinion announces a principle which is not only just and equitable, but is easily reconcilable with the general rule that a promise to do, or actually doing that which a party to a contract is already under legal obligation to do, is not a valid consideration to support the promise of the other party to the contract to pay additional com- pensation for such performance. * * * When two parties make a contract, based on supposed facts which they afterwards ascertain to be incorrect, and which would not have been entered into by one party had he known the actual conditions which the contract required him to meet, not only courts of justice, but all right think- CONSIDERATION 89 ing persons must believe the fair course for the other party to the contract to pursue is either to relieve the contractor of going on with his contracts or to pay him additional compensation. If the difficulties be unfore- seen, and such as neither party contemplated or could have from the appearance of the thing to be dealt with anticipated, it would be an extremely harsh rule of law to hold that there was no legal way of binding the owner of property to fulfil a promise made by him to pay the con- tractor such additional sum as such unforeseen difficulties cost him, * * *" Question 51: (1.) State the facts, the question presented and the court 's decision in the above case. (2.) Assuming there had been no additional promise in the above case, would the contractor have been guilty of breach had he abandoned the contract on account of such unforeseen diffi- culty? (Note to above case : In a few states the doctrine of the above case has been adopted. It is known as the ' ' Minnesota doctrine. ' ' It is a doctrine difficult to support on the theory of consideration, and it is not recognized in most of the states. The student must not get the impression that the above contract was not enforce- able as originally made. An abandonment would have been a breach.) Sec. 41. Part Payment of Debt as Consideration for Discharge of Whole Debt. (a) The general rule. (b) The rule not applicable and qualifications of the rule. (a) The General Rule. Case No. 52. Pinnell's Case, 5 Co. 117. ' ' Pinnel brought an Action of Debt on a Bond against Cole of 16 1. for Payment of 8 1. 10s. the llth Day of November, 1600. The Defendant pleaded, that he at the Instance of the Plaintiff, before the said Day, scil. 1 Octob. Anno 44. apud W. solvit querenti 5 1. 2s. 90 CONTRACTS 2d. quas quidem 5 1. 2s. 2d. the Plaintiff accepted in full Satisfaction of the 8 1. 10s. And it was resolved by the whole Court, That Payment of a lesser Sum on the Day in Satisfact. of a greater, cannot be any Satisfaction for the whole, because it appears to the Judges that by no Possibility, a lesser Sum can be a Satisfaction to the Plaintiff for a greater Sum: But the Gift of a Horse, Hawk, or Eobe, &c. in Satisfaction is good. For it shall be intended that a Horse, Hawk, or Robe, &c. might be more beneficial to the Plaintiff than the Money in Re- spect of some Circumstance, or otherwise the Plaintiff would not have accepted of it in Satisfaction. But when the whole Sum is due, by no Intendment the Acceptance of Parcel can be Satisfaction to the Plaintiff: But in the Case at Bar it was resolved, that the Payment and Acceptance of Parcel before the Day in Satisfaction of the whole, would be a good Satisfaction in Regard of Circumstance of Time ; for Peradventure Parcel of it be- fore the Day, would be more beneficial to him than the whole at the Day, and the Value of the Satisfaction is not material : So if I am bound in 20 1. to pay you 10 1. at Westminster, and you Request me to pay you 5 1. at the Day at York, and you will accept it in full Satisfact. of the whole 10 1. it is a good Satisfact. for the whole : For the Expences to pay it at York, is sufficient Satisfaction ; But in this Case the Plaintiff had Judgment for the in- sufficient Pleading; for he did not plead that he had payed the 5 1. 2s. 2d. in full Satisfaction (as by the Law he ought) but pleaded the Payment of Part generally; and that the PI. accepted it in full Satisfaction. And al- ways the Manner of the Tender and of the Payment, shall be directed by him who made the Tender or Pay- ment, and not by him who accepts it. And for this Cause Judgment was given for the Plaintiff. ''See Reader 26 H. 6. Barre 37. in Debt on a Bond of 10 1. the Defendant pleaded, that one F. was bound by the said Deed with him, and each in the whole, and that the Plaintiff had made an Acquittance to F. bearing Date before the Obligat. and delivered after, by which Ac- CONSIDERATION 91 quittance he did acknowledge himself to be paid 20s. in full Satisfaction of the 10 1. And it was adjudged a good Bar ; for if a Man acknowledges himself to be satisfied by Deed [instrument under seal], it is a good Bar, without any Thing received. Vide. 12 R. 2, Barre 243. 26 H. 6 Barre 37, & 10 H. 7,&c." Question 52: Was the defense in this case good on the facts thereof ? Under what facts would it not have been good 1 (Note : The proposition that payment of a lesser sum than is due can not support a promise to release the entire debt is the great weight of authority. The rule has, however, been judicially repudiated in the case of Clayton v. Clarke, 74 Miss. 499; 37 L. R. A. 771, and has been changed by statute in some states (Alabama, Georgia, Maine, North Carolina, Tennessee and Vir- ginia). It has also in all jurisdictions been confined to the nar- rowest limits. See following cases.) (b) The Rule Not Applicable and Qualifications of the Rule. Case No. 53. Snow v. Griesheimer, 220 111. 106. Facts: There was a dispute between the parties as to the amount of rent due from G. to S. on account of certain repairs made by G., the tenant, for which he claimed S., as landlord, promised to reimburse him. G. sent checks to S., marking them as in "full payment." S. received and banked the checks but insisted that they were only received on account, and afterwards sued for the balance claimed. Point Invo\ved: If the amount of a debt is in dispute, is an agreement to accept in full settlement an amount less than the full amount claimed by the creditor sup- ported by a good consideration? Is the acceptance and retention of a check an acceptance of the terms on which it is sent, notwithstanding protests to the contrary? MR. CHIEF JUSTICE CARTWKIGHT delivered the opinion of the Court : " * * * The law is that where the amount due a creditor is ascertained and not in dispute the pay- ment by the debtor and acceptance by the creditor of a 92 CONTRACTS less sum will not operate as a satisfaction of the demand, but if the amount due is unliquidated or there is a bona fide dispute as to how much is due, a payment of the amount claimed by the debtor to be due, in full settle- ment, if accepted by the creditor is a satisfaction of the claim. It is not necessary that the debtor shall pay more in that case than he admits to be due, and if a check for such sum is offered in payment of a disputed account, it must be accepted by the creditor upon the terms upon which it is offered or must be rejected. If a check is offered in full payment of the demand, an acceptance will satisfy the demand although the creditor protests at the time that it is not all that is due him or that he does not accept it in full satisfaction of his claim. * * Qu&stion 53: (1.) State the facts, the question presented and the court 's decision in the above case. Case No. 54. Jaffray v. Davis, 124 N. Y. 164. Facts: Defendant owed plaintiff for goods sold, a debt of $7,714.37, and in settlement thereof gave three promis- sory notes aggregating $3,462.24, secured by a chattel mortgage, and the agreement was that this settlement should operate as a full discharge. The notes having been paid, plaintiff now sues for the balance on the theory that there was no consideration for its release. Point Involved: Whether if a settlement in full be ef- fected of an undisputed claim by a payment of less than the amount claimed, with something else done or given than the mere payment of money, the balance of the debt can be recovered. POTTER, J. : (The Court after stating the point involved, then reviews many cases which show that where a debt is liquidated and not the subject of bona fide dispute, a payment of a less sum to discharge it will not operate as a complete discharge, though so received, but that if there be anything else than money given, as "a horse, hawk, or robe," the agreement will stand, or if some new security be given (as in the present case), the entire CONSIDERATION 93 debt will be discharged as agreed upon; and then the court continues) : 11 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 unreason- able rule of the old law * * * ' 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.' " * * * rpjj e consideration of the new agreement (in the present case) was that the plaintiffs, in place of an open book account for goods sold, got the defend- ant's promissory notes, probably negotiable in form, signed by defendant, * * * and got security upon all the defendant's personal property for the payment of the sum specified in the notes, where before they had no security. * * * "It seems to me * the transactions * * * constitute a bar to this action." Question 54: (1.) State the facts, the question presented and the court 's decision in the above case. (Note: It is everywhere the law that the acceptance by the creditor of some additional advantage, however slight, in addi- tion to the payment of the part of the debt, is enough to make the full release given in return therefor effective. See the lan- guage in the next case. Whether the giving by the debtor of his own negotiable paper, with no other advantage, is effective, is in question under the authorities. That it will sustain the settlement, see Sard v. Rhodes 1 Mees. & W. 183 ; Wells v. Mor- rison, 91 Ind. 51 ; Listers, etc., Co. v. Fender, 74 Md. 15 ; but the point has not been raised in many cases, and seems in many jurisdictions, especially in the case of a check, to be entitled to no weight. Thus in Case No. 53, supra, the fact that payment was by check is not considered.) Case No. 55. Melroy v. Kemmerer, 218 Pa. 381, 11 L. R. A., new series, 1018. Facts: The debtor being in failing circumstances, 94 CONTRACTS offered his creditor 30 per cent of his debt as a payment in full, otherwise he would go through bankruptcy. The proposition was accepted and the 30 per cent paid. This is a suit for the balance. Point Involved: Whether, if a creditor accepts less than his full debt in full satisfaction from a debtor who is on the verge of bankruptcy, who agrees to give that amount and avoid bankruptcy, there is a good discharge of the entire debt. MITCHELL, C. J. : * ' It was said in Ebert v. Johns, 206 Pa. 395, 55 Atl. 1064, that the rule that the acceptance of a smaller sum for a debt presently due, though agreed and expressed to be payment in full, is not a good accord and satisfaction, was a deduction of scholastic logic, and was always regarded as more logical than just, and hence any circumstance of variation is sufficient to take a case out of the rule] As illustrations of such circumstances of variation, it has been held that payment a day, or even an hour, before the debt is due, or at a different place, or of a certainty in amount where the amount of the debt is uncertain, or payment of even a part by a third person, or additional security of any kind, such as the indorsement of a note by a third person, or pay- ment in chattels or anything other than money, will be a good discharge of the whole by way of accord and sat- isfaction. Note to Cumber v. Wane, 1 Smith, Lead. Gas. 357. And see a full collection of the more recent cases in the note to Fuller v. Kemp, in 20 L. E. A. 785. The rule itself is founded on the want of consideration for the agreement. As a part can never be equal to the whole, payment of a part of a debt presently due gives the creditor nothing that he was not entitled to, and de- prives the debtor of nothing he was not bound to part with before, and therefore there is no consideration. The logic is unimpeachable, but it fails to take into consider- ation the practical importance of the difference between the right to a thing and the actual possession of it. As said in Ebert v. Johns, supra, 'To a merchant with a note coming due, $5,000 before 3 o'clock today, which CONSIDERATION 95 will save his commercial credit, may well be worth more than $20,000 tomorrow, after his note has gone to pro- test.' If the debt is not due till tomorrow, the payment of the lesser sum, under all the cases, will be a good ac- cord and satisfaction ; but if the debt was due yesterday, but the debtor can only pay part of it today, the benefit to the creditor of getting that part now, rather than the whole when it is too late, is just as great, and whatever conclusion the scholastic logic and theoretical reason- ing may lead to, the importance of the practical result is a matter for the creditor to decide for himself, and, having so decided and got the benefit of it, justice and common honesty ought to hold him to his agreement. For this reason, the force of which is universally ac- cepted, the courts, so far as they could without sacrifice of the maxim of stare decisis, have brought the law into closer accord with modern business principles. "In the present case the debtor, being in failing cir- cumstances and contemplating bankruptcy, offered the plaintiffs 30 per cent of his debt as a settlement in full. The plaintiffs dissuaded 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 dis- charge in bankruptcy, and his payment of 30 per cent instead, constitute a sufficient consideration to bind the creditor to the agreement. On that point we have no doubt. A valuable consideration may consist in some right, interest, or benefit to one party, or some loss, detriment, or responsibility resulting, actually or poten- tially, to the other. Bouvier's Law Diet. '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 branches. By it the creditors got a sum 96 CONTRACTS certain, instead of the chances of an uncertain dividend in bankruptcy. On the other hand, the debtor assumed the responsibility of paying a sum certain, whether his assets were sufficient or not, and gave up his right to a release of his future 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. In Hinkley v. Arey, 27 Me. 362, it was said by Tenney, J., 'In this case the plaintiff was informed that the defendant contemplated taking the benefit of the bankrupt act, which was then in force. If this intention had been carried out, the plaintiff would lose the whole debt, beyond what he might receive as a dividend; and the latter, judging from his letter, he did not consider as very valuable. To save himself from a greater loss under the law, he agreed upon the terms of composition offered. The defendant, upon the agree- ment and payment to Hubbard, took no further steps to obtain relief under the bankrupt law. ' It was accord- ingly held that the accord and satisfaction were good. The same ruling was made in Dawson v. Beall, 68 Ga. 328. And in Curtiss v. Martin, 20 111. 557, 578; Eng- bretson v. Seiberling, 122 Iowa, 522, 64 L. R A. 75, 101 Am. St. Eep. 279, 98 N. W. 319, and Kice v. London & N. W. American Mortg. Co., 70 Minn. 77, 72 N. W. 826, the courts went still farther, and held the satisfac- tion valid where the debtor was insolvent or in fail- ing circumstances, though there was no express inten- tion to seek a discharge in bankruptcy. In the last- named case it was held that an agreement on behalf of the estate of a debtor supposed to be insolvent was good, though it turned out in fact that it was solvent. And in Pettigrew Mach. Co. v. Harmon, 45 Ark. 290, the principle that part payment by a third person makes the accord valid was held to govern, where the third person was one to whom the debtor had assigned his assets for the payment of his debts. On principle and CONSIDERATION 97 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.*' Question 55: What were the facts, the question presented and the decision of the court in the above case ? (Note : The exact question presented in this case has seldom been raised, and there are very few authorities on the point. See note to the above case in 11 Lawyer's Reports Annotated, New Series, on page 1024, citing as in accord with the above case, Engbretson v. Seiberling, 122 Iowa 522; Seegmiller v. Kelley, (Iowa) 99 N. W. 1131; Herman v. Schlesinger, 114 Wis. 382; Rice v. London & N. W. Am. Mort. Co., 70 Minn. 77. Contra, Beaver v. Fulp, 136 Ind. 595.) Case No. 56. Bell v. Baxter, 86 N. Y. 195. Facts: The debtor agreed with all his creditors, and they with each other, to accept a certain per cent in settlement of their claims. Point Involved: Whether an agreement by a debtor with his creditors, and they with him and with each other, to accept a part of their debts in full settlement, is binding. EARL, J. : ' ' * * * An agreement to discharge the whole of a debt upon receiving payment of a portion is nudum pactum and not binding. But to this general rule there are some exceptions, one of which is a composition agreement, where the creditors agree to take a portion of their debts in satisfaction of the whole. In such a case the agreement of each creditor is said to furnish a consideration for the agreement of every other creditor who becomes a party to the composition agreement. Each creditor enters into a new agreement with the debtor, the consideration of which is the forbearance by all the other creditors who become parties to the composition to insist upon their claims in full. Question 56: What is a composition with creditors? Is it binding ? Distinguish it from the case of a settlement by a debtor with his creditor. 98 CONTRACTS Sec. 42. Compromise and Settlement. Case No. 57. McKinley v. Watkins, 13 111. 140. Facts: McKinley and Watkins traded horses. A month or two after the trade the horse which Watkins got died from an unsoundness that existed when the trade took place. It did not appear that McKinley was guilty of any deceit or that he made any warranty with respect to the horse being sound. Watkins complained to McKinley, and McKinley promised to give him $50 or a $50 horse if he would not sue. This suit was brought to recover such $50. The trial court instructed the jury, "If the jury believe from the evidence that there was a horse trade between Watkins and McKinley, out of which a difficulty had grown, and that Watkins was threat- ening to sue McKinley, and not deceiving him by any misrepresentations, and that McKinley rather than be sued promised Watkins that he would pay him $50, then said promise is binding, and this regardless of the ques- tion as to whether McKinley would or would not have been liable in the suit which Watkins was threatening to bring against him.'* The jury found for Watkins, and McKinley appeals. Point Involved: Was the above instruction a good statement of the law? TRUMBULL, JUSTICE : " * * * The only question in the case is as to the propriety of this instruction, and in one point of view it is clearly erroneous. It assumes that the defendant would be bound by his promise, whether assented to by the plaintiff or not. Unless the plaintiff were bound on his part not to do the act which formed the consideration of the promise of the defend- ant, the agreement was void for want of mutuality. The promise of defendant to pay $50 if plaintiff would not sue him was Incomplete till accepted by the plaintiff. Chitty on Contracts, 13. "A mere offer, not assented to, constitutes no con- CONSIDERATION 99 tract; for there must be not only a proposal, but an ac- ceptance thereof. Story on Contracts, Par. 377, 378. "The instruction in other respects is very nearly, if not quite, correct. It assumes that, in order to support the promise, there must have been a horse trade between the parties, out of which a difficulty had arisen, and the plaintiff was threatening to sue the defendant, and not deceiving him by any misrepresentations. If by this is to be understood that the plaintiff must in good faith have supposed that he had a good cause of action against the defendant, growing out of the horse trade, the instruction is strictly proper. It is immaterial whether the plaintiff could have recovered in such action or not. If he honestly suppose4 that he had a good cause of action, the compromise of such right was a sufficient consideration to uphold a contract fairly entered into between the parties, irrespective of the question as to who was in the right. It has often been decided that the compromise of a doubtful right is a sufficient consideration for a promise; and it is imma- terial on whose side the right ultimately turns out to be, as it must always be on one side or the other, because there can be but one good right to the same thing. Tay- lor v. Patrick, 1 Bibb, 168; Russel v. Cook, 3 Hill, 504; Moore v. Fitzwater, 2 Rand. 442; O'Keson v. Barclay, 2 Penn. Rep. 531. "If the plaintiff was threatening to sue on a claim which he knew was wholly unfounded, and which he was setting up as a mere pretense to extort money from the defendant, a contract founded on a promise not to sue in such a case would be utterly void. In order to support the promise there must be such a claim as to lay a reasonable ground for the defendant's making the promise, and then it is immaterial on which side the right may ultimately prove to be. Edwards v. Baugh, 11 Mees. & Wels. Rep. 641; Perkins v. Gay, 3 Serg. & Rawle, 331. "The judgment of the circuit court is reversed, and 100 CONTRACTS the cause remanded for a new trial. Treat, C. J., dis- sented. Judgment reversed." Question 57: (1.) State the facts, the question presented and the Court 's decision in the above case. (2.) Does it make any difference whether the dispute settled would, if not settled, have terminated in favor of the now de- fendant ? (3.) Suppose the plaintiff knew that his claim was wholly unfounded, would that change the result ? CHAPTER FIVE LEGALITY OF CONTRACTS A. Legality of contract an essential D. Judicial remedies in illegal agree- element. ments. B. Particular sorts of illegal agree- E. Contracts whose objects are ments. partly legal, partly illegal. C. The connection of the illegality with the agreement. A. Legality of Contract an Essential Element. Sec. 43. Illegal Agreements Void. (Note: As, will appear from the following cases an agree- ment made to violate the law cannot be deemed a contract. Le- gality, then, we may look upon as an essential element in con- tract. It follows that illegal agreements are not contracts ; yet it is often convenient, and certainly justified by usage, to use the term "illegal contracts." It has been suggested that contracts usually regarded as illegal agreements are divisible into two classes those against public policy, but otherwise fair and moral, and those illegal because of a positive intent to do an illegal act. Thus, a contract in unreasonable restraint of trade is void, yet it is not illegal in the sense that it contemplates any commission of crime, and no matter howsoever closely interwoven with other covenants will in no way taint them. We may, however, for our purposes, group all such contracts under one heading, as illegal. Contracts are usually illegal because of their illegal object. They may, however, be illegal not because of their character, but simply because in their execution the law is violated, the con- tract itself made with the same object under other circumstances being enforceable. Such are contracts made by one without a license required by law.) 101 102 CONTRACTS B. Particular Classes of Illegal Agreements. (a) Contracts whose objects are in formation is in violation of violation of law. law. (b) Contracts the manner of whose (a) Contracts Whose Objects Are in Violation of Law. (1) Contracts whose objects are (2) Contracts whose objects are against public policy or the forbidden by statutory law. common law. (1) Contracts Whose Objects Are Against Public Policy or the Common Law. 44. Contracts in restraint of trade 46. Contracts tending to corrupt and to create monopoly. the public service. 45. Contracts in restraint of mar- 47. Contracts against morality in riage. general. Sec. 44. Contracts in Restraint of Trade and to Create Monopoly. Case No. 58. Diamond Match Co. v. Roeber, 10G N. Y. 473. Facts: Roeber sold his match factory in New York to a corporation whose rights the Diamond Match Com- pany acquired by assignment. He covenanted as a part of his contract not to manufacture or sell matches any- where in the United States, except Nevada and Mon- tana. When this contract was made, the match company was engaged in manufacturing matches in several states, and selling them throughout the United States. Roeber, after this contract, went into the employ of his vendee, remaining with the company several years. He then became superintendent of a rival concern and also opened up a match store. This was a suit for an injunc- tion against him. Point Involved: Is a contract in restraint of trade valid? This question being affirmatively answered with qualification that the restraint must be reasonable, what restraint is reasonable? ANDREWS, J., delivered the opinion of the Court: d e f en <3 ail t for his main defense relies LEGALITY 103 upon the ancient doctrine of the common law * that a bond in general restraint of trade is void. The tendency of recent adjudications is marked in the direction of relaxing the rigor of the doctrine that all contracts in general restraint of trade are void irre- spective of special circumstances. * ' The law has for centuries permitted contracts in par- tial restraint of trade, when reasonable, and in Homer v. Graves (7 Bing. 735), Chief Justice Tindall consid- ered a true test to be 'whether the restraint is such only as to afford a fair protection to the interests of the party in favor of whom it is given, and not so large as to inter- fere with the interests of the public. * * "In the present state of the authorities, we think it cannot be said that the early doctrine that contracts in general restraint of trade are void, without regard to circumstances, has been abrogated. But it is manifest that it has been much weakened and that the formation upon which it was originally placed has, to a consider- able extent at least, by the change of circumstances, been removed. "The covenant in the present case is partial and not general. It is practically unlimited as to time, but this under the authorities is not an objection if the contract is otherwise good. It is limited in space. * * * "We are of the opinion that the covenant, being sup- ported by a good consideration, and constituting a par- tial and not a general restraint, and being, in view of all the circumstances disclosed, reasonable, is valid and not void. * * *" Question 58: (1.) What was the extent of the business of the eovenantee in the above ease? What was the agreement of the covenanter? What was the relief asked for in the present suit ? Did the Court grant it ? (2.) What was the ancient doctrine of the common law respect- ing agreements in restraint of trade? (3.) What is the test as to whether the restraint imposed is reasonable ? 104 CONTRACTS (4.) Is it any objection that the restraint is unlimited in respect to time? (5.) Do you think any restraint of trade would be good if it were totally unlimited in respect to space ? (6.) Suppose the present agreement had covered the entire United States, do you think it would have been enforceable ? (7.) If a contract in restraint of trade is unreasonable in respect to the space covered, would the courts enforce it over a reasonable area ? (Note to Case Fifty-eight: The question presented in Case Fifty-six is one that has occasioned much divergence of au- thority. All courts agree that a contract in unreasonable re- straint of trade is void. But whether it is reasonable does not depend alone on what is necessary to protect its purchaser. The public interests are also to be considered. Accordingly some courts hold that while a covenant in restraint of trade involving special skill and knowledge may cover (if reasonable) a city, a county, or severaj. counties, it cannot cover the entire state. Thus, Lanzit v. Mfg. Co., 184 111. 326.) Case No. 59. Moore v. Bennett, 140 111. 69. Facts: Moore and others sued Bennett and others for damages resulting from a breach of contract. The parties were court reporters and formed a combination to control prices, establishing certain rates. Bennett and others cut these rates and underbid the other mem- bers of the association. This is a suit on account of such breach. Point Involved: Whether a combination to destroy competition and arbitrarily keep up prices is valid. MR. JUSTICE BAILEY : "Whatever may be the proposed objects of the Association it clearly appears, * * * that one of its objects, if not its leading object, is to con- trol the prices to be charged by its members for sten- ographic work, by restraining all competition between them. * * * "While some of the cases cited involve elements not present here, the determining circumstances in all of them seem to have been a combination or conspiracy LEGALITY 105 among a number of persons engaged in a particular busi- ness, to stifle or prevent competition and thereby to en- hance or diminish prices to a point above or below what they would have been if left to the influence of unre- stricted competition. All such combinations are held to be contrary to public policy and the courts therefore will refuse to lend their aid to the enforcement of the contracts by which such combinations are sought to be effected. * * *" Question 59: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) Would you distinguish the above case from a union of laborers to bring about an increase of wages ? Case No. 60. The Distilling & Cattle Feeding Co. v. People, 156 111. 448. Facts: This was a quo warranto proceeding brought by the Attorney General against the Distilling and Cat- tle Feeding Co., alleging that it existed by reason of an agreement for the creation of a monopolistic trust entered into and composed by various corporations and individuals for the purpose of stifling competition and creating monopoly. The proceeding was brought for the purpose of dissolving the said trust on the ground that it was illegal. Point Involved: Is a combination for purposes of monopoly illegal! MR. JUSTICE BAILEY: "There can be no doubt, we think, that the Distillers' and Cattle Feeders' Trust, which preceded the incorporation of the defendant, was an organization which contravened well-established principles of public policy, and that it was, therefore, illegal. No one who intelligently considers the scheme of this trust, as detailed in the information, can for a moment doubt that it was designed to be, and was in fact, a combination in restraint of trade, and that it was organized for the purpose of getting control of the manu- facture and sale of all distillery products, so as to stifle competition, and to be able to dictate the amount to be 106 CONTRACTS manufactured and the price at which the same should be sold, and thus to create, or tend to create, a virtual monopoly in the manufacture and sale of products of that character. No other business principles can be suggested upon which the development of such an elab- orate and far-reaching scheme can be accounted for. No rational purpose for such organization can be shown consistent with an intention to allow business to run in its normal channels, to give competition its legitimate operation, and to allow both production and prices to be controlled by the natural influence of supply and de- mand, and the results, as shown by the information, were such as might be anticipated. The trust obtained pos- session of nearly all the distilleries and of nearly the entire distillery product of the United States, thus enabling it to dictate prices and the amount of produc- tion, and to thus draw to itself the substantial control of the distillery business of the country. "Combinations of this character have been frequently made the subject of judicial investigation within the last few years, and while the proceeding has most generally been against some one of the corporations entering into the trust, the courts, so far as they have had occasion to speak on the subject at all, have held such trusts to be illegal." Question 60: (1.) What was the purpose of the above suit ? By whom was it brought? W,hat was the object of the combi- nation involved ? What did the Court say with reference to the legality of such combinations ? (2.) What is the nature of monopoly ? Suppose an automobile manufacturer by his skill, industry and integrity virtually secures the market for the class of cars he sells, has he a monopoly ? Distinguish between such a case and the above case. Sec. 45. Agreements in Restraint of Marriage. Case No. 61. Sterling v. Sinnickson, 5 N. J. L. 756. Facts : Suit was brought on the following instrument : "I, S. N., am hereby bound to B. S. for the sum of $1,000, provided he is not lawfully married in the course of 6 LEGALITY 107 months from the date hereof. Witness my hand and seal. Burlington, May 16, 1816. (Signed) S. N. (Seal.) " Point Involved: Whether a contract whose tendency is to restrain freedom of marriage is binding. KIRKPATEICK, C. J., delivered the opinion of the Court : The contract was not only useless and nuga- tory, but it was contrary to public policy. " Marriage lies at the foundation, not only of indi- vidual happiness, but also of the prosperity, if not the very existence, of the social state; and the law, there- fore, frowns upon, and removes out of the way, every rash and unreasonable restraint upon it, whether by way of penalty or inducement. A bond * * * to marry, if there be no obligation on the other side, no mutual promise, or a bond not to marry, are equally against the law. They are both restraints upon the free- dom and choice and of action in a case where the law wills that all shall be free. * * *" Question 61 : (1.) State the point involved in the above case, how it arose, and the Court's decision. (2.) Why are contracts in restraint of marriage, void? (Note : Contracts hi restraint of the freedom of marriage are generally held void. It is held, however, that one may devise or bequeath property on condition that his wife do not marry again.) Sec. 46. Contracts Tending to Corrupt the Public Service. Case No. 62. Mills v. Mills, 40 N. Y. 543. Facts: A contracted with B "that he would give all the aid in his power and spend such reasonable time as may be necessary, and generally use his utmost influence and exertions to procure the passage into a law of the said bill heretofore introduced into the senate, etc." He now sues for his fees. Defense, that the agreement was illegal. Point Involved: Whether an agreement to use influ- ence and to exert one's self to secure the passage of a 108 CONTRACTS particular law in behalf of private interests is against public policy. HUNT, C. J., delivered the opinion of the Court: * * * it i s not suggested that the plaintiff was a professional man whose calling it was to address leg- islative committees. It is not suggested he had any claims of right, which he proposed to advocate. To procure the passage of such a law for the benefit of the defendant he undertook to use his utmost influence and exertions. This contract is void as against public policy. It is a contract leading to secret, improper and corrupt tampering with legislative action. It is not necessary to adjudge that the parties stipulated for corrupt action, or that they intended that secret and improper resort should be had. It is enough that the contract tends directly to those results. It furnishes a temptation to plaintiff to resort to corrupt means or improper devices to influence legislative action. Question 62: (1.) What was the nature of the agreement on which the above case is based ? What did the Court hold ? (2.) Suppose in the above case the party employed had firmly believed in the merits of the law proposed, would this make any difference ? (3.) The business men of a certain city compose an Associa- tion of Commerce. One of the objects of the association is to procure the passage of laws which the members of the associa- tion regard as beneficial to commerce. They employ A, an attor- ney, to draft bills for introduction into the legislature and to appear before committees and argue in behalf of such proposed measures. A, having performed such services, sues for his salary. Can he recover? Why? Case No. 63. Kansas City Paper House v. Foley Ewy. Print Co., 85 Kan. 678, 39 L. B A, new series, 747. Facts: The K. C. Paper House sued the Foley Ewy. Printing Co. upon a promissory note. The defendant claimed a credit of $500, which it claimed the plaintiff owed Foley, the President of the defendant, and which such President had transferred to it. The only question LEGALITY 109 involved was the validity of this $500 credit. The con- tract upon which Foley claimed this credit was made by the plaintiff company with Foley, under which Foley was to sell paper and other material to the state, the evidence going to show that his compensation was to be contingent upon his success. Point Involved: The legality of contracts of agency by which the agent is to sell goods to a public body, his compensation depending on his success. MASON, J. : * ' * * * There was some evidence that the contract contemplated a payment for the exertion of personal and political influence upon members of the executive council, and that the services rendered were of that character. If that was the case, the contract was, of course, void. But there was also testimony that Foley was employed simply as an ordinary salesman, because of his experience in using and buying paper and other material handled by the plaintiff, and that his efforts were in accordance with that employment, and were con- fined to exhibiting samples and " talking up" the goods and the responsibility of the house. If that was the case the contract was valid. In this aspect the question is merely one of fact to be decided by a tribunal which sees and hears the evidence (the court below). "The evidence suggested, but perhaps did not abso- lutely determine, that Foley 's compensation was to be contingent upon the procuring of the state contract. There is a conflict of judicial opinion as to whether that circumstance should stamp the contract as illegal. * * (Here the Court reviews certain cases holding such contracts on commission illegal, but distinguishes such cases by showing that they involve some additional ele- ment, such as personal and corrupt influence with the members of the governmental body.) "The fact that the compensation of a salesman, em- ployed to sell goods to the public, depends upon his suc- cess may tend to show a purpose to use illegal means, or a probability that such means will be used; but we 110 CONTRACTS do not think that it should be regarded as conclusive in either point, nor that in and of itself it should be deemed to characterize the employment as illegal. (Cit- ing authorities.) * * * Many of the cases in these collections involve contracts for influencing legislation, which are not entirely analogous to those for the sale of goods, and may well be regarded as subject to a more stringent rule. * * *" Question 63: (1.) State the facts, the point involved and the Court's decision in the above case. (2.) What element would render such a contract illegal? (3.) The Court says that contracts to procure legislation are subject to a more stringent rule than contracts to secure the sale of goods to the government. Why ? Sec. 47. Contracts Against Public Policy in General. Case No. 64. Wilson v. Carnley (1908), 1 K. B. 729, 1 British Ruling Cases, 901. Facts: Plaintiff's suit is for a breach of promise of marriage made by defendant. Defendant was at the time a married man and plaintiff knew it. The defend- ant's wife having died, the defendant refuses to carry out his agreement to marry plaintiff, and plaintiff sues. Point Involved: Whether a promise of a married man, known to be married by the promisee, to marry another woman upon becoming qualified to do so, is en- forceable. VAUGHAN WILLIAMS, L. J. : " * * I have no doubt that this was a contract which had a tendency to make the defendant, who, in the lifetime of his wife, had promised to marry another woman, do something which was in contravention of the obligations which are rec- ognized in this country as owing from a husband to his wife. It is sufficient to say that this is obviously a con- tract which a husband in his wife's lifetime could not enter into without being disloyal to his wife. When the plaintiff's counsel during the argument, in mitiga- tion, I think, of the husband's conduct, adverted to the LEGALITY 111 fact that at the time when the contract was made the hus- band and the plaintiff both thought that the wife was going to die soon, I could not help feeling that such a contract as this might make the wish the father to the thought. But, however that may be, it is a contract against public policy, as tending to make the husband disregard the acknowledged rules of morality as to mar- ried life, and therefore cannot be enforced. * * *" Question 64: "Why should the above agreement be deemed illegal? (2) Contracts Whose Objects Are Forbidden by Statu- tory Law. 48. Wager agreements. 49. Usurious agreements. Sec. 48. Wager Agreements. Case No. 65. Bernard v. Taylor, 23 Oregon, 416. Facts: Suit by Bernard to recover from a stake- holder the sum of $650 deposited by Bernard as a wager on the outcome of a footrace, and demanded by him of the stakeholder before the race was run. Point Involved: Whether a wagering agreement is valid. Whether the court will relieve one from the con- sequences of his illegal agreement. LORD, C. J.: "* * * The first contention for the defendant is that wagers or wagering contracts upon indifferent subjects are valid in this state, by force of the common law, except when prohibited by statute. There can be no doubt that wager contracts upon indif- ferent matters were valid at common law. * * But all wagers that tended to a breach of the peace, or to injure the feelings, character or interests of third per- sons, or which were against the principles of morality or of sound policy, were void at common law. And all wagers in contravention of the positive provisions of any statute are also void. Of late years by legislation and judicial decision the hostility to wagers of every 112 CONTRACTS nature has been marked. This is doubtless due to the increase of betting and the evil consequences resulting therefrom. * * *" (The court allowed the recovery of the money from the stakeholder on the ground that the suit was to re- scind an illegal agreement from which plaintiff attempted to withdraw while it was entirely executory on the other side. See Subdivision D, post, for a discussion of this principle.) Question 65: Were wagers illegal by the common law? "What is the law now? If one deposits money for wagering purposes with a stakeholder, can he recover it back if he demands it before the money is paid over to the other party by the stakeholder ? Case No. 66. Pope v. Hanke, 155 111. 617. Facts: Suit on notes. Defense, that they were given in settlement of a gambling transaction, consisting in a speculation on the future price of grain. The court found that the transaction consisted in the form of contracts for the future sale and delivery of grain, but with the understanding that no grain was to be called for or de- livered, but a settlement was to be effected between the parties on the basis of the difference between the con- tract rate and the market price on the day of delivery. Point Involved: Whether an agreement in form of a sale of property, but in spirit a speculation on the future price of such property, is valid. MR. JUSTICE MAGRUDEB delivered the opinion of the Court: "* * * The transactions * * * were mere speculations upon the future prices of grain. The con- tracts for the delivery and sale of grain in the future were not made with the intention that any grain should be received or delivered, but with the understanding that each transaction should be settled by the payment of the difference between the contract price and the market price at the time fixed. It is well settled that all such contracts are mere wagers or gambling contracts and are void. * * * Such is the law of Missouri where the notes sued on are admitted to have been executed. * * * In Crawford v. Spencer, 92 Mo. 498, the Supreme Court LEGALITY 113 of Missouri said : ' The law is now settled that a sale of goods to be delivered in the future is valid though there is an option as to the time of delivery and though the seller has no other means of getting them than to go into the market and buy them; but if under the guise of such a contract, valid on its face, the real purpose and intention of the parties is merely to speculate on the rise or fall of prices, and the goods are not to be delivered, but the difference between the contract and market price only paid, then the transaction is a wager and the contract is void/ Such also is the law in Illi- nois, where the present suit has been brought. * "This intention (merely to speculate) may be estab- lished not merely by the assertions of the parties, but by all the attending circumstances. (Defendant) had a mill at Trenton, but its capacity was only 200,000 bushels per annum; and yet * * the volume of transac- tions between the parties amounted, in a period of a little more than three months, to 2,190,000 bushels of wheat, 1,240,000 bushels of corn, and 60,000 bushels of oats. * * The question of intention is a question for the jury, to be determined by a considera- tion of all the evidence. * * *" Question 66: (1.) State the facts, the question presented and the opinion of the Court in the above case. (2.) Is a sale of goods which are to be acquired by the seller in the future, valid?. (3.) If the parties honestly contemplate a sale at the time of the agreement, do you think it would be illegal for them to agree at the time of the delivery, to settle by the payment of money ? Sec. 49. Usurious Agreements. Case No. 67. In Ee Fishel, 192 Fed. 412. Facts: Proceedings in bankruptcy. In question, whether certain loans made to the bankrupts were usu- rious. The contract governing the loan called for inter- est on the money loaned and commissions on collateral. 114 CONTRACTS ' ' Contemporaneous construction, evidenced by the ac- tions of the contracting parties before breach, shows . the discount company in the exact position of a lender on collateral with legal title to the same, in effect a chattel mortgage, charging by agreement before loan 6 per cent, on the loan and 5 per cent, on the face of the collateral, equivalent on a 90-day accommodation to over 25 per cent per annum." The loan is governed by the laws of New York, which is stated in the opinion. Point Involved: The character of usury and the penalty therefor under the laws of New York. HOUGH, J.: "* * * Section 373 of the general business law (Consol. Laws 1909, c. 20) declares that: " 'All * * * contracts or securities all deposits of goods or other things whereupon or whereby there shall be reserved or taken, or secured or agreed to be reserved or taken any greater sum * * * or value, for the loan of any money (than six per cent, per annum) shall be void.' 11 Language could not be broader or more plain; and, under it, courts are bound to inquire whether by any de- vice, however circuitous, or under any name, however fair in sound, a borrower is surrendering and a lender exacting more for the use of money than an equivalent of the legal rate of interest, whether paid in money or otherwise. " Considering the attitude of most states and coun- tries on this subject, the New York act seems archaic, but that can make no difference in the duty of courts. Since, however, in order to reveal usury, it may be nec- essary by oral evidence to prove the falsity of paper contracts fair and legal on their face, experience has shown that the statute contains a temptation to ras- cally borrowers to avoid payment of just debts by offer- ing usury as a defense. On this knowledge of human weakness are founded certain rules of decision judge made, but long since established beyond cavil. "Thus the burden is on him who alleges usury to LEGALITY 115 prove it by clear and satisfactory evidence the offense is largely one of intent and the unlawful usuance must be given and retained in pursuance of an agreement, mutual and existing at the inception of the transaction. Eosenstein v. Fox, 150 N. Y. 354, 44 N. E. 1027, and cases cited. "It also happens not infrequently that the lender does more than merely hire out his money, and for such addi- tional service he is entitled to be paid, if the service be actual, and whatever objection there may be to his rate of charge, it cannot be based upon the usury statute, unless the whole transaction is plainly but a cover for unlawful lending. Be Wilde's Sons (D. C.), 133 Fed. 562, and cases cited. "But if, when all the evidence and explanations have been considered, it clearly appears that all the lender did or expected to do was to loan, and all the borrower got or expected to get was money, then any word or phrase, any collateral or contemporaneous agreement by virtue of which more than the amount of the lawful rate flows into the pockets of the lender, must and should be swept aside, and the intended and agreed upon usury denounced. See especially Heidenheimer v. Mayer, 42 N. Y. Super. Ct. 506, affirmed 74 N. Y. 607." Question 67: (1.) "What is usury? (2.) "What is the penalty under the laws of New York? (3.) Can a lender charge a "commission" on his own money where the per cent is thus with the interest raised to more than the legal rate? (Note on Case 66: The laws of usury differ widely in the different states. The contract rate and the penalty varies, but in most states the usury does not make the principal unrecoverable but either causes (1) a loss of the excess interest, or (2) a loss of all interest; or (3) a loss of all interest and some portion of the principal.) (b) Contracts Legal in Their Objects, but Illegal by the Manner of Their Formation. 116 CONTRACTS 50. Agreements made on Sunday. 51. Agreements made by un- licensed parties. Sec. 50. Agreements Made on Sunday. Case No. 68. Richmond v. Moore, 107 111. 429. Facts: This was a contract of employment for serv- ice alleged to have been broken. Damages were asked for such breach". Defense: That the supposed contract was void, being made on Sunday. Point Involved: Whether a contract made on Sunday is illegal. MR. JUSTICE WALKER delivered the opinion of the Court : "The common law did not prohibit the making of such contracts. In Drury v. Deputaire, Taunt. 136, Lord Manfield said: 'It does not appear that the common law ever considered these contracts as void which were made on Sunday.' Judgment was accord- ingly given for the price of a horse sold on that clay. * * * The doctrine that contracts made on Sunday are void depends, therefore, alone on statutory enact- ments, and in various states of the Union the statutes vary in language or substance. "The 29th Car. II, Chap. 257, seems to be the basis of the various enactments of the Union. It is this : ' That no tradesman, artificer, workman, laborer, or other per- son whatsoever, shall do or exercise any worldly labor, business or work on the Lord's day.'- It contains excep- .tions of which are works of necessity or charity. 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 Court holds the Illinois statute to be a more liberal statute than the English statute, and decided that the above contract is enforceable. In many states, however, the statute is a virtual adoption in its strictness of the British statute.) Question 68: (1.) What were the facts, the question pre- sented and the Court's decision in the above case? (2.) What contracts made or to be performed on Sunday are valid in every jurisdiction? LEGALITY 117 Sec. 51. Agreements Made Without Required License. Case No. 69. Buckley v. Humason, 50 Minnesota, 195. Facts: Defendants sold to Augustus K. Barnum cer- tain leasehold property, situated in Chicago, called the Ogden Flats, in exchange for property in St. Paul, valued at $175,000. Plaintiff Buckley was employed by defend- ants as their broker at Chicago, and he there procured the purchaser and acted as their agent in the trans- action. This suit is for $4,375 commission for his serv- ices. An ordinance was in force in the City of Chicago, that it should be unlawful for any person to exercise within the city the business of real estate broker with- out a license, and provided the amount to be paid, and subjected violators to a pecuniary penalty for each violation. Plaintiff had no such license during the nego- tiation and exchange. Point Involved: Whether one who is engaged with- out a license in a business in which the government re- quires a license for purposes of regulation can recover his fees under agreements made by him while so un- licensed. EBUBGH, J. : " * The particular transaction in question was therefore in violation of law, unless he was duly licensed, which was not shown. On the contrary, the answer alleges, and it stands admitted, for want of a reply, that the plaintiff was not duly licensed as a broker. The plaintiff cannot, therefore, recover his com- missions. Hustis v. Pickands, 27 111. Ap. 270; Johnson v. Hulings, 103 Pa. St. 501; Holt v. Green, 73 Pa. St. 198. "Business transactions in violation of law cannot be made the foundation of a valid contract ; and the general rule is that where a statute makes a particular business unlawful generally, or for unlicensed persons, any con- tract made in such business by one not authorized is void. * * *" Qiiestion 69: What were the facts, the question presented and the Court 's decision in the above case ? 118 CONTRACTS (Note: The above decision is in line with the weight of au- thority. See Ames v. Gilman, 51 Mass. 239 (unlicensed attorney at law cannot recover fees) ; Deaton v. Lawson, 40 Wash. 486, 2 L. R. A. N. S. 392 (unlicensed physician cannot recover fees) ; Levison v. Boas, 150 Cal. 185, 12 L. R. A. N. S. 575 (unlicensed pawnbroker cannot claim fees or lien on pledges). It is brought out by the cases on this subject that where there is a law penal- izing an act it impliedly prohibits it, and contracts based thereon are void.) 0. The Connection of the Illegality With the Agreement. 52. Knowledge by one party that companied by encourage- other party intends illegal ment or assistance to the consequences. other to carry out illegal 53. Knowledge by one party ac- purpose. Sec. 52. Knowledge by One Party that Other Party Intends Illegal Consequences. (a) Knowledge of the other's in- (b) Knowledge of the other's in- tent to commit offense of tent to commit offense of lesser magnitude. greater magnitude. (a) Knowledge of the Other's Intent to Commit Of- fense of Lesser Magnitude. Case No. 70. Graves v. Johnson, 179 Mass. 53. Facts: A sold liquors to B, knowing that B intended to resell contrary to law, but he was wholly indifferent what use B made of the liquors. This is a suit for the price of such liquors. Point Involved: Whether a contract in other respects fully in compliance with law is rendered illegal merely because one of the parties thereto, otherwise not in fault, knows that the other intends to make use of the results of the contract to commit a crime of lesser mag- nitude. HOLMES, C. J., delivered the opinion of the Court: * * * j n Olir O pi n i on a sa i e otherwise lawful is not connected with subsequent unlawful conduct by the mere LEGALITY 119 fact that the seller correctly divines the buyer's unlawful intent closely enough to make the sale unlawful. The defendant (B) was free to change his mind, and there was no communicated desire of the plaintiff's to co-operate with the defendant's present intent. * * *" Question 70: (1.) State the facts, the question presented and the decision of the Court in the above entitled case. (2.) A, owning a house, leases it to B, knowing that B intends to use it for illegal or immoral purposes, but he does nothing to encourage or assist such illegal purpose, and is indifferent what use B makes of the premises. Is the lease void? Can A recover the rent ? (Note: Answer to Question (2.). On this point there is some conflict of authority. See the late cases of Ashford v. Mace, Ark. , 39 L. R. A. N. S. 1104, and Harbison v. Shirley, 139 Iowa, 605, 19 L. R. A. N. S. 662, holding that the landlord's knowledge, if there is no connivance of any sort, will not make the lease void. The first case bases its decision on the ground that uses of premises for gambling and bawdy house purposes are classed as offenses of lesser magnitude within the distinctions taken by the cases. But many courts hold such leases void. There would seem to be a distinction between a sale of goods in which the vendor parts with all property and control and a rental of premises of which he remains the landlord. See Fields v. Brown, 188 111. 111. The subject is governed by statute in some states.) (b) Knowledge of the Other's Intent to Commit Of- fense of Greater Magnitude. Case No. 71. Hanauer v. Doane, 12 Wall. 342. Facts: Suit to recover the price of supplies and com- missary stores for the Confederate army. Defense, illegality. The lower court instructed the jury that the seller's knowledge of defendant's purpose was imma- terial. Appeal. Point Involved: Whether a contract in other respects fully in compliance with law is rendered illegal merely because one of the parties thereto, otherwise not in fault, knows that the other intends to make use of the results 120 CONTRACTS of the contract to commit a crime of "greater magni- tude.'" MB. JUSTICE BRADLEY delivered the opinion of the Court: "* * * In this instruction we think the judge erred. With whatever impunity a man may lend money or sells goods to another who he knows intends to devote them to a use * * * of inferior criminality, he cannot do it * : ' when he knows or has every reason to be- lieve that such money or goods are to be used for the perpetration of a heinous crime, and that they were pro- cured for that purpose. Can a man furnish another with the means of committing murder or any abominable crime, knowing that the purchaser procures them and intends to use them for that purpose and then pretend that he is not a participator in the guilt? Can he wrap himself up in his own selfishness and heartless- ness and say, 'What business is that of mine? Am I the keeper of another man's conscience?' No one can hesitate to say that such a man is almost, if note quite, as guilty as the principal offender. "No crime is greater than treason. * Question 71: State the facts, the question presented and the decision of the Court in the above case. Sec. 53. Knowledge by One Party Accompanied by En- couragement or Assistance to the Other to Carry Ont Illegal Purpose. Case No. 72. Kohn v. Melcher, 43 Fed. B. 641. Facts: K. & A. were wholesale liquor dealers at Bock Island, Illinois. M. was a druggist at Atlantic, Iowa, holding a permit to sell spiritous liquors for medicinal purposes. Under cover of this permit and in violation of law, M. was virtually engaged in a saloon business, obtaining his liquor from K. & A. M. was required to make monthly statements to the authorities, and in these he falsified the amounts of his sales and profits. K. & A. knew of M. 's illegal practices, and in order to aid him LEGALITY 121 in the same furnished him from time to time two sets of invoices, one showing the true purchase price, and the other, which he might show to the authorities, a higher, fictitious price. They also shipped a part of the liquors to M. under a fictitious name, and also enclosed a part of the liquors in boxes and barrels, labeling them as containing hardware, crockery, etc. K. & A. bring suit. Defense, illegality. Point Involved: Whether a contract that would otherwise be legal is rendered illegal by the purpose of one party to make an illegal use thereof, accompanied with an encouragement or connivance in such illegal use by the other party. SHIRAS, J., delivered the opinion of the Court: "To recover the balance due from defendant and resulting from transactions of the nature indicated, the plaintiffs now ask the aid of this Court : "It is refused. * * * "The statute of Iowa expressly forbids a registered pharmacist from selling intoxicating liquors as bever- ages. The plaintiffs and defendant combined together to evade this statute, resorting to fraud and perjury to accomplish that purpose. * * * The ground upon which the plaintiff's right of action for the liquors sold is defeated is that the plaintiffs sold the liquors to the defendant, * * well knowing that the statute of Iowa * * forbade such pharmacist from selling intoxicating liquors as a beverage, and in order to aid defendant in evading the statute they for- warded the liquors in concealed packages, to a fictitious consignee, and furnished false invoices as a protection to defendant in making the false statement sworn to by him, thus actively aiding defendant in the commission of perjury as well as in other violations of law. * ' The conclusion reached is that plaintiffs cannot main- tain their action." Question 72: State the facts, the question presented and the Court's decision in the above case. 122 CONTRACTS D. Judicial Remedies in Illegal Agreements. (a) No remedy by way of enforce- (b) Judicial rescission of illegal ment. agreement. (a) No Remedy by Way of Enforcement. Sec. 54. Courts Will Not Enforce an Illegal Agreement. ("Ex Turpi Contractu non Oritur Actio.") Case No. 73. Goodrich v. Tenney, 144 111. 422. Facts: Suit brought to enforce an accounting for and payment of money alleged to have been earned by services performed under a contract found by the court to have been made for an illegal purpose. Point Involved: Whether the Court will enforce an illegal agreement. ME. JUSTICE SHOPE : " * * * Courts of Justice will not enforce the execution of illegal contracts, nor aid in the division of profits of an illegal transaction be- tween associates. Neustadt v. Hall, 58 111. 172: It is there said, 'In the language of Lord Ellenborough, we will not assist an illegal transaction in any respect; we leave the matter as we find it. * * *' It may be insisted that it is unjust as between the parties for Ten- ney to raise the question, and very dishonest * for him to take advantage of it, but the contract being illegal, no rights can be enforced under it. * The maxim, 'ex turpi contractu non oritur actio' (out of an illegal contract no action arises), applies in all such cases, and neither party if in pari delicto (in equal guilt) can have assistance in courts of justice in enforcing the con- tract. And the objection may be made by a party in pari delicto, for the defense is not allowed because the party raising the objection is entitled to the relief, but upon principles of public policy and to conserve the public welfare. * * *" Question 73: Why will the Court allow one party to an LEGALITY 123 illegal agreement to set up the illegality to prevent the enforce- ment of the contract? (b) Judicial Rescission of Illegal Agreement. 55. General rule no relief of any 57. Exception to rule where the Sort granted. defendant's contract is en- 56. Exception to rule, where par- tirely executory. ties not in pari delicto. 58. Exception to rule by statute. Sec. 55. General Rule No Relief of Any Sort. ("Alle- gans Suam Turpitudinem non est Audiendus.") Case No. 74. Chapman v. Haley, 80 S. W. (Ky.) 190. Facts: Suit by Haley to recover of Chapman $300 al- leged to have been paid to Chapman for investment pur- poses. The evidence disclosed that Chapman agreed with Haley that if Haley would pay him $300, he would sell him $3,000 in "good" money, that the parties met in a small room in Cincinnati to carry out the agreement ; that Haley paid Chapman the $300 and Chapman went out to get the $3,000 promising to return in a few min- utes, but that he did not come back. Haley testified that he thought the $3,000 was all right, except that he un- derstood there was something wrong about the numbers. But the court says "that appellee [Haley] fully under- stood that under the contract he was to purchase counter- feit money, cannot be doubted." Point Involved: Whether the court will lend its aid to compel repayment of money (or surrender of any property) parted with under an illegal agreement not performed by the other side. BARKER, J. : "* * * It is unnecessary to say that this conspiracy between these two men to purchase coun- terfeit money constituted an illegal contract and was void. * The question as to whether or not ap- pellee who was equally guilty with appellant, can recover the money paid by him in pursuance of this criminal con- spiracy, is the first question for adjudication? "In the case of Kimbrough v. Lane, 11 Bush, 556, the 124 CONTRACTS contract was for the payment of $3,000 to secure the dis- mission of an indictment against Lane for a felony. In affirming a judgment dismissing the petition in the action wherein it was sought to recover the $3,000, this court said: 'It is sufficient to say on this point that the rule of law inhibiting such contracts was not made for the bene- fit of the obligors. The courts will not enforce such con- tracts because they are levelled at the safety and repose of society. If money is paid upon such a con- tract, the courts will not aid in recovering it back. They will leave both parties in the exact position in which they have placed themselves.' " Question 74: (1.) State the facts in the above case and the rule applied. (2.) A desired to open up a place of business as a pool room and for bookmaking purposes. The object of his business was forbidden by ordinance, but the public authorities in violation of such ordinance were accustomed to grant licenses. A paid $500 for such a license for one year, which was granted him. He then began the illegal business. The authorities thereupon closed it up. He sues to recover the money. Can he recover ? Why ? (3.) A being desirous of procuring the office of clerk of a police court sent $20 to B asking B in consideration thereof to use his influence to get A nominated. B used the money to de- feat A's nomination. A sues to recover the money. What re- sult? (Liness v. Hesing, 44 HI. 113.) Sec. 56. Exception to Rule Where Parties Not in Pari Delicto. Case No. 75. Duval v. Wellman, 124 N. Y. 156. Facts: Plaintiff sues as assignee of Mrs. E. Guion, a widow, "who in her search for a husband sought the ad- vice and aid of the defendant, who was the owner and publisher of a matrimonial journal called 'The New York Cupid* and the proprietor of a matrimonial bureau in New York City." Mrs. Guion testified that she paid de- fendant $5.00 as a registration fee and later $50 under an agreement that it was to be returned to her if no husband LEGALITY 125 were found, but that $50 additional was to be paid if she married any gentleman introduced by defendant. Later, Mrs. Guion, finding no one satisfactory among those in- troduced to her demanded back her $50, which was re- fused. Suit to recover such $50. Point Involved: Whether a marriage brokerage agree- ment is illegal, and whether fees paid thereunder can be recovered on any theory. BBOWX, J. : " * * * The five learned judges who have delivered opinions in the case have agreed that the con- tract between the parties was void, and this conclusion appears to be ably supported by authority. * The defendant has, however, succeeded in the lower court on the application of the rule that a court will not lend its aid to either of the parties to an illegal or fraudulent contract, either by enforcing its execution if it be executory, or by rescinding it, if it be executed. " Public policy has dictated the adoption of this rule, but it has its limitations, and when the parties are not equally guilty, or when the public interest is advanced by allowing the more excusable of the two to sue for re- lief, the courts will aid the injured party by setting aside the contract and restoring him, so far as possible to his original position. (1 Pomeroy's Equity, sec. 403; 1 Story's Equity, sec. 300.) In many such cases relief from the con- tract will be afforded to the least guilty party when he appears to have acted under circumstances of imposition, hardship, or undue influence, and especially where there is a necessity of supporting public interests or a well settled policy of the law, whether that policy be declared in the statutes of the state or be the outgrowth of the decision of the courts. Accordingly many cases may be cited where relief has been granted from contracts which partook of the character of marriage brokerage agreements. The cases are collected in Pomeroy's Equity Jurisprudence, in a note to section 931; in Fonblanques Eq. (B. I., ch. 4, 126 CONTRACTS Par. 10, 11), and Bacon's Abridgment, Title Marg. and Divrs. (541 et seq.), and need not be cited here. "In two of the cases referred to, money paid under the contract was recovered back. (Smith v. Bruning, 2 Vern. 392; Goldsmith v. Bruning, 1 Eq. Cases Abr. 89.) "The question in this and kindred cases, therefore, must always be whether the parties are equal in guilt. Obviously cases might arise where this would clearly ap- pear and where the court would be justified in so holding as a matter of law, as where there 'was an agreement be- tween two, having for its purpose the marriage of one to a third party, the parties would be so clearly in pari delicto that the courts would not aid the one who had paid money to the other in the promotion of the common purpose, to recover it back. Such a case would partake of the character of a conspiracy to defraud. So if two parties entered into a partnership to carry on such a business as defendant conducted, the courts would not lend their aid to either to enforce the agreement be- tween them. "But where a party carries on a business of promoting marriage as the defendant appears to have done, it is plain to be seen that the natural tendency of such busi- ness is immoral and it would be so clearly the policy of the law to suppress it and public interest would be so greatly promoted by its suppression, that there would be no hesitation upon the part of the courts to aid the party who had patronized such a business by relieving him or her from all contracts made, and grant restitution of any money paid or property transferred. In that way only could the policy of the law be enforced and public interests promoted. "Contracts of this sort are considered as fraudulent in their character and parties who pay money for the purpose of procuring a husband or wife will be regarded as under a species of imposition or undue influence. "The subject is classed by all text writers under the head of constructive or implied fraud, and it is upon the application of rules which belong to that branch of LEGALITY 127 the law that the cases have been decided to which I have referred. ''We are of the opinion, therefore, that it was error to hold as a legal conclusion that the parties to the con- tract in question were equal in guilt. Question 75: State the above case, and the Court's decision, giving the reason therefor. (Note: The rule that if the complaining party is not in pan delict o [in equal guilt] he may have, where necessary, judicial rescission, does not contemplate a mere difference in degree of guilt, but rather in the nature of the guilt. There must be fraud or imposition of some sort practiced on the complaining party which notwithstanding the fact that he also is not free of guilt, will give him standing in the courts.) Sec. 57. Exception to Rule Where Defendant's Contract Is Executory. Case No. 76. Mueller v. Wm. F. Stoecker Cigar Com- pany, 131 N. W. (Nebr.) 923. Facts: Plaintiff purchased a one-half interest in the Wm. F. Stoecker Cigar Co., paying in advance $500.00, and agreeing to pay the residue according to an inven- tory to be made. The store contained about 20 slot ma- chines, as plaintiff knew, and about which at the time he made no objection. Repenting his purchase, he now sues to recover the $500.00 so paid on the ground that the contract was illegal. Point Involved: Whether a party who has paid money under an illegal agreement will be allowed to withdraw from the agreement and recover such money where the other party has not performed his part of the agreement. REESE, CH. J. : "* * * Without entering upon a description of the slot machines in use in the business, we think it must be and is conceded, that they were all gambling devices, used probably not so much as yielding a revenue to the stores in the way of winnings, but for 128 CONTRACTS the purpose of stimulating trade, the purchasers pre- ferring to take a chance of heavier winnings rather than to buy goods directly at the regular and established prices. While, in the long run, the business may not have been so much the gainer from the winnings proper, yet, by allowing others to play the hazard, the sales were very much increased. That they were gambling devices is clear enough. It is also apparent that plaintiff of- fered no objection to them, and was in no way conscience- smitten, either at the time of the purchase or thereafter, until he learned by consultation with others that he might avoid his contract and recover back the money paid upon the theory that the purchase of the slot machines was against good morals and public policy, and which his then enlightened conscience could not withstand. He sued defendant for the return of the money paid, instituting his suit in the county court as 'for money had and re- ceived.' * * * At the time of the purchase, the use of slot machine was common in practically all the cigar stores in the city of Omaha, as well as elsewhere, and there seems to be no thought among proprietors of estab- lishments owning them that their use was in violation of law, or was subject to condemnation. But these con- siderations cannot enter into the case as controlling the rights of the parties, however much the course pursued by plaintiff may be condemned by fair-minded people as showing a want of the proper conception of business in- tegrity. The slot machines were so operated that the operator, by placing his coin within and start- ing the action of the machine, stood to win or lose by a chance. This constituted gambling and the machines gambling devices. * * * It would therefore follow that defendant's business, at least, to the extent of the use of the slot machines, was an illegal one. The ma- chines constituted a part of the stock purchased by the plaintiff. Their use constituted a part an important part of the carrying on of the business. It must fol- low that the contract of purchase was an illegal one. LEGALITY 129 "It seems to be the general holding of the courts that, so long as an illegal contract remains executory, and the illegal purpose has not been put into operation, the one who has paid money thereon to the other party may repudiate the contract and recover back the money. Stover v. Flower, 120 Iowa, 514, 94 N. W. 1100, and cases there cited; McCall v. Whaley, 52 Tex. Civ. App. 646, 115 S. W. 659." Question 76: State the facts, the question presented and the decision of the Court in the above case. Sec. 58. Exception to Rule by Statute. Case No. 77. Rice v. Winslow, 182 Mass. 273. Facts: Suit brought to declare void a negotiable promissory note and a mortgage given in security thereof. There was a statute in Massachusetts giving a party a right to avoid his contracts and recover back any money paid or property parted with, in gambling transactions. Point Involved: The right to rescind contracts of an illegal nature where the statute so provides. MORTON, J. : "* The contracts (in question) were clearly wagering contracts, and, as such, illegal, and prior to the passage of statute 1890, Ch. 437, the plaintiff would not have been entitled to recover any sums paid by him in the course of their performance, or to have any security that he had given declared void. * * But the object of that statute was to discredit and discourage such transactions by giving the losing party the right to avoid his contracts and to recover back any payment made or the value of anything de- livered. * * *" Question 77: (1.) What were the facts, the question pre- sented and the Court's decision in the above case? (2.) Had there been no statute do you think the payee of the 130 CONTRACTS note could have recovered on it, or could have foreclosed the mortgage, had the illegality been pleaded? (3.) If the defendant could not have enforced the note or mortgage had he sued thereon, name reasons that you think of why the maker should ask affirmative relief. (Note: Statutes of this sort are in force in a number of states with respect to money lost at gaming, money paid to lotteries, etc. Without such statute, the court could give no relief. But the statute makes exceptions of this sort on the theory that the evil can be in that way mitigated rather than by the applica- tion of the general rule, admittedly better as a general rule, than the rule of the exceptions.) E. Contracts Whose Objects Are Partly Legal, Partly Illegal. Sec. 59. The Rule Stated. Case No. 78. Bixby v. Moore, 51 N. H. 402. Facts: Moore kept a saloon in which he illegally sold liquors. He also in connection therewith operated a billiard hall legally. He employed Bixby to render services in and about the billiard hall and in selling the liquor. Bixby sued for his compensation. Point Involved: Whether a contract the consideration for which is partly legal and partly illegal, and indivisi- ble in its nature, can be enforced as to the legal part. SMITH, J., delivered the opinion of the Court: * * rp ne pi a i n tiff would have been entitled to the reasonable worth of his entire services if no part of them had been rendered in an illegal business. It must be con- ceded he cannot recover for his services, in the sale of liquor; but he claims a portion of his services was ren- dered in a legal employment and that he can recover the value of that portion. "If the consideration for the defendant's promise to pay the plaintiff a reasonable compensation was the plaintiff's promise to perform both classes of services, the illegal as well as the legal, it is clear the defendant 's LEGALITY 131 promise cannot be enforced. A contract is invalid if any part of the consideration on either side is unlaw- ful. * * * "The questions arising in this case what services did the plaintiff agree to perform? Was it an entire contract? Were there separate contracts upon separate considerations as to the legal and illegal services? are all questions of fact. * * * In the present case, however, there is no room for but one conclusion: * * * the plaintiff made an entire promise to per- form both classes of service; this entire promise * * * formed an entire consideration and a part of this indivisible consideration was illegal. (Cer- tain cases) cited by the plaintiff are not in point. In those cases the different articles sold were valued sep- arately in the sale. * * It is not contended that it is customary to pay saloon tenders separate prices for sweeping, for building fires, for acting as billiard markers, and for selling liquor. Judgment for defendants. Question 78: (1.) State the facts, the question presented and the decision of the Court in the above case. (2.) Suppose in this case Moore had had two separate places and had employed Bixby for $10 a week to work in the fore- noons at the place legally conducted and $10 a week to work in the afternoons in the place illegally conducted. Do you think he could have recovered for his legal employment? CHAPTER SIX FORM AND EVIDENCE OF CONTRACT A. Contracts under seal. a written contract the parol B. Contracts required by law to be evidence rule. in writing. D. Oral and implied contract. C. The writing as the evidence of A. Contracts Under Seal. (Note: Contracts are classified as formal contracts and in- formal contracts. Formal contracts were contracts of record (judgments and recognizances) and contracts under seal. The latter were the only true formal contracts. All contracts not under seal were known as informal or simple contracts.) 60. Definition of contract under 61. Legal characteristics of con- seal, tract under seal. Sec. 60. Definition of Contract Under Seal. Case No. 79. Warren v. Lynch, 5 Johns. (N. Y.) 239. Facts: An instrument was signed "Thomas Lynch. (L. S.)" and the issue was whether under the common law then in force on that point in New York, it was under seal. Point Involved: What under the common law was an instrument under seal. KENT, C. J. : "A seal, according to Lord Coke (3 Inst. 169), is wax with an impression. A scrawl with a pen is not a seal and deserves no notice. The law has not, indeed, declared of what precise materials the 132 FORM OF CONTRACT 133 wax shall consist; and whether it is a wafer or any other paste or matter sufficiently tenacious to adhere and re- ceive an impression is perhaps not material. But the scrawl has no one property of a seal. * * * The policy of the law consists in giving ceremony and solem- nity to the execution of important instruments by means of which the intention of the parties is more certainly and effectually fixed and frauds less likely to be prac- ticed upon the unwary. * * *" Question 79 : What was the character of the act that made an instrument under seal? Case No. 80. Ankeny v. McMahon et al., 4 111. 12. The facts appear in the opinion. Point Involved: That legislation has abolished the seal as the necessary form of the sealed instrument. TREAT, J., delivered the opinion of the Court: * The paper in question is described in the body of it, as sealed with the seals of the parties, and the let- ters *L. S.' are in print opposite the names of Ankeny and Logan, respectively. The first section of 'An act concerning practice' provides 'that any instrument of writing, to which the maker shall affix a scrawl by way of seal, shall be of the same effect, to all intents, as if the same were sealed.' This statute gives equal solemnity to instruments to which signers affix their scrawls, as to those which they affix their seals by impression on wax or other tenacious substance. But it is urged that to give them the dignity of sealed instruments, the scrawls should be actually affixed by the signers. We do not perceive any good reason for this distinction. The printing of the scrawl, or the characters representing a seal, is as legible and durable as if made with a pen by the party, the only other usual mode of affixing a scrawl by way of seal ; and it equally indicates the intention of the signer as to the character of the instrument. * * * 134 CONTRACTS "If he places his signature opposite a scrawl already made, he thereby adopts it and makes it his own. These views are strengthened by reference to the decisions in 1 McLean, 462; 2 Blackf. 322 ; and 3 Blackf . 162. * * *" Question 80: What was the question presented and what did the Court decide in the above case? How did this statute change the common law as laid down in the previous case ? Sec. 61. Legal Characteristics of Contracts Under Seal. Case No. 81. Rann v. Hughes, 7 Term Eeports, 350 note. Facts: Suit against an administrator on a written promise by him to pay certain debts of deceased for which promise there was no consideration. It was con- tended that as the promise was in writing, although not under seal, a consideration was not necessary to support the promise. Point Involved: Whether a contract in writing and not under seal must have consideration. Character of promise under seal. LORD CHIEF BARON SKINNER: "All contracts are by the law of England distinguished into agreements by specialty and agreements by parol ; nor is there any such third class as counsel have endeavored to maintain, as contracts in writing. If they be merely written and not specialties, they are parol and a consideration must be proved." Question 81: What was the point in issue? What did the Court decide? What great division of contracts did the Court make? What is the vital point of distinction? (Note: Contracts under seal are also called contracts by "specialty," and simple contracts are also called contracts "by parol." The word "parol" is used in law in a number of meanings. In this connection it means any contract not under seal, whether in writing or not. It is often also used in other FORM OF CONTRACT 135 connections as synonymous with "oral," and sometimes as syn- onymous with extrinsic, as in the law of evidence. See Sees. 75 to 79, post.) Case No. 82. Walker v. Walker, 13 Ired. (N. C.) 335. PEAKSONS, J. : "We are not aware of any rule of law by which a consideration is inferred from the fact of the execution of a sealed instrument. No consideration is necessary in order to give validity to a deed (an instru- ment under seal). It derives its efficacy from the solem- nity of its execution the act of sealing and delivery, not upon the idea that a seal imports a consideration, but because it is his solemn act and deed and is therefore obligatory. * * * The general rule is that a deed is valid without a consideration. * * *" Question 82: What is the rule of law announced by the above decision ? (Note : It is often said by Courts and text writers that a con- tract under seal is binding because it imports a consideration, or because the party is estopped to deny a consideration. But the true rule is that by common law a contract under seal was enforceable because it was under seal and not because a consid- eration cannot be denied. This is shown by the fact that histor- ically promises under seal were enforced before the theory of consideration was evolved. It would be just as logical to say that promises upon consideration were binding because a consid- eration imports a seal. The truth is that by common law, there were two sorts of contractual promises, the one under seal, en- forceable because under seal, and promises upon consideration, enforceable because upon consideration. The latter contract has become the characteristic contract of modern times. There were certain contracts by ancient law that needed to be under seal, as deeds of conveyance, bonds and powers of attorney. But any instrument could be put under seal and such seal gave it its legal character.) Case No. 83. William Herbert Page, Contracts, Sec. 13. 136 CONTRACTS "The modern theory that contract is an agreement enforceable at law has disarranged common classifica- tions based on the form of action. However, since the common law classification went back to the beginning of the common law itself, it survives to this day, though the original reason for its existence has long since van- ished. The simple contract, though the last to be devel- oped, is now looked upon at modern law as the contract par excellence. It is the representative type of contract at modern law, and possesses all the elements requisite therefor, since it is an agreement which by reason of its consideration, the law will enforce. Whether the simple contract is expressed or implied makes no difference ex- cept as to the evidence by which it is to be proved, as long as it is a genuine agreement. Contracts under seal are genuine contracts since they are agreements which, by reason of their form, are enforceable at law. They do not possess the same elements as simple contracts; for they require form which simple contracts do not; and do not require consideration which simple contracts do, but they are included under the definition of con- tract. By reason of the abolition of private seals in many jurisdictions, and the requirement of a considera- tion even in contracts under seal this class of contracts has lost its original importance." Question 83: (1.) What is the important type of contract of the present day ? (2.) What form of contract has lost, in many jurisdictions, its former importance? Why? (Note : Statutes in the various states have in different degrees changed the ancient law of sealed instruments. In some the seal is abolished, in some it is still in use, but with less effect than at common law. In some it is still necessary for certain pur- poses.) B. Contracts Required by Law to be in Writing. (The Statute of Frauds.) (a) In general of contracts that are (b) The statute of frauds, required by law to be in writing. FOBM OF CONTRACT 137 (a) In General of Contracts That Are Required by Law to Be in Writing. Sec. 62. General Statement as to Contracts That Must Be in Writing. (Editor's note: In this chapter, we consider those contracts which are required by the law to be in writing, or which are not provable in the courts unless their existence can be shown by written evidence. Contracts may be placed in writing be- cause the law requires or because the parties desire it. Those which must be in writing because the law requires it are divis- ible into two classes: (1) Those contracts, in whose formation writing is essential, as deeds to real estate, negotiable instru- ments, acceptances of bills of exchange, etc. (2) Those which may exist as contracts though not in written form, but whose enforceability in a court depends upon their proof from some written memorandum or note, signed by the party who is sought to be charged. Such contracts are chiefly included within the provisions of "The Statutes of Frauds and Perjuries," to whose consideration we will devote the remainder of this chapter. From the subsequent sections we will understand the purview and effect of this legislation.) Question: In what two classes may be placed contracts which are required by law to be in writing? (b) The Statute of Frauds. (1) Generally of the purpose and (2) The cases within the statute of history of the statute of frauds. frauds. (3) What amounts to a compliance with the statute. (1) Generally of the Purpose and History of the Stat- ute of Frauds. 63. Text of the statute. 65. The object of the statute. 64. History of the statute. Sec. 63. Text of the Statute. Case No. 84. Statute of Frauds and Perjuries, 29 Car. H, Ch. 3, Sec. 4. 138 CONTRACTS "For the prevention of many fraudulent practices which are commonly endeavored to be upheld by Perjury and Subornation of Perjury, Be it enacted * "Sec. 4. That no action shall be brought (1) whereby to charge any executor or administrator upon any spe- cial promise to answer damages out of his own estate; (2) or whereby to charge the defendant upon any spe- cial promise to answer for the debt, default or miscar- riage of another person; (3) or to charge any person upoga any agreement made upon consideration of mar- riage; (4) or upon any contract for the sale of lands, tenements or hereditaments, or any interest in or con- cerning them; (5) or upon any agreement that is not to be performed in the space of one year from the making thereof; unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith, or some other person thereunto by him law- fully authorized.'* "Sec. 17. That no contract for the sale of any goods, wares and merchandise, for the price of ten pounds sterling or upwards, shall be allowed to be good, except the buyer shall accept part of the goods so sold, and actually receive the same or give something in earnest to bind the bargain, or in part payment, or that some note or memorandum in writing of the said bargain be made and signed by the parties to be charged by such contract, or their agents thereunto lawfully authorized." Question 84: State in your own language the classes of con- tracts covered by Sections 4 and 17 of the English statute of frauds. (Note: The above statute is substantially in force in the American States, the verbiage itself being for the most part retained. By the Uniform Sales Act [Division III, post] the 17th section is virtually re-enacted, with a change of price to $500, which is in force in some states. The commonest price substituted in the American Acts is $50.00.) STATUTE OF FRAUDS 139 Sec. 64. History of the Statute of Frauds. (Note : In an Article in 26 Harvard Law Review, page 329, Professor George P. Costigan disposes of a common error as to the date of the statute of frauds, caused by the adoption of the Gregorian calendar. He concludes : ' ' Thus, with pomp and ceremony, came into legal existence that Statute of Frauds which has been both so much praised and so much deplored; and its final passage and the royal assent to it, must both be dated April 16, 1677." See also that Article for the authorship of that statute.) Sec. 65. The Object of the Statute. Case No. 85. Bird v. Munroe, 66 Maine, 337 (1877). Facts: Suit on a contract of sale of ice alleged to have been made on March 2, 1874, and broken about March 10, 1874. The written evidence produced to prove the con- tract was made and signed by defendants March 24, 1874. Point Involved: Whether the writing required by the statute of frauds is an essential element in the contract, or merely the evidence by which such contract may be proved. PETEBS, J. : "* * * Then the defendant next con- tends that, even if the writing signed by the parties was intended by them to operate retrospectively 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 point raised is, whether in view of the statute of frauds, the writing shall be con- sidered 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. 1 'Another idea gives weight to the argument for the position advocated by the plaintiffs, and that is that such 140 CONTRACTS a construction of the statute upholds contracts accord- ing to the intention of the parties thereto, while it, at the same time fully subserves all the purposes for which the statute was created. It must be borne in mind that ver- bal bargains for the sale of personal property are good at common law. Nor are they made illegal by the stat- ute. 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. (Marsh v. Hyde, 3 Gray, 331) "a memorandum in writing will be as effectual against perjury, although subsequent to the making of a verbal contract, as if it had been exe- cuted 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 penetentiae remains to him. "It is clear from the foregoing cases, as well as from many more that might be cited, that the statute does not forbid parol contracts, but only precludes the bringing of actions to enforce them, as said in Thornton v. Kemp- er (5 Taunt. 786, 788), 'the statute of frauds throws a difficulty in the way of evidence. ' In a case already cited, Jervis, C. J., said: 'the effect of the section is not to avoid the contract, but to bar the remedy upon it, un- less there be writing.' See analogous case of McClellan v. McClellan, 65 Maine, 500." Question 85: (1.) What were the facts, the question pre- sented and the Court's decision in the above case? (2.) Show how this case brings out that the object of the statute of frauds was not to require the formation of certain contracts to be in writing, but rather to require evidence of a certain sort. How is this fact of material importance ? (Note: It is held in many cases that the statute cannot be made a bar unless it is specially pleaded. The statute is pro- vided for the ''prevention of fraud and perjury." While it STATUTE OF FRAUDS 141 may be used as an unjust defense, its purpose is to prevent per- jury on the part of the plaintiff by requiring him to bring in written evidence of the contract he sues upon, and on the part of the defendant by producing against him the writing which he has made and signed.) Case No. 86. Bann v. Hughes, 7 Term Eeports, 350 note. THE LOED CHIEF BARON: "* * But it is said that the Statute of Frauds takes away the necessity of any consideration in this case; the Statute of Frauds was made for the relief of personal representatives and others, and did not intend to charge them further than by the common law they were chargeable. His Lordship here read those sections of the statute which relate to the present subject. He observed that the words were merely negative, and that executors and administrators should not be liable out of their own estates, unless the agreement upon which the action was brought, or some memorandum thereof, was in writing and signed by the party. But this does not prove that the agreement was still not liable to be tried and judged of as all other agree- ments merely in writing are by the common law, and does not prove the converse of the proposition, that when in writing the party must be at all events liable. * * * " Question 86: Does the statute of frauds render enforceable a promise that was not enforceable before the statute ? In other words, does it change the essential elements in contract? (2) The Cases Within the Statute of Frauds. 66. Promises of executors and ad- 69. Contracts for sale of lands or ministrators. interest therein. 67. Promises to answer for debts 70. Contracts not to be performed and defaults of others. within a year. 68. Promises in consideration of 71. Sale of personal property, marriage. 142 CONTRACTS Sec. 66. Promises of Executors and Administrators to Personally Answer for the Debts of the Estate of the Decedent Must Be Proved by Written Evidence Signed by the Party Sought to be Charged. Case No. 87. Bellows v. Sowles, 57 Vermont, 164 (1884). Facts: Bellow brought suit against Sowies, setting up that he, the plaintiff, was a relative of Hiram Sowles, deceased and being unprovided for in the will, threat- ened to contest the same upon the ground that it had been procured from the deceased by undue influence; that the defendant the executor under the will, being the husband of the principal beneficiary, had promised plain- tiff $5,000 to forbear the contest, and the plaintiff had assented thereto and had accordingly forborne; yet the defendant disregarding the promise, had failed and re- fused to pay plaintiff the said amount. The defendant claims that this promise if made, is unenforceable be- cause not in writing as required by the statute of frauds. Point Involved: Whether the promise by the executor to pay an heir for refraining from contesting a will, is a promise to pay for a debt of the estate of the testator, and therefore by the provisions of the statute of frauds not enforceable unless evidenced by writing signed by such executor, or whether it was a direct primary under- taking by the executor, not included within the statute of frauds, and therefore binding though oral. POWERS, J.: "Counsel for the defendant have de- murred to the declaration in this case upon two grounds : first, that the consideration alleged is insufficient; sec- ondly, that the promise not being in writing comes within, and is therefore not enforceable under, the statute of frauds. "It has been so often held that forbearance of a legal right affords a sufficient consideration upon which to found a valid contract, and that the consideration re- STATUTE OF FRAUDS 143 quired by the statute of frauds does not differ from that required by the common law, it does not appear to us to be necessary to review the authorities or discuss the principle. As to the second point urged in behalf of the defendant, the case presents greater difficulties. ' * The best understanding of the statute is derived from the language itself, viewed in the light of the authorities which seem to us to interpret its meaning as best to at- tain its object. That clause of the statute under which this case falls, reads : 'No action at law or in equity shall be brought * * * upon a special promise of an executor or administrator to answer damages out of his own estate.' * * * ' ' The promise must be to ' answer damages out of his own estate. ' This phraseology clearly implies an obliga- tion, duty or liability on the part of the testator's estate for which the executor promises to pay damages out of his own estate. * * * "Apply this rule to this case. Here, the main pur- pose of the promisor was not to answer damages (for the testator) out of his own estate, but was entirely to subserve some purpose of the defendant. The matter did not affect the estate. * * * There exists, there- fore, in this case no sufficient, actual, primary liability to which this promise could be collateral. * * The plaintiff would be deprived of his legal right to contest the will, by a party who has reaped all the benefit of the transaction, and is shielded from responsibility by a technicality. We do not believe that this was the result contemplated by the statute. * * *" Question 87: (1.) What promise did the executor make in the above case ? (2.) What two defenses were made to the plaintiff's claim? What is the answer to each of those defenses? (3.) State a case that would have come within the statute of frauds. 144 CONTRACTS Sec. 67. Promises to Answer for the Debts, Defaults or Miscarriages of Another Must Be Proved by Written Evidence Signed by the Party Sought to Be Charged. Case No. 88. Jones v. Cooper, 1 Cowper's Reports, 227. Facts: An oral promise by defendant upon goods be- ing delivered by plaintiff to Smith, in these words "I will pay you if Smith will not. ' ' Defense, the statute of frauds. Point Involved: Whether the promise by a third per- son to a creditor to pay if the debtor does not must be in writing under the statute of frauds. i LORD MANSFIELD: "We are all of opinion upon the authority of the cases in the books, that the promise by the defendant in this case, to pay if Smith did not, is a collateral undertaking within the statute of frauds ; and it is so clear it would be misspending time to go through the cases, or to say much about it." Question 88: State the above case. Case No. 89. Marr v. B. C. E. & N. Ewy. Co., 121 Iowa 117. Facts: Plaintiff, Marr, kept a boarding house in Cedar Rapids, and claims that in April, 1901, the Rwy. Co. made an oral contract with her that she should board at least 60 of the Company's employees for a period of six months, and they agreed to furnish her at least that number. That she agreed to take such boarders at the price named, but that the Company sent her only about 20 boarders, and that in June, they refused to send her any more boarders. The statute of frauds was pleaded. Point Involved: Whether the agreement by the Com- pany with the plaintiff that the Company would pay her if she should board a number of employees to be fur- nished by the Company, was a promise to answer for the STATUTE OF FRAUDS 145 debt of another and therefore not enforceable unless in writing. It is said in the first place that the oral contract sued upon was within the statute of frauds, there being no written or competent evidence to estab- lish the same. * * * "But, * * the objection is not well taken. The agreement was with the company to board its employees, and plaintiff was to be paid by tne company. There was no promise to answer for the debt, default or miscar- riage of another. * * * Question 89: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) A, being a stranger in the City of Chicago and desiring to obtain board at a certain hotel, has his friend B come to the hotel and promise the manager that if A does not pay his hotel bill, he, B, will pay it. A leaves without paying his bill and the hotel sues B. B pleads that he is not bound on his promise because it was not in writing as required by the statute of frauds. Would you distinguish this case from the case above? Why? (3.) A desires to open up a retail store and for that purpose to procure goods from the M. Wholesale House. He goes to the M. House in company with his friend B, a merchant who already has a line of credit with the M. Wholesale House. B makes an oral statement which, in a suit afterwards brought by the Wholesale House against B (A becoming insolvent) is alleged by the House, to have been in these words: "Let A have goods up to $500 and charge it to my account," but which is alleged by A to have been : ' ' Let A have goods up to $500 and if he doesn 't pay, you may look to me." What substantial difference would the different statements make? (Note: If one promises to pay for goods procured by an- other, it is evident he may thereby either incur a primary debt of his own, or a debt that is merely collateral to the debt of another. As an extreme illustration, A finds a tramp on the street and asks M to let him have a new suit of clothes and charge it to A. Clearly this is not a promise to answer for the debt of another, as M looked solely to A, as his debtor, no mat- 146 CONTRACTS ter who else might have been benefited. So the party to whom the goods were delivered might be a responsible merchant, and yet M might look entirely to the sponsor. In such a case the statute of frauds is no defense. But if any credit is extended to the other, then the promise is to answer for the debt of another and is not enforceable unless in writing and signed. ) Case No. 90. Lusk v. Throop, 189 Illinois Reports, 127. MB. JUSTICE MAGKUDEE delivered the opinion of the court: "* * * If the plaintiff's books show that the de- fendant was not originally indebted there, but that the goods were charged against the person receiving them, this fact if unexplained by other circumstances, would be strong evidence going to show that credit was given the person receiving the goods : but it is not conclusive evidence of such fact. * * It might be rebutted by other evidence of a more convincing char- acter and this is a question for the consideration of the jury to be determined from all the circumstances of the case. * * Question 90: To what extent does the Court decide that the merchant's book entries may show to whom credit was given? Case No. 91. Warren v. Smith, 24 Texas Reports, 484. Facts: The evidence of Smith, the plaintiff, tended to prove that Royalls & Jackson owed Smith, the plaintiff, a sum of money and that these parties being present and also Warren, Warren orally agreed to pay Smith the amount owed him by Royalls and Jackson, and Smith, the plaintiff, agreed to this and thereupon released Royalls and Jackson of their debt. Defendant, Warren, claims the statute of frauds as a bar. Point Involved: Whether a promise to assume an- other's debt under an arrangement with the creditor and the debtor by which the original debtor is released upon such assumption is within the statute of frauds. STATUTE OF FRAUDS 147 BELL, J. : " * It is well settled that the clause of the statute of frauds which relates to promises to answer for the debt, default or miscarriage of another person, has reference to promises which are distinctively collateral to the undertaking of the party originally li- able. If the promise to answer for the debt of another is collateral only, and if the original liability continues to subsist, the collateral promise is within the statute; but if, by the new promise, the original liability is extin- guished, then the new promise is not within the statute, which need not be in writing. * * *" Question 91: What were the facts, the question presented and the Court 's decision in the above case ? Case No. 92. Spadone v. Eeed and Thompson, 7 Bush 's Reports (Ky.) 455. Facts: Spadone sued Reed as his original debtor and Thompson as beneficiary of an alleged agreement where- by Thompson agreed with Reed to pay Reed's debt to Spadone. Point Involved: Whether a promise to a debtor to pay his debt to the creditor, is a promise within the statute of frauds. JUDGE LINDSAY : * * * * The statute of frauds can- not be made available as a defense to this action. The promise of Thompson to pay the debt of Reed was not made to Reed's creditor, but directly to Reed himself and therefore can be enforced though not in writing. ' ' Question 92: What were the facets, the question presented and the Court's decision in the above case? Sec. 68. Promises in Consideration of Marriage Must Be Proved by Written Evidence Signed by the Party Sought to Be Charged. Case No. 93. Austin v. Kuehn, 211 Illinois, 113. Statement of Facts: C. M. A. files her claim against the 148 CONTRACTS estate of J. E. Baker, alleging a promise by Baker to pay her $7,500 when she should marry a certain person whom she afterwards in consideration thereof did marry. Point Involved: That a promise made in consideration of marriage is not enforceable unless in writing. MB. JUSTICE WILKINS delivered the opinion of the Court: "* * * The Statute of Frauds provides: 'No action shall be brought whereby to charge any person upon any agreement made upon considera- tion of marriage * * * unless the promise or agree- ment upon which said 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 person thereunto by him lawfully authorized. Saylor (a witness) testified that deceased, gave wit- ness a card with the name 'James E. Baker' printed on one side of it and on the other '$7,500.' This card was not produced in evidence, and even if it had been, it was not such an agreement, note or memorandum, in writing, as is required by the foregoing statute. The alleged promise being oral and given originally in consideration of marriage, was within the statute of frauds and no ac- tion could be maintained upon it. * Question 93: State the facts, the question presented and the Court's decision in the above case. Case No. 91 Withers v. Richardson, 5 T. B. Monroe, 94. JUDGE MILLS: "This is an action of assumpsit on a promise to marry, and a verdict and judgment for the plaintiff below; to reverse which, this writ of error is prosecuted. "* The defendant pleaded that the contract was in parol only, and relied on the statute * * *(of frauds). It has never been held that the words of the statute 'any agreement made upon consideration 149 of marriage' meant or included promises to marry. It would be imputing to the legislature too great an ab- surdity, to suppose that they had enacted that all our courtships, to be valid, must be in writing. * Question 94: Does the statute of frauds cover mutual prom- ises to marry? Sec. 69. Contracts for the Sale of Lands or any Interest in or Concerning Them Must Be Proved by Written Evidence Signed by the Party Sought to Be Charged. Case No. 95. Kirkeby v. Erickson, 90 Minnesota Ee- ports, 299. Facts: Suit for damages for breach of an oral con- tract whereby plaintiff sold defendant growing wild grass to be cut by the defendant. Defense, the statute of frauds. Point Involved: Whether a sale of growing wild grass to be -cut by the vendee, is a contract creating an inter- est in real estate and therefore not enforceable unless in writing. COLLINS, J. : "* * * The grass which was the sub- ject of the oral contract was a part of the plaintiff's real estate, and the agreement was void, because it at- tempted to create an estate in land, and was not in writ- ing. * * * At common law, grasses growing from perennial roots are regarded as fructus naturales, and while unsevered from the soil, are considered as per- taining to the realty. * * * In this particular case, the right of the defendant to enter upon plaintiff's prem- ises for the purpose of cutting and removing the grass was implied from the fact of the sale. * * * Such a case must be distinguished from one where the vendor of the property sold is to sever it from the soil himself. Verbal sales of that character have frequently upheld as not within the statute. * * *" 150 CONTRACTS Question 95: (1.) What were the facts, the question pre- sented and the Court's decision in the above case? (2.) What are fructus naturales? Fructus industrials ? (3.) What did the court say with reference to distinguishing this case from one in which the vendor is to cut the grass? (Note : See also next case.) Case No. 96. Dorris v. Kings, 54 S. W. Rep. (Term.) 683. Statement of Facts: Suit upon an alleged contract whereby defendants agreed to furnish plaintiffs all the merchantable timber on defendants' lands, cut into saw- logs of the proper length for manufacture into lumber. Defense, the statute of frauds. Point Involved: Whether a contract to sell logs to be furnished and delivered by the seller from timber now growing, is a contract creating an interest in real estate, or a contract to sell personal property. BARTON, J.: "* * * This, as we understand the law, is simply an executory contract to sell and deliver certain personal property. It does not purport to be a contract selling them (Dorris & Sons) certain trees standing on the land, nor giving them a license to go upon the land to get certain trees, but is a contract on the part of the defendants to sever or cut and deliver all the mer- chantable timber. In the case of New York & E. T. Iron Co. v. Green County Iron Co., 11 Heisk. 434, * * * Judge Freeman, * * * said: 'This was a contract for the sale of personality ; that is, an agreement to sell the timber designated. But the property did not pass with the timber until it could be used or received by the purchaser, at any rate, not until cut and corded, as it was to be paid for by tbe cord as used. ' * * This case is much stronger. ****** we think that the portion of the contract for the breach of which this suit was brought, was clearly only an executory contract for the sale and delivery of severed timber, personal property, and therefore not within the statute of frauds. STATUTE OF FRAUDS 151 Question 96: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) Why is there a difference between this case and Case No. 95? (3.) A has a coal mine. He makes a contract with B whereby B is to be allowed to come into the mine and dig a certain quan- tity of coal. He makes another contract with C, whereby he is to sell and deliver at C 's factory 100 tons of coal, from the coal, which is not yet severed. Both contracts are oral. So far as the section of the statute of frauds relating to real estate is con- cerned, can either party enforce his contract ? Why ? (Note: The student is sometimes confused on cases of this sort because the statute of frauds also relates to sales of per- sonal property. But it must be remembered that the section in reference to personal property is not in force in all jurisdictions (though in most), and that under that section sales of personal property are enforceable though not in writing if there is a part delivery and acceptance, or a part payment.) Case No. 97. Bull v. Griswold, 19 111. 631. Point Involved: Whether a sale of growing crops is a sale of real estate. CATON, C. J. : "* * * Growing crops are so far personalty that they may be sold and transferred by parol. They partake of realty, no doubt, so far as to pass by a deed of the land as incident to it, and so it is with many other articles which are well settled to be personal property, as fixtures of trade or machin- ery erected for mechanical purposes. If the wheat was sold by parol by the defendant to the plaintiff, that vested in him a good title. Question 97: (1.) Are growing crops considered as real property or personal property so far as a sale of the crop is concerned ? (2.) W T hat is the rule where the land is sold upon which the crops are growing, if there is no reservation of such crops ? (3.) To what other property did the court liken growing crops ? (4.) Distinguish this case from case 95. 152 CONTRACTS (Note as to short term leases: Short term leases, generally in the American statutes, for the term of one year, or in some states for three years, are excepted from the operation of the statute. The question arises whether this provision is to be con- strued in connection with the provision of the statute in refer- ence to contracts that are not to be performed within a year from the making thereof. That is, if an oral lease for one year is valid by the statute, is such lease enforceable if it is to com- mence in futuro, so that it cannot be completed for more than a year. Some of the statutes provide that a lease for one year from the making thereof, need not be in writing, but most of the statutes omit that phrase. It is held in some jurisdictions that a lease to commence in futuro must end within a year from the time it is made, otherwise it is unenforceable for any period. See Wheeler v. Frankenthal, 78 111. 124. But other cases hold that a lease for the full year, though to begin in the future, is valid. See Young v. Dake, 5 N. Y. 463.) Sec. 70. Contracts That Cannot Be Performed Within a Year from the Making Thereof Must Be Proved by Written Evidence Signed by the Party Sought to Be Charged. Case No. 98. Chase v. Hinkley, 126 Wis. 75. Facts: A sued B for $39.00 for services rendered to B. B's defense was that A contracted to work for him for one year, but worked only a short time and broke his contract by quitting without cause. The evidence showed that in October, 1904, A orally agreed to work for B for one year beginning the following Monday ; that A began work and performed services of the reasonable value (as on an implied contract) of $39.00 and then quit. A maintains that B cannot prove the alleged contract by way of defense, the same being oral and therefore within the statute of frauds. Point Involved: Whether a contract for service which cannot be performed within a year from the making thereof, must be in writing in order to be proved in a judicial proceeding. MARSHALL, J. : "* * * The excess of two days was STATUTE OF FRAUDS 153 just as efficient as a longer period to render the agree- ment void under * * * (the statute of frauds). The fact that the period of service agreed upon was to extend for one year from the time the perform- ance commenced does not take the case out of the stat- ute, for, where performance is to commence in the fu- ture, for the purposes of the statute the period to be con- sidered is that beginning with the date of the agreement Question 98: What were the facts, the question presented and the Court 's decision in the above case ? Case No. 99. Warner v. Texas & Pacific E. Co., 164 U. S. 418. Facts: "This was an action brought May 9, 1892, by Warner against the T. & P. E. Co., upon a contract made in 1874, by which it was agreed between the parties that, if the plaintiff would grade the ground for a switch, and put on the ties, at a certain point on the defendant's railroad, the defendant would put down the rails, and maintain the switch for the plaintiff's benefit for ship- ping purposes, as long as he needed it. The defendant pleaded that the contract was oral and within the statute of frauds, because it was 'not to be performed within one year from the making thereof, * * *.' " Point Involved: Whether a contract that may be per- formed within a year (though the possibility be remote), is a contract covered by the language of the statute of frauds "not to be performed within a year," in other words whether the statute requires contracts that may be performed within a year but may take longer than that time, or simply contracts that cannot be performed within a year to be in writing. MR. JUSTICE GRAY: "In the earliest reported case in England upon this clause of the statute regard seems to have been had to the time of actual performance in deciding that an oral agreement that, if the plaintiff 154 CONTRACTS would procure a marriage between the defendant and a certain lady, the defendant would pay him fifty guineas, was not within the statute; Lord Holt saying: 'Though the promise depends upon a contingent, the which may not happen in a long time, yet, if the contingent happen within a year, the action shall be maintainable, and is not within the statute.' Francam v. Foster, (1692) Skin. 326; S. C., Holt, 25. "A year later, another case before Lord Holt pre- sented the question whether the words, 'agreement not to be performed within one year,' should be construed as meaning every agreement which need not be performed within the year, or as meaning only an agreement which could not be performed within the year, and thus, ac- cording as the one or the other constructions should be adopted, including or excluding an agreement which might or might not be performed within the year, with- out regard to the time of actual performance. The lat- ter was decided to be the true construction. (Here the Court discusses numerous authorities.) "In the case at bar, the contract between the railroad company and the plaintiff, as testified to by the plaintiff himself, who was the only witness upon the point, was that, if he would furnish the ties and grade the ground for the switch at the place where he proposed to erect a sawmill, the railroad company would "put down the iron rails and maintain the switch for the plaintiff's benefit for shipping purposes as long as he needed it. ' ' "The parties may well have expected that the con- tract would continue in force for more than one year. It may have been very improbable that it would not do so ; and it did, in fact, continue in force for a much longer time. But they made no stipulation which, in terms, or by reasonable inference, required that result. The ques- tion is not what the probable, or expected, or actual per- formance of the contract was, but whether the contract, according to the reasonable interpretation of its terms, required that it should not be performed within the year. No definite term of time for the performance of the STATUTE OF FRAUDS 155 contract appears to have been mentioned or contemplated by the parties, nor was there any agreement as to the amount of lumber to be sawed or shipped by the plain- tiff, or as to the time during which he should keep up his mill. "The contract of the railroad company was with, and for the benefit of, the plaintiff personally. The plain- tiff's own testimony shows (although that is not essen- tial) that he understood that the performance of the contract would end with his own life. The obligation of the railroad company to maintain the switch was in terms limited and restricted by the qualification 'for the plaintiff's benefit for shipping purposes as long as he needed it,' and no contingency which should put an end to the performance of the contract, other than his not needing the switch for the purpose of his business, ap- pears to have been in the mouth or in the mind of either party. If, within a year after the making of the con- tract, the plaintiff had died, or had abandoned his whole business at this place, or for any other reason had ceased to need the switch for the shipping of lumber, the rail- road company would have been no longer under any obli- gation to maintain the switch, and the contract would have been brought to an end by having been fully per- formed. "The complete performance of the contract depend- ing upon a contingency which might happen within the year, the contract is not within the statute of frauds as an 'agreement which is not to be performed within the space of one year from the making thereof.' Question 99: (1.) State the facts in the above case, the ques- tion presented and the Court's decision. (2.) A orally agrees to support B for life. B is fifty years of age and in fair health. Is the contract enforceable? (Heath v. Heath, 31 Wis. 223.) Sec. 71. Contracts of Sale of Goods, Wares and Mer- chandise, of a Certain Price or Upwards Are Not En- 156 CONTRACTS forceable Unless (1) in Writing and Signed, or (2) i There Is Part Delivery and Acceptance, or, (3) There Is Part Payment. (Note: This provision not in force in all states.) Case No. 100. Baldy v. Parker, 2 B. & C. 37. Facts: A went to the shop of B and Company, linen drapers, and contracted for the purchase of various articles, each of which was priced below the amount named in the statute of frauds, but the whole aggregated more than that amount. He afterwards refused to take the goods and When sued for the breach of the con- tract, plead the statute of frauds. But it was contended that the statute did not apply because each article was separately priced at a sum below the statutory amount. Point Involved: Whether a .sale of various articles separately priced is one entire sale or several sales within the statute of frauds. BAYLEY, JUSTICE : " * * The question is, whether there was a separate contract for each article. The stat- ute (of frauds) was passed to guard against frauds and perjuries; the legislature thought that a con- tract to the extent of 10 1. might be sufficient to induce the parties to it to bring tainted evidence into Court. Now it is conceded here that on the same day, and indeed at the same meeting, the defendant contracted with the plaintiffs for the purchase of goods to a much greater amount than 10 1. Had the entire value been set upon the whole goods together there cannot be a doubt of its being a contract for a greater amount than 10 L, within the seventeenth section of the statute; and I think that the circumstance of a separate price being fixed upon each article makes no such difference as will take the case out of the operation of that law. It has been asked, what interval of time must elapse between the purchase of different articles in order to make the contract sep- arate, and the case has been put of a purchaser leaving a shop after making one purchase and returning after STATUTE OF FEAUDS 157 an interval of five or ten minutes and making another. If the return to the shop were soon enough to warrant a supposition that the whole was intended to be one trans- action, I should hold it one entire contract within the meaning of the statute. Question 100: What are the facts in the above case, and the rule thereupon? Case No. 101. Goddard v. Binney, 115 Mass. 450. Facts: A ordered of B, a carriage manufacturer, a buggy, to be built specially for A, according to oral speci- fications given, to include A's monogram and initials. B built the buggy. And on an attempt to charge A on the contract, A plead the statute of frauds. The question was whether this was a contract "for the sale" of goods, and therefore within the statute, or a contract for the manu- facture of goods, and not within the meaning of the statute. Point Involved: What is a contract of sale within the meaning of the statute of frauds. AMES, J., delivered the opinion of the Court: "* 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 to put into 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. * * * In England, on the other hand, the tendency of the recent decisions is to treat all con- tracts of such a kind intended to result in a sale as sub- stantially contracts for the sale of chattels ; and the de- cision in Lee v. Griffin, 1 B. and S., 272, goes so far as to hold that a contract to make and fit a set of arti- ficial teeth for a patient is essentially a contract for the sale of goods and, therefore, is subject to the provisions of the statute. * * * 158 CONTRACTS ' ' In this commonwealth a rule avoiding both these ex- tremes was established * * *. The effect of these decisions we understand to be this, namely, that a con- tract for the sale of articles then existing, or such as the vendor in the ordinary course of his business manu- factures or procures 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 if the goods are to be manufactured especially for the purchaser, and upon his special order, and not for the general market, the case is not within the statute * *." (The Uniform Sales Act adopts this last named view, called the Massachusetts rule.) Question 101: What is the English rule, the New York rule and the Massachusetts rule, as to whether a contract is one of "sale" or of "manufacture" within the statute of frauds? What is the rule adopted by the Uniform Sales Act? (Note: The Uniform Sales Act being now in force in New York, the rule has been changed in that state to the Massachu- setts rule.) (3) What Amounts to a Compliance with the Statute. 72. The memorandum and signa- 74. Compliance by payment in ture. whole or part in sales of 73. Compliance by delivery and personal property, acceptance in sales of per- sonal property. Sec. 72. The Memorandum and the Signature. Case No. 102. Gault v. Stormont, 51 Mich. 636. Facts: Plaintiff Gault owned a house and two lots in Wyandotte, Michigan, and on April 26, 1881, contracted to sell them to the defendant, Stormont. Defendant paid $75.00 down, and plaintiff gave him the following re- ceipt: "Wyandotte, April 26, 1881. "Received from George Stormont the sum of Seventy -five dollars as part of the principal of ten STATUTE OF FRAUDS 159 hundred and fifty dollars on sale of my house and two lots on corner of Superior and Second streets in this city. DAVID GAULT." Gault being afterwards unable to give a deed because liis wife would not join therein, brings suit against Stor- mont for the possession of the land which he had allowed Stormont to enter. Point Involved: Whether under the statute of frauds a memorandum which does not state the terms of sale is a sufficient memorandum to bind the party signing the same. COOLEY, J. : "* * * There was no written evi- dence of the sale of the lots except the receipt which was given for the seventy-five dollars, and that was insuffi- cient to answer the requirements of the statute of frauds, for though it specified the purchase price, it failed to express the time or times of payment, and there is no known and recognized custom to fix what is thus left undetermined. A memorandum to be sufficient under the statute must be complete in itself and leave nothing to rest in parol. * * *" (Held memorandum insuffi- cient.) Question 102: State the facts in the above case and show why the memorandum set out was not a sufficient compliance with the statute of frauds. (Note : By statute in some states the memorandum need not state the consideration, which may be proved by parol. But the memorandum must otherwise be complete to show the descrip- tion of the parties, the terms, and the subject matter. If the consideration was not mentioned, but was left to be implied, as in cases of sales of personal property or for services, the memo- randum may be sufficient to bind without a statement as to the price.) Case No. 103. Louisville, etc., Co. v. Lorick, 29 S. C. 533. Facts: Plaintiff's salesman, under verbal instruc- tions from defendant, sent a written order to plaintiff 160 CONTRACTS to ship to defendant a certain amount of paint, at a stated price, payable in 60 days. After the goods were in tran- sit, defendant wrote : "Don't ship paint ordered through your salesman; we have concluded not to handle it." Plaintiff refused to accept this revocation and sued for breach. Defendant plead the statute of frauds, namely, that there was no delivery and acceptance, no payment and no memorandum signed by defendant. Point Involved: Whether and under what circum- stances the "memorandum" required by the statute of frauds may consist in a number of writings. MR. JUSTICE MclvEE delivered the opinion of the Court : * ' * * It is quite certain that there was no formal agreement in writing, signed by the party to be charged * * * and we think it equally certain that there was no single instrument or memorandum in writ- ing sufficient to satisfy the requirements of the statute; for the letter of the defendants * * did not spec- ify the necessary particulars, as to quantity, nature and price of the goods * * * and the copy of the order sent by the salesman to the plaintiff, which did contain all the necessary particulars, was not signed by the de- fendant. It is plain, therefore, that neither one of these papers standing alone, would be sufficient. But it is well settled that the whole agreement need not appear in a single writing, but may be made out from several in- struments or written memoranda, referring one to the other, and which, when connected together, are found to contain all the necessary elements, and the precise, practical question in this case is, whether the letter of de- fendants can be connected with the written order sent by the salesman, so that the two together may consti- tute a sufficient note or memorandum in writing to sat- isfy the requirements of the statute. * * * "It seems to us that the letter of defendants, taken, as it must be, in connection with the order sent to plain- tiff by the salesman (of plaintiff) to which it expressly referred, and which was in writing, and specified all the STATUTE OF FRAUDS 161 necessary particulars as to price, quantity, quality and time of payment, constituted a sufficient note or mem- orandum in writing of the bargain to take the case out of the statute of frauds * * V (In this case, which held there was a sufficient memorandum, signed by the party to be charged, there was a dissenting opin- ion by one of the judges that the letter which defendant signed, and which contained no particulars, did not sufficiently refer to the order, not signed by defendant, to identify or incorporate it. The rule, however, is that the writing required by the stat- ute may be one or a series of writings constituting one trans- action, which are all signed, or which are sufficiently referred to by the one that is signed.) Question 103: What were the facts, the question presented and the Court 's decision in the above case ? (Notice how this case illustrates the point that the statute of frauds has nothing to do with the essential validity of the con- tract, but only with the evidence to prove it. Here, a party, in his very attempt to break a contract, furnished the proof to the other party that there was such a contract.) Case No. 104. Clason v. Bailey, 14 Johns. Rep. (N. Y.) 484. Facts: The facts are stated in the opinion. Points Involved: Whether both parties, or which party, must sign the agreement or memorandum; whether the signature may be by agent ; whether it must be at the bottom of the memorandum, and whether it may be by lead pencil. THE CHANCELLOR: "Isaac Clason employed John Townsend to purchase a quantity of rye for him. He, in pursuance of this authority, purchased of Bailey & Voorhees 3,000 bushels at $1.00 per bushel, and at the time of closing the bargain he wrote a memorandum in his memorandum book in the presence of Bailey & Voor- hees in these words: " 'February 29, bought for Isaac Clason of Bailey & 162 CONTRACTS Voorhees 3,000 bushels of good merchantable rye, de- liverable from the 5th to the 15th of April next, at $1.00 per bushel, and payable on delivery. "It is admitted Clason signed this contract by the in- sertion of his name by his authorized agent in the body of the memorandum. It is a point settled that if the name of a party appears in the memorandum and is applicable to the whole substance of the writing and is put there by him or his authority, it is immaterial in what part of the instrument the name appears, whether at the top, in the middle or at the bottom. Cla- son 's name was inserted in the contract by his author- ized agent, and if it were admitted that the name of the other party was not there by their direction, yet the better opinion is that it is sufficient if the agreement be signed by the party to be charged. Clason, who signed the agreement, and is the party sought to be charged, is, then, according to the authorities, bound by the agreement and he cannot set up the statute in bar. * * * "The remaining objection is that the memorandum was made with a lead pencil. The statute requires a writing. It does not undertake to define with what in- strument or with what material the contract shall be written. * * It has been admitted * * * that printing was writing within the statute, and * that stamping was equivalent to signing and that making a mark was subscribing within the act. 1 l The statute of frauds did not require any solemn and formal instrument. It only required a note or memorandum, which imports a writing done on the spot in the moment and hurry and tumult of commer- cial business. A lead pencil is generally the most acces- sible and convenient instrument of writing on such oc- casions and I see no reason why we should wish to put an interdict on all memoranda written with a pencil. * * *" Question 104: Answer the questions above suggested in the "Points involved" in this case. STATUTE OF FRAUDS 163 Sec. 73. Compliance by Delivery and Acceptance in Sales of Personal Property. Case No. 105. Shindler v. Houston, 1 New York, 261. Facts: Suit for the price of a quantity of lumber. Plaintiff was owner of about 2,070 feet of curled maple plank scantling, which he had brought to Troy in a boat, and which, after being inspected and measured, was piled on the dock apart from any other lumber. Soon after this the plaintiff and defendant met at the place where the lumber lay. The plaintiff said to the defendant, "What will you give me for the plank? " The defend- ant said he would give three cents a foot. The plaintiff then asked, ' ' What will you give for the scantling ? ' ' The defendant replied, "One and a half cents a foot." The defendant then said, "The lumber is yours." The de- fendant thereupon told the plaintiff to get the inspector 's bill of it and carry it to Mr. House, who would pay it. The next day the plaintiff having procured the in- spector's bill presented it to House, who refused to pay for it. There was no note or memorandum in writing, nor was there any evidence of a delivery or acceptance of the lumber, except as above stated. At the prices agreed on, the lumber came to $52.51, no part of which was ever paid. Point Involved: What constitutes a "delivery and acceptance" within the meaning of the 17th section of the statute of frauds? GAKDIXEK, J. : "As no part of the purchase money was paid by the vendee, the contract above stated was void (voidable) by the statute of frauds un- less the buyer 'accepted and received' the whole or part of the property sold. ' ' The object of the statute was not only to guard against the dishonesty of parties and the perjury of witnesses, but against the misunderstanding and mistakes of hon- est men. If the contract is reduced to writing, and ' sub- scribed by the parties to be charged thereby,' this object 164 CONTRACTS is effectually attained. The writing becomes its own in- terpreter. Where this is omitted but the vendee has paid part of the price, or the vendor had delivered and the buyer has accepted a portion or all of the property, upon the strength of the agreement, these acts not only indi- cate deliberation and confidence upon the part of the con- tractors, but they furnish unequivocal evidence of the existence of a contract of some sort between them, al- though its terms and provisions must after all depend upon the recollection of witnesses. "The case before us is destitute of all such collateral evidence. No acts of the party sought to be charged are proved. We are presented with a naked verbal agree- ment. The declarations relied upon as evidence, of a delivery and acceptance constitute a part of the contract, and of course are obnoxious to all the evils and every ob- jection against which it was the policy of the law to provide. "The acts of part payment, of delivery and accept- ance mentioned in the statute are something over and beyond the agreement of which they are a part per- formance, and which they assume as already existing. The entire absence of such evidence distinguishes the present case from all those that have been cited by the counsel for the plaintiff in support of this action. # * "I am aware that there are cases in which it has been adjudged, that where the articles sold are ponderous, a symbolical or constructive delivery will be equivalent in its legal effect to an actual delivery. The delivery of a key of a warehouse in which goods sold are depos- ited, furnishes an example of this kind. But to aid the plaintiff, an authority must be shown that a stipulation in the contract of the sale, for the delivery of the key or other indicia of possession will constitute a delivery and acceptance within the statute. No such case can be found. The entire contract being void by the statute, the stipulation in reference to a constructive delivery would fall with the other provisions. * * * STATUTE OF FRAUDS 165 * ' This, I apprehend, is the correct rule and it is obvious that it can only be satisfied by something done subse- quent to the sale unequivocally indicating the mutual intentions of the parties. Mere words are not sufficient (3 Johns. 421). Declarations accompanying an act and explanatory of it are undoubtedly admissible evidence, as a part of the res gestae. * "The language is unequivocal and demands the action of both parties, for acceptance implies delivery, and there can be no complete delivery without acceptance. The defendant, however, said nothing and did nothing subsequent to the agreement, except through his agent, to repudiate the contract. There was consequently no evidence of a delivery. Question 105: State the facts, the question presented and the Court's decision in the above case. Case No. 106. United Hardware Co. v. Blue, 59 Florida 419 (1910). Facts: Plaintiff sued defendant, K. A. Blue, basing his action on a bill of hardware sold to Blue, but which Blue refuses to receive and pay for as goods purchased of the plaintiff. Omitting statements of facts not neces- sary to recite here, the order was not in writing, but consisted in a mere verbal arrangement. The goods were afterwards delivered to an express company, prop- erly addressed to defendant. Defendant pleads the stat- ute of frauds. Point Involved: Delivery to a carrier by the vendor of goods sold, constituting for some purposes, delivery to the vendee; does such delivery to and the receipt by the carrier constitute a delivery and acceptance within the statute of frauds? PAEKHILL, J. : * * * * * No note or memorandum in writing of the bargain or contract for the sale of the goods in question was ever made or signed by or for the defendant, neither did he give anything in earnest to bind the bargain or in part payment. But it is contended 166 CONTRACTS that the defendant buyer accepted the goods so sold and actually received the same, making the contract good under the statute. Our statute is like the Seventeenth Section of 29 Charles 11, and in order to bring a con- tract for the sale of goods within this exception it is necessary that the goods should have been received and also accepted by the buyer. Even the delivery of the goods to the buyer or the receipt of them by him, with- out an acceptance, is not sufficient. Hinchman v. Lincoln, 124 U. S. 38, 31 L. 3d 337, 8 Supt. Ct. Kep. 369. Some act or conduct on the part of the buyer or his authorized agent, maintaining an intention to accept the goods as a performance of the contract, and to appropriate them, is required to supply the place of a written contract, or payment or part payment. "The plaintiff in error contends that * delivery to the common carrier was a delivery to the consignee.' But our statute requires not only that the buyer should actually receive the goods, but that he shall accept the same also. True, the acceptance and receipt of the goods may be through an authorized agent, but a common car- rier (whether selected by the seller or buyer) to whom the goods are intrusted without instructions to do any- thing but to carry and deliver them to the buyer, as was the case here, is no more than an agent to carry and deliver the goods, and has no implied authority to do the act required to constitute an acceptance and re- ceipt on the part of the buyer and to take the case out of the statute. * * *" Question 106: What were the facts, the question presented and the Court's decision in the above case? Case No. 107. Moore v. Love, 57 Mississippi 765. Statement of Facts: An oral sale, of cotton was al- leged. The statute of frauds being pleaded, the ques- tion was whether there had been a sufficient delivery and acceptance of part of the goods to satisfy the statute and prevent the defense. The only evidence of a part de- STATUTE OF FRAUDS 167 livery was that certain samples of the cotton were ex- hibited and delivered at the time of the sale. Point Involved: Whether the delivery and acceptance of samples of the goods sold is a delivery and acceptance of part of the goods within the statute of frauds. CHALMERS, J. : "* These facts do not meet the requirements of a valid sale under the statute of frauds. The cotton was worth more than $50. No part of the purchase money was paid, no memorandum in writing was made, and no portion of the goods were de- livered unless these samples were. The delivery and receipt of samples, conceding that they took place, can only be held a compliance with the statute of frauds when they are considered and treated by both parties as constituting a part of the goods sold, and as dimin- ishing the quantity of weight of such goods to the extent of their own bulk. * Where they are treated by the parties as specimens only of the goods sold, a delivery of them to the buyer does not satisfy the re- quirements of the statute of frauds. Question 107 : Is the delivery and acceptance of a sample, a delivery and acceptance of a part of the goods sold within the statute of frauds? Sec. 74. Compliance by Payment in Whole or Part of Purchase Money in Case of Sales of Personal Property. Case No. 108. Wier v. Hudnut, 115 Indiana 525. Facts: "A" sold "B" 5,000 bushels of corn, the transaction being entirely oral, and it was agreed that B should furnish sacks to A for use in sacking the corn in part payment. These sacks were delivered by B to A, but when A had the corn ready for delivery B refused to take it. Being sued, he pleaded the statute of frauds, but A contended that there had been part payment, in the actual delivery of the sacks, making the statute in- applicable. Point Involved: What will constitute payment to sat- isfy the statute of frauds? 168 CONTRACTS ELLIOTT, J. : * * * * * What the parties agree shall constitute payment, the law will adjudge to be payment, It is competent for parties to designate by their contract how and in what payment may be made. It is by no means true payment can only be made in money; on the contrary, it may be made in property or services. In short, whatever the parties agree shall constitute pay- ment will be regarded by the Courts as payment, pro- vided the thing agreed upon is of some value. One of the old writers says that 'If all or part of the money is paid in hand ; or if I give earnest money albeit it be but a penny,' the contract is valid. Question 108: State the above case. Case No. 109. Walker v. Nussey, 16 M. & W. (Eng.) 302. PARKE. B. : " * * * The facts seem to be these. The plaintiff owed the defendant a sum of 4 1. 14 s. 11 d. The parties then verbally agreed that the plaintiff should sell to the defendant goods above 10 1. in value. The plaintiff's debt to go in part payment, and the res- idue to be paid by the defendant. No evidence was given of the actual payment or discharge of the debt due from the plaintiff, so all rested in the agreement merely. ' ' (The court holds that a mere agreement to apply an indebted- ness in part payment is not enough. There must be an actual application made, as by a receipt given, or executed discharge made, a striking off to the other's credit by some overt act in execution of the agreement to do so. For the statute requires actual payment.) Question 109: State the above case. C. The Writing as the Evidence of a Written Contract. (The Parol Evidence Rule.) 75. The rule stated. 78. Customs and usages. 76. The writing incomplete. 79. Void and voidable contracts. 77. Where contract consists in number of writings. PAROL EVIDENCE RULE 169 Sec. 75. The Rule Stated. (Editor's Note: "When a contract is reduced to writing, whether because the law requires it, or merely because the par- ties desire it to be in that more permanent form, the law con- siders that it is in that writing that the evidence of the contract is to be found, and, therefore, will not permit the introduction of oral or extrinsic evidence, whether consisting in utterances that are previous to or contemporaneous with the writing, to add to or any way alter, the effect of such written agreement. Otherwise, the writing would be at most prima, facie evidence of the contract and subject to mutilation by the testimony of the parties. The law, therefore, says that if one puts his con- tract down in written form, it is to be presumed that such writ- ing is his contract, and that it was so intended, and that there it must be found, and not elsewhere. See 16th Edition of Green- leaf on Evidence, Sec. 275, and Wigmore on Evidence, Chapter LXXXV. See also the following cases.) Case No. 110. Seitz v. Brewers' Kefrigerating Co., 141 U. S. 510. Facts: The Brewers' Refrigerating Machine Co. sued Seitz on a written contract by which it agreed to supply and put in operation in defendant's brewery, a No. 2 refrigerating machine, of its own construction, for a certain price to be paid on certain terms. Defend- ant defends on the ground, first, that there was an im- plied warranty that the machine would accomplish certain purposes; second, that there was a collateral oral warranty that the machine would accomplish those purposes. The court decided that under the terms of the sale, defendant having gotten the very thing he bargained for, there was no implied warranty of fitness for any particular purpose. Point Involved: Whether if a contract of sale is in writing of an apparently complete form, the court can receive evidence that an oral warranty was made as a part of that contract. Specifically, whether, if a writing covering a contract of sale seems complete, an oral ex- press warranty contemporaneously made can be proved. 170 CONTRACTS ME. CHIEF JUSTICE FULLER: "* * * The position of the plaintiff 'in error is, in the first place, that the evidence on his behalf tended to show an agreement be- tween himself and defendant in error, entered into prior to or contemporaneously with the written contract, inde- pendent of the latter and collateral to it, that the machine purchased should have a certain capacity and should be capable of doing certain work, that the machine failed to come up to the requirements of such independent parol contract ; that this evidence was competent ; and that the case should therefore have been left to the jury. "Undoubtedly the existence of a separate oral agree- ment as to any matter on which a written contract is silent, and which is not inconsistent with its terms, may be proven by parol, if under the circumstances of the particular case it may properly be inferred that the parties did not intend the written paper to be a com- plete and final statement of the whole of the transaction beween them. But such an agreement must not only be collateral, but must relate to a subject distinct from that to which the written contract applies; that is, it must not be so closely connected with the principal trans- action as to form part and parcel of it. And when the writing itself upon its face is couched- in such terms as import a complete legal obligation without any uncer- tainty as to the object or extent of the engagement, it is conclusively presumed that the whole engagement of the parties, and the extent and manner of their under- taking, were reduced to writing. Greenl. Ev. 275. "There is no pretence here of any fraud, accident or mistake. The written contract was in all respects un- ambiguous and definite. The machine which the com- pany sold, and which Seitz bought, was a No. 2 size refrigerating machine, as constructed by the company, and such was the machine that was delivered, put up and operated by the brewery. A warranty or guaranty that the machine should reduce the temperature of the brewery to 40 degrees Fahrenheit, while in itself col- lateral to the sale, which would be complete without it, PAROL EVIDENCE RULE 171 would be part of the description and essential to the identity of the thing sold; and to admit proof of such an engagement by parol would be to add another term to the written contract, contrary to the settled and sal- utary rule upon that subject." Question 110: State the facts in the above case, the question presented and the Court's decision. Case No. 111. Forsyth Manufacturing Co. v. Castlen, 112 Ga. 199. Facts: Castlen brought suit against the Forsyth Mfg. Co. on the following contract: "This agreement made and entered into this 25th day of April, 1898, by and be- tween the Forsyth Manufacturing Company of the first part, and A. W. Castlen of the second part, both of the county of Monroe and the state of Georgia, witnesseth: that the party of the first part hereby agrees to pay the party of the second part six cents per pound for one hundred and fifty bales of lint cotton, to be delivered at the warehouse of the said Forsyth Manufacturing Company, on the Central Railroad, just above Forsyth, in good merchantable order, at times below set forth. The party of the second part hereby agrees to deliver at the place above designated one hundred and fifty bales of lint cotton, said cotton to be delivered to the Forsyth Manufacturing Company as follows : Fifty bales in Sep- tember, fifty bales in October and fifty bales in Novem- ber, 1898, at the place above set forth, and in good mer- chantable order, all bales to weigh more than 450 pounds each; and should the party of the second part fail or refuse to furnish the full amount of fifty bales each month, as above set forth, then the second party for- feits one-half cent per pound for each pound not de- livered at the end of each month of the fifty bales." Castlen was a cotton planter, and the contract made was entered into upon his land upon which cotton was grow- ing. The plaintiff Castlen tendered cotton according to his contract, but it was refused on the ground that it 172 CONTRACTS was not raised on Castlen's land. The defendant now offers to prove that there was a contemporaneous oral agreement that the cotton should be raised on Castlen's land. Point Involved: That a contract reduced entirely to writing cannot be modified by parol evidence. Specific- ally, that if goods are sold under a contract completely reduced to a writing which under the circumstances and upon the face of the contract seems complete, a collateral agreement that such goods shall be grown by the seller cannot be considered. Herein of the question when a contract is to be deemed wholly, and when partially, reduced to writing. COBB, J. : " * * * When parties have reduced the agreement between them to writing, they must abide by the terms of the writing, whatever they may be, and nothing in the writing can be contradicted or varied by parol evidence. If, however, 'a part of a contract only is reduced to writing (such as a note given in pursuance of a contract), and it is manifest that the writing was not intended to speak the whole contract, then parol evidence is admissible/ Civil Code No. 3675 (1). 'To bring a case within the rule admitting parol evidence to com- plete an entire agreement of which a writing is only a part, two things are essential. First, the writing must appear on inspection to be an incomplete contract; and second, the parol evidence must be consistent with and not contradictory of the written instrument/ * And a party is at liberty 'to prove the existence of any separate oral agreement as to any matter on which a document is silent, and which is not inconsistent with its terms, if from the circumstances of the case the court infers that the parties did not intend the document to be a complete and final statement of the whole of the trans- action between them.' * * * It appears from the authorities above cited that in order to render parol evi- dence admissible for the purpose of making complete an incomplete contract, the fact that the contract is in- PAROL EVIDENCE RULE 173 complete must appear upon the face of the contract by reason of a patent ambiguity, or, although apparently complete on its face, in the light of evidence showing the circumstances surrounding the parties at the time the contract was executed, a latent ambiguity is made to appear. * * * There are many decisions by this court relating to this subject, but it would be useless to refer to or cite all of them. Enough have been cited to show that this court has recognized the rule, that in order to allow parol evidence to be admitted to show a collat- eral agreement it must appear, either from the contract itself or from the surrounding circumstances, that the contract is incomplete, and what is sought to be shown as a collateral agreement must not in any way conflict with or contradict what is contained in the writing. An examination of the cases decided by this court will show, we think, that this rule has been steadfastly adhered to. There may be some confusion in regard to the way in which it has been applied in some cases, and possibly there have been erroneous applications of the rule; but no case has been called to our attention where there has been any departure from this rule. 11 It follows from what is above said, that the court did not err in refusing to allow the defendant to prove, as a collateral agreement between himself and the plaintiff, that the cotton specified in the contract was to be raised on the lands of the plaintiff. The contract between the parties evidenced by the writing calls for a certain number of bales of cotton of a certain descrip- tion, and for no particular cotton. It is clear that, so far as the terms of the contract are concerned, the par- ties did not intend that the plaintiff should be limited to cotton raised by him. It was a plain and unambiguous contract for the delivery of any cotton, answering to the description specified in the contract, which the plaintiff might see fit to offer to the defendant at the times speci- fied in the contract. Such being the legal effect of the paper, parol evidence tending to show that the real con- tract was that the cotton was to be raised on the land 1'74 CONTRACTS of the plaintiff contradicted and varied and altered the terms of the written instrument." Question 111: (1.) State the facts, the specific question presented and the Court's decision in the above case. (2.) How is it to be determined whether the contract is to be deemed wholly in writing or only partially so? Sec, 76. The Writing Incomplete. (Note: The two cases above bring out that if the writing is of an incomplete nature, the rest of the contract is provable, so far as the parol evidence rule is concerned. The completeness cannot be determined from the fact that more was said or agreed upon at the time than was reduced to writing, because the very statement of such a proposition is repugnant to the theory of the rule. The completeness of the contract must appear from the question whether (as Professor "Wigmore says) there was an intention in integrate the act, as determined by the circum- stances. There may be an intention to integrate a part of the act. Thus, in an executory contract of sale otherwise oral, a promissory note is given. The transaction as a whole, consisting partly in oral statements and partly in the note could be proved. But the note could not be altered by parol evidence. Thus if the note provided for six per cent, it could not be proved that it was orally agreed it should bear but five, in the absence of mistake or fraud. ) Sec. 77. Where Contract Consists in a Number of Writings. Case No. 112. Professor John H. Wigmore, A Treatise on the System of Evidence in Trials at Common Law, Section 2425. "When parties negotiate at a distance by letters and telegrams, first an offer, then a declination, then a re- vision of the offer, then a halt upon an important term, afterwards an offer of its concession in return for the concession of some prior term now to be changed, and finally an acceptance of this concession, and thus an end of the negotiations, where are the terms of this con- PAROL EVIDENCE RULE 175 tract to be found? Obviously, in this congeries of letters and telegrams, as mutually modifying and complement- ing each other. The whole of the contract is not in any one document. Nor, on the other hand, does the whole of any one document (probably) represent a part of the contract, because some of its terms have been impaired and replaced by other documents in the series. Nor can it be said that there is a series of legal acts, each one in- dependent, successively modifying the preceding ones; for each letter and telegram is merely tentative and prep- aratory, and there exists no legal act (ante 2401, 2404) until the final assent is given. That assent, when it comes, adopts and vivifies the entire mass, which until then was legally inchoate only. The process was not unlike the fall of cards in the play of a trick at whist ; the total ef- fect cannot be determined till the last card has fallen, and no once card exhibits in itself the effect of the trick ; yet, when all are played, the second card may prove to be the decisive factor and may remain unimpaired by any later play. * ' On the other hand, if instead of leaving the net effect of the negotiations to be gleaned from the mass of writ- ings, a single document is finally drawn up to replace them and to embody their net effect, and is signed or otherwise adopted by the parties, this document will now alone represent the terms of the act. Instead of leaving the wheat mingled with the chaff, the wheat has been definitely selected and set apart in a single mass. The wheat existed there, no less before than now, but it has now been placed in a single receptacle by itself. "The process of embodying the terms of a legal act in a single memorial may be termed the integration of the act, i. e., its formation from scattered parts into an integral documentary unity. The practical consequence of this is that its scattered parts, in their former and inchoate shape, have no longer any legal effect ; they are replaced by a single embodiment of the act. In other words: When a legal act is reduced into a single, me- morial, all other utterances of the parties on that topic 176 CONTRACTS are legally immaterial for the purpose of determining what are the terms of their act." Question 112: Explain how a contract may consist in a num- ber of writings, and how a final document may take the place of all of them. Sec. 78. Customs and Usages. Case No. 113. Walls v. Bailey, 49 N. Y. 464. Facts : Suit brought to recover a balance alleged to be due to plaintiffs for plastering defendant's house. The work was done under a written contract quoting prices at so much "per square yard." Plaintiffs did the work and charged defendant for the work done without de- ducting for cornices, base boards, doors or windows. claiming that it was a general custom not to deduct such spaces in determining the amount of space covered. Point Involved: Whether a general custom known or which by reason of its general acceptance must be taken to have been known by both parties, enters into a written contract made by them which contains nothing inconsist- ent with such custom. FOLGER, J. : " The contract between the parties was in writing. By it the plaintiffs were to furnish the mate- rial for the plastering work of the defendant's house, and to do the work of laying it on. The defendant was to pay them for the work and material a price per square yard. Of course, the total of the compensation was to be got by measurement. But when the parties came to de- termine how many square yards there were, they dif- fered. The query was, the square yards of what? Of the plaster actually laid on, or of the whole side of the house calling it solid, with no allowance for the openings by windows and doors ? "And it is not to be said of this contract, that it was so plain in its terms as that there could be but one con- clusion as to the mode of measurement, by which the num- PAROL EVIDENCE RULE 177 her of square yards of work should be arrived at. It is in this case as it was in Hinton v. Locke (5 Hill, 437). There the work was done at so much per day. The par- ties there differed as to how many hours made a day's work. That is, what should be the measurement of the day? And there, evidence of the usage was admitted, not to control any rule of law, nor contradict the agree- ment of the parties, but to explain an ambiguity in the contract! And the proof showing a usage among car- penters that the day was to be measured by the lapse of ten hours, it was held a valid usage ; and the contract was interpreted in accordance with it. * * * "So in the case before us. How shall the number of the square yards of work done be ascertained, is not so determinately reached by the language of the contract as that the law can say there was but one method in the minds of the parties, and this is it. "And from the cases above cited, it appears that the meaning of words may be controlled and varied by usage; even when they are words of number, length or space, usually the most definite in language. "Every legal contract is to be interpreted in accord- ance with the intention of the parties making it. And usage (with a limitation hereafter noticed), when it is reasonable, uniform, well settled, not in opposition to fixed rules of law, not in contradiction of the express terms of the contract, is deemed to form a part of the contract, and to enter into the intention of the parties. * # * "The jury in the case before us, have found the exist- ence of the usage contended for by the plaintiffs, and upon evidence which well sustains the finding. The same evidence shows that the usage was uniform, continuous and well settled. Nor was it one which was in opposition to well settled principles of law, or which was unrea- sonable. * * * "It would seem, however, that upon principle, for a party to be bound by a local usage, or a usage of a par- 178 CONTRACTS ticular trade or profession, he must be shown to have knowledge or notice of its existence. (Id.) For upon what basis is it that a contract is held to be entered into with reference to, or in conformity with, an existing usage? Usage is engrafted upon a contract or invoked to give it a meaning, on the assumption that the parties contracted in reference to it; that is to say, that it was their intention that it should be part of their contract wherever their contract in that regard was silent or ob- scure. But could intention run in that way unless there was knowledge of the way to guide it? No usage is ad- missible to influence the construction of a contract un- less it appears that it be so well settled, so uniformly acted upon, and so long continued, as to raise a fair pre- sumption that it was known to both contracting parties, and that they contracted in reference thereto. ( See Rush- forth v. Hadfield, 7 East, 224) . There must be some proof that the contract had reference to it, or proof arising out of the position of the parties, their knowledge of the course of business, their knowledge of the usage, or other circumstances from which it may be inferred or pre- sumed that they had reference to it. (Bodfish v. Fox, supra, p. 96)." Question 113: On what theory is a custom or usage consid- ered a part of a written contract ? In your opinion does it alter the terms of a written agreement? What must be true of the custom in order that it should control? Sec. 79. Void and Voidable Contracts as Affected by the Rule. Case No. 114. Muskogee Land Co. v. Mullins, 165 Fed. 179. 'Facts: This was a suit brought by the Muskogee Land Co. against Mullins for rent alleged to be due on certain premises under the terms of a written lease, purporting to let the land for agricultural purposes. Defense that it was the intent of the parties that the land should be used for other and illegal purposes. ORAL CONTRACTS 179 Point Involved: Whether a contract legal on its face and expressed to be for a legal purpose, may, as a matter of fact be shown to have been entered into for an illegal purpose. ADAMS, CIRCUIT JUDGE : * ' * * * The land company contends that the face of the lease expressed the truth, and that the real purpose of the parties was to create in the lessee a lawful term of two years for agricultural purposes only. "On this controlling issue of fact the writing is not conclusive. Parol evidence is always competent to show that a written contract, fair and lawful on its face, is in truth, contrary to law, morals or public policy. * Question 114: State the above case. D. Oral and Implied Contracts. 80. Validity of oral contracts. 81. Implied contracts. Sec. 80. Validity of Oral Contracts. Case No. 115. McKennon v. Winn, 1 Okla. 327. BURFORD, J. : "* * (Quoting from Bishop on Contracts, Sec. 153.) 'Every contract on whatever sub- ject may be in oral words which will have the same effect as if written except when some positive rule of the com- mon or statutory law has provided otherwise.' " Question One Hundred and Fifteen: May a contract be orally made ? What is the rule as to when it need not be in writ- ing? (Note: Contracts may be put in writing because the law for different purposes so requires it, or because the parties desire the more permanent and certain evidence of the writing. But except the law so requires, any contract may be oral. The va- lidity of a contract and the evidence to prove it are different 180 CONTRACTS things. It is the general rule that any contract may be oral. The law has made many exceptions to this general rule.) Sec. 81. Implied Contracts. Case No. 116. Hertzog v. Hertzog, 29 Pa. St. 465. Facts: Suit brought by John Hertzog to recover from the estate of his father compensation for services ren- dered the latter in his life time. Plaintiff became 21 in 1825, but continued to reside with his father, who was a farmer, and to labour for him, until 1842. No express contract to pay him anything was proved. Point Involved: 'Generally, of the definition and nature of implied contracts and the evidence to prove them. Specifically, whether, a son who resides at the home of his father and works for him, having no express contract with the father, can, after the work has been done, claim an implied promise to compensate him for such services. LOWRIE, J. : " 'Express contracts are, where the terms of the agreement are openly uttered and avowed at the time of the making; as, to deliver an ox or ten loads of timber, or to pay a stated price for certain goods. Im- plied are such as reason and justice dictate; and which, therefore, the law presumes that every man undertakes to perform. As, if I employ a person to do any business for me, or perform any work, the law implies that I undertook and contracted to pay him as much as his labour deserves. If I take up wares of a tradesman without any agreement of price, the law concludes that I contracted to pay their real value. ' "This is the language of Blackstone, 2 Comm. 443, and it is open to some criticism. There is some looseness of thought in supposing that reason and justice ever dic- tate any contracts between parties, or impose such upon them. All true contracts grow out of the intentions of the parties to transactions, and are dictated only by their mutual and accordant wills. When this intention is ex- pressed, we call the contract an express one. When it IMPLIED CONTRACTS 181 is not expressed, it may be inferred, implied, or presumed from circumstances as really existing, and then the con- tract, thus ascertained, is called an implied one. The instances given by Blackstone are an illustration of this. "But it appears in another place, 3 Comm. 159-166, that Blackstone introduces this thought about reason and justice dictating contracts, in order to embrace, under his definition of an implied contract, another large class of relations, which involve no intention to contract at all, though they may be treated as if they did. Thus, when- ever, not our variant notions of reason and justice, but the common sense and common justice of the country, and therefore the common law or statute law, impose upon any one a duty, irrespective of contract, and allow it to be enforced by a contract remedy, he calls this a case of implied contract. Thus out of torts grows the duty of compensation, and in many cases the tort may be waived, and the action brought in assumpsit. "It is quite apparent, therefore, that radically differ- ent relations are classified under the same term, and this must often give rise to indistinctness of thought. And this was not at all necessary; for we have another well authorized technical term exactly adapted to the office of making the true distinction. The latter class are merely constructive contracts, while the former are truly implied ones. In one case the contract is mere fic- tion, 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 disregarded; in the other, it is as- certained and enforced. In one, the duty defines the con- tract; in the other, the contract defines the duty. "We have, therefore, in law three classes of relations called contracts. "1. Constructive contracts, which are fictions of law adapted to enforce legal duties by actions of contract, where no proper contract exists, express or implied. "2. Implied contracts, which arise under circum- stances which, according to the ordinary course of deal- ing and the common understanding of men, show a mutual intention to contract. 182 CONTRACTS "3. Express contracts, already sufficiently distin- guished. In the present case there is no pretense of a construc- tive contract, but only of a proper one, either express or implied. And it is scarcely insisted that the law would imply one in such a case as this ; yet we may present the principle of the case the more clearly, by showing why it it not one of implied contract. "The law ordinarily presumes or implies a contract whenever this is necessary to account for other relations found to have existed between the parties. * ' Thus if a man is found to have done work for another, and there appears no known relation between them that accounts for such service, the law presumes a contract of hiring. But if a man's house takes fire, the law does not presume or imply a contract to pay his neighbors for their service in saving his property. The common prin- ciples of human conduct mark self-interest as the mo- tive of action in the one case, and kindness in the other ; and therefore, by common custom, compensation is mu- tually counted on in the one case, and in the other not. "* * * A party who relies upon a contract must prove its existence; and this he does not do by merely proving a set of circumstances that can be accounted for by another relation appearing to exist between the parties. it* * * "Every induction, inference, implication, or presump- tion in reasoning of any kind, is a logical conclusion de- rived from, and demanded by, certain data or ascertained circumstances. If such circumstances demand the conclu- sion of a contract to account for them, a contract is proved; if not, not. If we find, as ascertained circum- stances, that a stranger has been in the employment of another, we immediately infer a contract of hiring, be- cause the principles of individuality and self-interest, common to human nature, and therefore the customs of society, require this inference. "But if we find a son in the employment of his father, IMPLIED CONTRACTS 183 we do not infer a contract of hiring, because the princi- ple of family affection is sufficient to account for the fam- ily association, and does not demand the inference of a contract. And besides this, the position of a son in a family is always esteemed better than that of a hired serv- ant, and it is very rare for sons remaining in their fa- ther's family even after they arrive at age, to become mere hired servants. If they do not go to work or busi- ness on their own account, it is generally because they perceive no sufficient inducement to sever the family bond, and very often because they lack the energy and in- dependence necessary for such a course; and they leave very seldomly because their father desires to use them as hired servants. Customarily no charges are made for boarding and clothing and pocket-money on one side, or for work on the other ; but all is placed to the account of filial and parental duty and relationship. * ' Judging from the somewhat discordant testimony in the present case, this son remained in;the employment of his father until he was about forty years old ; for we take no account of his temporary absence. While living with his father, in 1842, he got married, and brought his wife to live with him in the house of his parents. Afterwards his father placed him on another farm of the father, and very soon followed him there, and they all lived together until the father's death in 1849. The farm was the fa- ther's and it was managed by him and in his name, and the son worked on it under him. No accounts were kept between them, and the presumption is that the son and his family obtained their entire living from the father while they were residing with him. 1 'Does the law, under the circumstances, presume that the parties mutually intended to be bound, as by contract, for the service and compensation of the son and his wife f It is not pretended that it does. But it is insisted that there are other circumstances besides these which, taken together, are evidence of an express contract for com- pensation in some form, and we are to examine this. "In this court it is insisted that the contract was that 184 CONTRACTS the farm should be worked for the joint benefit of the father and son, and that the profits were to be divided ; but there is not a shadow of evidence of this. And more- over it is quite apparent that it was wages only that was claimed before the jury for the services of the son and his wife, and all the evidence and the charge point only in that direction. There was no kind of evidence of the annual products. "Have we then any evidence of an express* contract of the father to pay his son for his work or that of his wife 1 "We concede that, in a case of this kind, an express con- tract may be proved by indirect or circumstantial evi- dence. If the parties kept accounts between them, these might show it. Or it might be sufficient to show that money was periodically paid to the son as wages ; or, if there be no creditors to object, that a settlement for wages was had, and a balance agreed upon. But there is nothing of the sort here." Question 116: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) Why is it erroneous to say that justice and reason cre- ates contractual relationships between the parties? (3.) On what reasoning is the inference raised that there is or is not a contract between parties in a given situation (there being no evidence of express contract between them) ? (4.) If the father and son in this case had had an express contract, what sort of evidence could have been introduced to prove it? PART II THE INTERPRETATION OF CONTRACTS Chapter Seven. General rules of interpretation. Chapter Eight. Interpretation with respect to time of performance. Chapter Nine. Interpretation of provisions as to dam- ages or penalties in event of breach. 82. Object of interpretation to 85. Customs and usages as gov- discover intent. erning meaning of words 83. Intent to be derived from Ian- used, guage and conduct. 84. Words used in technical or other special sense. Sec. 82. Object of Interpretation to Discover Intent. (Note: No cases seem advisable here. It is sufficient to state that the object of the interpretation of a contract is to arrive at the intention of the parties. The reason for this is obvious. A contract obligation is one that the parties have voluntarily assumed. It is the court's province to find out what the obliga- tion was that the parties intended to be created. Any other rule would make a contract for the parties. It may be added, here, that the courts often say that if the language is plain and unequivocal there is nothing to construe. All rules of construction are for application to contracts 6f an ambiguous character.) 185 186 CONTRACTS Sec. 83. Intent to Be Derived from Language and Conduct. (Note: While the actual intent of the parties is to be sought, we are confronted with the limitation that we can only know the intent by the outward expression thereof. A party may actually mean one thing and say another. What he says, or in case of implied contracts or parts of contracts, what he does determines what he intends. To allow him to assert, afterwards, that his intention was otherwise would operate to the great in- justice of the other party.) Sec. 84. Words Used in a Technical or Other Special Sense. (Note: If it is apparent that the parties use words in a technical or in any special sense, the court will define the words by such technical or special meaning. It must appear that both parties from their situation so understood the words. ) Sec. 85. Customs and Usages as Governing Meaning of Terms Employed. Case No. 117. Souter v. Kellerman, 18 Mo. 509. Facts: S. bought of K. packs of " 4,000 shingles," and K. delivered packs containing 2,500 shingles. This suit was brought for the value of the alleged deficiency. K. defended that by a custom of the lumber trade, 2 packs of a certain size are regarded as 1,000 shingles and are always so bought and sold, without counting the number. Point Involved: Whether if there is a general and well established usage in a trade or market, a contract will be governed thereby. GAMBLE, J. : "* * * The usage of a particular trade is evidence from which the intention and agree- ment of the parties may be implied; and although it cannot control an express contract, made in such terms as to be entirely inconsistent with it, yet, in express RULES OF INSTRUCTION 187 contracts, the terms employed may have their true mean- ing and force best understood by reference to such usage. * * * The usage must appear to be so gen- eral and well established that knowledge of it may be presumed to exist among those dealing in the business to which it applies, so that the contract of the parties may be taken to have been with reference to it. In. this country many articles in terms sold by the bushel are in fact sold by weight; * when such custom becomes general and well established, so as to be known to the community, it is obvious that a con- tract for a given number of bushels must mean the bushel as ascertained by weight. Question 117: (1.) What were the facts, the question pre- sented and the Court's decision in the above case? (2.) What must characterize the custom in order that it may control ? (3.) How may the operation of such customs be prevented in any particular contract? CHAPTER EIGHT INTERPRETATION WITH RESPECT TO TIME OF PERFORMANCE 86. In a court of law. 87. In a court of equity. Sec. 86. In a Court of Law Time the Essence of Contracts. Case No. 118. Cleveland Boiling Mill v. Rhodes, 121 U. S. 255. Facts: The C. R. M. agreed to sell to Rhodes, a mer- chant at Chicago, the entire product of 14,000 tons of iron ore to be shipped as rapidly as possible during the sea- son of navigation, in 1880, or such part as remained to be shipped on the opening of navigation in 1881. The C. R. M. shipped about 8,421 tons in 1880 and had on hand for shipment in 1881 at the opening of navigation 3,506 tons. It was not ready to fulfill its contract until nearly two months after the season opened in 1881. Rhodes refused to receive the shipments made in 1881. Point Involved: Whether a provision in a contract as to the time for performance is to be construed lit- erally, so that an unreadiness to perform at the very time, will (unless waived by the other side) constitute a breach. MR. JUSTICE GRAY: "In a case decided upon much consideration at the last term, the general rule was stated as follows: In the contracts of merchants time 188 TIME OF PERFORMANCE 189 is of the essence. The time of shipment is the usual and convenient means of fixing the probable time of arrival with a view to providing funds to pay for the goods, or of fulfilling contracts with third persons. * * * "When a merchant agrees to sell and to ship to the rolling mill of the buyer a certain number of tons of pig iron at a certain time, both the amount of iron and the time of shipment are essential terms of the agree- ment, the seller does not perform his agreement by ship- ping part of the amount at the time appointed and the rest from time to time afterwards, and the buyer is not bound to accept any part of the iron so shipped. The necessary conclusion is that the defendant was justified in refusing to accept any of the iron shipped in 1881." Question 118: What do we mean by 'saying "time is of the essence" of a contract? What practical result follows the ap- plication of the doctrine? Sec. 87. In a Court of Equity Time May or May Not Be of the Essence. Case No. 119. Smith v. Brown, 10 111. 309. TKEAT, C. J. : "* * * The general rule in equity is, that time is not necessarily deemed of the essence of the contract, unless the parties have expressly so re- garded it, or it necessarily results from the nature and circumstances of the contract. The parties may make tune of the essence of their agreement, and when this clearly appears to have been their intention, and no peculiar circumstance has intervened to prevent or ex- cuse a strict performance, it must be so considered and treated in equity. The right to make such agreements cannot be denied, and it is the duty of the courts to en- force them, as made, and not to make new contracts for the parties. The real intention of the parties must 190 CONTRACTS govern, and that is to be determined from the contract and surrounding circumstances." Question 119: When will a court of equity deem time as of the essence? CHAPTER NINE INTERPRETATION OF PROVISIONS AS TO DAMAGES OR PENALTIES IN EVENT OF BREACH 88. Introductory. 91. Same sum payable in event of 89. Damages difficult of ascer- breach of any of Several tainment and sum reason- covenants of varying im- able. portance. 90. Larger sum than debt payable on default of payment of debt. Sec. 88. Introductory. (Note : A word of explanation seems necessary as an introduction to this somewhat confusing subject. We are to consider whether a sum which is named in a con- tract as payable in the event of non-performance, is named as "liquidated damages" or as a "penalty." What do these terms mean ? For instance, suppose that A contracts with B that B shall work for him for one certain week for a compensation of twenty-five dollars, and in the event of his failure to carry out the contract, that he shall pay A, $100. B defaults. Can A recover the $100? We will find that if the courts would say that A could recover, they would call the $100 "liquidated damages," but if they would decide he could not recover the $100, but must prove his actual damages they would call the $100 a "penalty." Now we may notice, first, that the $100 may or may not have any reference to A's actual damages, according to circumstances, and that 191 192 CONTRACTS A's damages may or may not be readily ascertainable according to circumstances. What is the purpose of the law in awarding damages 7 It is to put the injured party as near as may be in the position in which he would have been had the other party carried out his contract. Ordinarily there is no provi- sion in the contract as to the measure of damages and the court would apply the rules of law established to the end of giving the injured party the damages he has actually sustained. Suppose, however, the parties do mention a sum as payable in the event of breach. The enforcement of that sum may give damages that are out of all proportion to the damages actually sustained. On the other hand, it may be a reasonable agreement entered into by the parties for the purpose of obviating the necessity of proving damages which may be very difficult if not impossible of ascertainment. Where such a provision is made, the law favors its construction as a penalty, that is, not enforceable as damages, but it also recognizes that the provision is a wise one and enforce- able, where the nature of the contract makes the proof of damages difficult and the sum named is reasonable, that is, appears to have been put in, not arbitrarily, but with some reference to the damages that would be act- ually suffered. At common law a provision as to an amount payable in a bond or other contract was enforceable without respect to the damages actually sustained. In the case of bonds, courts of equity established a jurisdiction to relieve against the penalty thereof, and to inquire into the damages, by providing that the amount of the penalty of the bond should stand as security, but that execution should not issue except for the damages caused by breach By an English statute (8 and 9 Wm. III.) the law courts were directed to follow the rule of the equity courts, and today the penalty of the bond is never considered as recoverable except in so far as it represents actual damages. Now it is apparent that even in the extreme case of LIQUIDATED DAMAGES AND PENALTIES 193 a penal bond, the law court regarded the provision as to the penalty as expressing the intention of the parties that such sum was to be recoverable, and allowed such sum to be recovered, yet that sum is not now recoverable, and today, knowing, as we do, the legal effect of a penal bond, the obligor never intends to pay nor the obligee to receive the penalty named. It provides merely a means of security. In other contracts the difficulties appear. Shall a sum that is stated as payable if the contract is not performed, be regarded as a penalty and not enforceable, or shall it be taken as the agreed damages of the party in- jured? The courts often say that the intention of the parties will control. But we are met with two difficul- ties ; first, how to ascertain the intention of the parties, and, second, suppose that the intention, when ascer- tained, violates all rules of damages and defeats justice. As a matter of fact, it is a good deal of a fiction to say that the courts will apply the intention of the parties. There are certain rules that help us to arrive at the solution whether to allow the sum mentioned to repre- sent the damages, or not to represent the damages. And in arriving at that solution we are often violating the intention that is expressed as plain as words can express anything. A few illustrations out of the great number that are reported in the books are given below under several headings and will serve to throw light on this subject.) Sec. 89. Damages Difficult of Ascertainment and Sum Reasonable. Case No. 120. Wallis Iron Wks. v. Monmouth Park Assn., 55 N. J. L. 132. Facts: The W. I. W. agreed to complete a grand- stand for a race course by a certain day or pay $100 a day for every day thereafter that it remained incom- plete, "which said sum * * is hereby agreed upon * * * as the damages * * * and not by way of 194 CONTRACTS penalty." When plaintiff sued, defendant claimed a right to reduce the sum recoverable by $100 for every day's delay. Point Involved: That an amount named as payable for every day 's delay in a building construction contract, is enforceable if the damages agreed upon are reason- able in respect to all the circumstances. DIXON, J. : In the present case the default consists of a breach of a single covenant. * * It is plain that the loss to result from such a breach is not easily ascer- tainable. The magnitude and importance of the grand- stand may be inferred from its cost, $133,000. It formed a necessary part of a very extensive enterprise. Its worth depended upon the success of the entire ven- ture. How far the non-completion of this edifice might effect that success * * * were topics for conjecture only. The conditions therefore seem to have been such as to justify the parties in settling for themselves the measure of compensation. The stipulations of parties for specified damages on a breach of a contract to build have frequently been enforced by the Courts. "In the case at bar we have no data for saying that $100 a day was unconscionable. Question 120: (1.) What were the facts, the question pre- sented and the Court's decision in the above case? (2.) A, owning a retail clothing business in a town, of 5,000 people, and having a good trade throughout that town and sur- rounding country, sold it to B, agreeing not to set up a rival business for ten years within the same town, and in event of doing so, to pay B $5,000. A broke his agreement and B sues, proving the contract and A's breach thereof, but showing no actual damage. Do you think B can recover the $5,000 ? Sec. 90. Larger Sum Than Debt Payable in Default of Payment of Debt. Case No. 121. Goodyear Co. v. Selz, Schwab & Co., 157 111. 186. LIQUIDATED DAMAGES AND PENALTIES 195 Facts: Suit on a contract for the monthly rental of certain machines to be computed on each month's out- put, payable on the first day of the month next following with a provision that if paid before the 15th of the month a discount of 50 per cent was to be allowed. Point Involved: Whether the provision for the pay- ment of a larger sum than the debt in the event the debt it not paid when due, is enforceable. MR. CHIEF JUSTICE WILKIN : ' * The following proposi- tions seem to be sustained by the authorities: 'Where a large sum, which is not the actual debt, is agreed to be paid in case of a default in the payment of a lesser sum which is the actual debt, such larger sum is always a penalty. But the rule is otherwise where a less sum is to be taken for a greater if paid at a certain time.' (5 Am. & Eng. Ency. of Law, 26.) 'Where the larger sum mentioned is the actual debt, and a smaller sum has been agreed .upon as a release if paid under stated condi- tions, the failure to comply with the easier terms gives the creditor the right to enforce payment of the larger sum.' In doubtful cases courts have inclined to treat the stipulation as a penalty. (Ibid 27.) "The controlling question in the case then is, what did the parties intend should be the actual rental for the machines which sum was to be the actual debt? Mani- festly, the draftsman of the lease intended it to be sus- ceptible of the construction placed upon it by appellant, but it by no means follows that the parties who executed it so understood it or should be bound by that construc- tion. We cannot construe the fifth paragraph as pro- viding for a discount for prepayment of the debt. That a discount of 50 per cent should be made on the debt for a prepayment of but fifteen days is contrary to all business experience, and most unreasonable. The rent accruing for one month became due and payable on the first day of the calendar month following. Certainly the parties did not intend that there should be then due and payable more than 50 per cent of the schedule rate. 196 CONTRACTS Only that amount was payable at any time between the first and fifteenth of the month. It is to be presumed that it was the intention of the parties to secure to the lessor the payment of reasonable compensation for the use of its machines, and no more. That compensation could not be one dollar if paid on the fifteenth, but double that amount if paid the next day. Therefore, to hold that it was intended, in a case like this, that the rent should be $599.27 one day and $1,198.53 the next, except as an inducement to prompt payment of the lesser sum, is unreasonable. "Our conclusion is, that the fifty per cent clause of the instrument should be construed as requiring the payment of fifty per cent of the rent or royalty specified in the schedule for all boots and shoes made during one month to be paid on the first day of the next, and if not paid on or before the fifteenth of that month, the whole amount of the schedule rates to become payable. In other words, by the terms of the contract, properly construed, the actual debt was $599.27, and the agree- ment to pay double the amount is in the nature of a penalty to insure the prompt payment of the sum actually agreed to be paid. Longworth v. Askran, 15 Ohio St. 370, is an authority sustaining this construction of the lease." Question 121: State the facts, the question presented and the Court's decision in the above case. (2.) A sells goods to B for $100, under an agreement that if B pays within thirty days he shall be entitled to a discount of 15 per cent. B does not pay within 30 days and claims that all he owes is $85, and that the agreement to pay $100 was an unen- forceable promise to pay a penalty. Would you distinguish this from the above case ? Why ? Sec. 91. A Certain Unvarying Amount Payable for Breach of Covenants of Varying Importance. Case No. 122. Wilhelm v. Eaves, 21 Oregon, 194. Facts: This case involved the breach of an agreement whereby Eaves agreed to appoint Wilhelm as superin- LIQUIDATED DAMAGES AND PENALTIES 197 tendent of a certain market and Wilhelm agreed to per- form various duties as such superintendent, to keep the market clean and wholesome, to appoint special night watchmen, to keep open certain hours, etc. And the par- ties bound themselves "in the penal sum of $200," "as fixed, settled and liquidated damages to be paid by the failing party to the other." Eaves discharged Wilhelm and he brought suit but proved no actual damages. Point Involved: That if a contract provides for the payment of a certain amount of money in the event of the breach of any of several undertakings, which are of vary- ing importance so that the actual damage would differ in each case, the sum will be deemed a penalty and the actual damages must be proved. BEAN, J. : " * The decision of the question as to whether a given sum, provided in the contract, to be paid on a breach thereof, shall be considered as liquidated damages or as a penalty is often inherently difficult and there is much apparent conflict in the adjudged cases. The words 'liquidated damages 7 are not at all conclusive as to the character of the stipulation * * and the Courts are not bound by the language used by the parties and the tendency of the Courts is in favor of an interpretation which makes the sum a penalty. "While it is usually said that the intention of the par- ties is to govern in cases of this kind, 'such intention is determined by very latitudinary construction. To be potential and controlling that a stated sum is liquidated damages, that sum must be fixed as the basis of compensation and substantially limited to it ; for just compensation is * the measure of damages. * * * Parties may liquidate the amount by previous agreement; but where a stipulated sum is evidently not based on that principle, the intention to liquidate damages will either be found not to exist or will be disregarded, and the stated sum treated as a penalty. * * * > " * * * There may be deduced certain general rules. 198 CONTRACTS * * * One of these rules is that when a contract spec- ifying one certain sum as liquidated damages contains various stipulations * * * and the damages from the breach of some of which would be easily ascertainable * * * (and not as to the others), the stipulated sum will be regarded as a penalty and not liquidated damages, though the language of the parties be the strongest that could be employed to evince a contrary intent. "This rule is decisive of this case. This contract pro- vides (for payment of $200 in case of breach). If then, this be regarded as liquidated damages, that precise sum would be recoverable for the breach of any of the cove- nants, however unimportant, or however easily the dam- ages for a breach thereof could be ascertained * * * the stipulated sum must be construed as a penalty (and actual damages assessed). * * *" Question 122: State the facts, the question presented and the Court's decision in the above case. (2.) What does the Court state to be of controlling importance, in determining whether a sum is liquidated damages or a penalty ? PART III THE OPERATION OF CONTRACTS Chapter Ten. Chapter Eleven. Chapter Twelve. Chapter Thirteen. Chapter Fourteen. The general rule. A contract ope- rates to confer according to its tenor rights and obligations sole- ly upon the parties thereto ; with certain exceptions. As an exception a contract operates to confer rights and obligations on undisclosed principals. As an exception a contract operates to confer rights on beneficiaries thereto. As an exception a contract operates to confer power of assignment to others in certain cases. As an exception a contract operates to establish upon third persons a duty of non-interference. 199 CHAPTER TEN THE GENERAL RULE; CONTRACT OPERATES SOLELY BETWEEN THE PARTIES Sec. 92. The General Rule Stated. (Note : A contract has been defined in the first part of this subject as a certain type of agreement between parties. It cre- ates obligations that are voluntarily assumed between persons, each of whom has chosen the other as the party with whom he will deal. We may accordingly state it to be the general rule that a contract operates to confer according to its tenor, rights and obligations upon the parties to such contract and upon no other person. A party to the contract has the right to enforce it, and he is bound by it. But no other party can claim rights under such contract; and no other party is bound by its obligations. To this general rule there are certain very important exceptions to be treated in the following chapters.) CHAPTER ELEVEN EXCEPTION TO THE RULE; RIGHTS AND OBLI- GATIONS OF UNDISCLOSED PRINCIPALS Sec. 93. This Exception Noted. (Note: If an agent, possessing the authority to bind his principal on the particular contract made, makes such contract in his own name, not disclosing his prin- cipal, the principal has a right to enforce the liabilities of the third person on such contract and the third person upon discovering the principal may elect to hold such principal. As this subject is treated elsewhere (see the Cases on Principal and Agent) we may simply notice the subject at this point to indicate its bearing here and postpone its consideration to a later time.) 200 CHAPTER TWELVE EXCEPTION TO THE RULE; RIGHTS OF BENEFICIARIES TO CONTRACTS 94. General Statement. 95. Creditor beneficiary may sue. Sec. 94. General Statement. (Introductory note: The right of a beneficiary who is not a party to a contract to sue thereon, has occasioned much dis- cussion and much difference of opinion. It would not be advis- able to attempt to review the authorities or to give anything like a general treatment of the subject here. With various qualifica- tions, it seems fairly generally settled in the majority of the American states that one not a party to a contract but who will be benefited by the performance thereof, may sue if he is ex- pressly mentioned or described in the contract as one upon whom a benefit is intended by the parties to be directly conferred and if he is what we may term a creditor beneficiary, that is one to whom an obligation is owing which is affected by the contract; but that any person who is merely incidentally affected, no matter in what measure, may not sue. Certain other rules have been followed in some cases as that a "donee beneficiary" may sue, or a "sole beneficiary," but it does not seem wise to at- tempt an extensive discussion of the subject for our purposes.) Sec. 95. Creditor Beneficiary May Sue. Case No. 123. Lawrence v. Fox, 20 N. Y. 268. Facts: One Holly, at the request of the defendant loaned him $300, stating at the time that he owed that sum to the plaintiff for money borrowed of him ; and that he had agreed to repay it on the following day, and the defendant as a part of the transaction and in considera- 201 202 CONTRACTS tion for the loan agreed to pay the money to the plaintiff. This is a suit against the defendant by the beneficiary of that agreement, to which he was not a party, and the defense is that not being a party thereto, and there being no privity of contract between plaintiff and defendant, plaintiff cannot sue on the agreement proved. Point Involved: Whether a beneficiary to a contract between other parties, by which an obligation running to such beneficiary from one of the parties, is assumed by the other, can be enforced in a suit by the beneficiary. H. GRAY, J. : "* * * As early as 1806, it was an- nounced by the Supreme Court of this state 1 That where one person makes a promise to another for the benefit of a third person, that third person may main- tain an action on it.' " Question One Hundred cmd Twenty -three: (1.) State the case of Lawrence v. Fox. (2.) A, having a newspaper plant, sells the same to B, on B's promise as a part of the purchase price to pay A's creditors, one of the creditors sues B on this promise. Can he recover ? (3.) A contracts with B that he will erect for B a factory on land which is to be purchased from C, if C will sell at a cer- tain price. C is not a party to the contract. A and B never proceed with the contract. C serves notice on A and B that he will sell for the price stated. Can he enforce the contract against A or B? CHAPTER THIRTEEN ASSIGNMENT OF CONTRACTS A. Introductory. C. Power to assign as affected by B. Power to assign contractual present existence of the con- rights and obligations without tract. consent of the other party to D. Effect of assignment. the contract. E. What constitutes assignment. A. Introductory. Sec. 96. In Explanation. (Note: The subject of assignment of contract involves more than properly comes under the heading "Operation of Con- tracts," but it unquestionably involves that subject, and so we may for convenience treat the entire topic at this point. Does a contract operate to empower either party thereto to assign rights or obligations thereunder? If so, to what extent, how is such assignment effected, and what results follow from an attempted exercise of the power? "We must notice that the assignment might be made or at- tempted either with or without the consent of the other party to the contract. Obviously, it is the case of the lack of consent that presents difficulty, and when we speak of the power to as- sign rights or obligations we generally assume that the consent of the other party to the contract has not been obtained. The transfer may be of rights or obligations. B employs A for a stated period on a salary. We have the following rights and obligations: On A's part: Obligation to work for B. Right to salary on doing the work. On B's part : Right to A's services. Obligation to pay salary. 203 204 CONTEACTS Here A might attempt to transfer either his right to a salary or his obligation to perform services, or both. As his power of transfer might differ in the one case from that of the other, it becomes necessary to analyze in any case the nature of the thing attempted to be assigned.) B. Power to Assign Contractual Rights and Obligations Without the Other Party's Consent. 97. Assignment of contractual 98. Assignment of contractual rights. obligations. Sec. 97. Assignment of Contractual Rights. Case No. 124. Kodgers v. Torrent, 111 Mich. 680. Facts: Bill for an accounting. Complainant bases his case on an assignment to him of a share in moneys col- lected by the defendant. Question: Whether a right to receive money already due under a contract is assignable. MONTGOMEEY, J. : " * * * If it be conceded, as we think it should be, that defendant could not be required to rely upon the complainant to perform that part of the contract that remains executory and which (another party) undertook to perform, the fact still remains that certain sums of money were to grow due under the con- tract to Alexander Eodgers (the assignor) at stated in- tervals, which he was at these times entitled to receive. The right to demand and receive these moneys we think is assignable. * * * It is one thing to say that a party may not be required to assume contract relations with another, and to rely upon such other to perform stipulations made with a third person, and another thing to hold that the right to recover money under a contract performed in whole or in part shall not be subject to as- signment. * * *" Question 124: State the facts, the question presented and the Court's decision in the above case. ASSIGNMENT OF CONTRACTS 205 Case No. 125. Ee Wright, 157 Fed. 544. No YES, CIRCUIT JUDGE : "It may be conceded that this contract as a whole is based upon personal trust and confidence, and is not assignable. * * But there is a difference between an absolute assignment of a con- tract and an assignment of rights under a contract. The personal confidence which precludes the transfer of rights arising out of a contract must be involved in the nature of the rights themselves. * * It is not or- dinarily involved in the right to receive moneys due or to grow due under a contract ; and this right is generally assignable without the consent of the other party jfc 3fc %r J ? Question 125: A works for B at a salary of $100 a month. Can he assign his salary to C? A orders and pays for goods from the B Company. Can he assign the right to receive such goods to C ? (Note: Generally speaking mere rights under a contract, which are entirely separable from the obligations thereunder, are assignable, except the right to personal services, which is never assignable by the party entitled to the services, as one may choose for whom he will work.) Sec. 98. Assignment of Contractual Obligations. Case No. 126. Sloan v. Williams, 138 111. 43. Facts: Dupuy, an attorney at law, made a contract with Williams by which Dupuy was* to conduct suits, pro- cure releases, etc., in order to perfect the title to certain lots owned by Williams. Dupuy before the performance of his part of the contract, purported to assign to Sloan all his interest therein. Sloan complains that Williams has refused to carry out his part of the contract. Point Involved: Whether an obligation to render serv- ices involving peculiar or personal credit and skill, can be assigned without the consent of the party to whom such services are to be rendered. 206 CONTRACTS MR. JUSTICE MAGRUDER: "* * The main ground (of defense) is that the contract is one that calls for the personal services and skill of one of the parties thereto, and, therefore, not assignable. We think this objection is well taken. Dupuy was a lawyer and, by the terms of the contract, was required to make use of his professional skill in perfecting the title to the lots by instituting and carrying on legal proceedings and by the use of other methods. * A party who thus agrees to use his personal skill and knowledge, and has been contracted with by reason of the trust and confidence placed in him personally, cannot, while the agreement is still executory, substitute another in his place by assignment, in order to perform the service, without the consent of the other contracting party. It is true that after the contract has been exe- cuted by the person * * * he may assign the right to recover compensation. * * *" Question 126: What are the facts, the question presented and the Court's decision in the above case? (2.) Suppose D, in the above case, had attempted to assign his right to fees earned by him personally under the above con- tract ; would the assignment have been effectual ? Case No. 127. Demarest v. Dunton Lumber Co., 161 Fed. 264. Facts: The facts are stated in the opinion. Point Involved: The assignability of a contract to purchase lumber involving also the credit and individ- uality of the purchaser. WARD, CIRCUIT JUDGE: "The plaintiff sues as assignee of a contract dated December 11, 1900, between W. E. Kelly & Co. and the Dunton Lumber Company, and com- plains that the defendant has failed and refused to de- liver to him lumber covered by the contract. Under the contract the lumber company sold to Kelly & Co. the en- tire cut of white pine lumber for 1901, except so much ASSIGNMENT OF CONTRACTS 207 as it should need for its retail trade in the city of Rum- ford Falls, agreeing to retain, not the best of the lumber, but only an average grade for that trade. Delivery was to be f. o. b. cars at Rumford Falls, Kelly & Co. to pay within 10 days from date of invoice. The logs were to be cut in lengths of 12, 14, and 16 feet ; but Kelly & Co. agreed to accept some lumber shorter than 12 feet, not less than 8 feet, and some longer than 16 feet. The trial judge held that this contract was not assignable, and that, therefore, the plaintiff had no right of action. "While the authorities do not differ as to the principle that a contract personal in its nature cannot be assigned by one party without the consent of the other, they differ in the application of the principle; the question in each case being whether the contract is personal or not. The law on the subject for the federal courts has been laid down by the Supreme Court in Arkansas Smelting Com- pany v. Belding Mining Company, 127 U. S. 379, 8 Sup. Ct. 1308, 32 L. Ed. 246, in which Mr. Justice Gray said : 11 'At the present day, no doubt, an agreement to pay money, or to deliver goods, may be assigned by the per- son to whom the money is paid or the goods are to be delivered, if there is nothing in the terms of the contract, whether by requiring something to be afterwards done by him, or by some other stipulation, which manifests the intention of the parties that it shall not be assignable. But every one has a right to select and determine with whom he will contract, and cannot have another person thrust upon him without his consent. In the familiar phrase of Lord Denman : 'You have the right to the bene- fit you anticipate from the character, credit, and sub- stance of the party with whom you contract. ' Humble v. Hunter, 12 Q. B. 310, 317; Winchester v. Howard, 97 Mass. 303, 305, 93 Am. Dec. 93 ; Boston Ice Co. v. Potter, 123 Mass. 28, 25 Am. Rep. 9; King v. Batterson, 13 R. I. 117, 120, 43 Am. Rep. 13 ; Lansden v. McCarthy, 45 Mo. 106. The rule upon this subject, as applicable to the case at bar, is well expressed in a recent English treatise: ' Rights arising out of contract cannot be transferred, 208 CONTRACTS if they are coupled with liabilities, or if they involve a relation of personal confidence such that the party whose agreement conferred those rights must have intended them to be exercised only by him in whom he actually confided. ' Pollock on Contracts, 425. "The contract under consideration is not merely for the sale of personal property for cash, but implies con- fidence in Kelly & Co., because they were to have 10 days ' credit after title to the lumber passed to them, and be- cause the amount of lumber shorter or longer than the lengths provided for in the contract which they were to accept was not fixed. So, also, the amount of lumber the lumber company needed for its retail trade was not fixed, and that amount, as well as the grade of lumber retained, were subjects which the lumber company might have been willing to leave open with Kelly & Co., but not with their assigns. The rights of Kelly & Co. were coupled with liabilities and involved personal confidence. See, also, Snow v. Nelson (C. C.), 113 Fed. 353. "The plaintiff did not rely upon the assignability of the contract alone, but alleged in the complaint that it was assigned, and Van Horn (plaintiff's assignor) sub- stituted in place of Kelly & Co. with the approval and consent in writing of the lumber company. The evidence relied on to sustain these allegations is all documentary, and we agree with the trial judge that it fails to do so. Some of the letters, taken alone, indicate a consent; but, read all together, the conclusion that the lumber com- pany never assented to the assignment, and that Kelly & Co. acquiesced in its refusal to do so, is irresistible. In the letter of March 21, 1903, written to the lumber company after it had refused to make further deliveries, Kelly & Co. say, among other things : " 'We have a contract with you under date of the llth day of December, 1900, whereby you agreed to furnish us a specific amount of lumber during the year 1901. We hold that you have no right to nominate the party with whom you will or will not do business as our representative, and we now say to you that we will ASSIGNMENT OF CONTRACTS 209 hold you for any damages that may arise or have arisen from the fact of your not having furnished this lumber to us in the time in which you agreed to furnish it. * We state again all we want is that you shall fill your contract with us and we will do the same with you, and if you refuse to do it you may as well understand first as last that we will endeavor to make you pay damages as well as fill the contract. We trust you will see the mat- ter as we do, but if you do not care to consider it in a , reasonable manner, you may begin action, or we will, and the sooner the better.' "The judgment is affirmed." Question 127: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) What did the United States Supreme Court hold in the Arkansas Smelting Co. case ? (3.) B agreed to supply K, a cake manufacturer, all the eggs required in K's business for one year, K agreeing not to bujj elsewhere during that period. Statements of account were to be rendered every fourteen days, B to draw for the amount at two months from date of delivery. K thereafter purchased another company, and then transferred the old and new busi- ness to a new company called George Kemp, Limited, of whose 20,000 shares he held all but seven. When B heard of this amalgamation he refused to supply the eggs to the new company and claimed that his contract was at an end. K sues, claiming breach. Can K recover? (Kemp v. Baerselman (1906), 2 K. B. (Eng.) 604, 2 British Ruling Cases, 436.) C. Power to Assign as Affected by Present Existence of the Contract. Sec. 99. Contractual Rights to Be Acquired in the Future. Case No. 128. Mulhal v. Quin, 1 Gray, 105. Facts: An attempted assignment of rights to arise under a contract expected to be made, but not yet made, with the City of Boston. 210 CONTRACTS Point Involved: Can one assign rights under a con- tract which is not yet in existence? SHAW, C. J. : * * * * There was no subsisting en- gagement under which wages were to be earned, and it depended altogether upon a future engagement, whether anything would ever become due. 4 * None of the cases go so far as to hold that the mere possibility * * * of earning wages em- ployment at a future time is capable of being assigned. The debt may be conditional, uncertain as to amount or contingent, but * * must be an actual or possible debt, due or to become due. Question 128: State the above case. Case No. 129. Mallin v. Wenham, 209 111. 252. Facts : M was employed by A & Company at a salary of $100 per month. He had no definite contract of em- ployment, but was employed by the month. He could have quit or A & Company could have discharged him at any time without liability. To secure a loan from W he executed an instrument stating : ' ' I do hereby trans- fer, assign and set over to C. F. Wenham * all salary or wages due or to become due me from Armour & Co. * M ' M now contends that this assignment was invalid. Point Involved: The assignability of wages to be earned under an existing contract of employment of in- definite duration. MR. JUSTICE RICKS: "* An assignment of wages to be earned in the future under an existing em- ployment is valid. * * * It is not necessary that there be an express hiring for a definite time, but the existence of the employment at the time of the assign- ment is sufficient. In the case at bar, appellant was in the actual employment of Armour & Com- pany at a fixed price per month. It is true that such ASSIGNMENT OF CONTRACTS 211 employment was not of any definite duration, and ap- pellant might abandon the same at any time or his em- ployer might discharge him. The subject matter of the contract had but a potential existence, but it was such a property right as might legally be disposed of. * * * " Question 129: State the doctrine of the above case. D. Effect of Assignment. 100. The liability of assignor to 102. The assignee as the successor assignee. to the title of the assignor. 101. The liability of the assignor 103. The notice necessary to pro- to the other party to the tect the assignee's rights, contract. Sec. 100. The Liability of the Assignor to the Assignee. Case No. 130. Tyler v. Bailey, 71 111. 34. Facts: A assigned to B seven land warrants. They turned out to be counterfeits. B sues A. Point Involved: Whether one who assigns a chose in action, warrants it to be what it purports to be. ME. JUSTICE WALKER ; " * * A person who sells personal property is always understood as warranting the title, and as a general if not a uniform rule, a person passing bills or commercial paper, or selling a chose in action is understood and held as guarantor of the gen- uineness of the instrument, and this whether he does so in terms, or is silent when the transfer is made. * * * Question 130: State the above case. (Note: In the assignment of a contract to be performed there is no implied warranty by the assignor that it will be per- formed. His undertaking is confined to the warranties that he has title, and that his right is valid and subsisting as what it purports to be. The assignee takes the risk that an executory contract will be performed.) 212 CONTRACTS i Sec. 101. The Liability of the Assignor to the Other Party to the Contract. Case No. 131. Grommes v. St. Paul Trust Co., 147 111. 634. Facts: A was B's tenant. With B's consent he transferred his lease to R, who entered into possession and for a time paid rent and then defaulted. B sues A for accruing rent. Point Involved: Whether the lessee continues liable on the lease (as surety) on its assignment with the con- sent of the lessor. MB. JUSTICE MAGBUDEB: "* * * Nor did the sale of the saloon by the tenant to Rose, nor the acceptance of rent from the latter by the landlord operate as a discharge (of the original lessees). The assignee of a leasehold estate is liable for the rent accruing. In case the rent is not paid by the assignee as it becomes due, an action may be sustained against the lessee there- for; and it makes no difference in this respect that the lessor may have received rent from the assignee and accepted him as a tenant in the premises. * * If there be not a substitution of the assignee in place of the original lessee, and a clear intent to make a new contract with the former and to discharge the latter from further liability under the lease, both will be held liable to the lessor. ' * Question 131: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) What would release the original lessee? Sec. 102. The Assignee as the Successor to the Title of the Assignor. Case No. 132. Westfal v. Jones, 23 Barb. (N. Y.) 9. Facts: J. gave a mortgage on his lands to P., who assigned to W., who now seeks to foreclose against J. The transaction between J. and P. was illegal and fraud- ASSIGNMENT OF CONTKACTS 213 ulent, but W. knew nothing of this and paid value for the mortgage. This is a suit to foreclose the mortgage. Point Involved: Whether an assignee of a mortgage (or any non-negotiable paper) takes the title subject to the defenses claimed by the obligor but unknown to the assignee. WELLS, J. : "* * * Does the plaintiff, being a bona fide purchaser and assignee * * * stand in any better condition than the person from whom he de- rived his title? It is a well settled principle that the assignee of .a chose in action takes it subject to all equi- ties which existed against it in the hands of an assignor. If he had no right to recover before the assign- ment, it seems perfectly clear he could confer none upon another. Persons purchasing this class of securities can always protect themselves by inquiring of the obligors whether they are valid; and if they purchase upon the faith of the obligor's representations that the securities are valid, the latter would clearly be estopped from set- ting up the contrary." Question 132: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) A employed by B assigned his right to money due from B. In a suit by the assignee B set up that A, before the assign- ment, was liable for a failure to fulfil his contract to sell at the highest market price. C, the assignee, knew nothing of this defense at the time he accepted the assignment, and he paid A the full face value of the money due from B. Is the defense good against C? (McKenzie v. Hodgkin, 126 Cal. 591.) (3.) A, an employee of B, is accustomed to receive his salary from B at the end of every month. On the first of July he asks B to advance him his July salary, which B does. On July 30 A goes to the office of C, a money lender and borrows a sum of money from him, assigning his July salary (which is not known to C to be paid) as security therefor. On August first A is rightfully discharged by B. On August 31st A, not having worked during the month, goes to D, another money lender, and purports to assign his August salary, which he represents to be 214 CONTRACTS earned and unpaid. C and D having given notice, and being refused payment, begin suit against B. Can either recover? * (Note: Negotiable paper has a peculiar property of assign- ability (known as negotiability) which enables a holder in due course, i. e., a purchaser for value, before the paper is over due, without notice, to take a better title than the seller had. See the subject of Negotiable Paper, in the cases upon which, it will appear that the defenses of fraud, payment before ma- turity, failure or lack of consideration, and the like, cannot be made against a holder in due course.) Case No. 133. Mott v. Clark, 9 Pa. St. 399. ROGERS, J. : "It is a general and well settled rule * * * that the assignee of a chose in action takes it subject to the same equities it was subject to in the hands of the assignor. But this rule is generally understood to mean the equity residing in the original obligor or debtor and not an equity residing in some third person against the assignor. The as- signee can always go to the debtor and ascertain what claims he may have against the bond or other chose in action, which he is about purchasing. But he may not ^e able with the utmost diligence to ascertain the latent equity of some third person against the obligee. He has not any object to which he can direct his inquiries. ' ' Question 133: What does this case decide? Sec. 103. Notice Necessary to Protect Assignee's Rights. Case No. 134. Harvin v. Galluchat, 28 S. C. 211. Facts: A owed B a sum of money. B assigned his rights to C. Afterwards, and before C had notified A of the assignment, A, not knowing of the assignment, paid B. This is a suit by C against A. Point Involved: Must the assignee protect his title by notifying the debtor? ASSIGNMENT OF CONTRACTS 215 MB. CHIEF JUSTICE SIMPSON: "* It is laid down in all the authorities upon the subject of assign- ment of unnegotiable paper * * * that in order to protect his rights, under an assignment, the first duty of the assignee is to give notice to the debtor. A failure to do this places the assignee at the peril of losing the debt either by a subsequent assignment to another party, or new defenses existing between the assignor and the debtor, or a payment by the debtor to the assignor. Question 134: State the rule of the above case. (Note: Here also negotiable paper differs from other forms of obligation. One who buys negotiable paper is under no obli- gation to notify the holder of the paper that he has acquired it. He may safely rest upon the rule that the debtor, knowing the negotiable character of the paper, will not pay it except to the holder thereof.) . What Constitutes Assignment. Sec. 104. What Constitutes Assignment. Case No. 135. Holbrook v. Payne, 151 Mass. 383. Facts: P. having done some work for the town of Winchester, gave the following writing to one Cutting: Winchester, July 12, '88. "Town of Winchester: "Pay to the order of A. Cutting, ninety and thirty-two hundredths dollars. Value received, and charge the same to the account of H. B. Payne." The Town of Winchester never accepted this order. The question was whether C, by the mere force of such order, became entitled to the funds, if any, owing P. Point Involved: Whether an order to pay money, specifying no particular fund, is an assignment. HOLMES, J. : "* * * There is no doubt that an order for a specific fund, identified by the order itself, may be good assignment. * * * On its face the order 216 CONTEACTS given to the claimant by the defendant does not refer to a particular fund or debt, but is an ordinary negotiable draft, or unaccepted bill of exchange, drawn upon the town, upon the general credit of the drawer. The fact that the order is a negotiable instrument on its face shows that it is not drawn against a particular fund. If it were drawn against a particular fund it would not be negotiable. * * * The case is stronger for holding a check upon a bank to be an assignment. Yet the weight of authority is that a check is not an assignment. * * *" Question 135: State the question involved in the above case and the Court's decision. (2.) Is a check on a bank an assignment of the fund in the bank? (Note: To hold that the order in the above case is not an assignment does not indicate that it has no legal effect. As a matter of fact, it is, as the case states, a bill of exchange, and being accepted creates a personal liability on the acceptor. Be- fore acceptance the drawer has a liability, which also in a sec- ondary sense continues after acceptance.) Case No. 136. In re Hanna, 105 Fed. 587. An instrument to the following effect was held to con- stitute an assignment. "To T. Please pay to the order of P, $281.88 out of any balance due us remaining in your hands." Question 136: State this case. CHAPTER FOURTEEN INTERFERENCE WITH CONTRACTUAL RELA- TIONSHIPS BY THIRD PERSONS Sec. 105. Operation of Contract to Create a Right of Non-interference by Third Persons. Case No. 137. London Guarantee Co. v. Horn, 206 111. 493. Facts: This is a suit brought by Gustave Horn against the L. G. Co. to recover damages alleged to have been caused him by the defendant in procuring his discharge by Arnold, Schwinn & Co. of Chicago, as a foreman of the frame department of its bicycle factory. He al- leged that he was injured while operating a milling ma- chine and that he had a claim on that account against Arnold, Schwinn & Co.; that his employers carried in- surance against loss by damage claims of employees, and that the insurance company procured his discharge because he would not settle at a small amount offered by them. He was not employed for any particular time and could have been discharged by his company at any time and for any reason, without liability on the employer's part, but he alleged and produced evidence tending to prove that the sole reason he was discharged was the interference of the insurance company. Point Involved: Whether a person has a cause of ac- tion for damages against another who interferes to pro- 217 218 CONTRACTS cure his discharge by his employer, even though he was not employed for any particular time, and could have been rightfully discharged at any time by his employer, the reason for such interference being his refusal to settle a cause of action upon which the party procuring the discharge was liable as insurer? Inferentially, whether a third person is liable who maliciously inter- feres to cause a breach of any contract, and what con- stitutes malice therein? MR. JUSTICE SCOTT : .' i * We have been favored with most elaborate and exhaustive briefs by counsel for both parties. The case principally relied upon by coun- sel for appellant is that of Allen v. Flood, 67 L. J. Q. B. 119, decided by the House of Lords in 1897. This case has excited a wide discussion, and was considered at length by this court in Doremus v. Hennessy, 176 111. 608. In this English case certain boiler-makers, mem- bers of a trade union, in common employment with the plaintiffs, who were shipwrights, members of a rival organization, working on wood, objected to working with the latter on the ground that in a previous employment they had been engaged on iron work, it being contrary to the regulations of the union to which the boiler-makers belonged for shipwrights to do work of that character. Allen, as a representative of the boiler-makers, saw the manager of their employer, to whom he stated that if the shipwrights, who were engaged from day to day, were not dismissed, the boiler-makers would leave their work or be called out by their union. The shipwrights were thereupon discharged and brought an action against Allen. Their right to recover was denied, principally upon the ground that every workman has a right to exer- cise his own option with regard to the persons in whose society he will agree to continue to work, and that when the employer was confronted with a situation where he would lose the services either of the boiler-makers or the shipwrights, he had the' right to elect which class of workmen to discharge, and electing to discharge the ship- INTERFERENCE WITH CONTRACT 219 wrights, both he and the boiler-makers were within their legal rights and no cause of action arose. # * * "In Quinn v. Leathern, App. Gas. of 1901, p. 495 (de- cided by the House of Lords), Lord Macnaghten, in speaking of Allen v. Flood, stated that its head-note might well have run in these words : ' An act which does not amount to a legal injury cannot be actionable be- cause it is done with a bad intent,' and in this case last referred to it is said, that 'it is a violation of legal right to interfere with contractual relations recognized by law, if there be no sufficient justification for the inter- ference. ' "We are of opinion that the contention of appellant in the case at bar, to the effect that competition in trade, employment or business is such a justification, is in ac- cord with the authorities. This view finds support in the case of Chambers v. Baldwin, 15 S. W. Eep. 57, where it was held that a party to a contract for the sale of goods cannot maintain an action against one who ma- liciously, and with design to injure him and to benefit himself by becoming a purchaser in his stead, advises and procures the other party to break the contract. # * > "In our judgment the cases cited by appellant, in so far as they lend support to its theory, will be found to be cases where the party who secured the discharge of the employee was in some way in competition with that employee in the business or work in which the employee was then engaged, or was a member of some organization which was in competition with the employee or some or- ganization to which that employee belonged, and the fact that such competition existed has been treated by some of the courts as justification for the act of the defendant in bringing about the discharge. * * * While it is true that the temporal interests of Horn and appellant were involved in the negotiations between them, we be- lieve that the authorities which look upon competition as a justification for the act of one party in securing the 220 CONTRACTS discharge of an employee have regarded the term in a more restricted sense, and given to the term 'competition' its ordinary meaning and signification. This conclusion is certainly warranted by the reasoning in Doremns v. Hennessy, supra, where this court discusses competition as a defense to an action of this character. It cannot be held that appellee and appellant were, in any ordinary sense of the term, in competition with each other. It is also to be observed that the injury which it was sought to visit upon Horn was not primarily to subject him to a deprivation of his employment, but was to compel him to surrender a right not connected with his employment. If the only object of appellant had been to secure ap- pellee 's discharge for the purpose of obtaining his posi- tion for another, or for the reason that the employment of appellee by Arnold, Schwinn & Co. in some way con- flicted with the right of appellant, or some organization to which It belonged, to obtain the same or similar em- ployment, a very different question, and one not now before this court, would be presented, and Allen v. Flood, supra, and other cases of that character cited by appel- lant, would then be worthy of greater consideration. "It is further contended on the part of appellant, that while the evidence may have shown that it was animated by malice, in the ordinary acceptation of the term, to- ward Horn, the proof fails to show any legal malice. In this connection it is argued that appellant had the right to have Horn discharged under the terms of the con- tract, or if it did not have that right, that it seriously and in good faith believed that it had, and that it is thereby relieved of any imputation of malice. There is no provi- sion in the policy which by the wildest stretch of the imagination could be held to give any such right to ap- pellant, and its conduct in attempting to secure a settle- ment of this claim shows it to have been animated by a wanton disregard of the rights of the appellee. He was first told by the attorney of appellant that unless he settled for a trifling amount appellant would have him discharged by Arnold, Schwinn & Co., a threat to do INTERFERENCE WITH CONTRACT 221 that which this attorney must have known his client had no right to do. Afterward Robinett, the agent for the company, made the same threat, and upon his at- tention being called to the fact that the policy gave him no power to require Horn's discharge, he said to Arnold, Schwinn & Co. : 'If you don't discharge him I will have to cancel this policy today. I am here to bring this case to a focus today, and if you refuse to lay him off I will cancel it.' When Mr. Eobinett made this threat, which resulted in appellee 's discharge, he was making a threat to do an unlawful thing, to do a thing which appellant, by the terms of the contract, had no right to do. The contract provided only for its cancellation upon five days' notice. It is not pretended that any such notice had been given, but Eobinett secured Horn's discharge by threatening to cancel the contract 'today.' We think it perfectly apparent that the attorney for appellant, and its agent, Robinett, each sought to bring about, and finally did bring about, the discharge of appellee by threatening to do acts which each, respectively, knew he had no right to do. "Malice, in its legal sense, means a wrongful act don6 intentionally, without just cause or excuse; the willful violation of a known right. (19 Am. & Eng. Ency. of Law, 2d ed. p. 623.) Were the acts of appellant wrongful? < ( * * * "Arnold, Schwinn & Co. had the undoubted right to discharge Horn whenever it desired. It could discharge him for reasons the most whimsical or malicious, or for no reason at all, and no cause of action in his favor would be thereby created; but it by no means follows that while the relations between Arnold, Schwinn & Co. and Horn were pleasant, and while, as the evidence shows, it was the expectation of the company that Horn would continue in its employ 'all the year around,' that the interference of appellant, whereby it secured the employer to exercise a right which was given it by the law, but which, except for the action of appellant, it would not have exercised, is not actionable. < * 222 CONTRACTS "In our own State, the case of Doremns v. Hennessy is first reported in 62 111. App. 391. Plaintiff there kept a laundry office, where she received clothing which her patrons desired to have laundered. She would then pro- cure persons operating laundries to do the work and return the garments to her for delivery to her customers. The defendants were members of the Chicago Laundry- men's Association. She charged, by her declaration, that the defendants, by false representations and by threats and intimidation, induced certain parties who had been doing the work for her to break their contracts and en- gagements with her. The Appellate Court, after stating that it is now well established that in civil actions the conspiracy is not the gravamen of the charge but may be pleaded and proved in aggravation of the wrong, de- clares the law to be, that an action may be maintained for the malicious interference with the business of an- other, his occupation, profession or way of obtaining a livelihood, and affirmed a judgment of $6,000 in favor of the plaintiff. The case came to this court, where it is reported in 176 111. 608. The judgment of the Appellate Court was affirmed, and it appears from the statement of facts made by this court that with some of the per- sons who did work for her the arrangement was that they would do her work as long as the laundry associa- tion did not interfere, and that these persons, among others with whom she had contracts for specific periods, were induced by threats made by the laundry associa- tion to cease ccnnection in business with appellee. Ap- pellants contended that their acts were not mere mali- cious acts, done solely with the intent to injure plaintiff 's business, but were in the line of legitimate competition. It was there said by this court (p. 614) : 'No persons, individually or by combination, have the right to di- rectly or indirectly interfere or disturb another in his lawful business or occupation, or to threaten to do so, for the sake of compelling him to do some act which, in his judgment, his own interest does not require. Losses willfully caused by another, from motives of malice, to INTERFERENCE WITH CONTRACT 223 one who seeks to exercise and enjoy the fruits and ad- vantages of his own enterprise, industry, skill and credit, will sustain an action. It is clear that it is unlawful and actionable for one man, from unlawful motives, to inter- fere with another 's trade by fraud or misrepresentation, or by molesting his customers or those who would be cus- tomers, or by preventing others from working for him or causing them to leave his employ by fraud or mis- representation or physical or moral intimidation or per- suasion, with an intent to inflict an injury which causes loss. ' It is true that in the additional opinion delivered upon the petition for rehearing Mr. Justice Phillips distinguishes the case of Allen v. Flood, by pointing out the fact that in the latter case there was no contract the breach of which was induced by the defendant, while in the Doremus case contracts existed in which the plaintiff had a property right and which were broken as a result of the actions of the defendants; but, as we have already seen, the clear weight of authority is to the effect that where the contract is one of employment, it is immaterial whether it is for a fixed period or is one which is terminable by either party at will, both parties being willing and desiring to continue the em- ployment under that contract for an indefinite period. "We therefore conclude, both upon reason and au- thority, that where a third party induces an employer to discharge his employee, who is working under a con- tract terminable at will, but under which the employment would have continued indefinitely, in accordance with the desire of the employer, except for such interference, and where the only motive moving the third party is a desire to injure the employee and to benefit himself at the expense of the employee by compelling the latter to sur- render an alleged cause of action, for the satisfaction of which, in whole or in part, such third party is liable, and where such right of action does not depend upon and is not connected with the continuance of such employment, a cause of action arises in favor of the employee against the third party. 224 CONTRACTS Question 137 : (1.) State briefly the facts, specific question presented and the Court's decision in the above case. (2.) What was the case of Allen v. Flood? (3.) What constitutes malice in its legal sense? (4.) What was the case of Doremus v. Hennessy? PART IV DISCHARGE OF CONTRACTS Chapter 15. Meaning of discharge. Chapter 16. Discharge by performance, breach, tender, impossibility and payment. Chapter 17. Discharge by agreement, merger, nova- tion, alteration and operation of law. CHAPTER FIFTEEN MEANING OF DISCHARGE Sec. 106. Discharge Defined. (Note: By discharge of contract we mean that the contract has lost its force as such, that the contractual tie between the parties has been removed. We know from a former part of our study that there are certain causes for which one may withdraw from (avoid) his contract and in that way remove the tie. In those cases we assume that the tie never became firmly binding, that on account of fraud, duress, undue influence and the like, the tie was faulty and might be undone by one of the parties. "We now assume the case of a binding contract from which neither party can withdraw, a tie that he cannot undo because of a fault in its execution but by performing the thing for which he bound himself to the other, or by showing something ac- cepted as performance or in the eyes of the law equivalent thereto or an excuse therefor. Assuming then that the par- ties are bound by the contractual nexus, how may the relation- ship cease, so that either can say that, though he was under con- tract, the contract exists no longer. The various ways in which a contractual obligation may be discharged are indicated at the beginning of this chapter, and are illustrated by the cases following.) 225 CHAPTER SIXTEEEN DISCHARGE BY PERFORMANCE, BREACH, TENDER AND IMPOSSIBILITY 107. The performance must be ac- 111. Breach by renunciation prior cording to the terms of the to time of performance. contract. 112. Dependence and independence 108. Substantial performance suf- of covenants and conditions ficient. as affecting performance 109. Acceptance of defective per- and breach. formance as full perform- 113. Impossibility of performance ance. as discharge. 110. Performance of contracts to be performed to the otherla satisfaction. Sec. 107. The Performance Must Be According to the Terms of the Contract. Case No. 138. Bowes et al. v. Shand et al., 2 App. Cas. (Eng.) 455. Facts: Shand agrees to sell B. a cargo of rice, under a contract, which, as construed by the Court, required S. to put the rice on board the "Rajah of Cochin" in Madras in March and April, for shipment to London. The rice was put on board in February, and B. refused to accept it. This was an action for damages caused by such refusal. Point Involved: Whether a party may, without re- spect to its importance, insist on every term of his con- tract. LORD BLACKBURN: * * * It was argued * 226 PERFORMANCE, BREACH, ETC. 227 that it was enough that it was rice and that it is imma- terial when it was shipped. * If you contract to sell peas, you cannot oblige a party to take beans. If the description of the article tendered is different in any respect, it is not the article bargained for * * *. I think in this case what the parties bargained for was rice, shipped at Madras, or the coast of Madras. Equally good rice might have been shipped a little to the north or a little to the south of the coast of Madras. I do not quite know what the boundary is, and probably equally good rice might have been shipped in February as was shipped in March, or equally good rice might have been shipped in May as was shipped in April, and I dare say equally good rice might have been put on board another ship as that which was put on board the "Rajah of Cochin. ' ' But the parties have chosen, for reasons best known to themselves, to say: We bargain to take rice, shipped in this particular region, at that particular time, on board that particular ship, and before the defendants can be compelled to take anything in fulfilment of that contract, it must be shown not merely that it is equally good, but that it is the same article that they have bar- gained for otherwise they are not bound to take it. Question 138: What is the rule stated in the above case? Sec. 108. Substantial Performance Sufficient. Case No. 139. Nolan v. Whitney, 88 N. Y. 648. Facts: Michael Nolan contracted to do the mason work in the erection of two buildings in Brooklyn, for $11,700 to be paid in installments as the work progressed. The last installment of $2,700 was payable 30 days after completion and acceptance of the work. The work was to be performed to the satisfaction and under the direc- tion of an architect, whose certificate was necessary be- fore any payment could be claimed. All installments were paid except the last, for which this suit was brought. The 228 CONTRACTS defense was that the contract was not performed as agreed and that the architect's certificate had not been obtained. The referee found that Nolan substantially and in good faith complied with the contract, but that there were trivial defects for which a deduction of $200.00 should be made. Whitney appeals. Point Involved: Whether a party under contract to construct a building according to plans and specifications involving minute details, can recover on the contract at the contract price, with a deduction for error, when he has not performed literally, but has performed sub- stantially and in good faith. EARL, J. " It is a general rule of law that a party must perform his contract before he can claim the con- sideration due him upon performance ; but the perform- ance need not in all cases be literal and exact. It is suffi- cient if the party bound to perform, acting in good faith, and intending and attempting to perform his contract, does so substantially, and then he may recover for his work, notwithstanding slight or trivial defects in per- formance, 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 de- pending upon all the circumstances of the case to be determined by the trial court. * * * According to the authorities cited, under 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 improperly refused. But when he had substantially performed his contract, the architect was bound to give him the certificate, and his refusal to give it was unreasonable, and it is held that an unreasonable refusal on the part of the architect in such a case to give the certificate dispenses with the neces- sity." Question 139: What is the doctrine of the above case? PERFORMANCE, BREACH, ETC. (Note: The doctrine that substantial performance made in good faith is sufficient to give one a right to aver a sufficient performance for purposes of recovery on the express contract, less a sum sufficient to correct the error, has usually been applied in construction contracts or contracts of great detail, where the other gets a benefit consisting in substantially what he bargained for, and which cannot be taken back by the other party because of the nature of the work done. This doctrine is supported in almost all, if not all, the states, and has been applied to all sorts of contracts by some of the cases. The effect of holding that the builder could not recover on the contract would be, either to deny him any remedy whatever, or to ignore his express con- tract, on the ground he had not performed it, and give him a remedy as on an implied contract, thus depriving him of the advantage of his express contract. . Under this rule if his con- tract calls for $15,000, he can sue for such sum from which the damages caused by the immaterial departure will be deducted, as, say $50. Under any other rule he could not sue at all, or would have to sue as on an implied contract, without any benefit from his express contract.) Sec. 109. Acceptance of Defective Performance as Full Performance. Case No. 140. Smith v. Aiker, 102 N. Y. 87. Facts: Suit brought to recover for balance due on a building contract. This contract provided for the produc- tion by the contractor of the architect 's certificate before the owner was obliged to accept the building or pay the balance due. No such certificate was produced. The evidence showed, however, and the jury found that the owner accepted the work. Point Involved: Whether a provision in the contract for the benefit of the party sued, could be set up as a defense by him, where the evidence discloses that he freely accepts the performance without insisting on such benefit. DANFORTH, J. : "* * * It was contended on the trial * * * that a recovery could not be had without the production of the architect's certificate. 230 CONTRACTS (The Court below) held, and so instructed the jury, that the defendant could waive the stipulations he had intro- duced into the contract for his own benefit and that if he had accepted the house as under a complete contract, the plaintiff would be entitled to recover, although no certificate had been given, and even if the architect was not satisfied. That was the principal question presented ; it was, we think, rightly decided. "Judgment for plaintiff affirmed." Question 140: What does the above case decide? (Note: See Cases on Sales for a development of the subject of acceptance as waiver of breach. It is there brought out that one who accepts who has an opportunity to reject, may thereby forego his right to afterwards reject and yet may still save his right to have damages for the breach. But the acceptance may also show a waiver of damages. Circumstances govern.) Case No. 141. Elliott v. Caldwell, 43 Minn. 357. Facts: E. and others agreed to build for C. a dwelling house. C. resists payment according to the contract be- cause the house as built was materially different from the one called for by the plans. The evidence was taken be- fore a referee, who found that E. and the others material- ly deviated from the contract in numerous particulars both in work and materials. Point Involved: Whether a retention of a benefit which one has no option to restore, can be considered as acceptance. MITCHELL, J. : "* * * They are not mere slight defects or omissions, which may be remedied without difficulty so as to give defendants substantially the build- ing they bargained for, but they are of a substantial nature, which run through the whole work, and are now incapable of correction and render the house substantial- ly different from and inferior to the one which plaintiffs contracted to build. * * * Neither were they the re- PERFORMANCE, BREACH, ETC. 231 suit of mistake or oversight, but intentional and even fraudulent. * * * In the case of a building on land under a contract which the builder fails to complete, or which he completes in a manner not conforming to the contract the mere fact of the building remaining on the land, and that the owner resumed possession and enjoys the fruits of the labor, is not such an acceptance as alone will imply a promise to pay for it ; for the possession of the land necessarily involves possession of the buildings in their existing state, and the owner has no option in rejecting them." Question 141: What are the facts, the question presented and the Court's decision in the above case? (Note: For right to recover in such a case as on an implied contract see Sec. 121.) Sec. 110. Performance of Contracts by Their Terms to Be Performed to the Others' Satisfaction. Case No. 142. Brown v. Foster, 113 Mass. 136. Facts: Suit to recover the price of a suit of clothes which the tailor agreed to make up to the customer 's sat- isfaction. Defense, that he was not satisfied. Point Involved: Whether one who has contracted that another shall make him a suit of clothes ' l to his satisfac- tion" may reject the clothes with no other reason than that he is not satisfied. DEVENS, J. : " There was evidence at the trial to show that the contract between the parties was an express con- tract and by the terms of it the plaintiff agreed to make and deliver to the defendant, upon a certain day a suit of clothes which were to be made to the satisfaction of the defendant. The clothes were made and delivered upon the day specified, but were not to the satisfaction of the defendant, who declined to accept, and promptly returned 232 CONTRACTS the same. If the plaintiff saw fit to do work upon ar- ticles for the defendant and to furnish materials there- for, contracting that the articles when manufactured should be satisfactory to the defendant, he can recover only upon the contract as it was made; and even if the articles furnished by him were such that the other party ought to have been satisfied with them, it was yet within the power of the opposite party to reject them as unsat- isfactory. It is not for any one else to decide whether a refusal to accept is or is not reasonable, when the con- tract permits the defendant to decide himself whether the articles furnished are to his satisfaction. Although the compensation of the plaintiff for valuable services and materials may thus be dependent upon the caprice of another, who unreasonably refuses to accept the articles manufactured, yet he cannot be relieved from the con- tract into which he has voluntarily entered. * * * " Question 142: (1.) State the facts, the question presented and the Court 's decision in the above case ? (2.) Suppose the customer had accepted the clothes, protest- ing that he was not satisfied, could he have made this defense ? Case No. 143. Duplex Safety Boiler Co. v. Garden, 101 N. Y. 387. Facts: Contract to alter boilers for G., payment to be made only when G. was " satisfied that the boilers as changed were a success. ' ' Tne work was done in a work- manlike manner; but defendant, G., claimed he was not satisfied. Point Involved: Whether one who has contracted that another shall do work of a mechanical character to his satisfaction, can aver in full defense for not accepting the work simply that he is not satisfied. DANFOETH, J. : "* * * In the case before us the work required was specified, and was completed ; * * * PERFORMANCE, BREACH, ETC. 233 If there was full performance on the plaintiff's part, nothing more could be required, and the time for pay- ment had arrived ; for * that which the law will say a contracting party ought in reason to be satisfied with, that the law will say he is satisfied with. ' "Another rule has prevailed where the object of the contract was to gratify taste, serve personal convenience, or satisfy individual preference. * * A different case is before us." Question 143: (1.) In what respect does this case differ from the one above ? Are they opposed in principle ? (2.) Apply the principles of the above cases to the following contracts to be performed to the other's satisfaction: (a) Laying a roof: (McNeil & Armstrong, 81 Fed. 943). (b) Painting a portrait: (Pennington v. Rowland, 21 R. I. 65). (c) Making a statue: (Zaleski v. Clarke, 44 Conn. 218). (d) Grading a dock: (Keeler v. Clifford, 165 111. 544). (Note : These cases must not be confused with cases in which articles are sent for trial to be accepted if satisfactory or if the recipient desires to keep them. In such a case, of course, there is an absolute right of rejection.) Case No. 144. Kendall v. West, 196 HI. 223. Facts: This was a suit brought by Ezra Kendall to recover $10,000 for breach of a contract of employment, whereby West engaged Kendall to perform for West at such places and theatres in the United States and Can- ada as appellee might require, for the seasons of 1898, and 1899, Kendall to "render satisfactory services." The defendant was not satisfied with Kendall's services and requested Kendall to shorten his performance and try his part in black face. Kendall refused and West discharged him. He brought suit. Point Involved: Whether under a contract for per- sonal services, so long as such services are satisfactory, the employer is the sole judge as to the satisfactoriness of such services. 234 CONTRACTS MR. JUSTICE HAND: "* * * The contract of em- ployment provided that appellant should render 'satis- factory services, ' for which he was to receive the sum of $250 per week. It contained no provision in any manner limiting the appellee in the exercise of his judgment as to what should be deemed ' satisfactory services. ' The ap- pellant did not undertake to render services which should satisfy a court or jury, but undertook to satisfy the taste, fancy, interest and judgment of appellee. It was the appellee who was to be satisfied, and if dissatisfied he had the right to discharge the appellant at any time for any reason, of which he was the sole judge. (Goodrich v. Van Nortwick, 43 111. 445 ; Crawford v. Mail and Express Publishing Co. 57 N. E. Rep. 616.) In the Goodrich case the plaintiff purchased and paid for a fanning mill, with the agreement that if it did not suit him and answer his purpose he might return it within thirty days. It was held that the mill must answer both requirements, and if it did not suit the purchaser he had the right to return it and recover back the purchase price, and that he was the sole judge of whether or not he was suited. In the Crawford case the plaintiff made a contract to write for the defendant's newspaper for two years, provided his services should be satisfactory to the publisher and it was held that the defendant had the right to discharge the plaintiff at any time if his services were unsatisfactory, of which fact the defendant was the sole judge. ' ' Question 144: State the facts, the question presented and the Court's decision in the above case. Sec. 111. Breach by Renunciation Prior to Performance. Case No. 145. Hochster v. De La Tour, 2 El. & Bl. 678. Facts: Plaintiff, in April, 1852, agreed to serve de- fendant, as courier, for three months from June 1, 1852, on certain terms. May 11, 1852, defendant wrote plain- tiff he had changed his mind and would not employ plaintiff. May 22nd plaintiff brought suit. Defendant PERFORMANCE, BREACH, ETC. 235 claimed that there could be no breach until time of per- formance, and that until that time, he should have oppor- tunity to change his mind. Point Involved: Whether an executory contract can be treated by the promisee as broken by the promisor before the time for performance. LORD CAMPBELL, C. J. : "* But it is surely much more rational and more to the benefit of both par- ties that after the renunciation of the agreement by the defendant the plaintiff should be at liberty to consider himself absolved from any future performance of it, re- taining his right to sue for any damage he has suffered from the breach of it. Thus, instead of laying out money in preparations which must be useless he is at liberty to seek service under another employer, which would go in mitigation of the damages to which he would otherwise be entitled for a breach of the contract. It seems strange that the defendant, after renouncing the contract and absolutely declaring that he will never act on it, should be permitted to object that faith is given to his assertion, and that an opportunity is not left to him of changing his mind. * * *" Question 145: What is the rule of law announced in this case? Case No. 146. Kadish v. Young, 108 111. 170. Facts: On December 15, 1880, Y. agreed to sell to K. 100,000 bushels of No. 2 barley at $1.20 per bushel, to be delivered in January, 1881. On December 16, 1880, K. gave notice that he would not receive the barley. Y. nevertheless treated the contract as still subsisting and on January 12, 1881, tendered the warehouse receips to K., who refused to accept. Thereupon Y. sold the barley on the market, at less than $1.20 per bushel, and sued K. for the loss. K. contends that Y. should have acted on his renunciation and attempted to sell the barley in De- 236 CONTRACTS cember, when barley was higher, and thus have dimin- ished the damages in whole or part. Point Involved: The same question as above. With the additional point whether the other party must act upon the attempted renunciation or may hold the con- tract open ; and the consequences of so doing. ME. JUSTICE SCHOLFIELD: "But the well settled doc- trine of the English Courts is, that a buyer cannot thus create a breach of contract upon which the seller is bound to act. * * * "The question came before this Court in Fox v. Kitton, 19 111. 519, whether, where a party agrees to do an act at a future time, and before the day arrives he declares he will not keep his contract, the other party may act on such declaration and bring an action before the day ar- rives ; and it was held * * * that he may. (Quoting from an English case) 'The notice (that he will not receive the wheat) amounts to nothing until the time when the buyer ought to receive the goods, unless the seller acts on it in the meantime, and rescinds the contract.' * * * > Question 150: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) A makes two contracts with B: (a) to sell B A's horse Dick; (b) to sell B 20 horses of a particular description. Before the time for the performance arrives a contagious disease breaks out among A's horses and kills the horse Dick and a herd of 40 horses out of which A expected to select the 20 other horses. A is unable to buy any horses corresponding to the description of the 20 horses. B sues A on both contracts. A pleads the facts as stated. Is he excused? (Ontario Ass'n v. Packing Co., 134 Cal. 21.) PERFORMANCE, BREACH, ETC. 245 (Note: Mere hardship is never impossibility, [Walker v. Tucker, supra] ; nor impossibilities caused by climatic conditions that should have been foreseen and stipulated against, as the freezing of a river in midwinter. [Engster v. West, 35 La. Ann. 119.] Impossibility is not a good defense, except where from the nature of the contract it must have been contemplated by both parties that the contract was to remain binding only in case performance were possible. Thus, strikes, inability to get labor- ers or building material, inability to accomplish results agreed upon because of incapacity, etc., are not causes of discharge, unless they are provided for in the contract) Case No. 151. Kelley v. Biley, 106 Mass. 339. Facts: Suit for breach of promise of marriage. De- fence that defendant was married when he made the promise. The plaintiff was innocent of the fact. Point Involved: Whether impossibility known to one party but not known to the other discharges the contract. COLT, C. J. : The defendant is not permitted to escape responsibility on the ground of his present legal inability to perform a promise of marriage to an innocent party. The damages to the plaintiff are certainly not diminished by the consideration that the promise was made under such circumstances. The strict rule that a consideration to support a promise is insufficient, if its performance is utterly and naturally impossible, is met by the suggestion that, even if the future performance here is to be treated as utterly impossible, yet the detriment or disadvantage which must necessarily result to the unmarried ; and that is a sufficient consideration to bind the defendant. ' ' Question 151: State the facts of this case and the rule announced by it. CHAPTER SEVENTEEN DISCHARGE BY AGREEMENT, NOVATION, ALTERATION AND OPERATION OF LAW 114. Discharge by agreement. 117. Discharge by operation of 115. Discharge by novation. law. 116. Discharge by alteration of written agreement. Sec. 114. Discharge by Agreement. (Note: A contract may be discharged by an agreement whereby both parties mutually agree to rescind it, whether or not they substitute a new agreement in its stead. By new agree- ment a contract may be completely abandoned or partially altered. A written contract may be altered by oral agreement. A con- tract under seal could not, at common law, be altered except by instrument under seal. This doctrine still prevails in some states. But everywhere, if such modification has been carried out, it will not be disturbed.) Sec. 115. Novation. (Note: By novation we indicate a change in an existing contract by which one term is substituted for another, or one party is substituted for another. Thus, we speak of novation of parties, and, novation of terms. Novation of parties indicates that one of the parties has been released of all liability and another substituted in his stead. Of course the consent of all the parties to the original contract and the contract of the new party is necessary. Thus, A has a con- tract with B. A, B and C by agreement substitute C in B's 246 DISCHARGE OF CONTRACT 247 stead, releasing B from all further obligation or connection with the contract.) Sec. 116. Discharge by Alteration. (Note: By alteration we indicate the purposeful change by one party without the consent of the other of a material part of a written agreement for the purpose of changing the effect thereof. The law is that such alteration discharges the other party of his obligation upon the writing. Suppose, however, the party claiming to be so discharged has received money or other benefits under the contract. Can the writing be ignored and suit sustained as on an implied contract for a recovery of the benefits or their value? Some cases hold that such suit is maintainable; other cases hold other- wise. Alteration by a third person, acting without consent of the party, is known as spoliation. It cannot affect the rights of the parties upon the agreement. See further on this subject the Cases on Negotiable Paper. See also remarks of Lotz, J., on page 270, post.) Sec. 117. Discharge by Operation of Law. (Note : Death and bankruptcy operate as a matter of law to discharge certain contracts. Bankruptcy discharges certain debts, whether due or immature, but does not usually discharge executory contracts not in the nature of money debts. Death discharges contracts whose performance.it makes impos- sible, as we have seen under Impossibility of Performance.) CHAPTER EIGHTEEN REMEDIES UPON DISCHARGE 118. Remedy in damages occa- tract to recover implied sioned by breach. value of benefits conferred. 119. Decree for compelling specific 122. Bight to recover reasonable performance. value of benefits conferred 120. Injunction against breach. when contract discharged 121. Right of party breaking con- t>7 impossibility of per- formance. Sec. 118. Remedy in Damages Occasioned by Breach. Case No. 152. Hadley v. Baxendale, 9 Exch. R. 341. Facts: Plaintiffs sued defendant as a common carrier for the breach of a contract to carry a crank shaft which was broken, and which the plaintiffs were sending to a certain person to be repaired. Breach alleged: unjus- tifiable delay in carrying the shaft; damages claimed: loss of profits for several days occasioned by not having the crankshaft. There was no evidence that defendant was informed or knew that loss of profits would follow its failure to carry the goods in proper time. The judge sent the case to the jury without instructing them whether or not or upon what basis they could allow the loss of profits, and the jury returned a verdict for 50, which is 25 more than defendant admits he is liable to pay. Defendant appeals. Point Involved: The rule of damages to govern the assessment thereof upon breach of contract. Specifically, whether, in this case, the defendant under a contract to carry plaintiffs * goods was liable, on breach of that con- 248 REMEDIES 249 tract, for loss of profits sustained by plaintiffs in not having such goods according to contract, defendant not being informed that loss of profits would follow. AJLDERSON, B. : "* 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 damages 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 it- self, 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 a 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 par- ties, 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 contract under these special circum- stances so known and communicated. But, on the other hand, if these special circumstances were wholly un- known 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 parties might have specially provided for the breach of contract by spe- cial terms as to the damages in that case ; and of this ad- vantage 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 aris- ing out of any breach of contract. It is said, that other cases, such as breaches of contracts in the non-payment of money, or in the not making a good title to land, are to be treated as an exception from this, and as governed 250 CONTRACTS by a conventional rule. But as, in such cases, both par- ties 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 laid down, we find that the only cir- cumstances 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 the millers of that mill. But how do these circumstances show reasonably that the profits of the mill must be stopped by an unreasonable 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 that they only wished to send back the broken shaft to the engineer who made it; it is clear that this would be quite consistent 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 fol- low. Here it is true that the shaft was actually sent back to serve as a model for a new one, and the want of a new one was the only cause of the stoppage of the mill, and that the loss o profits really arose from not send- ing 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 a great multitude of cases of millers sending off broken shafts to third persons by a carrier under ordinary circumstances, such consequences would not, in all probability, have occurred; and these special circumstances were here never communicated by the plaintiffs to the defendants. It follows, therefore, that the loss of profits here cannot BEMEDIES 251 reasonably be considered such a consequence of the breach of contract as could have been fairly and reason- ably 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 circum- stances, nor where the special circumstances which, per- haps would have made it a reasonable and natural con- sequence 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 con- sideration at all in estimating the damages. There must therefore be a new trial in this case.'* Question 152: (1.) State the facts in this case. What cir- cumstances should govern the jury in allowing or disallowing the loss of profits in this case ? (2.) From this case, how would you state the rule of the measurement of damages in contract cases? Case No. 153. Jordan v. Patterson, 67 Conn. 473. Facts: Plaintiffs ordered of defendants about 12,000 undergarments to be delivered at certain times, etc. De- fendants accepted the order. They furnished only about 160 dozen. Plaintiffs claim damages for loss of profits. Point Involved: The measure of damages in case of a breach by the seller of a contract to sell articles of merchandise. ANDREWS, C. J. : "* * * The general intention of the law giving damages in an action for the breach of the contract like the one here in question is to put the injured party, so far as it can be done by money, in the same position that he would have been in if the contract had been performed. In carrying out this general in- tention, it must be remembered that the altered position 252 CONTRACTS to be redressed must be one directly resulting from the breach. In an action like the present one the general rule is that the plaintiff is entitled to recover in damages the difference at the time and place of delivery between the price he had agreed to pay and the market price, if greater than the agreed price. This, of course, implies that there is a market for such goods, where the plaintiff could have supplied himself. If there is no such market, then the plaintiff should have recovered the actual damages which he suffered. There may be, and often there are, special circumstances, other than the want of a market, sur- rounding a contract for the sale and purchase of goods, by reason of which, in case of a breach, the loss to a ven- dor for their non-delivery is increased. * It must be remembered also that any dam- ages which the plaintiff by reasonable diligence on his part might have avoided, are not to be re- garded as the proximate result of defendant's acts. In the present case, the plaintiffs claimed that at the time of delivery there was no market in which they could procure such goods as the defendants were to deliver to them. This was a fact which might be proved by the testimony of any person who had knowledge on the sub- ject. And if it was true, the plaintiffs could not by any diligence on their part have relieved themselves by such purchase from any portion of the damages which they suffered. * * "It is alleged in the complaint that by reason of the default of the defendants, the plaintiffs had been obliged to pay large damages to their vendees for their failure to deliver to them the goods so bargained to them, and they offered evidence to prove such a payment to one of their vendees. In restoring an injured party to the same position he would have been it is necessary to take into account losses suffered, as much as profits prevented. And whenever the loss suffered or the gain prevented results directly from a circumstance which may reasonably be considered to have been in the REMEDIES 253 contemplation of the parties when entering into the con- tract, the plaintiff should be allowed to prove such loss. Question 153: (1.) What is the object of the law in allowing damages for breach of contract? (2.) By what circumstances are the damages measured in the above case? (a) When the goods have market value? (b) When they have no market value ? (3.) Is the plaintiff bound to keep the damages down? How and to what extent? Case No. 154. McKinley v. Goodman, 67 111. Ap. 374. Facts: G. was a cook and caterer and was employed by M. to run a lunch counter at Bay City, Michigan. She claimed that her contract with M. was for a term from June 15 to September 1, 1894, and that after working one month she was wrongfully discharged. Point Involved: The duty of an employee wrongfully discharged to reduce the damages by seeking employ- ment elsewhere. MB. PRESIDING JUSTICE BOGGS: "* * * The meas- ure of damages of the plaintiff, if found entitled to re- cover, is the agreed or contract price during the unex- pired period, less any sum the plaintiff has earned, or might have earned, by the exercise of reasonable effort to obtain other employment in the same line or general nature of business. * * * Appellee was not required to hunt for em- ployment in occupations different in their general nature and character from her avocation. Question 154: What is the duty of an employee wrongfully discharged to seek employment elsewhere ? Sec. 119. Decree for Specific Performance. Case No. 155. P. & F. Corbin v. Tracy, 34 Conn. 325. 254 CONTEACTS Facts: Bill in equity brought to compel the specific performance of a contract to assign a patent right. Point Involved: Generally, when courts will decree the specific performance of a contract; specifically whether a contract to assign a patent right will be spe- cifically enforced. CARPENTER, J. : "Under the motion in error, it is ob- jected that the petitioners have not made out a case for the interference of a court of equity ; that courts of equity in this state will not interfere to enforce agreements to sell personal property unless the circumstances are such as to make a trust, because there is in such a case a remedy at law by an action for damages. "The objection assumes that there is a distinction in questions of this character between real and personal property. If any such distinction exists it does not go to the extent claimed. "The ground of the jurisdiction of a court of equity in this class of cases, is, that a court of law is inadequate to decree a specific performance and can relieve the in- jured party only by a compensation in damages, which in many cases would fall far short of the redress which the situation might require. Whenever, therefore, the party wants the thing in specie and he cannot otherwise be fully compensated courts of equity will grant him a specific performance. They will decree the specific per- formance of a contract for the sale of lands, not because of the peculiar nature of the land, but because a party cannot be adequately compensated in damages. So in respect to personal estate ; the general rule that courts of equity will not entertain jurisdiction for a specific per- formance of agreements respecting goods, chattels, stocks, choses in action, and other things of a merely personal nature, is limited to cases where a compensa- tion in damages furnishes a complete and satisfactory remedy. 2 Story's Eq. Jur. sees. 717, 718. "The jurisdiction, therefore, of a court of equity does not proceed upon any distinction between real estate and REMEDIES 255 personal estate, but upon the ground that damages at law may not, in the particular case, afford a complete remedy. 1 Story's Eq. Jur. sec. 716, 717, 718, and cases there cited; Clark v. Flint, 22 Pick. 231. When the rem- edy at law is not full and complete, and when the effect of the breach cannot be known with any exactness, either because the effect will show itself only after a long time, or for any other reason, courts of equity will enforce contracts in relation to personalty. 3 Parson on Con- tracts. (5th Ed.) 373. "An application of these principles to the case before us, relieves us of all difficulty. The contract relates to a patent right the value of which has not been tested by actual use. All the data by which its value can be esti- mated are yet future and contingent. In any event its value cannot be known with any degree of exact- ness until after the lapse of time. * On the whole, we are satisfied that justice can only be done in a case like this by a specific performance of the contract." Question 155: (1.) To what sort of remedy is a court of law (as distinguished from a court of equity) mainly confined. (2.) What is specific performance? (3.) On what grounds will it be granted ? (4.) Will a decree for specific performance be granted in case of contracts to sell real estate ? (5.) In case of contracts to sell personal property? (6.) In case of contracts to render personal services ? (2.) A contracts with B to sell B 100 bushels of wheat. Can A compel the specific performance of this contract? Why? Sec. 120. Injunction Against Breach. Case No. 156. Philadelphia Ball Club v. La Joie, 202 Pa. 210. Facts: Bill brought to enjoin defendant from furnish- ing his services as a base ball player to rival base ball organizations. Facts appear in the opinion. Point Involved: Whether a court will enjoin a party to a contract from breaking a covenant of a negative character contained therein. 256 CONTRACTS POTTER, J. : ' * The defendant in this case contracted to serve the plaintiff as a baseball player for a stipulated time. During that period he was not to play for any other club. He violated his agreement * *. The plaintiff by means of this bill, sought to restrain him dur- ing -the period covered by the contract. * * * "(The defendant) has been for several years in the service of the plaintiff club and has been re-engaged from season to season at a constantly increasing salary. He has become thoroughly familiar with the action and methods of other players in the club and his own work is peculiarly meritorious as an integral part of the team- work which is so essential. * La Joie is well known, and has great reputation among the patrons of the sport. He may not be the sun in the base- ball firmament, but he is certainly a bright particular star. We feel, therefore, 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 peculiar value to the plaintiff, and so difficult of substitution that their loss will produce 'irreparable injury/ The case, therefore, properly calls for the aid of equity in negatively enforcing the performance of the contract, by enjoining its breach. * * * The court cannot compel the defendant to play for the plaintiff, but it can restrain him from playing for another club in violation of his agreement. * * Question 156: (1.) What were the facts, the specific ques- tion presented and the Court 's decision in the above case ? (2.) Could the Court decree specific performance of the con- tract to work for the Philadelphia ball club ? Why ? (3.) Suppose the club had contracted for the services of a carpenter to keep the grounds in shape during the season, with a clause in the contract that he would work for no one else during that time, would the Court enjoin the breach of that covenant? Why? (4.) A sells his business to B, and covenants he will not com- pete with A for a certain time and within a certain territory REMEDIES 257 (the reasonableness of which we may assume). He starts to open up a rival place of business contrary to the terms of his agreement. Will the Court issue an injunction? Sec. 121. Right of Party Breaking Contract to Recover Implied Value of Benefits Conferred. (Note : This section covers the cases in which there has been no waiver of breach by acceptance or otherwise, the benefits in these cases being under the circumstances not restorable, i. e., as services rendered before breach and of property built before breach on real estate.) (a) One view, no recovery. value of benefit. (b) The other view recovery for (a) One View, No Recovery. Case No. 157. Colin et al. v. Plumer, 88 Wis. 622. Facts: Suit to recover the reasonable value of marble put into a building, under a contract of construction not performed. Point Involved: The right to recover as on an implied contract for benefits conferred and retained by the other party with no option to reject, under an express con- tract wilfully broken by the plaintiff. , J. : "If there was a complete contract made by the plaintiffs, at the time of the meeting in the archi- tect's office to furnish all the granite required for the building, according to the plans and specifications, for a specified sum, then the plaintiffs cannot recover on quan- tum meruit, because it is admitted they failed to perform such contract. * * *" Question 157: State the facts and the rule of law of the above case. Case No. 158. Stark v. Parker, 2 Pick. (Mass.) 267. Facts: Suit for value of services rendered by plain- tiff for defendant. Plaintiff was employed for one year 258 CONTRACTS for the sum of $120.00 for the year. He quit before the year was out, without cause and against defendant's consent. Point Involved: The same as in the previous case, except that the benefits conferred are services rendered. LINCOLN, J. : " * * * The direction to the jury was, 'that although proved to them, that the plaintiff agreed to serve the defendant for an agreed price for one year, and had voluntarily left his service before the expiration of that time, and without the fault of the defendant, and against his consent, still the plaintiff would be en- titled to recover of the defendant, in this action, a sum in proportion to the time he had served, deducting there- from such sum (if any) as the jury might think the de- fendant had suffered by having his service deserted. ' If this direction was wrong, the judgment which was ren- dered must be reversed, and the catfe sent to a new trial, in which the diversity of construction given to the char- acter and terms of the contract by the counsel for the respective parties may be a subject for distinct consider- ation. # * * "The performance of a year's service was in this case a condition precedent to the obligation of payment. The plaintiff must perform the condition before he is entitled to recover anything under the contract, and he has no right to renounce his agreement and recover upon a quantum meruit. The cases of McMillan v. Vanderlip, 12 Johns E. 165; Jennings v. Camp, 13 Johns E. 94, and Beab v. Moor, 19 Johns E. 337, are analogous in their cir- cumstances to the case at bar and are directly and strongly in point. The decisions in the English cases express the same doctrine, Waddington v. Oliver, 2 New Eep. 61 ; Ellis v. Hamlen, 3 Taunt. 52 ; and the principle is fully supported by all the elementary writers." Question 158: State the facts, the question presented and the Court's decision in the above case. REMEDIES 259 (b) The Other View, Recovery for Reasonable Value for Benefit. Case No. 159. Britton v. Turner, 6 N. H. 481. Facts: See the opinion. Point Involved: The same as in the preceding case. PABKEB, J. : "It may be assumed that the labor per- formed 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 defendant for the term of one year, for the sum of one hundred and twenty dol- lars, and that the plaintiff had labored but a portion of that time, and had 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 en- title him to the sum agreed upon, has never been per- formed. "But the question arises, can the plaintiff, under these circumstances, recover, a reasonable sum for the service he has actually performed, under the count in quantum meruit. "Upon this and questions of similar nature, the de- cisions to be found in the books are not easily reconciled. ' ' It has been held, upon contracts of this kind for labor to be performed at a specified price, that the party who voluntarily fails to fulfil the contract by performing the whole labor contracted for, is not entitled to recover any- thing for the labor actually performed, however much he may have done towards the performance, and this has been considered the settled rule of law upon this sub- ject. 2 Pick 267, Stark v. Parker; 2 Mass. 147, Faxon v. Mansfield; 12 Johns. 165, McMillen v. Vanderlip; 13 Johns. 94, Jennings v. Camp; 19 Johns. 337, Eeab v. Moor; 8 Cowen, 63, Lantry v. Parks; 9 Barn. & Ores. 92, Sinclair v. Bowles; 2 Stark. Eep. 256, Spain v. Arnott. 260 CONTRACTS "That such a rule in its operation may be very un- equal, not to say unjust, is apparent. "A party who contracts to perform certain specified labor, and who breaks his contract in the first instance, without any attempt to perform it, can only be made liable to pay the damages which the other party has sus- tained by reason of such non performance, which in many cases 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 per- formance although the other party has had the full ben- efit of all that has been done, and has perhaps sustained no actual damage is in fact subjected to a loss of all which has been performed, in the nature of damages for the non-fulfilment of the remainder, upon the technical rule that the contract must be fully performed in order to a recovery 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 action." (The court held that the plaintiff was entitled to recover the reasonable value of his services.) Question 159: Give the Court's reason for differing with the cases holding the opposite view. Sec. 122. Right to Recover Reasonable Value of Benefits Conferred When Contract After Partial Execution Dis- charged by Impossibility of Performance. Case No. 160. Fenton v. Clarke, 11 Vt. 557. Facts: Plaintiff contracted to work for defendant for four months at $10 per month, no money to be paid him until he had worked the entire period. He worked almost two months and quit on account of sickness. He brings suit to recover for the value of his services. REMEDIES 261 Point Involved: Whether if one who has contracted to render personal services, becomes unable to perform, on account of sickness, he can recover for the services rendered in partial performance. BENNETT, J. : " * In the case before the Court, the plaintiff contracted with the defendant to labor per- sonally for him four months, at $10 per month, and by the terms of the contract was to receive no pay till he had worked the four months. These services, being of a per- sonal character, the contract could not be performed by another, and as the plaintiff was disabled to perform it himself, by reason of sickness, which was the act of God, upon the authority of the foregoing cases the contract was discharged. The inquiry then arises, what is the re- sult! It appears to me apparent that the plaintiff must, at least, after the expiration of the four months, be per- mitted to recover, as upon a quantum meruit, pro rata for the services rendered. Common justice requires this, and I should be sorry to find that it was not tolerated by the principles of the common law. To hold, in a case like this, where the plaintiff has been discharged of his con- tract by the act of God, that there can be no apportion- ment, upon the technical ground that the contract is en- tire, and Us performance a condition precedent, is to my mind, leaving the substance and adhering to the shadow. If the plaintiff be relieved from the contract, how can the defendant interpose it, as a reason why the plaintiff should not recover for the labor actually performed. * * * "It is argued by the defendant, that in this case it was the duty of the plaintiff after he had recovered from the sickness, to return to the defendant and complete his four months' labor and that, as he did not do it, he is for this cause prevented from a recovery. It is undoubtedly true that when any special matter does not operate to annul the contract, but only as a temporary suspension of it, it is the duty of the party to perform the contract, within a reasonable 262 CONTRACTS time after the cause of its suspension shall have ceased to operate. But in the present case, the auditor finds, that the plaintiff was not restored to health until after the expiration of four months. His services were of a personal character and the time of performance material to the rights of the parties. The defendant could not be required to accept of the services, at another time, and the plaintiff was as much excused from their perform- ance by reason of his sickness as he would have been in the case of death, and the contract being annulled, by the act of God, and not simply suspended for a time, there is no reason why the plaintiff should have prof- fered to work for the defendant after being restored to health. Such proffer the defendant might have rejected, and it could have no possible effect upon the rights of the parties upon what was already past. * * *" Question 160: What were the facts in the above case ? What did the Court decide? DIVISION B PRINCIPAL AND AGENT DIVISION B PRINCIPAL AND AGENT Part V. The Nature and Formation of the Relation of Principal and Agent. Part VI. Mutual Bights and Duties of Principal and Agent. Part VII. The Eights and Obligations of Third Per- sons Growing Out of the Agency. Part VIII. Termination of the Relation of Principal and Agent. PART V THE NATURE AND FORMATION OF THE RELA- TION OF PRINCIPAL AND AGENT (Note: Cases on the Legality of Agency omitted. See the Cases on Contracts.) Chapter Nineteen. Definitions and Distinctions. Chapter Twenty. Capacity to Act as Principal and Agent. Chapter Twenty-one. The Authority Conferred by Prior Act. Chapter Twenty-two. The Authority Conferred by Ratification. 265 CHAPTER NINETEEN DEFINITIONS AND DISTINCTIONS 123. Definition of agent and serv- 125. Kinds of agents, ant. 124. Definition of agent as dis- tinguished from servant. Sec. 123. Definition of Agent and Servant. (Note: We may first approach the definition of the agent by making no distinction between agent or servant. Says Mechem [Agency, Sec. 2], "* * * the two relations are essentially similar. * * * the same person often assumes to the prin- cipal many of the characteristics of both servant and agent, * * * most of the principles which govern one relation apply equally to another. Case No. 161. Eehols v. State, 158 Ala. 48. Facts: The facts are stated in the first paragraph of the opinion. Point Involved: Generally, of the circumstances that constitute one an agent. Specifically whether a tailor who contracts with a customer to make him a suit of clothes is an agent (or servant) of such customer. SIMPSON, J. "The appellant was convicted of the of- fense of embezzlement; the affidavit charging that he 'being an agent, servant or clerk of affiant, embezzled or fraudulently converted to his own use money to about the amount of $18. * * * ' The evidence for the state, in its strongest light against the defendant, is that the defendant, being a tailor, agreed to make a suit of clothes 266 DEFINITIONS 267 for the prosecutor for a certain amount of money, part of which was to be paid in cash and the remainder to be paid in the future; that the prosecutor made the cash payment and demanded his suit of clothes ; that defend- ant refused to deliver without the payment of more money and also refused to return his money. "This Court said in discussing a former statute * * * that an agent is 'one who undertakes to trans- act some business or to manage some affair for another, by the authority and on account of the latter and to ren- der an account of it ; ' also that ' ' * agent ' ' so employed in this section, imports a principal, and implies employ- ment, service, delegated authority to do something in the name and stead of the principal. ' Pullam v. State, 78 Ala. 31, 34, 56 Am. Rep. 21. The relation of principal and agent did not exist between the prosecutor and the de- fendant, but the relation of seller and purchaser. The defendant did not undertake to do anything in the name and stead of the prosecutor. The money was not placed in his hands to be used or cared for, and accounted for to the prosecutor, but was paid to him in part settlement for a suit of clothes, and thereby became the money of the defendant to use as he pleased. Whatever other lia- bility or penalty the defendant may have incurred, he could not be convicted of embezzlement on the facts of this case. * * *" Question 161: (1.) When the customer in this case paid the money to the tailor, to whom did it belong ? (2.) Why was the tailor not an agent or servant of the cus- tomer ? (3.) What do you understand to be the crime of embezzle- ment? Case No. 162. Singer Mfg. Co. v. Rahn, 132 U. S. 518. Facts: Suit brought by Rahn against Singer Mfg. Co. to recover damages arising out of a personal injury sus- tained by plaintiff alleged to arise from the negligence of the defendant's servant, one Corbett, who sold defend- ant's sewing machines, using the horse and wagon fur- 268 AGENCY nished him for that purpose. Defendant claims that Corbett is not its servant or agent, and that it is there- fore not liable for his torts in driving said wagon. Point Involved: What facts determine whether one is an agent (or servant) or an independent contractor. GKAY, J. "The general rules that must govern this case are undisputed, and the only controversy is as to their application to the contract between the defendant company and Corbett, the driver, by whose negligence the plaintiff was injured. "A master is liable to third persons injured by negli- gent acts done by his servant in the course of his employ- ment, although the master did not authorize or know of the servant 's act or neglect, or even if he disapproved or forbade it. Philadelphia & Reading Railroad v. Derby, 14 How. ,(U. S.) v 478, 486. And the relation of master and servant exists whenever the employer retains the right to direct the manner in which the business shall be done, as well as the result to be accomplished, or, in other words, 'not only what shall be done, but how it shall' be done.' Railroad Co. v. Banning, 15 Wall. (U. S.) 649, 656. "The contract between the defendant and Corbett, upon the construction and effect of which this case turns, is entitled 'Canvasser's Salary and Commission Con- tract.' The compensation to be paid to Corbett by the company, for selling its machines, consisting of a ' selling commission' on the price of machines sold by him, and 'a collecting commission' on the sums collected of the purchasers, is uniformly and repeatedly spoken of as made for his ' services. ' The company may discharge him by terminating the contract at any time, whereas he can terminate it only upon ten days' notice. The company is to furnish him with a wagon ; and the horse and har- ness to be furnished by him are 'to be used exclusively in canvassing for the sale of said machines and the general prosecution of said business.' "But what is more significant, Corbett 'agrees to give DEFINITIONS 269 his exclusive time and best energies to said business, ' and is to forfeit all his commissions under the contract, if, while it is in force, he sells any machines other than those furnished to him by the company, and he 'further agrees to employ himself under the direction of the said Singer Manufacturing Company, and under such rules and in- structions as it or its manager at Minneapolis shall prescribe. "In short, Corbett, for the commissions to be paid him, agrees to give his whole time and services to the business of the company; and the company reserves to itself the right of prescribing and regulating not only what busi- ness he shall do, but the manner in which he shall do it ; and, if it saw fit, might instruct him what route to take, or even at what speed to drive. "The provision of the contract, that Corbett shall not use the name of the company in any manner whereby the public or any individual may be led to believe that it is responsible for his actions, does not and cannot affect its responsibility to third persons injured by his negligence in the course of his employment. ' l The circuit court therefore rightly held that Corbett was the defendant's servant, for whose negligence in the course of his employment, the defendant was responsible to the plaintiff. * * *" Question 162: (1.) State in detail what facts led the Court to determine that the salesman was an agent or servant. (2.) A desiring to construct a house on his land procures B, a building contractor, to do the work which is to be completed to the satisfaction of A's architect. B contracts with various parties to do particular parts of the work. One of these is C, an employing painter, who is to do all the painting for a certain lump price. D, a painter, works for C. By his negligence he injures M. Is C, B, or A liable ? (Note: As an illustration of the distinction between an agent and an "independent contractor" and the contractual results that follow from the distinction, see Case 167 post. For the responsibility of the principal for the torts of his agent, see Chapter 30.) 270 AGENCY Sec. 124. Definition of Agent as Distinguished from Servant. Case No. 163. Kingan & Co. v. Silvers, 13 Ind. App. 80. Facts: Suit against W. F. Silvers and James Silvers upon a note made by the Silvers to order of Kingan & Co. The complaint set forth the note and alleged that it had been procured from defendants by plaintiffs' traveling salesman, one Nichols, an agent employed to sell goods, but having no authority to take notes or make settlements for plaintiffs. That said salesman being about to go to Lebanon, Indiana, to take orders for goods, was instructed to procure a promissory note from defend- ants for $388.03 on account of an indebtedness to plain- tiff; that he did procure such note and afterwards and without plaintiffs' knowledge he altered it by erasing " after maturity" and inserting "from date" so that the note was made by its terms to bear 8% from date in- stead of after maturity, that plaintiffs claim on the note in its original condition, repudiating Nichols ' act in alter- ing the note. Defense (in form of demurrer) that the complaint shows that plaintiffs by their agent are guilty of a pur- poseful and material alteration of the note and there- fore have no right thereupon. Point Involved: The difference between an agent and a servant; what sort of duties make one an agent, and what, a servant ; the power of the agent and the servant to represent the principal for contractual purposes with third persons. LOTZ, J. ' ' * * The most effectual means of pre- serving the integrity of such instruments are the rule that a material alteration destroys the instrument so that no recovery can be had upon it either in its original or altered condition, and the rule that no recovery can be had upon the original consideration if the change be made for a fraudulent purpose. * * * r c h an g e j n the note was not made by DEFINITIONS 271 the plaintiffs' order or direction, but it entrusted 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." If he was the plaintiffs' agent and the act was within the scope of his authority, then his act must be deemed the act of the plaintiffs, and the law is with the defendants. If his position was that of a mere stran- ger to the note then the law is with the plaintiffs. 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. Nichols was the agent of the plaintiff to pro- cure the note. * Did his relation as agent cease when he obtained the note, or did it continue until the note was delivered to the plaintiff! * * * This leads to the inquiry who are agents and who are servant? In the primitive conditions of society the things which were the subjects of sale and trade were few in number. There was little occasion for any one to engage in commercial transactions, and when it did become necessary the busi- ness was generally transacted by the parties thereto in person. But the strong and powerful had many servants who were usually slaves. The servants performed menial and manual services for the master. As civilization ad- vanced the things which are the subjects of commerce increased, and it became necessary to perform commer- cial transactions through the medium of other persons. The relation of principal and agent is but an outgrowth or expansion of the relation of master and servant. The same rules that apply to the one generally apply to the other. There is a marked similarity in the legal conse- quences flowing from the two relations. It is often diffi- cult td distinguish the difference between an agent and a servant. Agents are often denominated servants and servants are often called agents. The word 'servant' in 272 AGENCY its broadest meaning includes an agent. There is, how- ever, in legal contemplation a difference between an agent and a servant. The Romans, to whom we are indebted for many of the principles of agency, in the early stages of their laws used the terms mandatum (to put into one's hands or confide to the discretion of another) and ne- gotium (to transact business or to treat concerning pur- chases) in describing this relation. Story Agency, section 4. Agency, properly speaking, relates to commercial or business transactions, while service has reference to ac- tions upon or concerning things. Service deals with matters of manual or mechanical execution. An agent is the more direct representative of the master and clothed with higher powers and broader discretion than a servant. Mechem Agency, sections 1 and 2. "The terms 'agent' and 'servant' are so frequently used interchangeably in the adjudications that the reader is apt to conclude that they mean the same thing. We think, however, that the history of the law bearing on this subject, shows that there is a difference between them. Agency in its legal sense always imports commercial dealings between two parties by and through the medium of another. An agent negotiates or treats with third parties in commercial matters for another. When Nich- ols was engaged in treating with the defendants concern- ing 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 plain- tiff. It was his duty to carry and deliver it to the plain- tiff. 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 faith- fully 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. "Modern jurisprudence properly and justly limits the liability of the master to the acts of his servant done DEFINITIONS 273 within, the scope of the employment. There is still sub- stantial and just grounds for the principle that the master is liable for the wrongful acts of his servant. No liability, arises against the master for the wrongful acts of his servant unless the servant has perpetrated an injury upon either the person or property of another. Nichols was the servant of the plaintiff when he made the alteration of the note. But did he inflict any injury upon the property of the defendant? Certainly not. The injury, if any, was inflicted by the servant upon the property of his own master, and not upon the property of the defendants. * * * The principle that the master is liable for the tortious acts of his servant committed in the line of the employment has no application to the facts of this case, for no injury was done to the defendant's property. ' ' Question 163: (1.) What were the facts in this case, the question presented and the Court 's decision ? (2.) What is the nature of the duties that make one an agent ? a servant? (3.) For what purpose was Nicholas, an agent, and for what a servant in this case ? Sec. 125. Kinds of Agents. (Note: Agents may be divided into those who are general and special. A general agent is one who has an authority to transact all the business of a principal or all business of some particular kind, as to manage his granary. His authority is broad and general in its scope and carries with it the implied and apparent power to do all things incidental and necessary and such as are usual. A special agent is appointed to do some par- ticular thing. Agents may be also classified as those who are not professional and those who are, the latter including, brokers, factors, auctioneers and attorneys at law.) CHAPTER TWENTY CAPACITY TO ACT AS PRINCIPAL OR AGENT A. Capacity to act as principal. B. Capacity to act as agent. A. Capacity to Act as Principal. 126. In general. 128. Insane persons. 127. Minors. 129. Corporations. Sec. 126. In General. Case No. 164. Greenwood v. Spring, 54 Barb. (N. Y.) 375. JAMES, J. : "* * * ''A person who is of capacity sufficient to do an act himself may do it by an attorney * * *." Question 164: State the above rule. (Note : Generally speaking one may do by agent what he may do in his own person. This of course has some limitations. Pub- lic policy forbids some acts to be done other than in person, as to vote at public elections, to marry, etc. So duties done by one under contract may expressly or impliedly be forbidden to be done except in person. Most duties undertaken by agents can not be delegated to others as we will notice later.) 274 CAPACITY 275 Sec. 127. Minors. (See case 2, supra.) Sec. 128. Insane Persons. Case No. 165. Blinn v. Schwartz, 177 N. Y. 252. Facts: Suit in ejectment brought by Blinn against Julia Schwartz to set aside a deed alleged to have been delivered and the proceeds thereof received under cer- tain powers of attorney executed while plaintiff was in- sane, though he was never legally adjudged insane, and Julia Schwartz denies that she had knowledge of the insanity. It is claimed that by facts, the statement of which we may here omit, Blinn, after recovering his sanity rati- fied what his agent may have done in his behalf. No offer to return the consideration held by Julia Schwartz has been made. Point Involved: What is the legal effect of the at- tempted appointment of an agent by an insane person I NN, J. : " The deed in question and both powers of attorney were executed by the plaintiff when he was of unsound mind and incapable of attending to his affairs, as the jury might have found. The evidence warrants the conclusion that the plaintiff ratified the act of his agent as well as his own with reference to the deed under consideration, pro- vided the deed and powers of attorney were not abso- lutely void but merely voidable. " Using the term in its exact sense and limiting it to the parties themselves, a void contract is binding upon neither and cannot be ratified. Even if ratified in form by both, it would be a new contract and would take effect only from the date of the attempt at ratification. A voidable contract on the other hand binds one party but not the other, who may ratify or rescind at pleasure. 276 AGENCY (Here the Court cites numerous authorities.) "We think the rule laid down by these cases is sound and in the interest of those afflicted with disease of mind. The deed of a lunatic is not void, in the sense of being a nullity, but has force and effect until the option to declare it void, is exercised. The right of election implies the right to ratify it and it may be greatly to the interest of the insane person to have that right. Upon the record before us, therefore, even if the plaintiff was in- sane at the date of the deed, there was no error in direct- ing a verdict for the defendants. * * * " Question 165: State the power of the insane person to appoint an agent. Sec. 129. Corporations. (Note : A corporation can act only by agent. It may appoint agents to do those things which its charter by express provision or by fair implication gives it power to do. See the cases on corporations.) B. Capacity to Act as Agent. Sec. 7. The Rule Stated. Case No. 166. Lyon & Co. v. Kent, 45 Ala. 656. PETEES, J. : * * * * * Any one, except a lunatic, im- becile, or child of tender years, may be an agent for an- other. It is said by an eminent author and jurist, that 'it is by no means necessary for a person to be sui juris, or capable of acting in his or her own right, in order to qualify himeslf or herself to act for others. Thus, for example, monks, infants, femes covert, persons attainted, outlawed or excommunicated, villeins and aliens may be agents for others.' Story's Agency, 6, 7, 9. So, a slave, who is homo non civilis, a person who is but little above a mere brute in legal rights may act as the agent of his CAPACITY 277 owner or his hirer. Powell v. The State, 27 Ala. 51; Stanley v. Nelson, 28 Ala. 514." Question 166: (1.) State in your own words the rule as to capacity to be agent. (2.) State your explanation of the fact that it takes less legal capacity to be an agent than to be a principal. CHAPTER TWENTY-ONE THE AUTHORITY CONFERRED BY PRIOR ACT 130. In general. 131. The form of the appointment. Sec. 130. In General. Case No. 167. Central Trust Co. v. Bridges, 57 Fed. 753. Facts: Proceedings to foreclose a mortgage on the railroad property. Certain creditors intervene to estab- lish mechanic's liens under a section of a statute giving principal contractors a mechanic's lien. To come within this section of the statute the creditor must show that he contracted with the owner (or the owner's agent) and not with an independent contractor. One Eager in this case had contracts with the company for the construction of the work and it was with Eager that the intervening creditors dealt. They claim that Eager was an agent of the company, and not an independent contractor, and hence that they were direct contractors with the company through its agent. Eager did not, however, make any con- tracts in the name of the company, and the contracting parties dealt with him and made no inquiry into his real relationship with the company. Point Involved: That one will not be deemed as the principal of another in the other *s contracts with third persons, except upon facts showing, either that he had actually conferred authority upon the agent, or that he had apparently done so. 278 APPOINTMENT 279 TAFT, J. : ' ' * The theory upon which the master and the learned Court below held that all the intervening petitioners dealt directly with the Knoxville Southern Railroad Company as principal contractors was that Eager was an agent of the railroad company in making the contracts. One may be liable for the acts of another as his agent on one of two grounds : first, because by his conduct or statements he has held the other out as his agent; or, second, because he has actually conferred au- thority on the other to act as such. The master reported to the Court below that in no case did Eager, under or in the name of the Knoxville Southern Railroad Company, make any contract with any one doing work or furnishing material for the road ; that the men who contracted with Eager knew very little of Eager, saw him only occasion- ally, made no inquiry into his real relation to the com- pany, what interest he had in it, or how he obtained money to carry on the work. In substance, the master reported that the intervening petitioners believed they were deal- ing with Eager as principal contractor. The proof fully sustains this conclusion. "It follows, necessarily, that Eager was not the agent of the company in contracting with the petitioners for the construction of the road unless the company had in fact conferred authority upon him to act as its agent in the matter. An agency is created authority is actually con- ferred very much as a contract is made, i. e., by an agreement between the principal and agent that such a relation shall exist. The minds of the parties must meet in establishing the agency. The principal must intend that the agent shall act for him, and the agent must in- tend to accept the authority and act on it, and the inten- tion of the parties must find expression either in words or conduct between them. " * * * In the case at bar, the master fully admits there was no holding out of agency in Eager by the com- pany. His finding that an agency in fact .existed rests simply on the influence which Eager had over the com- pany and not in the intention of either that Eager should 280 AGENCY act as its agent in the construction of the road, and his conclusion is reached in the face of the fact which he fully admits, that they both intended Eager to be an inde- pendent contractor. The master's conclusion cannot be supported. Question 167: What would it have been necessary for the claimants to show in this case in order to establish that Eager could bind the company as its agent ? (Note: We will notice hereafter that the actual conferring of the authority may be done by previous appointment or by ratification. But in either case the authority of the agent must be in some way traced back to the principal's acts or statements.) Sec. 131. The Form of Appointment. (a) As required by the statute of (b) To execute instrument under frauds. seal. (a) As Required by the Statute of Frauds. (See the statute as set out as Case No. 84, Division 1, Contracts.) (Note : The original statute of frauds required contracts for the sale of lands to be in writing. But the appointment of the agent to contract for the sale of such lands did not have to be in writing. Hence, if he was really appointed, although by oral ap- pointment, and the contract made by him for the sale of the land was in writing, it was enforceable. (Johnson v. Lodge, 17 111. 433.) But, now, some states provide that the authority to sell real estate, must be conferred in writing. See Kozel v. Dearlove, 144 111. 23. See also Hawkins v. McGroarty, post.) See also Case No. 98, supra. (b) To Execute Contracts Under Seal. Case No. 168. Hanford v. McNair, 9 Wend. (N. Y.) 54. Facts: Suit on contract under seal executed by an agent who was not authorized under seal to make the contract. APPOINTMENT 281 SUTHERLAND, J. : "It is an insuperable objection to the plaintiff's recovery in this action, that no competent au- thority from the defendant to Bush is shown to execute the covenant on which the suit is found. An agent cannot bind his principal by deed [instrument under seal] un- less he has authority by deed to do so. The only excep- tion to the rule that the authority to execute a deed must be by deed, is where the agent or attorney fixes the seal of the principal in his presence and by his direction. Question 168: "What was the rule as announced in this case (being the common law rule as to the requisite character of an authority to execute an instrument under seal) f (Note : This rule would not apply in states in which the char- acter of an instrument under seal has been destroyed by legisla- tion. Mary modern cases also hold that where an agent is ap- pointed by appointment not under seal to execute a contract not under seal, his addition of a seal may be treated as a superfluity and the contract regarded as an unsealed agreement. An agent need not have authority in writing to execute a con- tract in writing, unless in some particular cases, the local statute requires it.) CHAPTER TWENTY-TWO THE AUTHORITY CONFERRED BY RATIFICATION 132. Ratification defined. 137. Ratification of part ratifies 133. Appearance of agency for ex- all. Retaining benefits as isting principal necessary. ratification. 134. What acts can be ratified. 138. Silence as ratification. 135. Formalities of ratification. 139. Suit as ratification. 136. Knowledge of facts by prin- 140. The effect of ratification, cipal as essential to ratifi- cation. Sec. 132. Ratification Defined. (Note: Ratification may be defined as a conferring of au- thority upon the agent by the principal, after the agent, having neither actual nor apparent authority but purporting to have, and believed by the third party to have, has by an act in the principal 's name, attempted to bind the principal. It makes the principal liable as though authority had been previously con- ferred. It applies: (1) where the agent had no authority, or (2) had authority to some extent but acted in excess thereof. See next sections for the essential elements in ratification and effect of ratification, and see next case [remarks of Lord Mac- Naghten] for a judicial definition.) Sec. 133. Appearance of Agency from Existing Prin- cipal Necessary. Case No. 169. Keighley, Maxstead & Co. v. Durant, L. R. 1901, A. C. 240. Facts: Roberts, a corn merchant at Wakefield, having authority to buy grain for Keighley, Maxstead & Co. at a certain price, contracted in his own name and appar- 282 RATIFICATION 283 ently his own behalf to buy grain from Durant, a corn merchant in London, at a price for which he had no au- thority to buy grain for K., M. & Co. The next day K., M. & Co. agreed with Roberts to take this grain with him on joint account. Roberts and K., M. & Co. having failed to take delivery of the grain, were sued. Point Involved: Whether if A makes in his own name and apparently in his own behalf, a contract with B, and C afterwards contracts with A to take the benefit of that contract, B can hold C as a party to the contract ? EARL OF HALSBUKY, L. C. : t 'My Lords, there are here no facts really in dispute in this case. Roberts made a contract on his own behalf and without the authority of anybody else. The contract was made and the parties to it ascer- tained, and I am of opinion that upon no principle known to the law could the present appellants be made parties to that contract. They could, of course, make another con- tract in the same terms if they pleased, but it would not be this contract. It is suggested by the judgment of the Court of Appeal as possible that what is described as ratifica- tion might if the parties had so pleased, make the con- tract, which was one made between A and B, to include C, as one of the contracting parties. I think such a sug- gestion is contrary to all principle, and for it there is no decision which calls for your Lordships to override it. * * * The parties to the contract who have already bound themselves by it, are just as much part of the con- tract as any other part of the contractual obligations en- tered into. "I confess I do not see the relevancy of the argument that the contract might be made in the name of an un- known principal, and that such principal may sue and be sued, though the name was not given at the time the con- tract was made. The fact is that in such a case the contract is made by him, and the disclosure afterwards does not alter or affect the contract actually made. Here it would alter the contract afterward and make it a differ- ent contract. * * * " 284 AGENCY LORD MCNAGHTEN: "My Lords, I am of the same opinion. n * * * "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 a 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 exception, I think, results from the doctrine of ratification as established in English law. That doctrine is thus stated by Tindall, C. J., in Wilson v. Tumman (1843, 6 M. & G., at p. 242) : 'That an act done, for another, by a person not assuming to act for himself, but for such other person, though without any precedent authority whatever, becomes the act of the principal, if subsequently ratified by him, is the known and well es- tablished rule of law. In that case the principal is bound by the act, whether it be for his detriment or disad- vantage, and whether it be founded on a tort or on a contract, to the same effect as by, and with all the conse- quences that follow from, the same act done by his pre- vious 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 f If Tindall, C. J. 's statement 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 in his own breast. " * * But ought the doctrine of ratification to be extended to such a case? On principle I should say cer- tainly not * * *" Question 169: (1.) State the facts, the question presented and the Court 's decision in the above case. (2.) An undisclosed principal can be sued by the third person. Why was this not such a case ? RATIFICATION 285 (3.) What was Chief Justice Tindall's definition of ratifica- tion? (4.) A, of the firm of A and B, bought goods in his own name and without B's knowledge, expecting to use such goods in an- other partnership to be formed with C. The firm of A and B did not dissolve as expected, and A and B afterwards used the goods so bought by A. Is B liable in a suit by A's vendor for the price of the goods ? ( 13 Manitoba L. Rep. 147, 2 Brit. R. C. 254. ) Case No. 170, Watson v. Swann, 11 C. B. N. S. 756 at p. 771. WILLES, J. : ' * * to entitle a person to sue upon a contract, it must clearly be shown that he himself made it, or that it was made on his behalf by an agent au- thorized to act for him at the time or whose act has been subsequently ratified and adopted by him. The law obvi- ously requires that the person for whom the agent pro- fesses to act must be a person capable of being ascertained at the time. It is not necessary that he should be named ; but there must be such a description of him as shall amount to a reasonable designation of the person in- tended to be bound by the contract. * * * The doc- trine of ratification shall have reference to the time when the act was done which the supposed principal attempts to ratify. * * *" Question 170: When one is held as principal, what condition is necessary as to his identification and existence at the time the contract was made ? (Note : It must not be understood that a principal cannot sue or be sued unless he was named or ascertainable when the agent made the contract, for undisclosed principals may sue or be sued, as hereafter shown. But in such cases there is no ratification in- volved. The principal, though undisclosed, had actually con- ferred authority. Though a principal not in existence or not ascertainable at the time the agent acted, cannot ratify, yet he may adopt the act by taking the benefits thereof or otherwise. This principle of adoption has its greatest application in case of newly formed 286 AGENCY corporations, which often become liable for the acts of promoters or other parties, done prior to the corporate existence. An adoption, as distinguished from a ratification, is a new contract.) Sec. 134. What Acts Can Be Ratified. Case No. 171. Zottman v. San Francisco, 20 California, 96. Facts: The City of San Francisco was given power by its charter to make public improvements, but was re- quired in making such improvements to publish the ordi- nance directing the same, and to let the work to the lowest bidder after advertising for bids in the public journals. Zottman and another entered into a contract with the city providing for the erection of an iron fence, this contract being pursuant to due procedure. After- wards, a special committee of the council, authorized to accept this fence, decided that the fence ought to have a base of stone and to be painted and they directed Zottman to do the work, promising that the city would pay for it. All the members of the common council knew of the extra work and no one disapproved thereof. The city now re- fuses to pay for the work on the ground it was not properly authorized. FIELD, C. J. : "As a necessary consequence flowing from these views, a contract not made in the prescribed mode cannot be affirmed and ratified in disregard of that mode by any subsequent action of the corporate authori- ties, and a liability be thereby fastened upon the corpora- tion. Ratification is equivalent to a previous authority ; it operates upon the contract in the same manner as though the authority to make the contract had existed originally. The power to ratify, therefore, necessarily supposes the power to make the contract in the first in- stance ; and the power to ratify in a given mode supposes the power to contract in the same way. Therefore, where the charter of a city authorizes a sale of city property only at public auction, a sale not thus made is from its RATIFICATION 287 very nature incapable of ratification, because it could not have been otherwise made originally. So where the char- ter authorizes a contract for work to be given only to the lowest bidder, after notice of the contemplated work in the public journals, a contract made in any other way that is, given to any other person than such lowest bid- der cannot be subsequently affirmed. Were this not so, the corporate authorities would be able to do retroac- tively what they are prohibited from doing directly. ' ' Question 171: State the facts in this case, the question pre- sented and the Court's decision. (Note : See for discussion this specific topic, Dillon on Munic- ipal Corporations, 5th Ed., Sec. 797.) Case No. 172. Henry v. Heeb, 114 Ind. 275. Facts: Suit by Heeb against Henry and others on cer- tain promissory notes, one of which the defendant Henry denies having made or authorized, but to which his name appears to have been placed as his signature. The Court instructed the jury that if they found from the evidence that Henry after having obtained 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 amount thereof. The giving of this in- struction is now complained of on appeal. Point Involved: Can a forgery be ratified! MITCHELL, C. J. "* * * The appellant contends that a person whose name has been forged to a note can- not ratify or adopt the criminal act, so as to become bound, unless facts have intervened which create an es- toppel, and preclude him from setting up as a defense that his signature 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 288 AGENCY note, who yet, with knowledge of all the circumstances, and intending to be bound by it, acknowledged the sig- nature, and thus assumed the note as his own, was bound to the same extent as if the note had been signed by him originally, without regard to whether or not his acknowl- edgment amounted to an estoppel in pais: Greenfield Bank v. Crafts, 4 Allen, 447 ; Bartlett v. Tucker, 104 Mass. 336 (341) ; 6 Am. Eep. 240. To the same effect is Hefner v. Vandolah, 62 111. 483; 14 Am. Eep. 106; Fitzpatrick v. School Commissioners, 7 Humph. 224 ; 46 Am. Dec. 76. " 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 genu- ineness of his signature. Still other decisions depend upon principles which distinguish them from cases in- volving the doctrine of ratification or adoption of forged instruments purely: Casco Bank v. Keene, 53 Me. 103; Forsyth v. Day, 46 Id. 176; Corser v. Paul, 41 N. H. 24; 77 Am. Dec. 753 ; Woodruff v. Munroe, 33 Md. 146 ; Union Bank v. Middelbrook, 33 Conn. 95 ; Livings v. Wiler, 32 111. 387 ; Commercial Bank v. Warren, 15 N. Y. 577 ; Crout v. DeWolf, 1 E. I. 393; McKenzie v. British Linen Co., L. E. 6 App. Cas. 82; Forsythe v. Banta, 5 Bush, 548. "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 the assumption 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 prin- cipal is bound to the same extent as if the act had been done in the first instance by his previous authority, and this is so whether the act be detrimental to the principal RATIFICATION 289 or to his advantage, or whether it be founded in tort or contract. The reason is, that there was an open assump- tion to act as the agent of the party who subsequently adopted the act. The agency having been knowingly ratified, the ratification becomes equivalent to original authority: Wilson v. Tumman, 6 Man. & G. 236; Smith v. Tramel, 68 Iowa, 488. 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, delib- erately confirms or ratifies it, even though this be done without a new consideration, and after acts have been done which would have released the person affected, the party thus ratifying is thereby precluded from obtain- ing the relief he otherwise might have had : Williams v. Boyd, 75 Ind. 286. "The ratification or adoption of a forged instrument, or of a contract which is prohibited by law, or made in violation of a criminal statute, involves altogether differ- ent 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 6onstitutes a crime, and is committed without any pretense of au- thority, 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 which he is to all intents and purposes a stranger, and which as to him was conceived in a crime and is totally without considera- tion. 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 prosecu- tion; 'for why should a man pay money without consid- eration when he himself had been wronged, unless constrained by a desire to shield the guilty party?' "The distinction made in many well-considered cases seems to be this : Where the act of signing constitutes the 290 AGENCY 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 considerations of public policy, be ratified without a new consideration to support it: Shisler v. Vandike, 92 Pa. St. 447; 37 Am. Eep. 702; McHugh v. County of Schuylkill, 67 Pa. St. 391; Workman v. Wright, 33 Ohio St. 405; 31 Am. Eep. 546, and note ; Owsley v. Philips, 78 Ky. 517 ; Brooke v. Hook, 24 L. T. 34; 2 Daniel on Negotiable Instruments, 1351, 1353 ; 2 Eandolph on Commercial Paper, sec. 629. "In a case of a known or conceded forgery, we are unable to discover any principle 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: Workman v. Wright, supra; Owsley v. Philips, supra. * * * Question 172: (1.) What is the difference in the character of an act constituting a forgery and the execution of an act in be- half of another without authority ? (2.) How does the Indiana Court indicate that one whose name has been forged, can render himself liable on the forged instrument ? (3.) What distinction is said to be taken in many cases? (4.) Is this distinction taken in all courts? (5.) In every state what result does not follow where there is an adoption or ratification of a forged instrument by the party whose name is forged ? Case No. 173. Dempsey v. Chambers, 154 Mass. 330. Facts: Suit is to recover damages for the breaking of a plate glass window. The glass was broken by the neg- ligence of one McCullock, while delivering some coal which had been ordered of the defendant by the plaintiff. It was found by the trial court as a fact that McCullock was not the defendant's servant when he delivered the coal and broke the window, but that the defendant after- RATIFICATION 291 wards ratified the delivery of the coal. Judgment in the trial court for plaintiff. Defendant appeals. Point Involved: Whether an unauthorized tort com- mitted as a part of an act done on behalf and in the name of another, but not at the time authorized by another can be ratified and whether it is so by the ratification of the act of which it is a part. HOLMES, J.: "* * * "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, acting within the general scope of his employment. Probably master and servant are ' famed to be all one person, ' but a fiction which is an echo of the patria potestas and of the English frank-pledge. Byington v. Simpson, 134 Mass. 169, 170, 45 Am. Eef. 314; Fitz. Abr., tit. Corone, fil. 428. Possibly the doc- trine of ratification is another aspect of the same tradi- tion. The requirement that the act should be done in the name of the ratifying party, looks that way : "Doubts have been expressed, which we need not con- sider, whether this doctrine applied to a case of a bare personal tort : Adams v. Freeman, 9 Johns. 117, 118 ; An- derson and Warburton, JJ., in Bishop v. Montague, Cro. Eliz. 824. If a man assaulted another in a street out of his own head, it would seem rather strong to say that if he merely called himself my servant, and I after- wards assented, without more, our mere words would make me a party to the assault, 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 benefit : Wilson v. Barker, 1 Nev. & M. 409 ; 4 Barn. & Adol. 614, et seq. ; Smith v. Lozo, 42 Mich. 6. * # * ' ' 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 : (citing numerous authori- ties). 292 AGENCY "The question remains whether the ratification is es- tablished. As we understand the bill of exceptions, Mc- Cullock took on himself to deliver the defendant's coal for his benefit and as his servant, and the defendant afterwards assented to McCullock's assumption. The ratification was not directed specifically to McCullock's trespass, and that act was not for the defendant's benefit if taken by itself, but it was so connected with McCul- lock's employment that the defendant would have been liable as master if McCullock really had been his servant in delivering the coal. We have found hardly anything in the books dealing with the precise case, but we are of opinion that consistency with the whole course of au- thority requires us to hold that the defendant's ratifica- tion of the employment established the relation of master and servant from the beginning, with all its incidents, including the anomalous liability for his negligent acts : See Coomes v. Houghton, 102 Mass. 211, 213, 214 ; Cooley on Torts, 128, 129. The ratification goes to the relation and establishes it ab initio. The relation existing, the master is liable for torts which he has not ratified specifically just as he is for those which he has not commanded, and as he may be for those which he has ex- pressly forbidden * * *." Question 173: (1.) State the facts, the question presented and the Court 's decision in this case. (2.) A purporting to represent P, sells B a quantity of goods. He is guilty of fraud in making the sale. P recognizes the or- der and supplies the goods. Is P liable in damages for A's fraud? Under what circumstances? Sec. 135. Formalities of Ratification. Case No. 174. Hawkins v. McGroarty, 110 Mo. 546. Facts: See the first paragraph of the opinion. Point Involved: Generally, whether if the law requires a certain formality in the appointment or authorization of the agent, the act of an agent done without such for- RATIFICATION 293 mality, may be ratified by the principal with any less formality than that required by such law. Specifically, whether the requirements of the Missouri statute of frauds requiring the authorization of an agent to sell lands to be in writing, affords a defense to a principal who is sued on the theory of verbal ratification. BEACE, J. : "By an act approved March 19, 1887, the statute of 'frauds and perjuries,' section 2513, Revised Statutes, 1879, wais amended by adding the following clause to that section: 'And no contract for the sale of lands made by an agent shall be binding upon the princi- pal unless such an agent is authorized in writing to make said contract.' This is an action in the nature of a bill in equity to specifically enforce the written contract of an agent in the name of his principal for a sale of land made by the agent, not within the terms of such agent's written authority, upon the ground of a verbal ratifica- tion of such sale by the principal after he was informed thereof. In the facts of the case there is no element of equitable estoppel. Plaintiff's evidence tended at most only to prove that the defendant, when informed by letter of the sale, did not manifest to the agent any dis- approbation thereof, but directly thereafter sold to an- other person. ' ' The trial court ruled that the written authority must authorize the agent to make the contract which he does make, in order to bind the princpal and Question 266: (1.) State the facts, the question presented and the Court's decision in the above case. C. Implied Warranties. 221. The implied warranties of merchantability and fit- title, ness for particular pur- 222. Implied warranty in a sale by pose. description. 224. Implied warranties in sale 223. The implied warranties of by sample. Sec. 221. The Implied Warranties of Title, Case No. 267. Uniform Sales Act, Sec. 13. (See page 587, post.) 470 SALES Question 267: (1.) State the implied warranties of title. (2.) What classes of sellers do not impliedly warrant the goods. Why ? Case No. 268. Porter v. Bright, 82 Pa. St. 441. Facts: John H. Bright and Benedict sue Anson Porter and others, bankers as Corry Savings Bank, to recover the amount paid by them for certain coupon bonds of the City of Corry, alleged to be counterfeit. The defense set up was that Bright and Benedict bought the bonds with knowledge that they might be defective, that the sellers had made inquiry about the bonds and believed them gen- uine, but that they refused to sell to plaintiffs until plain- tiffs had satisfied themselves that they were all right, that afterwards Bright and Benedict called on defend- ants and stated they had made inquiry and were satis- fied, and that defendants refused to warrant anything except that the bonds had not been stolen. Point Involved: Whether there is an implied warranty of title where the circumstances show that the seller posi- tively and expressly declared his refusal to warrant title. MB. JUSTICE SHABSWOOD : ' * * * * "We are of opinion that the offer of the defendants below, the rejection of which by the learned Court forms the subject of the first assignment of error, ought to have been admitted. ''That offer was in substance that the defendants did not know the bonds which they offered to sell the plain- tiffs to be counterfeit, but supposed them to be genuine ; that they stated to the plaintiffs what they had done themselves to ascertain their genuiness; that the plain- tiffs must make inquiry and satisfy themselves upon that point, as they would guarantee against nothing except their being stolen, and afterwards the plaintiffs called on the defendants and said that they had made inquiries and were satisfied from what they had heard that they were genuine, and the sale was then made. "No doubt every vendor of a bond or other instrument IMPLIED WARRANTIES 471 of writing warrants impliedly his title in the same man- ner as the vendor of any other personal chattel does. If the bond is forged, or its assignment is forged, he has not title, and the vendee can reclaim the price he has paid. It makes no matter whether the vendor knows his title to be bad or not, nor how entirely innocent he may be of any fraud in the transaction. What he has sold proves to be intrinsically worthless. But it would be carrying this doctrine entirely too far to hold that in the absence of concealment or false representation by the vendor,, the vendee may not agree to assume all the risk of the title. Why not in the case of the forgery of the instrument as in the case of any other defect of the title, as, for ex- ample, that the bond was void for any other reason or that the assignment of it was forged? There is nothing to affect such a contract with illegality." Question 268: What were the facts, the question presented and the Court's decision in this case? Sec. 222. Implied Warranty in a Sale by Description. Case No. 269. Uniform Sales Act, Sec. 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." Question 269: State the implied warranties in a sale by de- scription. (Note: The phrase "sale by description" has been used to describe two situations: One is that of a sale of an identified article which is described as being of a certain quality, kind, etc. Such were the cases we considered under express warranties to the effect that a description of an article as of a certain quality or kind is a warranty that it is of that kind ; in these cases the 472 SALES description is not used to identify the article, as where A sells B a certain horse, described as sound and kind. A different case is presented where A agrees to sell B "102 bales Ceara scrap rubber, of the second quality." Here the specific rubber is not before the parties and the description is used for purposes of identification. This is more properly the ''sale by descrip- tion" in which there is the implied warranty that the goods shall be of that description. When goods, so ordered, are not of the description, but are nevertheless accepted, the question arises whether the right to sue for damages is thereby waived. On this there are different views. Case Sec. 273, post.) Sec. 223. The Implied Warranty in a Sale by Description, of Merchantability and Fitness for Purpose for Which Purchased. Case No. 270. Uniform Sales Act, Sec. 15. (See page 588, post.) Question 270: (See the following cases.) Case No. 271. Jones v. Just, L. R. 3 Q. B. 197. Facts: "The plaintiffs, at Liverpool, entered into a contract with the defendants for the purchase of a quan- tity of Manila hemp, to arrive from Singapore by certain ships. The ships arrived, and the hemp was delivered to the plaintiffs and paid for ; on examination of the bales it was found that they had been wetted through with salt water, and afterwards unpacked and dried, and then re- packed and shipped at Singapore. The hemp was not damaged to such an extent as to make it lose its charac- ter of hemp ; but it was not 'merchantable.* The defend- ants did not know of the state in which the hemp had been shipped at Singapore. The plaintiffs sold the hemp at auction as 'Manila hemp with all faults' and it realized 75% of the price which similar hemp would have fetched if undamaged. ' ' (From headnotes by the reporter.) Point Involved: Whether there was an implied war- ranty on the part of the sellers that the hemp was merchantable. IMPLIED WARRANTIES 473 MELLOR, J. : i i * * * "We are of the opinion that there is a great distinc- tion between the present case and the sale of goods in esse, which the buyer may inspect, and in which a latent defect may exist, although not discoverable on inspec- tion. ' * The cases which bear upon the subject do not appear to be in conflict, when the circumstances of each are con- sidered. They may, we think, be classified as follows : "First, where goods are in esse, and may be inspected by the buyer, and there is no fraud on the part of the seller, the maxim caveat emptor applies, even though the defect which exists in them is latent, and not dis- coverable on examination, at least where the seller is neither the grower nor the manufacturer: Parkinson v. Lee, 2 East 314. The buyer in such a case has the oppor- tunity of exercising his judgment upon the matter ; and if the result of the inspection be unsatisfactory or if he distrusts his own judgment he may if he chooses require a warranty. In such a case, it is not an implied term of the contract of sale that the goods are of any particular quality or are merchantable. So in the case of the sale in a market of meat, which the buyer had inspected, but which was in fact diseased, and unfit for food, although that fact was not apparent on examination, and the seller was not aware of it, it was held that there was no implied warranty that it was fit for food, and that the maxim caveat emptor applied: Emmerton v. Mathews, 7 H. & N. 586, 31 L. J. Ex. 139. ' ' Secondly, where there is a sale of a definite existing chattel specifically described, the actual condition of which is capable of being ascertained by either party, there is no implied warranty : Barr v. Bigson, 3 M. & W. 390. "Thirdly, where a known, described and defined article is ordered of a manufacturer, although it is stated to be required by the purchaser for a particular purpose, still, if the known, described, and defined thing be actually supplied, there is no warranty that it shall answer the 474 SALES particular purpose intended by the buyer: Chanter v. Hopkins, 4 M. & W. 399; Ollivant v. Bailey, 5 Q. B. 288 (E. C. L. B. vol. 48.) "Fourthly, where a manufacturer or a dealer contracts to supply an article which he manufactures or produces, or in which he deals, to be applied to a particular pur- pose, so that the buyer necessarily trusts to the judgment or skill of the manufacturer or dealer, there is in that case an implied term or warranty that it shall be rea- sonably fit for the purpose to which it is to be applied: Brown v. Edgington, 2 Man. & G. 279 (E. C. L. E. vol. 15). In such a case the buyer trusts to the manufacturer or dealer, and relies upon his judgment and not upon his own. "Fifthly, where a manufacturer undertakes to supply goods, manufactured by himself, or in which he deals, but which the vendee has not had the opportunity of in- specting, it is an implied term in the contract that he shall supply a merchantable article : Laing v. Fidgeon, 4 Camp. 169, 6 Taunt. 108 (E. C. L. E. vol. 1). And this doctrine has been held to apply to the sale by the builder of an existing barge, which was afloat but not completely rigged and furnished; there, inasmuch as the buyer has only seen it when built, and not during the course of the building, he was considered as having relied on the judg- ment and skill of the builder that the barge was reason- ably fit for use: Shepherd v. Pybus, 3 Man. & G. 868 (E. C.L.E.vol.42). "If, therefore, it must be taken as established that, on the sale of goods by a manufacturer or dealer to be ap- plied to a particular purpose, it is a term in the contract that they shall reasonably answer that purpose, and that on the sale of an article by a manufacturer to a vendee who has not had the opportunity of inspecting it during the manufacture, that it shall be reasonably fit for use, or shall be merchantable, as the case may be, it is difficult to understand why a similar term is not to be implied on a sale by a merchant to a merchant or dealer who has had no opportunity of inspection. * * * " IMPLIED WARRANTIES 475 Question 271: (1.) What is the rule of caveat emptorf When does it apply? (2.) What were the third and fourth rules given by Justice Mellor? (3.) What were the facts in Jones v. Just, and what did the Court decide? (Note: This is a leading and well-known case. The classi- fication made by it is fairly accurate, but not entirely so. Thus in the fifth rule, the fact that the buyer had inspected the article bought by the manufacturer would not prevent him from afterwards suing for a latent defect. See the next case.) Case No. 272. Nixa Canning Co. v. Lehman, etc., Grocer Co., 70 Kan. 664. Facts: The Canning Co. sold the Grocer Co. a quantity of canned apples. The apples were put up in cans by the Canning Co. for the purpose of selling them to mer- chants. The sale to this Grocer Co. was by sample, the sample cans being opened and examined by the buyer before the purchase. The samples were apparently sound and fit and were not in fact subject to any defect that could have been discovered by reasonable examina- tion. By reason of certain substances employed in the canning process the apples purchased quickly spoiled. The Grocer Co. sued the Canning Co. for damages. Point Involved: Whether a manufacturer impliedly warrants that goods sold by him are merchantable. MASON, J., delivered the opinion of the Court: "The Canning Co. contends that, where goods are sold by sample, there is, in effect an express warranty of con- formity to the sample and no other warranty as to quality can be implied. This may be granted to be the ordinary rule as to transactions between merchants, but, where the 'seller is also the manufacturer, there is an implied war- ranty that the sample and goods sold are alike free from latent defects not discoverable upon ordinary examina- tion. * * *" The Court then quotes from Kellogg Bridge Co. v. Hamilton, 110 U. S. 108: " 'In ordinary 476 SALES sales the buyer has an opportunity of inspecting the article sold; and, the seller not being the maker, and therefore having no special or technical knowledge of" the mode in which it was made, the parties stand upon grounds of substantial equality. * * But when the seller is the maker or manufacturer of the thing sold, the fair presumption is that he understood the process of its manufacture, and was cognizant of any latent defect caused by such process and against which reasonable dili- gence might have guarded. * * the de- fendant by implication warranted that the process it em- ployed did not involve the use of any deleterious sub- stance the presence of which could not be detected by any reasonable examination, but which would in a short time render the fruit unfit for food, unmerchantable and worthless.*' Question 272: (1.) State the facts, the question presented and the Court 's decision in this case. (2.) The A Automobile Co., a manufacturer of automobiles, bought an automobile in exchange for one of its own make. It then sold the second hand machine to plaintiff. The crank shaft broke shortly thereafter from a latent defect. Plaintiff sues for damages and claims that defendant impliedly warranted the merchantability of the car. Can he recover? Why? Case No. 273. Eeynolds et al. v. General Electric Co. et al., 141 Fed. 551. " Facts: Suit by the General Electric Co. for pumps sold and delivered to defendant. Defense a breach of war- ranty arising out of a latent defect in the material. The General Electric Co. was a manufacturer of electrical machinery, but a mere dealer in the pumps, and defend- ant knew this. Point Involved: Whether one who is a dealer and not a manufacturer warrants against latent defects in the manufacture. (See also note following this opinion.) SANBOKN, CIRCUIT JUDGE : " * "It is said that an implied warranty arose from the sale, to the effect that the pump should be fit and proper IMPLIED WARRANTIES 477 for the pumping of water in the shaft of a mine, and that this covenant was broken. If the pump was unfit to do the work which machines of that nature ordinarily per- form, that condition arose from latent defects in the material of which it was constructed, or in the workman- ship bestowed upon it, of which the plaintiff had no notice. The electric company secured and delivered the article of the known manufacture which the mines company had selected, and which was described in the contract. A manufacturer is charged by the law with notice of latent defects in the design, materials, and construction of the machines he makes which unfit them to perform the ordi- nary work of such articles, because he furnishes the de- sign, the materials, and the workmanship, and thus either causes or permits the defects. Out of this state of facts and an agreement of sale an implied warranty arises on the part of the manufacturer that the machines he makes are suitable for the general purposes for which such articles are commonly used. Goulds v. Brophy, 42 Minn. 109, 112, 43 N. W. 834, 6 L. R. A. 392. But where such a purchaser buys of a dealer a definite machine of known manufacture, which has been, or is to be, made by a build- er who is not the vendor, and the vendee knows this fact, there is no implied warranty by the dealer, either against latent defects or that the machine or article will be suit- able for the purpose for which such articles are commonly used, because the purchaser has the same knowledge and means of knowledge of these subjects as has the dealer. The vendee knows that they both rely on the character and reputation of the manufacturer. Bragg v. Morrill, 49 Vt. 45, 47, 24 Am. Eep. 102 ; American Forcite Powder Mfg. Co. v. Brady, 4 App. Div. 95, 97, 38 N. Y. Supp. 545 ; Gardner v. Winter (Ky.) 78 S. W. 143, 63 L. R. A. 647, 649." Question 273: State the facts, the question presented and the Court's decision in the above case. (Note : The cases are in conflict as to whether one who is a mere dealer warrants against latent defects. The case above is 478 SALES one of a line of decisions holding that a dealer does not impliedly warrant that the goods are merchantable. And that line con- stitutes the present weight of authority. Another line of cases adopts the contrary view, and that is the doctrine, also, of the Uniform Sales Act, which expressly extends such liability to a mere dealer. Says Professor Williston (Sales, Sec. 233, p. 310) : "If the seller of specific goods is neither a manufacturer nor a dealer, generally no warranty of specific goods would be implied, but if the skill or judgment of the seller were evidently relied on, there seems no reason why the nature of the seller's occu- pation should make a difference, and the Sales Act has adopted this idea.") Case No. 274. Marbury Lumber Co. v. Stearns Mfg. Co., 32 Ky. L. Rep. 739. Facts: The Stearns Mfg. Co. was engaged in the manu- facture of locomotive engines. The Marbury Lumber Co. was engaged in the manufacture of lumber and had at its plant a railroad 17 miles long on which it hauled logs to the mill. Needing an engine to use for this purpose it ordered of the Stearns Co. an engine to do the work re- quired, setting forth in the order the length of the road, gauge of the track, weight of rails, fuel used, weight of train, train mileage per day, number of cars to be hauled, steepest grade, etc. The Stearns Co. accepted the order and delivered an engine pursuant thereto, but it was found inadequate to do the work required of it and finally broke down. The Lumber Co. had given notice of the alleged defects and requested the seller to take back the engine. The engine company brings suit for the balance of the purchase price and defendant sets up its defense and a counter claim. Point Involved: Whether in a sale of property ordered by the buyer for a particular purpose known to the seller, there is an implied warranty that it is fit for that pur- pose. JUDGE HOBSON delivered the opinion of the Court: * * We think the case falls within the following rule as laid down by Benjamin on Sales, 988; 'where a IMPLIED WARRANTIES 479 manufacturer or dealer contracts to supply an article which he manufactures or produces or in which he deals, to be applied to a particular purpose, so that the buyer necessarily trusts to the judgment or skill of the manu- facturer or dealer, there is in that case an implied term of warranty that it shall be reasonably fit for the pur- pose to which it is to be applied (citing authorities). In such a case the buyer trusts to the manufacturer or deal- er, and relies upon his judgment and not upon his own. ' It [the plaintiff] understood precisely what would be required of it and, knowing this, made the en- gine for the specific purpose for which it was used. ' ' Question 274: State the facts, the question presented and the Court's decision in this case. (2.) A sold a heating plant to B, to be installed by A in B's house. A put in a heating plant that was well made, but would not heat B 's house. B refused to accept the plant. A sues him. Can he recover? (Ideal Heat. Co. v. Kramer, 127 la. 137.) Case No. 275. Grand Ave. Hotel Co. v. Wharton, 79 Fed. 43. Facts: The Hotel Co. was a Missouri corporation, owning and conducting a hotel at Kansas City, Missouri. B was a manufacturer of boilers, of whom the Hotel Co. ordered two "Harrison Safety Boilers" of 150 horse power each. The order contained specifications of ma- terial and construction. The boilers were duly sent, well-made and of good material, and were set up for use. It was found that the boilers were not available to use with the water from the Missouri river on account of the sediment therein. The Hotel Company contended that as it was known for what particular purpose the boiler was to be used and that it was to be supplied with Missouri river water, there was a warranty that the boilers would be fit for that purpose. Point Involved: Whether there is an implied war- ranty of fitness for particular purpose, where the buyer 480 SALES orders a "known, described and definite" article, and gets what he ordered. LOCHBEN, DISTBICT JUDGE, delivered the opinion of the Court : "1. Where a manufacturer contracts to supply an article which he manufactures to be applied to a particu- lar use of which he is advised, so that the. buyer neces- sarily trusts to the judgment and skill of the manufac- turer, there is an implied warranty that the article shall be reasonably fit for the use to which it is to be applied. (Citing cases.) "2. But 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 sup- plied, there is no implied warranty that it shall answer the particular purpose intended by the buyer. (Citing cases.) "3. * * *. Here the purchaser contracted for a definite, well-known kind of boiler, its president having then a boiler of the same kind in use. The specifica- tions as to the size, form, material, and every detail were minute, and embodied in the contract. The manufac- turers were obligated to deliver exactly such boilers as were described and contracted for, and could not, under the contract, deliver anything different. There is no claim that the boilers did not in every respect conform to -this contract and specifications, nor any claim that they were defective, either in respect to workmanship or ma- terial. The purchaser did not exact a warranty that the boilers would operate with the muddy waters of the Mis- souri river, and therefore assumed that risk itself." Qmsti&n 275: (1.) What were the facts in this case, the question presented and the Court 's decision ? (2.) What is the difference between this case and the case immediately preceding? Why? (3.) Do you think there were any implied warranties in this case ? What ? IMPLIED WARRANTIES 481 Case No. 276. Peoria, etc., Co. v. Turney, 175 111. 631. Facts: See the opinion. Point Involved: Whether there is an implied war- ranty of fitness for particular purpose where goods are ordered by trade name. MB. JUSTICE PHILLIPS delivered the opinion of the Court: "* * It is also urged that the words 'Reed City Lump CoaP in the contract, raised an implied war- ranty of the quality of the coal. * * * These words designated a certain kind of coal known in commercial trade and with which appellant was familiar, as it had used it prior thereto. Therefore, it having contracted for that kind of coal, if it received what it contracted for there was no implied warranty. The common law is tersely stated in the English 'Sale of Goods Act,' under Rule 14, * that in the case of a contract for the sale of a specific article under its patent or other trade name there is no implied contract as to its fitness for any par- ticular purpose for the reason, as stated in the authori- ties that 'an undertaking as to fitness is not implied where the buyer gets what he bargained for.' (Citing cases.)" Question 276: State the facts, the question presented, the Court's decision in the above case and the reasons therefor. Case No. 277. Wiedeman v. Keller, 171 HI. 93. Facts: Defendant is a retail dealer in meats. Plain- tiff called at his place of business and purchased a quan- tity of pork to be used in her family. The pork turned out to be unwholesome and unfit for use, making plain- tiff and her family sick. Defendant did not know that the meat was unwholesome. Plaintiff sues for damages. Point Involved: Whether in a sale of goods by a dealer for purposes of immediate consumption, there is a warranty that it is fit for consumption. ME. JUSTICE CRAIG delivered the opinion of the Court : "As a general rule, we think the decided weight 482 SALES of authority in the United States is, that in all sales of meats or provisions for immediate domestic use by a retail dealer there is an implied warranty of fitness and wholesomeness for consumption. * * In this case * * * the appellee was a regular retail dealer, and as such he sold the meat to appellant for domestic use, and under the law as it seems to be settled in this country, as the meat turned out to be unwholesome, he was liable, although he was not aware that it was diseased when he sold it to appellant. "In an ordinary sale of goods the rule of caveat emptor applies, unless the purchaser exacts of the vendor a warranty. Where, however, articles of food are pur- chased from a retail dealer for immediate consumption, the consequences resulting from the purchase of an un- sound article may be so serious and may prove so dis- astrous to the health and life of the consumer that pub- lic safety demands that there should be an implied war- ranty on the part of the Vendor that the article sold is sound and fit for the use for which it was purchased. It may be said that the rule is a harsh one; but, as a general rule, in the sale of provisions the vendor has so many more facilities for ascertaining the soundness or unsoundness of the article offered for sale than are pos- sessed by the purchaser, that it is much safer to hold the vendor liable than it would be to compel the purchaser to assume the risk. * * *" Question 277: State the facts, the question presented and the Court's decision in this case. (2.) A, not a dealer in meats, was leading a cow down the street to pasture. B made an offer for the animal. A accepted and B led the cow away. A knew that B wanted the cow to butcher, but did not know the cow was diseased, which turned out to be the fact, so that the meat had to be thrown away. A sues for the price of the cow. Has B any defense ? Sec. 224. Implied Warranties in Sales by Samples. Case No. 278. Nixa Canning Co. v. Lehman, etc., Grocer Co. (Set out as Case No. 272, supra.) IMPLIED WARRANTIES 483 Case No. 279. Hanson v. Busse, 45 111. 497. Facts: They are stated in the opinion. Point Involved: What constitutes a sale by sample. MB. JUSTICE LAWRENCE delivered the opinion of the Court, wherein the facts are stated: "* * * But the rule itself must be considered firmly settled in the common law, that the vendor of goods which the pur- chaser has at the time of purchase, the opportunity of examining, is not responsible for defects of quality, in the absence of fraud and warranty. * * * "In the case before us the proof shows that the 110 barrels of apples were piled up in tiers at a railway depot in Chicago. The purchaser went with the clerk of the plaintiffs to look at them. They opened a couple of barrels that stood on the floor. The purchaser was lame from rheumatism and requested the clerk to climb up and open a barrel on the top of the tiers. He did so, and showed the defendant some apples which were in good condition, and said they were all like that. The apples in the three barrels exhibited as samples were unquestionably merchantable, or the defendant would not have bought. It would be unreasonable to require that he should have opened every one of the 110 barrels. He had a right to rely on the samples shown to him, and on the representations of the plaintiffs that the apples were good.'* Question 279: State the facts, the question presented and the Court's decision in this case. Case No. 280. Bierne v. Dord, 5 N. Y. 95. Facts: Bierne and Burnside bought of defendant, Dord, a quantity of French blankets. The blankets were wrapped up in bales, and the sale was made at New York in the warehouse at which the blankets were. Two or three pairs of the blankets were exhibited at the time and examined by the purchaser and found to be sound. Nothing was said by either of the parties about the con- 484 SALES dition of the other blankets, which could have been ex- amined by the purchaser had he desired to inspect them. Defendant's clerk, who made the sale, testified on the trial that the blankets exhibited were taken promiscuously from the bales and that he supposed all of the blankets would correspond with them. Plaintiffs purchased twenty-seven bales which were put by plaintiffs' direc- tion on board a vessel bound for New Orleans and paid for by plaintiffs. The blankets were in fact largely moth eaten. The plaintiffs sue for damages, alleging breach of warranty and had judgment below. Defendant ap- peals. Point Involved: Whether the exhibition of the blankets under the circumstances and in the manner stated, made the sale a sale by sample. JEWETT, J. : "* * * As a general rule, it is well established, as well by our law as by the common law, that where there is neither fraud nor express warranty on the executed contract for the sale of a chattel, the buyer takes the risk of its quality and condition. " There is, however, an exception which al- lows a warranty to be implied on a sale of goods by sample, that the article is, in bulk, of the same kind and equal in quality with the sample exhibited, in reference to which the parties contracted. When a contract for the sale of goods is made by sample it amounts to an undertaking on the part of the seller, with the purchaser, that all the goods are similar both in nature and quality to those exhibited. * * "But the mere circumstance that the seller exhibits a sample, at the time of the sale, will not of itself make a sale by sample, so as to subject the seller to liability on an implied warranty as to the nature and quality of the goods; because it may be exhibited, not as a warranty that the bulk corresponds to it, but merely to enable the purchaser to form a judgment on its kind and quality. If the contract be connected by the circumstances attend- ing the sale, with the sample, and refer to it, and it be IMPLIED WARRANTIES 485 exhibited as the inducement to the contract, it may be a sale by sample ; and then the consequences follows, that the seller warrants the bulk of the goods to correspond with the specimen exhibited as a sample. Whether a sale be a sale by sample is a question of fact for the jury to find from the evidence in each case ; and to authorize a jury to find such a contract * * * the evidence must be such as to authorize the jury * * * to find that the sale was intended by the parties as a sale by sample. * * * * ' That a personal examination of the bulk * * * is not practicable or convenient, furnishes no sufficient ground, of itself, to say that the sale is by sample (such) is doubtless a strong fact in reference to the question of the character of the sale, whether it was or was not made by sample. * * * 1 'New trial granted." Question 280: (1.) State the facts, the question presented and the Court's decision in this case. , (2.) How does this case differ in principle from the case immediately preceding it? (3.) Suppose, in this case, the seller had called on the buyer with a French blanket and exhibited it as the sort of blanket he desired to sell to the purchaser, the other blanket not being present for inspection. Would there have been a sale by sample ? D. No Warranty to Subpurchasers ; Their Rights in Tort. Sec. 225. The Nature of a Seller's Liability to Others than the Purchaser. Case No. 281. Lebourdais v. Vitrified Wheel Co., 194 Mass. 341. Facts: This was an action by Lebourdais for personal injuries sustained by him on account of the burst- ing of an emery wheel manufactured by defendant, and bought by plaintiff's employer of a dealer to whom it had been sold by the defendant. 486 SALES Point Involved: Whether the liability for selling a defective article extends to other persons than the imme- diate purchaser. BRALEY, J. : "The manufacturer of an article of mer- chandise which he puts upon the market ordinarily is not responsible in damages to those who may receive injuries caused by its defective construction, but to whom he sustains no contractual relations, although by the ex- ercise of reasonable diligence he should have known of the defect. If such an extended liability attached where no privity of contract exists it would include all persons however remote who had been damaged either in person or property by his carelessness, and manufacturers as a class would be exposed to such far reaching consequences as to seriously embarrass the general prosecution of mercantile business. In the usual course of trade upon making a sale, as the article passes from the ownership and control of the maker, it is held that when these cease his liability also should be considered as ended. David- son v. Nichols, 11 Allen, 514 ; Clifford v. Atlantic Cotton Mills, 146 Mass. 47, 48 ; Glynn v. Central Eailroad, 175 Mass. 510, 512. But where by reason of its nature the article sold is commonly recognized as intrinsically dan- gerous to life or property, among which gunpowder, nitroglycerine and other highly explosive compounds, naphtha and poisonous drugs are some familiar ex- amples, if the seller without notice of their dangerous or noxious qualities delivers them to a customer or to a carrier who is ignorant of these properties, he is liable not only to him, but to others to whom while in the exer- cise of reasonable care they are the proximate cause of injury. Davidson v. Nichols, 11 Allen, 514; Carter v. Towne, 98 Mass. 567; Wellington v. Downer Kerosene Oil Co., 104 Mass. 64; Norton v. Sewall, 106 Mass. 143; Boston & Albany Eailroad v. Shanly, 107 Mass. 568; Turner v. Page, 186 Mass. 600 ; Oulighan v. Butler, 189 Mass. 287, 292; Flynn v. Butler, 189 Mass. 377, 388; Thomas v. Winchester, 2 Seld. 397. A similar liability IMPLIED WARRANTIES 487 exists where a caterer furnishes impure and unwhole- some food by which the guests of his customer are made sick, or where a manufacturer or vendor knowingly sells for general use, without disclosing the existence of the defect, a machine, mechanical instrumentality or other article, which because of its defective construction or condition when put out causes injury. Bishop v. Weber, 139 Mass. 411, 417; McDonald v. Snelling, 14 Allen, 290; Flynn v. Butler, 189 Mass. 377; Lewis v. Terry, 111 Gal. 39 ; Huset v. Case Threshing Machine Co., 120 Fed. Eep. 865 ; Clarke v. Army & Navy Co-operative Society, (1903) 1 K. B. 155, 167. In all of these various transactions his liability does not rest on privity of contract, but the act itself is deemed not only a legal wrong, but may be said to be in violation of the duty he owed to those with whom he dealt, as well as of the implied duty which he owes to the community to refrain from the commission of acts of negligence whereby injury follows to its members in person or property. If damages are suffered he is re- sponsible because they are such as reasonably should have been foreseen, though the exact way in which the accident is precipitated may be determined by a foreign cause. McDonald v. Snelling, ubi supra; Flynn v. But- ler, ubi supra; Huset v. Case Threshing Machine Co., ubi supra; Lane v. Cox, (1897) 1. Q. B. 415, 417. It is within the last exception, if the plaintiff has a right of action against this defendant, that there it must be found." [The Court held that the plaintiff did not properly state his case in his pleadings, to give him a right of action.] Question 281: (1.) If A sells to B and expressly or im- pliedly warrants merchantability of the article sold, and B resells to C, can C sue A on the warranty ? or assuming that a warranty does not run to B, can it be construed to run to C ? (2.) On what theory or theories can a subpurchaser, or any person other than the immediate vendee recover f (3.) A sues M, declaring that M knowing that one B was a retailer of fluids to be burned in lamps for illuminating pur- poses, and knowing that naphtha was explosive and dangerous for such use, sold and delivered naphtha to B knowing that B 488 SALES intended to retail it in his business, and that B, in ignorance of its dangerous qualities, retailed a pint of such naphtha to A to be burned in his lamp for illumination, and that the plaintiff, in like ignorance, used the fluid and was burned. Can A recover against M? (Wellington v. Downer Kerosene Oil Co., 104 Mass. 64.) (4.) A, druggist, negligently labeled a deadly poison as a harmless medicine, and sold it to dealers who retailed it to their customers. State right of customers to sue A ? To sue retailers ? (Thomas v. Winchester, 2 Seld. 397.) (5.) A, a painter, purchased of M, a manufacturer of step- ladders, and such ladder, in use by B, one of A's employes, broke from a defect caused by M's negligence, and precipitated B to the ground, injuring him. Can B recover against M ? (Schubert v. J. R. Clarke Co., 49 Minn. 331.) (6.) Plaintiff bought a coat from Young Bros., his local deal- ers, who bought it from the B. & S. Company, wholesalers, who knew that the fur collars of such coats contained dyes that some- times poisoned the skin of some wearers, but were worn with safety by others. Plaintiff, who sustained poison by wearing such coat, sues the B. & S. Co. in tort. Can he recover? (Gerkin v. Brown & Sehler Co., 143 N. W. (Mich.) 48.) (7.) Plaintiff purchased a bottle of Malt Nutrine from a druggist, who procured it from a wholesaler, who procured it from the manufacturer, who advertised it as wholesome. The liquor was contaminated and plaintiff's wife was made sick and his young son died. Can plaintiff recover against the manu- facturer on theory of broken warranty? on theory of tort? (Roberts v. Anheuser-Busch Brew. Ass'n, 98 N. E. (Mass.) 95.) (Note : See a collection of authorities in Huset v. Case Thresh- ing Machine Co., 120 Fed. Rep. 865.) PART X TRANSFER OF TITLE Chapter Forty. Transfer of Title as Between Buy- er and Seller. Chapter Forty-one. Transfer of Title as Affecting Third Persons. Chapter Forty-two. Documents of Title. CHAPTER FORTY A. Rules governing transfer of title. C. Transfer of title in auction sales. B. Reservation of title by means of D. Risk of loss. documents of title. A. Rules Governing Transfer of Title. 226. Title to unascertained goods 230. Same subject : sale or return cannot be transferred. or sale on approval. 227. Title to ascertained goods 231. Same subject: upon appro- passes according to parties' priation of unascertained intention. goods. 228. Rules determining intention; 232. Same subject: seller to de- title is presumed to pass liver at particular place, when contract made. g 229. Same subject : seller to put goods in deliverable state. Sec. 226. Title to Unascertained Goods Cannot be Transferred. Case No. 282. Halm v. Fredericks, 30 Mich. 223. Facts: Fredericks sued Hahn to recover the price of certain wood, which was destroyed by fire before it had 489 490 SALES been withdrawn by the purchasers. The wood bargained for was 200 cords of hard wood out of a pile of between 350 and 400 cords in which was scattered a small amount of soft wood. The wood was all piled. in tiers on Port- age lake, the six rows nearest the lake containing about 201 cords in which there were 11 or 12 cords of soft wood. A fire destroyed the wood before there was any selection. Plaintiffs sue for the purchase price on the theory that title had passed to Hahn before the fire, and the loss was therefore his. Point Involved: Whether title can pass before the goods that constitute the subject of the sale are specific- ally ascertained. CAMPBELL, J.: "* * * "The principal question in the case seems to be, whether the sale actually attached to any two hundred cords which could be identified before the fire. "It is not claimed, and there is nothing to warrant the notion, that the contract was intended to be severable, or to attach to anything less than two hundred cords of hard wood, and of no other wood. There was no sale of the first six piles as they stood, or of the hard wood in the first six piles, independent of so much more as would fill up the measure. "Until an actual measurement, which was to be made when the hard wood was removed from the piles and as it was placed on the scows, it is evident that there could be no parcel identified to which a sale could attach as complete. It was a bargain for a parcel yet to be meas- ured out of a larger parcel of various qualities, and of an extent not determined. The original measurement was, under this contract, of no importance. "We have found no authority which recognizes such a transaction as a completed sale. It was not a sale in gross of an entire parcel of wood, where the measure- ment was only necessary to ascertain the quantity, as in Adams Mining Co. v. Senter, 26 Mich. 73. Here the measurement was necessary to complete the identifica- TRANSFER OP TITLE 491 tion, and to determine what wood was to belong to the purchaser. Under such an arrangement it is well settled that no title passes to any portion of the property until it has been measured and thus identified and severed from the rest. Dunlap v. Berry, 4 Scam. 327; Court- right v. Leonard, 11 Iowa, 32 ; Young v. Austin, 6 Pick. 280 ; Merrill v. Hunnewell, 13 Pick. 213 ; Mason v. Thomp- son, 18 Pick. 305; Scudder v. Worster, 11 Gush. 573; Simmons v. Swift, 5 B. & C. 857; Eugg v. Minett, 11 E. 210; Shepley v. Davis, 5 Taunt. 617." Question 282: (1.) State the facts, the question presented and the Court's decision in this case. (2.) A sold B a quantity of shingles to be selected out of a large mass, B to make the selection. Before B had selected the shingles, B's creditors had a levy made on the quantity sold. A sues the sheriff making the seizure for interfering with his property. Will the action lie? (Goldberg v. Bussey, 47 S. "W. (Tex.) 49.) Case No. 283. Uniform Sales Act, Sec. 17. (See page 589, post.) Question 283: What is the provision of this section of the Sales Act? Case No. 284. Kimberly v. Patchin, 19 N. Y. 330. Facts: One Dickinson had in a warehouse two piles of wheat, amounting to 6,249 bushels. John Shuttleworth proposed to purchase 6,000 bushels of the wheat and a memorandum was made out to that effect and the wheat was left undisturbed in the warehouse. Shuttleworth then sold the wheat to Patchin. Dickinson then sold the two piles of wheat to a person from whom Kimberly de- rived his claim of title. Patchin then got possession of the wheat and Kimberly sues him for damages, on the theory that Shuttleworth, whatever contract he might have had, never had title, as the 6,000 bushels were never ascertained and that title therefore could not be passed to Patchin. 492 SALES Point Involved: Whether title to goods of a fungible nature can pass before the particular goods are ascer- tained out of a larger mass owned by the seller, the par- ties intending to actually transfer title. COMSTOCK, J. : "* * * When Shuttleworth bought the 6,000 bushels, that quantity was mixed in the store- house with the excess and no measurement or separation was made. The sale was * * * precisely of 6,000 bushels. On this ground it is claimed, on the part of the plaintiffs, that in legal effect the contract was ex- ecutory, in other words, a mere agreement to sell and deliver the specified quantity, so that no title passed by the transaction. It is not denied, however, * * * that the parties intended a transfer of title. The argu- ment is and it is the only one which is plausible, that the law overrides that intention. * * * "It is a rule * * * that in order to make an ex- ecuted sale, so as to transfer a title from one party to another, the thing sold must be ascertained. This is a self-evident truth when applied to those subjects of prop- erty which are distinguishable by their physical attri- butes from all other things and therefore are capable of exact identification. No person can be said to own a horse or a picture unless he is able to identify the chat- tel, or specify what horse or what picture belong to him. * * * "But property can be acquired and held in many things which are incapable of such identification. * Of this nature are wine, oil, wheat and other cereal grains, and the flour manufactured from them. Where the quantity and the general mass from which it is to be taken are specified, the subject of the contract is thus ascertained, and it becomes a possible result for title to pass, if the sale is complete in all its other circumstances. * * * "We are of opinion, therefore, both upon authority and clearly upon the principle and reason of the thing 4 TRANSFER OF TITLE 493 that the defendant under the sale to Shuttleworth, ac- quired a perfect title to the 6,000 bushels of wheat. (Note: There are two lines of cases which hold oppo- site views in sales of parts of homogeneous masses, one line holding that title cannot pass until separation, though the intention of the parties might have been to pass title, because it is impossible to say what particu- lar part the buyer owns. The leading authority for thi? doctrine is perhaps Scudder v. Worster, 11 Gush. 573. The other doctrine, whose leading authority is the case above, is sufficiently therein stated. It seems the more sensible doctrine though the weight of authority seems against it. The Uniform Sales Act, however, adopts it and it is probably gaining ground. It is hardly necessary to say that such a doctrine can only refer to sales of part of a homogeneous or fungible mass.) Question 284: State the doctrine of the above case. (2.) A has a lot of logs on his place, numbering about 5,000. He "sells" to B 1,000 of the logs. Before any selection is made, in whom is the title? Why? Sec. 227. Title to Ascertained Goods Passes According to the Parties' Intention. Case No. 285. Uniform Sales Act, Sec. 18. " (1) Where there is a contract to sell specific or ascer- tained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. 11 (2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the con- tract, the conduct of the parties, usages of trade, and the circumstances of the case." Question 285: When there is a contract to sell specific or ascertained goods, state by general terms when title will pass. 494 SALES Sec. 228. Rules Determining Intention: That Title Is Pre- sumed to Pass When Contract Is Made. Case No. 286. Uniform Sales Act, Sec. 19, Rule 1. " [Unless a different intention appears.] Where there is an unconditional contract to sell specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment, or the time of delivery, or both, be postponed." Question 286: Under what circumstances is title presumed to pass when the contract is made? Is this a rule of law or a presumption of fact? Case No. 287. Bail v. Little Falls Lumber Co., 47 Minn. 422. Facts: The following contract was made: "I, Case Bail, hereby sell to the Little Falls Lumber Co., 247 logs, marked *C. B.' and stamped *C. B.' and scaling 60,300 feet, at $7.00 per thousand feet, to be de- livered by me in the Mississippi Biver, the same being now, etc. Payments to be made as follows (setting forth certain installments)." Part of these logs were de- stroyed by fire before delivery. Case brought suit to recover the installment due after the fire. Point Involved: Whether by the contract in question, title had been passed, and as a consequence whether the loss was upon the buyer. COLLINS, J., delivered the opinion of the Court: "The single question here presented is whether the con- tract entered into between these parties was an executed one, or simply executory. If the former, the title to the logs * * * vested in the vendee corporation ; the risk attendant upon the title and the subsequent loss must be borne by it, unaffected by the fact that the vendor was to make delivery in the Mississippi Biver. "There is a seeming confusion in the decisions as to TRANSFER OF TITLE 495 when the title to personal property does pass on sale, but it has arisen out of a failure clearly to distinguish be- tween general contracts for the sale of chattels of a cer- tain kind and contracts for the sale of chattels, spe- cifically ascertained and identified. * * * j n the cage a t jjgj. there should be no doubt upon the undisputed facts, that the title vested in the vendee at the date of the agreement. All the vendor's logs lying at a certain point * * * the same being duly marked and scaled were included in the writing * (all the items) were stated with particularity. * * In every respect it was a completed contract and the assent of both parties that the title should pass was obvious. * * (The Court holds that as title had passed, the loss was upon the purchasers and the deferred installments must be paid.) Question 287: (1.) State the facts, the question presented and Court's decision in the above case. (2.) At 9 o'clock on Sept. 5, A sold a carriage to B, giving B an order on the liveryman in whose possession it was. At 12 o 'clock an execution issued against the goods of A, and by gen- eral law became a lien thereon. At 5 o'clock on the same day B came and took the carriage away. The constable now takes the buggy under the execution. B brings replevin against the constable. Can he recover? (Peterson v. Bostrom, 99 111. Ap. 210.) Sec. 229. Rules Determining Intention: Seller to Put Goods in Deliverable State. Case No. 288. Uniform Sales Act, Sec. 19, Rule 2. 1 1 [Unless a different intention appears. 1 Where there is a contract to sell specific goods and the seller is bound 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." Question 288: State the above rule. 496 SALES Case No. 289. Hamilton v. Gordon, 22 Ore. 557. Facts: Suit to recover certain wheat as the property of the plaintiffs. Gordon, the defendant, made a con- tract with Hamilton & Rourke, the plaintiffs, reading that Gordon " hereby sells and agrees to deliver to Ham- ilton & Rourke, in their warehouses or platform at Van- sycle, Oregon, on or before October 1, 1891, all the grain harvested by me on land described below ; wheat sacked in good merchantable sacks, the same being that certain crop now harvested or to be harvested, etc." Point Involved: Whether under the agreement by which the seller was to harvest and sack grain, before delivery to the buyer, title passed before such harvest- ing and sacking was done. BEAN, J., delivered the opinion -of the Court: * * * Whether an agreement concerning the sale and delivery of goods * * * is to be treated as an executed or an executory contract, and whether the thing which is the subject of the contract becomes the property of the buyer the moment the contract is concluded, or remains the property of the vendor until the contract is fully executed, is often a difficult and embarrassing ques- tion. * * * As between the parties it is generally considered a question of intention. * As a gen- eral rule where by the agreement the vendor is to do any- thing with the property for the purpose of putting it into deliverable condition or into that state in which the pur- chaser is bound to accept it, the performance of these things in the absence of circumstances showing a con- trary intention is taken to be a condition precedent to the vesting of the property in the buyer. * * * - n ^g cage j^e g ra j n was to be harvested and sacked 'in good merchantable sacks' by the vendor in order to put it in deliverable condition and by him conveyed to the warehouse or platform at Vansycle before plaintiffs were bound to accept or re- ceive it or pay for the same. "The contract is only a contract for the sale of a cer- TRANSFER OF TITLE 497 tain crop of grain; and if defendant has violated his agreement by delivering only a part of the grain and re- fusing to deliver the remainder, plaintiffs, if damaged, have their remedy, but not by an action to recover pos- session of the property. Question 289: (1.) State the facts, the question presented ind the Court's decision in the above case. (2.) A had a quantity of wood which B agreed to purchase, A to chop the same into four-feet lengths. Before the wood was chopped, A's creditors seized it under a writ of execution. B claims the wood. Should he prevail ? (Frost v. Woodruff, 54 111. 155.) (Note : If the goods are specified, but weighing or measuring is to be done by the seller to ascertain the price, the goods being otherwise in a deliverable state, it is the rule in most states that title does not pass until such weighing or measuring be done. It is shown by WiUiston (Sales, Sections 267, 268, 269) that this "rule was originally founded on a mistake, has no principle behind it, and has already been abolished in some states in this country without the aid of legislation.") Sec. 230. Rules Governing the Intention of the Parties: Where Goods Delivered on Sale or Return or on Ap- proval. Case No. 290. Uniform Sales Act, Sec. 19, Rule 3. "[Unless a different intention appears.] " (1) When goods are delivered to the buyer 'on sale or return' or on other terms that have indicated 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 seller by returning or tender- ing the goods within the time fixed in the contract, or, if no time has been fixed, within a reasonable time. "When goods are delivered to the buyer on approval or on trial or satisfaction, or other similar terms, the property therein passes to the buyer 498 SALES " (a) When he signifies his approval or acceptance to the seller or does any other act adopting the transac- tion ; " (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 return 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. " Question 290: State when title passes, if at all, under para- graph 1 above ; under paragraph 2. Case No. 291. Foley v. Felrath, 98 Ala. 176. Facts: Foley sued Felrath for $502.56 for goods sold. Foley was a manufacturer of gold pens in New York City. Being in Mobile, Alabama, he called on defendant and sold a bill of goods, with right in defendant to return some of the goods which ho would select and return in exchange for others. The goods were lost in transit to Alabama by the Express Company. Plaintiff sues for the purchase price. Point Involved: Whether the sale was on approval or sale and return, and accordingly on whom the loss was pursuant to return. HABALSON, J.: "* In Allen, Bethune & Co. v. Maury & Co., supra [66 Ala. 17], we said: * Where, how- ever, goods are sold and delivered, the terms of sale being specified, and the vendee reserves the right to reject or return, the title passes, liable to be divested by the exer- cise of this option to rescind expressed. within a reason- able time. ' An option to purchase if the party to whom the goods are transferred should like is very different from an option to return the goods if he should not like them. *" (Held that risk of loss was on purchaser.) Question 291: (1.) In the above case was title in the seller or purchaser at the time of the loss? TRANSFER OF TITLE 499 (2.) What is the difference between a "sale on approval" and a ' ' sale and return ' ' ? What important consequence follows upon the distinction? Case No. 292. Pence v. Carney, 78 Ark. 123. A, a jeweler, of Hot Springs, sent two diamond rings to B "with the agreement and understanding that if she was pleased with same she should keep them and account to the plaintiff at the above value, and if not pleased would, within a reasonable time return them to" A at Hot Springs. These rings being lost before returned to A, without fault of B, the question was upon whom, as owner, the loss must fall. Point Involved: The distinction between a shipment on trial or satisfaction or approval and a sale and return. McCuLLOCH, J., delivered the opinion of the Court: * * * Under the contract stated the title remained in the seller and any loss or damage sustained from any cause except negligence of the purchaser fell upon the seller. * The distinction between the two classes of contracts is concisely stated by the Supreme Court of Massachusetts in Hunt v. Wyman (100 Mass. 198), as follows : 'An option to purchase if he liked is essentially different from an option to return if he should not like. In one case the title will not pass until the option is de- termined ; in the other, the property passes at once, sub- ject to the right to rescind and return' * * *" Question 292: (1.) Was the title in the seller or purchaser when the loss occurred ? (2.) On whom was the loss? Why? Case No. 293. Springfield Engine Stop Co. v. Sharp, 184 Mass. 266. Facts: Suit for $200 for the price of an engine stop installed in Sharp's factory. The stop was put in for a 30 days ' trial and was to be taken away if defendant did not like the stop. This 30 days was afterwards extended to another 30 days. The 60 days expired on June 30 or 500 SALES July 1. On Monday, July 3rd, defendants wrote plaintiff that they had decided not to take the stop and it could be taken out at plaintiff's convenience. The stop was used on Saturday, July 1st and Monday, July 3rd, and plain- tiff contends that this failure to give notice until the 3rd and the use of the stop on the 1st and 3rd made defend- ants liable. Defendants had judgment below and plaintiff appeals. Point Involved: Whether when goods are sent on trial for a certain period of time, the expiration of that time ipso facto vests title in the buyer (there being no express stipulation) unless he returns the goods or gives notice of the rejection within the time stated; and whether the use of the goods after the period is con- clusive evidence of an election to keep them. LOBING, J. : " The true rule is laid down in the other cases cited by the plaintiff, and it is this : The party to the contract who is to make the trial has the full period agreed upon for the trial, and in the absence of any stipu- lation on the point he has a reasonable time after the expi- ration of it to signify his election. See Elphick v. Barnes, 5 C. P. D. 321; Spickler v. Marsh, 36 Md. 222; Kahn v. Klabunde, 50 Wis. 235 ; Waters Heater Co. v. Mansfield, 48 Vt. 378. "The plaintiff's next contention is that it had a right to go to the jury on the use made on Saturday and on Mon- day as evidence of the defendants' election to take the stop. The retention of the stop after Friday, June 30, apart from the use of it, had no significance. This was not the case of a sale or return ; by the terms of the agree- ment which the plaintiff was to disconnect the stop from the engine and take it away if the defendants were not satisfied with it. But the use of the stop after the expira- tion of the period of trial agreed upon, unexplained, would be evidence of an election, as is the failure to return a machine taken under a sale or return agreement. See Kahn v. Klabunde, 50 Wis. 235 ; Spickler v. Marsh, 36 Md. 222; Waters Heater Co. v. Mansfield, 48 Vt. 378. The TRANSFER OF TITLE 501 English cases are collected in Benjamin, Sales, 593 et seq. In the case at bar the use of the stop on Monday could not be taken to be evidence of an election, for on Monday morning the defendants wrote to the plaintiff that they elected to take the other stop, and the letter was posted between two and three o'clock on that day. This letter deprives the use made of the machine on Monday of all force as evidence of an election, as was said in Hunt v. Wyman, 100 Mass. 198, 200, in a similar case. See also Elphick v. Barnes, 5 C. P. D. 321. 1 ' There is nothing on the record showing why the de- fendant used the stop on Saturday. If, for example, the use on Saturday came from inadvertence or because the defendants thought that the extension did not expire until the end of that day, the use on that day would be de- prived of all force as evidence of an election, as we have held to be the case of the use on Monday. And there may have been other explanations of that use which would re- sult in the same conclusion. "But no explanation was given at the trial as to the use made of the machine on Saturday, and on this state of the evidence the plaintiff had a right to go to the jury on the question whether the use of the stop on Saturday showed an election to take the stop and that the defend- ants afterward changed their minds and wrote the letter declining it on Monday. " Exceptions sustained." Question 293: (1.) In the above case, did title vest on receipt of the stop, subject to defeasance, or was it to vest at the end of the period? (2.) Did the defendant have any time after the expiration of the period? (3.) In the language of Sec. 19, Rule 3, of the Sales Act, what sort of a sale was this? (Note: That by the language of the Sales Act, there is no time given after the period if that Act is to be literally followed.) Case No. 294. House v. Beak, 141 HI. 290. Facts: Goods were sent to defendants at certain prices, to be paid for as sold, all unsold goods to be re- 502 SALES turned. The transaction was not a consignment but a sale with right to return. The goods were kept for about three years without being returned. Point Involved: What constitutes a reasonable time in which they must be returned (there being no time stated) ; and the effect of a failure to return them within that time. MB. CHIEF JUSTICE MAGRUDEE : * * * " 'A contract "on sale and return" is an agree- ment, by which goods are delivered by a wholesale dealer to a retail dealer to be paid for at a certain rate, if sold again by the latter ; and if not sold to be returned.' (Story on the Law of Sales, sec. 249.) If the vendee re- turns the goods, the contract of sale is at an end ; if he does not, the sale becomes absolute, and the price of the goods may be recovered in an action for goods sold and delivered. If no time is specified within which the return is to be made, the law implies that they are to be returned within a reasonable time. What is a reasonable time will depend upon the circumstances of each case. (Idem.) In such cases, the property in the goods passes to the pur- chaser subject to an option in him to return them within a fixed or reasonable time ; the price is fixed at the time of the sale and delivery of the goods ; the purchaser deals with the goods as his own, disposes of them as he pleases for cash or on credit, is under no obligation to give any ac- count of his disposition of them, and is only liable to pay for them at a price fixed beforehand, without any refer- ence to the price at which he sells them. (Jameson v. Gregory, 4 Mete. (Ky.) 363 ; In re Linforth, 4 Sawyer (U. S. C. C. Eep.) 370; Ex parte White in re Neville, Law Eep. 6 Chanc. App. 397.) * * * ' ' Such sales may be regarded as subject to a condition subsequent, that is, upon condition that, if the goods are not sold, they are to be returned. Therefore, the prop- erty vests presently in the vendee, defeasible on the per- formance of the condition. If the defendant disables him- self from performing the condition, or fails to perform it within a reasonable time, his liability to pay the price TRANSFER OF TITLE 503 fixed becomes unconditional, and the plaintiff may declare as upon an indebitatus assumpsit. (Bay v. Thompson, 12 Gush. 281.)" Question 294: (1.) When the defendants received the goods, in whom was title? (2.) What is the effect of a failure to return within the time given? Sec. 231. Rules Determining Intention: Upon Appro- priation of Goods Unascertained at Time of Sale. Case No. 295. Uniform Sales Act, Sec. 19, Rule 4. "Rule 4. (1) Where there is a contract to sell unas- certained or future goods by description, and goods of that description and in a deliverable state are uncondi- tionally 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 property 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. "(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 cases provided for in the next rule and in section 20. This presumption is appli- cable, 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 de- livery' or their equivalents." Question 295: State Rule 4 (1) and Rule 4 (2). Case No. 296. Mucklow, Assignee, v. Mangles, 1 Taunt. 318. Facts: Royland, who was a barge builder, undertook to build a barge for Pocock out of materials furnished by 504 SALES Eoyland. Pocock advanced some money on the barge before it was begun and as the work proceeded he paid him more. When the work was nearly finished Pocock 's name was printed on the stern. Two days after the com- pletion of the work, and before the barge was delivered to Pocock, Mangles, the defendant, as sheriff took the property as the property of Eoyland but delivered it to Pocock under an indemnity. Afterwards a commission in bankruptcy issued against Eoyland upon an act of bankruptcy committed before the completion of the vessel and Mucklow as his assignee in bankruptcy brings suit against Mangles for interference with the property al- leged to belong to the bankrupt. Point Involved: At what point title passes under a contract by the seller to manufacture an article out of property furnished by the seller, where the work pro- gresses on the article and it is seen and approved by the purchaser during its progress, and payments are made on the contract. MANSFIELD, C. J. : ' * The only effect of the payment is that the bankrupt was under a contract to finish the barge ; that is quite a different thing from a contract of sale, and until the barge was finished we cannot say that it was so far Pocock 's property that he could have taken it away. It was not finished at the time when Eoyland committed the act of bankruptcy; it was finished only two days before the execution. * * * " HEATH, J. : ' ' This is a species of contract which in the civil law is described by the term Do ut facias. It comes within the cases that have been held to be executory con- tracts, and, as such, not within the Statute of Frauds, as contracts for the sale of goods. A tradesman often fin- ishes goods which he is making in pursuance of an order given by one person and sells them to another. If the customer has other goods made for him within the stipu- lated time he has no right to complain ; he could not bring trover against the purchaser for the goods so sold. The TRANSFER OF TITLE 505 painting of the name on the stern in this case makes no difference. If the thing be in existence at the time of the order, the property of it passes by the contract but not so where the subject is to be made. ' ' Question 296: (1.) State the facts in the above case, the question presented and the Court's decision. (2.) A orders a wagon to be made by B out of materials furnished by B. B proceeds to build a wagon, which A from time to time sees and with which he expresses his approval. After it is finished, except the painting, the wagon burns, and B is unable to deliver the wagon by the time agreed on. A sues B. Has B any defense? Case No. 297. Rohde and Others v. Thwaites, 6 Barne- wall & Cresswell's Rep. 388. Facts: Suit for the price of 20 hogsheads of sugar, alleged to have been sold by Rohde to Thwaites. On Dec. 3, 1825, Rohde had in his warehouse on the floor in bulk, a much larger quantity of sugar than would be required to fill 20 hogsheads, but no part was in hogsheads. De- fendant, Thwaites, saw the sugar in this condition and made the contract in question. Four hogsheads were filled up and delivered to defendant on December 10, and a few days afterwards plaintiff filled up the remaining 16 hogsheads, and gave notice to the purchaser that they were ready and for him to take them away, to which reply was made that he would take them away as soon as he could. The point whether title had passed, or it was a mere executory contract to sell, arises on a tech- nical question of pleading. Point Involved: Whether as to the 16 hogsheads there was a sufficient appropriation by the seller with the con- sent of the buyer to pass the title to the defendant. BAYLEY, J. : " Where a man sells part of a large parcel of goods, and it is at his option to select part for the vendee, he cannot maintain any action for goods bar- gained and sold, until he has made that selection ; but as 506 SALES soon as lie appropriates part for the benefit of the vendee, the property in the article sold passes to the vendee, al- though the vendor is not bound to part with the posses- sion until he is paid the price. Here there was a bar- gain, by which the defendant undertook to take twenty hogsheads of sugar, to be prepared or filled up by the plaintiffs. Four were delivered; as to them there is no question, but as to the sixteen it is said, that as there was no note or memorandum of a contract in writing sufficient to satisfy the statute of frauds, there was no valid sale of them ; and that the plaintiffs in their declaration hav- ing stated their claim to arise by virtue of a bargain and sale, cannot recover for more than the four hogsheads which were actually delivered to and accepted by the de- fendant; that in order to recover for the others they ought to have declared specially, that, in consideration that the plaintiffs would sell, the defendants promised to accept them. In answer to this, it is said that there was an entire contract for twenty hogsheads, and that the de- fendant, by receiving four, had accepted part of the goods sold within the meaning of the seventeenth section of the statute of frauds. In fact, the plaintiffs did appropriate, for the benefit of the defendant, sixteen hogsheads of sugar, and they communicated to the defendant that they had so appropriated them, and desired him to take them away; and the latter adopted that act of the plaintiffs, and said he would send for them as soon as he could. I am of opinion, that by reason of that appropriation made by the plaintiffs, and assented to by the defendant, the property in the sixteen hogsheads of sugar passed to the vendee. That being so, the plaintiffs are entitled to re- cover the full value of the twenty hogsheads of sugar, under the count for goods bargained and sold. The rule for setting aside this writ of inquiry must therefore be discharged." Question 297: State the facts, the question presented and the Court's decision in the above case. TRANSFER OP TITLE 507 Case No. 298. Bryans v. Nix, 4 M. & W. 775. Facts: Plaintiffs sue defendants for conversion of oats alleged to belong to plaintiffs and claimed by defend- ants. The controversy arose as follows : One Tempany was a shipper and exporter of grain at Longf ord, % Ireland. He shipped a cargo of oats onboard boat No. 604, and sent the bill of lading to plaintiffs, together with another bill for oats on boat 54, but there were at that time no oats on boat 54. This took place February 2. The boat was partially loaded afterward for delivery to plaintiffs, but Tempany changed his mind and sold the oats on boat 54 to defendants who got possession, and they are now sued by plaintiffs who claim the oats as their own. Point Involved: Whether partial appropriation of the goods in receptacles furnished by the seller passes the title to the goods so partially appropriated. PABKE, B.: "* * * ' 'In our opinion, therefore, the plaintiffs had a com- plete title to the cargo of the boat 604, at least on the 7th of February, when they complied with the condition by accepting the bill; and before the 7th, no other title as to the oats intervened; for the order to deliver them to Walker, given on the 6th, was clearly executory only. But the claim of the plaintiffs to the cargo of boat 54 stands on a very different footing. "At the time of the agreement, proved by the bill of lading or boat-receipt of the 31st January, to hold the 530 barrels therein mentioned for the plaintiffs, there were no such oats on board ; and consequently no specific chat- tels which were held for them. The undertaking of the boat-master had nothing to operate upon, and though Miles Tempany had prepared a quantity of oats to put on board, those oats still remained his property; he might have altered their destination, and sold them to any one else; the master's receipt no more attached to them, than to any other quantity of oats belonging to Tempany. If, indeed, after the 31st of January, these oats so prepared, or any other like quantity, had been put on board to the 508 SALES amount of 530 barrels, or less, for the purpose of fulfilling the contract, and received by the master as such, before any new title to these oats had been acquired by a third person, we should have probably held, that the property in these* oats passed to the plaintiffs, and that the letter and receipt, though it did not operate, as it purported to do, as an appropriation of any existing specific chattels, at least operated as an executory agreement by Tempany and the master and the plaintiffs, and that when so put, the master should hold them on their account ; and when that agreement was fulfilled, then, but not otherwise, they would become their property. But before the complete quantity of 530 barrels was shipped, and when a small quantity of oats only were loaded, and before any ap- propriation of oats to the plaintiffs had taken place, Tem- pany was induced to enter into a fresh engagement with the defendant, to put on board for him a full cargo for No. 54, by way of satisfaction for the debt due to him; for such is the effect of the delivery order of the 6th, and the agreement with Walker, of the same date, to send the boat-receipt for the cargo of that vessel. Until the oats were appropriated by some new act, both contracts were executory. On the 9th this appropriation took place, by the boat-receipt for the 550 barrels then on board, which was signed by the master, at the request of Tempany; whereby the master was constituted the agent of the de- fendant to. hold those goods ; and this was the first act by which these oats were specifically appropriated to any one. The master might have insisted on Tempany 's put- ting on board oats to the amount of the first bill of lad- ing, on account of the plaintiffs, but he did not do so. ' ' Question 298,: State the facts and the holding in the above case. Case No. 299. Belz & Co. v. McMorrow, 173 Mass. 8. Facts: Suit by Belz & Co. for the price of 10 hogsheads and 2 barrels of ale sold to McMorrow. Defense that the ale was sold at Boston without the license required by law. Belz & Co. was a Philadelphia corporation and the goods TRANSFER OF TITLE 509 were ordered through an importing broker located at Boston, who was directed to have the goods delivered at 'Boston. Belz & Co. accepted the order and shipped the goods by the Phila. S. S. Co., taking bills of lading mak- ing them deliverable to McMorrow. One of the bills of lading was sent to McMorrow and the other to a for- warder for the S. S. Co., who took the goods to McMorrow, who paid the freight. The Court found for the plaintiff. Defendant appeals. Point Involved: Whether the goods shipped by a car- rier from the seller to the purchaser who paid the freight, became the property of the consignee at point of ship- ment or point of destination. HOLMES, J. : "* * * On this state of facts, we can- not say that the finding of the Court was unwarranted ; for in view of the defendant's paying the freight, it was entirely reasonable for the Court to find that the defend- ant's direction to Hayes [the broker] to deliver the ale at his place of business (assuming the Court to have be- lieved that it was given) was meant only to give the ad- dress of destination, and neither had nor was intended to have any effect on the question when title passed. If this view be taken, then the case is governed by the gen- eral rule that a shipment by a seller with an independent common carrier, to the order of the buyer, passes the title as soon as the carrier receives the goods. Question 299: A, of New York, writes to a Chicago typewriter maker, ordering a machine. The addressee selects a machine from its stock and hangs out a sign notifying the Adams Express Co. to call. A driver stops and picks up the machine. While in the wagon the machine is struck by lightning and destroyed. A is sued for the price of the typewriter. Has he any defense ? (Note: This rule that title passes on delivery to the carrier is subject to the further rule that the goods shipped must fulfill the contract. If the goods are defective, or do not correspond to description, or are insufficient in quantity, the buy^r may reject them.) 510 SALES Case No. 300. Carthage v. Duvall, 202 111. 234. Facts: The City of Carthage by ordinance made illegal a sale of liquor in less quantities than five gallons, and subjected the offender to a penalty. One Skidmore, a resi- dent of Carthage, ordered a gallon of whiskey from the Dallas Transportation Co., dealing in liquor at Burling- ton, Iowa. The company sent it by express, Collect on Delivery, and Duvall, the agent of the express company, delivered it in Carthage to Duvall. The city prosecutes Duvall under the ordinance mentioned. Point Involved: At what point title passes where un- ascertained goods are purchased to be put on board cars by the seller for delivery to the purchaser. Whether the fact that the shipment is "C. 0. D." changes the rule. MB. JUSTICE HAND delivered the opinion of the Court : * * rpjjg g enera j ril ] e frequently announced by this Court is, that the delivery of personal property by the seller to a common carrier to be conveyed to the pur- chaser is a delivery to the purchaser, and that the title to the property vests in the purchaser immediately upon its delivery to the carrier. (Pike v. Baker, 53 111. 163; Ward v. Taylor, 56 id. 494; Ellis v. Eoche, 73 id. 280.) Whether such rule applies where the property is con- signed C. 0. D. is an open question in this court, but upon principle and authority, where, as here, every- thing which the seller has to do with the property has been done at the time it is delivered to the car- rier, we see no reason why the title does not vest in the purchaser immediately upon its delivery, although it is consigned C. 0. D., or why the same rule should not be applied to intoxicating liquor that is applied to other classes of personal property. In several states (State v. O'Neil, 58 Vt. 140; State v. United States Express Co., 70 Iowa, 271; State v. Wingfield, 115 Mo. 428) the courts hold that the title to intoxicating liquor when it is con- signed C. 0. D. does not vest in the purchaser until it is received, accepted and paid for. The great weight of au- thority, however, is the other way. * * * From an TRANSFER OF TITLE 511 examination of the authorities cited in the briefs, and such other authorities a$ we have been able to find bearing upon the subject, we have reached the conclusion that the sale to Skidmore was completed when the liquor was de- livered to the express company in Burlington, and that no sale of liquor was made by the defendant to Skidmore in the City of Carthage." Question 300: (1.) When goods are sent by a carrier C. 0. D., does title pass on delivery to the carrier, provided it would have passed had the goods not been sent C. O. D.? (2.) Does the fact that the goods shipped are intoxicating liquors change the rule ? Sec. 232. Rules Determining Intention Where Seller Is to Deliver at Particular Place. Case No. 301. Uniform Sales Act, Sec. 19, Eule 5. " [Unless a different intention appears.] 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 does not pass until the goods have been delivered to the buyer or reached the place agreed upon." Case No. 302. Dentzel, Adm'r, of G. A. Dentzel, De- ceased, v. Island Park Asso. and others, 229 Pa. 403, 33 L. R. A. N. S. 54. Facts: Replevin by the seller of a carrousel to recover it back from the buyer on the theory that title has not yet passed to the buyer. The carrousel was shipped "f. o. b. cars, Philadelphia" (the point of shipment), the buyer agreeing to pay freight charges. The contract was that the buyer should pay $5,000, as follows : $250 on signing the agreement, $2,500 on the erection of the machine in the park, $900 in 60 days thereafter, and $950 in 90 days there- after, notes to be given for the last three payments. The seller agreed to furnish a man to erect and place the car- 512 SALES rousel in order. The seller asserted dominion over the property after it reached its destination, and seeks to re- cover it back in this suit, claiming that title has not yet passed. Point Involved: When title passes where goods are shipped f. o. b. point of shipment to the buyer. Whether the fact that the goods are not yet paid for affects the rule. STEWAET, J. : "It is a general rule, not to be ques- tioned, that when -the contract in a sale of personal prop- erty calls for delivery f . o. b. at some particular place, and the seller there delivers the article in accordance with the stipulations, the title to the property at once passes to the buyer, unless otherwise provided. Schmertz v. Dwyer, 53 Pa. 335 ; Bacharach v. Chester Freight Line, 133 Pa. 414, 19 Atl. 409 ; Dannemiller v. Kirkpatrick, 201 Pa. 218, 50 Atl. 928. The rule yields where the contract reserves to the seller the right of property, notwithstand- ing the delivery to the carrier. Since delivery is after all a matter of intention on the part of the seller, even though the contract calls for delivery f. o. b. cars at a designated place of shipment, the seller may, before the delivery on board the cars, stipulate with the carrier that the latter is to carry it for him, thereby making the carrier the seller 's agent in receiving the property. This follows when the seller takes from the carrier a bill of lading which secures the shipper against delivery, at the point of destination, to anyone except upon his order. When the contract, however, as here, shows an agreement to deliver f. o. b., with nothing to qualify it, the law will presume a deliv- ery to have been in accordance with the stipulations, and cast the burden on the seller if he assert the contrary. There is not a particle of evidence in the case that this burden was discharged. * *" [The Court ordered judgment entered for the defendant.] Question 302: (1.) What bearing do the words "free on board" have on the determination of the question? TRANSFER OF TITLE 513 (2.) Do such (or similar) words, as a matter of law, cause title to vest at a certain point ? (3.) How may the seller expressly prevent the buyer from obtaining title at the place at which the goods are f. o. b., not- withstanding the rule stated ? (See next case.) (4.) A and B make an agreement whereby A sells to B a certain quantity of rye, f. o. b. cars at Bronson Station. The rye deteriorates while in transit to the station, without fault of the seller. B sues A for breach of warranty. Who will win? (Drews et al. v. Ann River Logging Co., 53 Minn. 199.) (5.) A sold B goods f. o. b. point of destination. The goods are lost during transit. As between seller and buyer, on whom will loss fall ? (Hunter Bros. Mill Co. v. Kramer, 71 Kan. 468.) B. Reservation of Title by Means of Documents of Title. Sec. 233. Title Reserved in Bill of Lading. Case No. 303. Uniform Sales Act, Sec. 20. (See page 590, post.) Question 303: Enumerate the various ways by which a seller may retain title in himself by the form or disposition of the bill of lading. Case No. 304. Greenwood Groc. Co. v. Canadian County Mill Co., 76 S. C. 450. Facts: The defendant, Canadian County Mill & Ele- vator Company, incorporated under the laws of Okla- homa, contracted to sell and deliver to plaintiff, Green- wood Grocery Company, at Greenwood, South Carolina, 250 barrels of flour at $4.50 per barrel. The defendant consigned to the plaintiff .the flour, and sent draft on plaintiff, with bill of lading attached, to Bank of Green- wood, but the draft required payment of $5.50 per barrel instead of $4.50. Plaintiffs tendered the price of $4.50 which the bank refused to accept. Plaintiff thereupon brought an action against the defendant for damages for breach of contract. In order to secure service of process upon defendant in South Carolina to give the South Caro- 514 SALES lina courts jurisdiction, rather than to go to Oklahoma to begin suit, the plaintiff attached the flour on the ground that it was the property of the defendant and therefore, because defendant had property in South Carolina, suit might be brought against it there. Defendant contended that it had no property in South Carolina and no service could in that way be secured upon it in South Carolina, but that the proceedings were void and should be dis- missed. Point Involved: Generally how title may be retained by the seller by the form or disposition the bill of lading, notwithstanding delivery of the goods to carrier for ship- ment to buyer. WOODS, J., delivered the opinion of the Court : "The sole question, therefore, is whether by drawing on the plaintiff with the bill of lading attached to the draft and refusing to deliver the bill of lading without payment of the draft, the defendant retained title and right of possession of the property. The effect of a bill of lading issued by the carrier, who is a third party, on the title to the property as between the consignor and consignee is a question of fact depending not only on the terms of the paper itself, but on the intention of the parties as expressed by their dealings with each other. * * * The fact that the bill of lading is taken, making the goods deliverable to the order of the vendor, who is himself the consignor, is very strong prima facie evidence that the vendor in delivering the goods to the carrier intended to reserve the title until payment of the pur- chase money ; and when a draft for the price is drawn on the purchaser with such bill of lading attached, the title does not ordinarily pass to him until the draft is paid. * * * But this presumption may be rebutted by other circumstances and previous dealing of the par- ties evidencing a different intention. * ' ' In this case, however, it seems by the terms of the bill of lading the goods were deliverable to the consignee. TRANSFER OF TITLE 515 The presumption, therefore, was that the consignor in- tended the title to pass. If, therefore, the rail- road company had delivered the goods to the consignee without the surrender of the bill of lading and without notice of any reservation of title and possession, it would not be liable to the consignor, though he actually intended to reserve the title and possession until payment of his draft for the price. As between the vendor and purchaser, the authorities leave no room to doubt, however, that, even if the bill of lading provides for de- livery to the consignee, yet, if the consignor draws for the price, attaching the bill of lading to the draft, this is sufficient evidence of his intention to reserve the title and right of possession until the draft is paid, and the consignee is not entitled to the goods until payment. Here * * not only did the defendant, the consignor, express its intention to reserve the jus dis- ponendi by presenting through a bank the draft with the bill of lading attached, the plaintiff expressed this to be also its understanding of the contract by offering to pay the price, as it claimed it to be, as a condition prece- dent to acquiring possession of the bill of lading, and through it of the flour. "It is argued, however, that, according to the com- plaint, which must be taken as true, the plaintiff ten- dered the real price agreed upon, and that by such ten- der he became entitled to the flour without respect to the amount of the draft. This argument is not without force, but it is not convincing, nor is it sustained by authority." Question 304: (1.) In what ways may the seller reserve his title so that it will not pass on delivery to the carrier? How was it done in this case? (2.) If the carrier had had no notice of the reservation of title in this case and had delivered the goods to the consignee, would it have been liable? Suppose the sender had used an "order" bill of lading, would your answer be the same? 516 SALES C. Transfer of Title in Auction Sales. 234. General rules governing sales 236. Sales without reserve. by auction. 237. Fraudulent bids. 235. General rule when title passes. Sec. 234. General Rules Governing Sales by Auction. Case No. 305. Uniform Sales Act, Sec. 21. (See page 591, post.) Sec. 235. General Rule When Title Passes in Auction Sales. Case No. 306. Anderson v. Wisconsin Ry. Co., 107 Minn. 296. Facts: The Wisconsin Central R. R. Co. advertised certain buildings for sale to be removed from certain lands taken under condemnation proceedings. One Anderson attended the sale, making certain bids and he was outbid by a person who offered $675.00. Anderson then bid $680.00, but the auctioneer refused to accept it on the ground that the raise was too small, and pro- ceeded to sell the property to the last bidder at $675.00. Anderson sues the R. R. Co. claiming damages, contend- ing that the advertisements of the sale constituted an offer which was accepted by the highest bidder at the sale and, therefore, that a contract between the parties became complete when Anderson bid $680.00. Point Involved: When and -how is a contract of sale made where goods are sold at auction? Is the bid an offer or an acceptance? ELLIOTT, J. : "The custom of selling goods at auc- tion is as old as the law of sale. In Rome military spoils were disposed of at the foot of the spear sub hastio by auction, or increase. In later times we find a mode of auction called a 'sale by the candle,' or by the 'inch of candle/ which consisted of offering the prop- AUCTION SALES 517 erty for sale for such a length of time as would suffice for the burning of an inch of candle. "In view of the general prevalence of the custom of selling by auction, it is remarkable that no very early cases are found in the English reports. The parent case of Payne v. Cave, 3 T. E. 148, was decided by Lord Ken- yon, Ch. J., sitting at Guildhall in 1788. The plaintiff offered a distilling apparatus for sale, including a pewter worm, at public auction, on the usual conditions that the highest bidder should be the purchaser. There were several bidders for the worm, of whom Cave, who bid 40, was the last. The auctioneer dwelt on this bid for some time, until Cave said: 'Why do you dwell? You will not get more.' The auctioneer stated that he was informed that the worm weighed at least 1,300 hundred- weight, and was worth more than 40. The bidder then asked him if he would warrant it to weigh so much, and receiving an answer in the negative, he declared that he would not take it. The worm was then resold on a sub- sequent day for 30, and an action was brought against Cave for the difference. Lord Kenyon ruled that the bidder was at liberty to withdraw his bid at any time before the hammer fell, and non-suited the plaintiff. On motion to set aside the non-suit, it was contended that a bidder is bound by the conditions of the sale to abide by his bid, and could not retract ; that the hammer is suspended, not for the benefit of the bidder, or to give him an opportunity for repenting, but for the benefit of the seller; and that in the meantime the person who bid last is a purchaser, conditional upon no one bidding higher. But the Court thought otherwise, and held that the auctioneer was the agent of the vendor, and that the assent of both parties was necessary to make the contract binding, and 'that is signified on the part of the seller by knocking down the hammer, which was not done here until the plaintiff had retracted.' 'An auction,' said the Court, 'is not inaptly called a locus poenitentiae. Every bidding is nothing more than an offer on one side, which is not binding on either side until 518 SALES assented to.' (Here the Court reviews numerous authorities.) * * On principle and authority the correct rule is, that an announcement that a person will sell his property at public auction to the highest bidder is a mere declaration of intention to hold an auction at which bids will be received; that a bid is an offer which is accepted when the hammer falls ; and until the accept- ance of the bid is signified in some manner neither party assumes any legal obligation to the other. At any time before the highest bid is accepted, the bidder may with- draw his offer to purchase, or the auctioneer his offer to sell. The owner's offer to sell is made at the time through the auctioneer, and not when he advertises the auction sale. A merchant advertises that on a certain day he will sell his goods at bargain prices ; but no one imagines that the prospective purchaser, who visits the store, and is denied the right to purchase, has an action for damages against the merchant. He merely offers to purchase, and if his offer is refused, he has no remedy although he may have lost a bargain, and have incurred expense and lost time in visiting the store. The analogy between such a transaction and an auction is at least close. As the advertisement in this case was a mere statement of intention to offer the property for sale at public auction to the highest bidder, the respondent's bid did not complete either a contract of sale or a con- tract to make a sale." Question 306: (1.) State the facts* the question presented and the Court's decision in this case. (2.) What were the facts and the Court's decision in Payne v. Cave? Sec. 236. Sales Advertised to Be Without Reserve. (Note : This provision of the Uniform Sales Act follows the statutes already in force in a few of the states. But such is not the law in most states except as they adopt the Uniform Sales Act, with this provision.) AUCTION SALES 519 Sec. 237. Fraudulent Bids in Auction Sales. Case No. 307. Pennock's Appeal, 14 Pa. St. 446. Facts: Sale of land by an administrator at public auction under order of court. Bid in and sold to Abra- ham Pennoch and Jas. Sellers, Jr., who now file excep- tions to the report of the administrator alleging that they bid the sums reported by him by reason of the puff- ing and false bids of other persons, in connivance with the administrator. Point Involved: Whether secret bidding by the owner or his agent, is fraudulent. GIBSON, C. J. : "It is impossible to doubt the principle of the civil law adopted by Lord Mansfield, in Bexwell v. Christie. Good faith is an indispensable ingredient of fair dealing; and it is impossible to imagine a purpose, consistent with it, for which sham bidding is necessarily employed. The vendor may prescribe conditions of sale which will enable him to retain the property should it not come up to his price; and if he do not produce the effect openly, why should he do it covertly? Common honesty requires that all should be fair and above-board. To screw up the price, as it has been aptly termed, by secret machinery, can be no less than a fraud; and a sham bidder can be used for no other purpose. The decisions on the subject have fluctuated; but the largest license allowed in any of them has been to employ a single puffer; yet, whether there be one, or whether there be twenty, the mischief is the same, except as to the degree of it. It has been said that the employment of a plurality discloses too clearly to be mistaken, not a design to protect the property from being sacrificed, but to give an artificial impulse to the sale of it. That touches the honesty of the vendors 's motive; but what have the bidders to do with it? Should he actually think that not less than twenty could protect it, the sale would still be, according to all the cases, fraudulent and void. 520 SALES Question 307: What is "by-bidding"? Why is it deemed unlawful ? D. Risk of Loss. 238. The general rules. Risk at- sion, retains title for pur- tends title. poses of security. 239. Risk of loss where seller, 240. Risk of loss in sales on ap- though delivering .posses- proval. Sec. 238. The General Rules Risk Attends Title. Case No. 308. Uniform Sales Act, Sec. 22. (See page 591, post.) Question 308 : (1.) State generally with whom is the risk of loss. (2.) When is risk on buyer, notwithstanding title has been retained by seller? (Note: See cases on transfer of title, supra.) Sec. 239. Risk of Loss Where Seller Though Delivering Possession Retains Title for Purpose of Security. Case No. 309. Burley v. Tufts, 66 Miss. 48. Facts: Tufts sold Burnley a soda water fountain on installments, title to remain in Tufts until the last install- ment was paid. Before the last installment became due, the soda water fountain was destroyed by fire without the fault of either. Burnley claimed that he was not liable to Tufts for the last installment, as Tufts still held the legal title, and therefore risk of loss from fire was on him. Point Involved: Upon whom is the risk of loss in a sale, in which possession is delivered to the purchaser, title being reserved in the seller for purposes of security. COOPER, J., delivered the opinion of the Court : "Burn- ley unconditionally and absolutely promised to pay a cer- tain sum for the property, the possession of which he RISK OF LOSS 521 received from Tufts. The fact * * * (of destruc- tion) does not relieve him of payment of the price agreed upon. The transaction was something more than an executory conditional sale. The seller had done all he was to do except receive the purchase price; the purchaser had received all he was to receive. * The contract made imposed upon the buyer an absolute promise to pay." Question 309: State the facts, the question presented and the Court's decision in this case. Sec. 240. Risk of Loss in Sales on Approval. Case No. 310. Foley v. Felrath, 98 Ala. 176. (Set out as Case No. 291, supra.') Question 310: On whom was risk of loss in this case ? Why? Case No. 311. Pence v. Carney, 78 Ark. 123. (Set out as Case No. 292, supra.) Question 311 : On whom was risk of loss in this case ? Why ? CHAPTER FORTY-ONE TRANSFER OF TITLE AS AFFECTING THIRD PERSONS A. Estoppel of true owner to as- C. Sale by one having voidable title. sert title. D. Retention of possession. B. Provisions of recording acts, factors' acts, etc. A. ESTOPPEL OF TRUE OWNER TO ASSERT TITLE. 241. Only true owner can give 243. Allowing another to assert title. ownership as estoppel. 242. Mere possession given to an- 244. Clothing another with docu- other no estoppel. mentary or record indicia of title as estoppel. Sec. 241. Only True Owner Can Give Title. Case No. 312. Uniform Sales Act, Sec. 23. (See page 591, post.) Question 312: Generally speaking, can anyone except the owner of goods transfer title thereto (by himself or through agent) ? Sec. 242. Mere Possession Given to Another No Estoppel. Case No. 313. Fawcett v. Osborne, 32 111. 411. Facts: This was a suit at law brought to obtain the value of 2,000 sides of hemlock tanned sole leather. Faw- cett, Isham & Co., had made a contract with W. H. & F. 522 ESTOPPEL OF OWNER 523 Stevens, by which the latter, who operated a tannery, were to tan leather for. F. I. & Co. The hides when tanned were to be delivered to F. I. & Co. at New York City. In September, 1856, Fletcher Stevens, of the Stevens firm, shipped secretly, a large quantity of the leather manufactured from the plaintiff's hides to places other than New York City. Two thousand sides of this leather were shipped to Chicago, and there sold by a man who was in connivance with Stevens, to the defend- ant who made payment therefor. Plaintiffs having traced the leather into the hands of defendants demanded its return, which was refused. The defense made is that the purchase under the circumstances to defendants vested title in them. Point Involved: Whether the fact that the owner of the goods put the goods in the possession of a bailee to do work thereupon estopped such owner to assert title against an innocent purchaser to whom such bailee in violation of his duty sold the goods. MB. JUSTICE BREESE delivered the opinion of the Court : " * * The defendants contend that they bought the property in good faith, in the regular course of business, paying a full price in open market, and with no knowledge of a want of title in their vendor, in whose possession the property was, when purchased by them. * * * Assuming a name which did not belong to him, and inducing his agent, Stanton, to do the same, the defend- ants' vendor took this leather to Chicago, and there, unknown to the business men of that city, or to his ven- dee, the defendant here, with no evidence of title, docu- mentary or mercantile, relying on his bare possession, fraudulently, if not feloniously obtained, the defendants become the purchasers of two thousand hides, of the esti- mated value of near eight thousand dollars. The ordi- nary inquiries and caution, usually exhibited in a large sale like this, seem not to have been made or observed in this transaction, and the question is plainly and dis- tinctly raised, 'Has the real owner lost his title to the 524 SALES property by the force of the facts proved?' * we are satisfied that the plaintiffs had never parted with the property in this leather, or bestowed the possession of it upon anyone, with a view to a sale and' disposal of it; nor have they given * * * such evidence of a right to sell it, as according to the custom of trade, and the understanding of community usually accompanies the authority for disposal. The defendant's vendor had but a naked possession. This cannot prevail against the right of the real owner, who is entitled to follow his property, and reclaim it wherever found. The buyer should have ' taken care ' that the title was in his vendor, he having no title, the defendants acquired none. "The rule we have sanctioned may seem a rigid one, and may involve purchasers in some perils, but it is a safeguard to the protection of the owners ' rights in goods and other property necessarily placed under the tem- porary control of others, and in their legal, though qual- ified possession." Question 313: State the facts, the question presented and the Court's decision in this case. Case No. 314. Charles Moe Co. v. J. H. Logue Co., 108 111. Ap. 128. Facts: The facts appear in the opinion. ME. PRESIDING JUSTICE BALL delivered the opinion of the Court :''<>* * * October 18, 1901, Logue, the pres- ident 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. There- upon appellee brought replevin, and recovered a judg- ment for $160, from which judgment this appeal was taken. ESTOPPEL OP OWNER 525 "It is an elementary rule of the law of personal prop- erty that no man can be deprived of it without his con- sent, or by operation of law. Another fundamental rule i's 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 by fraudulent pretenses, had the indcia of title. Posses- sion of personal 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.*' Question 314: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) A was a jeweler. B asked him to let him take two diamond rings to his wife to see if she liked either one of them, and he would return them in two hours. B took the rings under this arrangement and pawned them to C. A brings replevin against C. Can he recover? (Hatowski v. Cassriel, 153 111. Ap. 239.) (3.) A having a diamond ring he wished to sell, entrusted it to B, a street jewelry peddler, asking B to match it, or if he could not do so, to obtain an offer for it (giving the jeweler no express authority to sell it). B sold the stone wrongfully to C, and absconded with the money. A brings replevin against C. Can he recover? (Levi v. Booth, 58 Md. 305.) Case No. 315. Biggs v. Evans (1894), 1 Q. B. 88. Facts: The plaintiff was the owner of an opal matrix table-top which he intrusted to an agent who was a dealer in jew r els and gems, and as a known part of his business sold jewels and gems for other people. The table top was intrusted to the agent on the terms it should not be sold to any person nor at any price without the plaintiff's authority and that the check received in payment should be handed to the plaintiff intact. Point Involved: Whether placing an article in the 526 SALES hands of a dealer in such articles, who also sells them for other people, to show to customers and secure offers thereon, estops the true owner to set up his title as against one to whom such article is sold in violation of authority. WILLS, J., delivered the opinion of the Court: * In one sense every person who intrusts an article to any person who deals in second-hand articles of that description enables him, if so disposed, to com- mit a fraud by selling it as his own. A man who lends a book in a second-hand bookseller puts it into his power in the same sense, to sell it as his own. A man who in- trusts goods for safe custody to a wharfinger, who also deals in his own goods, or in other people's goods intrusted to him for sale, in such a sense enables him to commit a fraud by selling them to a customer. But such a transaction clearly could not give a title to a purchaser as against the owner." Question 315: State the facts and the question presented and the Court's decision in the above case, giving the illustrations stated by the Court. Sec. 243. Allowing Another to Assert Ownership as Estoppel. Case No. 316. O'Connor v. Clarke, 170 Pa. 318. This was an action brought to recover possession of a wagon belonging to John ? Connor, and purchased by the defendant, Clarke, from one Tracy who was in pos- session of it. The evidence showed that Tracy was in possession of the wagon and had his name and occupa- tion painted thereon, thus, " George Tracy, Piano Mover," and that the owner, O'Connor, had directed this to be done and knew it was done, and that he did it for the purpose of creating an impression in the public that the property belonged to Tracy. Point Involved: Whether an owner is estopped to ESTOPPEL OF OWNER 527 assert title by allowing another who is in possession of his personal property, to assert title to such property, as against one who purchases such property in reliance on such permitted assertions. STEKRETT, C. J., delivered the opinion of the Court: " While the soundness of the general rule of law that a vendee of personal 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 does 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 existence 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 wrong- doer has been enabled to commit the fraud. Question 316: (1.) State the facts, the question presented and the Court's decision in the above case. (2.) Suppose that Tracy, in driving the wagon, had negli- gently injured a pedestrian, and such pedestrian had sued 'Con- nor, the true owner; assuming that otherwise there was no agency or employment, would the owner have been liable ? Sec. 244. Clothing Another With Documentary or Record Indicia of Title. (See also subject Document of Title.) Case No. 317. Calais Steamboat Co. v. Scudder, 2 Black. 372. 528 SALES Facts: Scudder, the administrator of John Van Pelt, filed a bill against the Steamboat Company, claiming title to 13/20 of the steamer Adelaide, as a part of the estate of Van Pelt. Defense was that the defendants were innocent purchasers for value from one William Vanderbilt of New York City. The evidence showed that John Van Pelt, of California, in 1853 employed Van- derbilt, an engineer and constructor of steamers, to go to New York and there make contracts and superintend the construction of the steamer in question with Van Pelt's money. The contracts were to be made in Van- derbilt 's name, and the builder's certificate was to be taken and the enrollment at the custom house to be in Vanderbilt 's name. These instructions were given to Vanderbilt by Van Pelt with the avowed purpose of concealing his own name in the construction of the ves- sel, he not wishing it to be known he had any interest in the vessel. The vessel was built by Vanderbilt in his name pursuant to these instructions. The Steamboat Company, wishing a boat, saw this one advertised in the daily papers, and after the usual negotiations as to price, purchased it for the sum of $93,000.00, paying down $88,000.00 cash. Point Involved: Whether an owner who permits another to put the record or documentary title in him- self is estopped to assert title as against innocent third persons who purchase for value in reliance on such record or documentary title. MB. JUSTICE NELSON delivered the opinion of the Court: "* * * Upon this simple statement of the case, it is not to be doubted but that the legal title to this vessel passed to the purchasers, for, although as between Vanderbilt and Van Pelt, his principal, or the estate of Van Pelt, the legal title could not avail, beyond a lien for his services, or for any advances, yet, as it respects third persons, who have bought in good faith and for a val- uable consideration, the rule is different. The question then arises between two innocent parties, and the equity RECORDING ACTS 529 of the case turns against the party who has enabled his agent or any other person to hold himself forth to the world as having not only possession, but the usual docu- mentary evidence of property in the article. * * * "The case furnishes a very strong illustration of this principle. All the indicia of property in this vessel in Vanderbilt existed from no fault of his, for he was clothed with it by the express authority of the principal. Van Pelt, therefore, took upon himself knowingly the respon- sibility of vesting the property of the vessel in Vander- bilt, as he must have known that it was in his power to deal with it as owner. Besides, he was extensively engaged in the business of steamboats in the waters of California, and doubtless understood, in point of fact, the responsibility he was assuming and, we may add, we are not sorry that we have come to a con- clusion in favor of the innocent party who has acted upon the evidence of the legal title of the party from whom the purchase was made against the other innocent party who had not only been instrumental in furnishing this evidence, but has industriously concealed his own, and thus turned the equity of the case against him. Question 317: State the facts, the question presented and the Court's decision in this case. B. Provisions of Recording Acts, Factors' Acts, etc. 245. Recording acts. 247. Bulk sales laws 246. Factors' acts. Sec. 245. Recording Acts. (Note: The recording acts of the various states cover, par- ticularly, the cases of chattel mortgages and conditional sales. It is provided, with respect to chattel mortgages, that they must be acknowledged before a certain officer and recorded in the public records in order that the mortgagee can assert his lien against innocent purchasers for value, judgment and attaching creditors and the like unless he takes possession of the mort- gaged goods. 530 SALES Likewise, in reference to conditional sales, it is provided in most of the states that the conditional sale in which the buyer takes possession must be recorded in order to protect the seller. Before the conditional sale recording acts were passed, it was generally held that a vendor in a conditional sale could assert his title against innocent third persons. See cases on the differ- ence between conditional sales and consignments.) Sec. 246. Factors' Acts. (Note : A factor having possession of goods has large author- ity to sell them in accordance with the customs of the com- munity, but though apparently the owner has no power to pledge the goods for his own debts. Many of the states have passed Factor's Acts, varying in their phraseology, protecting purchasers and pledgees of factors. See Williston on Sales, Sections 318 ff.) Sec. 247. Bulk Sales Laws. Case No. 318. The G. S. Johnson Co. v. Beloosky, 263 111. 363. Facts: Stated in the opinion. Point Involved: The constitutionality of the Bulk Sales Act of Illinois, with the text of that act, and the object thereof. ME. JUSTICE VICKERS delivered the opinion of the Court: "Ernest Pilatt was engaged in the baker busi- ness and used in connection therewith a delivery wagon and a team of horses. He made a bill of sale covering his entire stock in trade, store fixtures and the wagon and team used in connection with the business, to Bossie Beloosky. Subsequently the G. S. Johnson Company, being a creditor of Pilatt, levied an attachment upon the goods and chattels sold to appellee, basing the attach- ment upon the failure to comply with an act of the legis- lature known as the Bulk Sales Act of 1913. It is admit- ted that no attempt was made to comply with the act in making the sale. The sole question presented for our determination is the constitutionality of the Bulk Sales BULK SALES LAW 531 Act of 1913. The Court below held the act to be invalid and gave judgment for the defendant. The plaintiff in the attachment proceeding has prosecuted an appeal direct to this Court. "The Bulk Sales Act passed in 1913 is entitled, 'An act to regulate the sale or transfer of goods, wares, mer- chandise, or merchandise and fixtures or other goods and tain penalties in connection therewith.' The act, which is found at page 258 in the Laws of 1913, is as follows : " 'Sec. 1. That the sale, transfer, or assignment in bulk of the major part or the whole of a stock of mer- chandise, or merchandise and fixtures or other goods and chattels of the vendor's business, otherwise than in the ordinary course of trade and in the regular and usual prosecution of the vendor's business shall be fraudulent and void as against the creditors of the said vendor, unless the said vendee shall, in good faith, at least five (5) days before the consummation of such sale, transfer or assignment demand and receive from the vendor a written statement under oath of the vendor or a duly authorized agent of the vendor having knowledge of the facts, containing a full, accurate and complete list of the creditors of the vendor, their addresses and the amounts owing to each as near as may be ascertained, and if there be no creditors, a written statement under oath to that effect ; and unless the said vendee shall at least five days before taking possession of said goods and chattels and at least five days before the payment or delivery of the purchase price, or consideration or any evidence of indebtedness therefor, in good faith, deliver or cause to be delivered or send or cause to be sent personally or by registered letter properly stamped, directed and addressed, a notice in writing to each of the creditors of the vendor named in the said statement or of whom the said vendee shall have knowledge, of the proposed purchase by him of the said goods and chattels and of the price, terms and conditions of such sale: Provided, however, that it shall be lawful for the vendee to pay to the vendor so much of the purchase price as shall be in 532 SALES excess of the total amount of the indebtedness of the vendor before the expiration of the five days herein re- ferred to. " 'Sec. 2. [Provides that knowingly making a false statement is a crime and subject to fine and imprison- ment.] " 'Sec. 3. [Provides that act shall include corpora- tions, associations, partnerships, and individuals, but shall not apply to sales by executors, administrators, trus- tees in bankruptcy or any public officer under judicial process, nor to sales of exempt property, nor to sales made in regular course of business, nor to public auction sales where advertised in a newspaper or in five public places at least ten days before the sale.] ' * * * rpjjg legislature may, under the police power, pass such laws as it deems necessary for the sup- pression of fraud. The reasonableness of the act and the necessity for its enactment are legislative questions, with which the courts have no concern. Statutes of the same general character as the one here involved have fre- quently been before the courts of the different states and they have been sustained by the decided weight of authority. We do not deem it necessary to cite these cases. Many of them will be found cited in a note to Off & Co. v. Morehead, in volume 14 of American and English Annotated Cases, 434. "The Court below erred in holding the act of May 3, 1913, unconstitutional. "The judgment of the county court of Rock Island county is reversed and the cause remanded.*' Question 318: (1.) What action did the plaintiffs take in this case ? Under what authority ? (2.) What are the purposes of a bulk sales law? C. Sale by One Having Voidable Title. Sec. 248. Sale by One Having Voidable Title. Case No. 319. Uniform Sales Act, Sec. 24. (See page 591, post.) RETENTION AS FRAUD 533 Question 319: (1.) A sells goods to B, who procures them by fraud, which would give A the right to rescind. Before A rescinds, B sells to C for value, who does not know of the fraud. A sues C in trover (or brings replevin). Can A recover? Root v. French, 13 Wend. (N. Y.) 570. (2.) A sends goods to B "on sale and return." B sells to C, an innocent purchaser, for value. Can A recover against C? (3.) A sends goods to B on approval, and B sells to C. Can A recover against C? D. Retention of Possession by the Seller as Fraud Against Creditors and Subsequent Purchasers of the Seller. Sec. 249. Retention of Possession as Fraud. Case No. 320. Uniform Sales Act, Sees. 25, 26. (See page 591, post.) Case No. 321. Wilson v. Walrath, 103 Minn. 412, 24 L. R. A. N. 8. 1127. Facts: One Spargo sold an automobile to Wilson, who paid full consideration therefor, but who agreed to allow Spargo, who was an automobile sales agent, to retain possession of the machine for demonstration purposes, as Wilson had to be away from home for a time, and other- wise would have had to store the machine. While in such possession Spargo mortgaged the machine to Wal- rath, who had no knowledge of the sale to Wilson. Wil- son brings replevin proceedings. Walrath claims that by allowing Spargo to remain in possession, the sale by Spargo to Wilson became in law fraudulent and void as to third persons relying on the evident ownership indicated by such possession. Point Involved: Whether allowing the seller of a chat- tel to remain in possession thereof after the sale, makes the sale void as to subsequent purchasers or creditors of the seller. ELLIOTT, J. : "* * * "1. There is a line of cases which holds that, while delivery is not essential to pass title as between the 534 SALES vendor and vendee of personal property, it is necessary for such purpose as against everyone but the vendor. Under this rule, when the same goods are sold to differ- ent persons by conveyances equally valid, he who first lawfully acquires the possession will hold them as against the other. The motives and intentions of the parties are immaterial, as the doctrine rests upon the general prin- ciple that, where one of two innocent persons must suf- fer, the loss should fall on him whose acts or omissions have made or contributed to make the loss possible. Lanf ear v. Sumner, 17 Mass. 110, 9 Am. Dec. 119 ; Craw- ford v. Forristall, 58 N. H. 114; Burnell v. Robertson, 10 111. 282; Stephens v. Gifford, 137 Pa. 219, 21 Am. St. Rep. 868, 20 Atl. 542; Norton v. Doolittle, 32 Conn. 405. For other cases, see 2 Mechem on Sales, 981. Closely connected with this doctrine, but resting on other prin- ciples, is the rule which makes the retention of posses- sion by the vendor conclusive evidence of fraud. This doctrine also rests upon grounds of assumed public pol- icy. It prevails by virtue of statutes or decisions based on the common law in a number of states. 2 Mechem, Sales, 984; 20 Cyc. Law & Proc., p. 539, note 13. In the greater number of states, however, the rule is estab- lished that the mere retention of possession by the ven- dor is presumptive evidence only of a fraudulent and colorable sale, and the vendee is permitted to overthrow this presumption by evidence which establishes his good faith and want of knowledge of any fraudulent intent on the part of the vendor. 20 Cyc. Law & Proc., pp. 536 et seq. The statutes are referred to in the notes to 2 Mechem on Sales, 960, 961. 11 2. 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 cred- itors. Stat. 13 Eliz., chap. 5. A later statute extended this protection to subsequent purchasers as well as cred- itors. Stat. 27 Eliz., chap. 4. These statutes did not in terms apply to personal property, but from the time of RETENTION AS FRAUD 535 Sir Edward Coke's decision in Twyne's Case, 3 Coke, 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 within 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 presumptively 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. B. 587, it was held that, 'if there be noth- ing 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 construc- tion of the statute made such a conveyance presump- tively fraudulent only. Hale v. Metropolitan Saloon Omnibus Co., 28 L. J. Ch. N. S. 777; Gregg v. Holland, (1902) 2 Ch. 360. To clear up the difficulty which arose under the statute, Parliament enacted the various bills of sale acts, which are fully discussed and explained by Lord Blackburn in Cookson v. Swire (1884) L. B. 9 App. Cas. 653, 670. See also references to these acts and decisions thereunder in notes to the fifth English edition of Benjamin on Sales, p. 496, and appendix, p. 1029, and in the note to Twyne's Case in 5 Eng. Eul. Cas. 27-39. See also Mr. Bennett's note to the sixth American edi- tion of Benjamin on Sales, pp. 458-462, and Jones, Chat. Mortg. 320 et seq. In the United States, Edwards v. Harben was followed by Chancellor Kent in Sturtevant v. Ballard, 9 Johns. 337, 6 Am. Dec. 281, and by the Supreme Court of the United States, in Hamilton v. Bus- sell, 1 Cranch, 309, 2 L. ed. 118. But in Warner v. Nor- ton, 20 How. 488, 15 L. ed. 950, Mr. Justice McLean stated that 'for many years past the tendency has been in Eng- land and in 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. Jewell v. Knight, 123 U. S. 426, 31 L. ed. 190, 536 SALES 8 Sup. Ct. Rep. 193; Smith v. Craft, 123 U. S. 436, 31 L. ed. 267, 8 Sup. Ct. Rep. 196. See note to 18 L. R. A. 604. "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 conclusive or only presumptive evidence of fraud. It provides in express terms that such possession shall be presumed to be fraudulent and void as against subsequent pur- chasers 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 rebut- ting 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. Leqve v. Smith, 63 Minn. 24, 65 N. W. 121. The statute controls this case. If Wilson proved that he purchased the machine in good faith, without knowledge of any intent on the part of Spargo to defraud his creditors or sub- sequent purchasers, he was entitled to the possession of the property. [Here the Court considers the evidence.] "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 3496 Rev. Laws 1905; and hence, 'while in this case it may be true that on April 25, 1906, appellant, in the ut- most good faith, purchased the automobile, yet, from that time on, the action of the appellant in permitting and agreeing to allow Mr. Spargo, the vendor, to keep and use that machine in exactly the same manner after the sale as before, was a fraud per se upon any person who might either purchase 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 RETENTION AS FRAUD 537 has been made. As an abstract principle of law, that doctrine is sound and controlling when applied to appro- priate facts and conditions. But the effect which shall be given to possession under the particular circum- stances 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 evidence, Wilson sustained the burden which the statute imposes upon him, and the finding of the trial court was thus erroneous." Question 321: (1.) State the facts in this case, the question presented and what the Court held. (2.) What two doctrines are there on the effect of retention by the seller of the goods sold? (3.) What was the early English statute? What did it provide ? (4.) What did Twyne's case hold? Edwards v. Harben? Was the early English doctrine adhered to in England? (5.) In the above case, on whom was the burden of proof in reference to good faith? Why? How was this burden sus- tained ? Case No. 322. Ticknor v. McClelland, 84 HI. 471. Facts: ''A'* sold "B" 135 acres of standing corn, three stacks of hay, seven machines, four horses and twenty-nine hogs. All of these items were selected and segregated, but no possession was taken at the time. Before "B" took possession, "C," a creditor of "A," had the property seized by the sheriff. The sheriff took possession and "B" brought replevin. Point Involved: Same point as in above case; the other view taken; whether the rule applies to growing grain, ponderous articles, etc., not capable of immediate removal. MR. CHIEF JUSTICE SHELDON delivered the opinion of the Court: "As regards the standing corn and stacks of hay, we consider the delivery of possession sufficient. In case of the sale of standing crops, the possession is 538 SALES in the vendee until it is time to harvest them, and until then he is not required to take manual possession of them. * Where goods are ponderous and inca- pable of being handed over from one to another, there need not be a manual delivery of them. As to the rest of the property which was the subject of the sale, it was that character of property that was capable of being immediately and readily removed, and a differ- ent rule governs. "The policy of the law in this state will not permit the owner of personal property to sell it, and still con- tinue in the possession of it. Possession being one of the strongest evidences of title to personal property, if the real ownership is suffered to be in one, and the appar- ent ownership in another, the latter gains credit as owner, and is enabled to practice deceit upon mankind. It is the well-established doctrine of this Court, that an absolute sale of personal property, where the possession is per- mitted to remain with the vendor, is fraudulent per se, and void as to creditors and purchasers. 1 'We can come to no other conclusion, than that suffer- ing this portion of property, which was capable of being readily removed, to remain with the vendor, as was done, rendered the sale of it fraudulent in law, and void as to creditors, and that it was subject to the levy of the exe- cution. ' * Question 322: (1.) State the facts, the question presented and the Court's decision in this case. (2.) Is it in accord with Wilson v. Walrath? CHAPTER FORTY-TWO DOCUMENTS OF TITLE (Note : The provisions of the Sales Act are here referred to on this subject, without cases, but with some brief explanatory notes.) 250. What is a document of title. 251. Negotiable document of title denned. 252. Negotiation of negotiable documents by delivery. 253. Negotiation of negotiable documents by endorse- ment. 254. Negotiable document marked "not negotiable." 255. Transfer of non-negotiable documents. | 256. Who may negotiate a docu- ment. 257. Rights of persons to whom document has been nego- tiated. 258. Right of person to whom document has been trans- ferred. 259. Transfer of negotiable docu- ment without indorsement. 260. Warranties on sale of docu- ment. 261. Indorser not a guarantor. 262. When negotiation not im- paired by fraud, mistake or duress. 263. Attachment or levy on the goods represented by nego- tiable document. 264. Creditors' remedies to reach negotiable documents. Sec. 250. What is a Document of Title. (Note: A "document of title" is a document which con- stitutes proof of the possession of the goods by a certain person and constitutes the authority by which the goods may be re- ceived from such person. It includes bills of lading and ware- house receipts, dock warrants, etc. It is a document that repre- sents the goods. A mere Mil of sale is not within the meaning here a document of title, unless it partakes of the character of the documents of title mentioned above. In real estate law, the deed is the document of title, so that we see the term is dif- 530 540 SALES ferently used in real estate and personal property law. The essential thing to be borne in mind is that the goods are in the possession of a certain person (A) and a document asserting such possession has been issued, by which the goods may be obtained/ They are chiefly of two sorts: bills of lading and warehouse receipts. We must not confuse negotiable documents of title with nego- tiable instruments, which are bills of exchange, promissory notes and bank checks. They call for the payment of money] and are governed by a separate body of law. See post, Division IV.) Sec. 251-253. Negotiable Documents and Their Negotiation. Cases No. 323, 324, 325. Uniform Sales Act, Sees. 27, 28. 29. Uniform Sales Act, 27, 28, 29. (See page 592, post.) (Note: Bills of lading and warehouse receipts are bythe common law assignable not negotiable, no matter in what form they might be drawn. The Uniform Bills of Lading Act, the Uniform Warehouse Receipt Act and the Uniform Sales Act now adopted in a number of states make bills of lading and ware- house receipts negotiable if drawn to order or to bearer ("order" bills and receipts) and not negotiable if drawn to a person direct ("straight" bills and receipts). These acts it must be remem- bered are not yet in force in many states.) Questions 323-325: (1.) When is a negotiable document of title negotiable by one delivery? (2.) How may such a document be made by the holder nego- tiable by indorsement only ? (3.) In such a case, could the document again become nego- tiable by delivery? Sec. 254 to Sec. 264. The Law of Documents of Title. Cases No. 326 to 336. Uniform Sales Acts, Sees. 30 to 40. (See page 592, post.) Question 326: If a document of title is marked "not-nego- tiable," what effect does that have on documents where the Uniform Sales Act is in force? DOCUMENTS OF TITLE 541 Question 327: If a document of title is non-negotiable, may it be transferred ? What will be the effect of this transfer ? (Note: This section means that if a document of title is in negotiable form, but by reason of its form, or a prior indorse- ment, requires indorsement to transfer it as a negotiable docu- ment, it may, nevertheless, be transferred without indorsement, in that case giving the transferee (purchaser or donee) the same sort of rights as he would have were the document non-nego- tiable, that is, merely assignable. And if the bill of lading is a straight bill it may be transferred, but cannot be negotiated, even though indorsed.) Question 328: Who may negotiate a document? Question 329: State the rights of a person to whom a nego- tiable document has been negotiated, as determined by the Uni- form Sales Act. Question 330: Where a document has been transferred, but not negotiated (i. e., either transferred without indorsement where indorsement required in case of a negotiable document or transferred in case of a non-negotiable document), what right does the transferee acquire against the transf error? Question 331: Where indorsement is essential to negotiation and has been omitted, what right has the transferee? In such a case, when does negotiation take effect? Question 332: State the warranties of one who sells a docu- ment of title ? Question 333: Does indorsement of a negotiable document of title make the indorser liable for the failure of prior parties to fulfil their obligations? Question 334: State the substance of Sec. 38, Uniform Sales Act. Question 335: State the substance of Sec. 39, Uniform Sales Act. Question 336: State the substance of Sec. 40, Uniform Sales Act. PART XI PERFORMANCE OF THE CONTRACT CHAPTER FORTY-THREE THE PERFORMANCE OF THE CONTRACT 265. Obligation of seller to deliver 270. Delivery to carrier. and buyer to pay for 271. Right to examine the goods, goods. 272. What constitutes acceptance. 266. Delivery and payment as con- 273. Acceptance as waiver of dam- current conditions. ages. 267. Place, time and manner of 274. Duty of buyer upon rightful delivery. rejection of goods. 268. Delivery of wrong quantity. 275. Buyer's liability for failure 269. Delivery in instalments. to accept. Sec. 265. Obligation of Seller to Deliver and Buyer to Pay for Goods. Case No. 337. Uniform Sales Act, Sec. 41. "It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract to sell or sale." Question 337: State this section. Sec. 266. Delivery and Payment as Concurrent Conditions. Case No. 338. Uniform Sales Act, Sec. 42. " Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions; that is 542 DELIVERY 543 to say, the seller must be ready and willing to give pos- session of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for the possession of the goods." Question 338: State this section. Sec. 267. Place, Time and Manner of Delivery. Case No. 339. Uniform Sales Act, Sec. 43. (See page Question 339: (1.) Is the obligation on the seller to deliver the goods or the buyer to send for them ? (2.) What is to be deemed the place of delivery ? (3.) What is the rule where goods are in the possession of a third person? (4.) What do subsections (4) and (5) provide? Case No. 340. Cash v. Hinkle, 36 Iowa, 623. Facts : A contracted to sell B certain hogs deliverable at a certain place. At the time and place he had certain hogs there which did not comply with the contract and B refused to receive them. A then told B he might go into pens belonging to A and select other hogs. This B refused to do, and' he refused to accept any of the hogs which A had at the place. Point Involved: The obligation of the seller to deliver the goods. * # MILLER, J., delivered the opinion of the Court: It was the duty of the plaintiff to have the kind and number of hogs specified in the contract at the place of delivery, ready to deliver them to the defendant. The latter was not required to go into another lot of hogs * * * and select therefrom such hogs as would make the lot plaintiff had agreed to deliver, comply with the contract. It was the business of the plaintiff to do this. * * * It was the duty of the plaintiff to have the hogs at the time and place of delivery, set apart and 544 SALES designated for that purpose, unless this was excused by a refusal to receive. * * Question 340: What were the facts, the question presented and the Court's decision in this case? Sec. 268. Delivery of Wrong Quantity. Case No. 341. Uniform Sales Act, Sec. 44. (See page 595, post.) Question 341: (1.) What difference in amount of recovery does it make where the seller does not deliver the amount his contract calls for and the seller accepts, knowing of the breach, or accepts not knowing of the breach ? (2.) If the seller sends a larger quantity than the contract calls for, what are the buyer's rights? Case No. 342. Richards v. Shaw, 67 111. 222. Facts: A, in March, 1867, contracted to deliver to B on or before May 5, 1867, 500 bushels of corn at 50 cents per bushel. He did deliver 30 bushels in April, delivered none at all in May and 361 bushels in June, all of which deliveries B accepted. Point Involved: "Whether a seller who sends less than he contracts to deliver, can recover and if so, how much ? MB. JUSTICE SHELDON delivered the opinion of the Court : ' ' * * * There was a manifest failure on the part of Shaw to complete his contract, yet we are inclined to hold that hie was entitled to his action, as upon an im- plied contract, for the portion of corn he did deliver. It is a rule supported by a very respectable weight of mod- ern authority, that, if the vendee of a specific quantity of goods sold under an entire contract, receive a part thereof, and retain it after the vendor has refused to deliver the residue, this is a severance of the entirety of the contract, and the vendee becomes liable to the vendor, for the price of such part ; but he may reduce the vendor 's DELIVERY 545 claim by showing that he has sustained damage by the vendor 's failure to fulfill his contract. * * * " Question 342: State the facts, the question presented and the Court's decision in this case. Case No. 343. Perry v. Mt. Hope Iron Co., 16 E. I. 318. Facts: See the opinion. Point Involved: Whether a tender of a larger amount than the contract called for is a tender of fulfillment of the contract. Per Curiam: "The contract, for the breach of which this action was brought, was entered into in manner fol- lowing, to-wit : The plaintiff offered the defendant some nut and bolt shop scraps, saying he had 30 or 40 tons to sell. The defendant offered to give 871/2 cents per hun- dred weight if the plaintiff would deliver it on the defend- ant 's wharf. This offer of the defendant was accepted the next day. The plaintiff carried to the defendant's wharf 53 17/30 tons and tendered it to the defendant. * * * At the trial the defendant * * * took the objection that a tender of 53 17/30 tons was not a tender in fulfillment of a contract of 30 or 40 tons. The jury returned a verdict for the plaintiff and the defendant now moves for a new trial. * * * "We think the defendant is entitled to a new trial. The contract for the sale of 30 or 40 tons would naturally be understood to mean a contract for between 30 or 40 tons, or, at most, for a quantity not much exceeding 40 tons. Fifty-three tons is so much more than 40 tons that we do not think that the jury were warranted in finding that the defendant agreed to purchase that amount. The cases cited for the defendant show that as a general rule the buyer is entitled to refuse the whole of the goods tendered if they exceed the quantity agreed on; and the vendor has no right to insist upon the buyer's acceptance of all or upon the buyer's selecting out of a larger quantity than delivered. * 546 SALES Question 343: State the facts, the question presented and the Court's decision in this case. Case No. 344. Moore v. U. S., 190 U. S. 157. Facts : A sold to the United States ' about 5,000 tons ' ' of coal to be delivered by a certain date at Honolulu. A brought the coal in lots until he had delivered 4,634 tons. He then in apt time delivered 366 tons more which the United States refused to receive. A brought a claim against the United States for breach of contract. Point Involved: The amount of goods which the seller can insist on the buyer receiving where the contract calls for " about" a certain quantity; meaning of "about" where it qualifies the amount contracted for. MB. JUSTICE MCKENNA delivered the opinion of the Court: "* * * the appellant agreed to deliver and the United States agreed to receive * about 5,000 tons ' of coal, delivery to commence with about 2,200 tons, to arrive at Honolulu on or about the 1st day of October, 1898. By the 7th of October delivery was made of 4,634 tons. About a month subsequently appellant purchased 366 tons of coal of a ship then in the harbor, and tendered the coal to the United States in fulfillment of the contract to deliver 5,000 tons. The United States refused to receive it, and appellant sold it in the open market for $3.06*4 per ton less than $9, the contract price. This was the best price which could be obtained, and the loss to appel- lant was $1,120.87. The court of claims held that the appellant was not entitled to recover. We think this was error. The obligations of parties were reciprocal; one to deliver, the other to receive, about 5,000 tons of coal, and equally reciprocal is the liability for non-perform- ance of the obligations. The only question can be, Is 366 tons less than 5,000 tons, 'about 5,000 tons!' We think not. The difference is too great. We said in Brawley v. United States, 96 U. S. 168, 172, * * * that in engagements to furnish goods to a certain amount the quantity specified is material and governs the contract. DELIVERY 547 'The addition of the qualifying words, about, more or less, and the like, in such case, is only for the purpose of providing against accidental variations arising from slight and unimportant excesses or deficiencies in num- ber, measure, or weight.* * * * ' ' The record does not inform us why the United States refused the tender, and we must assume that it had no other justification than its supposed right under the con- tract. "Judgment reversed and cause remanded with direc- tions to enter judgment for appellant (claimant) in the sum of $1,120.87." Question 344: State the facts, the defense raised and the Court's decision in this case. Case No. 345. Robinson v. Noble 's Adm 'rs, 33 U. S. 181. A sold B a quantity of goods, "supposed to amount to 3,700 barrels then in the Steamboat Paragon," for which B agreed to pay $1.50 per barrel. There were in fact only 3,105 barrels. B sued A for breach of his contract. Point Involved: Whether when a lot of goods are sold described as "supposed to amount to" certain quantity, the words are a statement of quantity or mere words of identity or description. MR. JUSTICE MCLEAN delivered the opinion of the Court, saying in part: "* * * The plaintiff's coun- sel insist that Robinson was bound by this agreement to deliver the number of barrels specified, subject only to a reasonable qualification of the words * supposed to amount to thirty-seven hundred barrels' and that by this rule the number could not be reduced below thirty-six hundred barrels. It is clear from the agreement that the amount of freight was not ascertained, and that Robinson did not covenant to deliver any specific number of barrels. It was conjectured there were thirty-seven hundred, and 548 SALES the payment for the transportation was to be at the rate of one dollar and fifty cents per barrel. * * * "If Robinson had bound himself to deliver a certain number of barrels and had failed to do so, Noble would have been entitled to damages for such failure; but a fair construction of the contract imposed no such obli- gation on Robinson and consequently the breach assigned in the declaration is not within the covenant. n# * * "When the circumstances under which this contract was made are considered, the contingencies on which the delivery of the freight in some degree depended; the reason is seen why cautions and indefinite language was used in regard to the number of barrels in the con- tract. And the result proved the caution was judicious. * * * Question 345: State the facts in this case, the question pre- sented and the Court 's decision. (2.) A sells B a heap of coal lying at the mouth of A's mine, "being about 100 tons." There are, in fact, only 80 tons. B refuses to accept. Can A recover on the contract? Does this case differ from Case No. 344 ? Suppose A had known there were only 80 tons? Sec. 269. Delivery in Installments. Case No. 346. Uniform Sales Act, Sec. 45. (See page 595, post.) Question 346: What determines whether a breach of the con- tract in respect to one installment is a breach of the entire contract ? Case No. 347. Norrington v. Wright, 115 U. S. 188. Facts: Suit brought by Arthur Norrington, trading as A. Norrington & Co., a citizen of Great Britain, against James A. Wright and others, citizens of Pennsylvania, trading as Peter Wright & Sons, upon a contract by which Norrington sold to Peter Wright & Sons "5,000 tons old T DELIVERY 549 iron rails, for shipment from a European port or ports at the rate of about one thousand tons per month, begin- ning February, 1880, but whole contract to be shipped before August 1, 1880, at $45.00 per ton of 2,240 pounds, custom house weight, ex ship Philadelphia; settlement cash, on presentation of bills accompanied by custom house certificate of weight." Under this contract the plaintiff shipped 400 tons by one vessel in the last part of February, 885 tons in two 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. The defendants re- ceived and paid for the February shipment, upon its ar- rival in March, and in April gave directions at what wharves the March shipments should be discharged. But on May 14, about the time of the arrival of the March shipments, and having been then for the first time in- formed of the amounts shipped in February, March and April, gave the broker, Etting, written notice that they should decline to accept the shipments made in March and April because none of them were in accordance with the contract, and wrote to the effect that the 400 tons ac- cepted by them was accepted supposing it was only a parcel of the entire shipment. On the trial plaintiff con- tended (1st) that under the contract he had six months to ship the 5,000 tons, and any deficiencies in the earlier months could be made up subsequently, provided that defendants could not be compelled to accept more than 1,000 tons in any one month; (2nd) that if this were not so, the contract was a divisible contract, and the remedy of the defendants for a default in any one month was not by rescission of the whole contract, but only by deduction of the damages caused by the delays in shipments. Point Involved: Whether the contract was of such an indivisible nature that a breach as to any one installment was a breach of the entire contract, discharging the pur- chaser of his obligation to accept future installments. MR. JUSTICE GRAY delivered the opinion of the Court: "In the contracts of merchants, time is of the essence. 550 SALES The time of shipment is the usual and convenient means of fixing the probable time of arrival, with a view of pro- viding funds to pay for the goods, or of fulfilling contracts with third persons. A statement descriptive of the sub- ject-matter, or of some material incident, such as the time or place of shipment, is ordinarily to be regarded as a warranty, in the sense in which that term is used in insur- ance and maritime law, that is to say, a condition preced- ent, upon the failure or nonperformance of which the party aggrieved may repudiate the whole contract. Behn v. Burness, 3 B. & S. 751; Bowes v. Shand, 2 App. Cas. 455 ; Lowber v. Bangs, 2 Wall. 728 ; Davison v. Von Lin- gen, 113 U. S. 40. * ' 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 quantites of iron. Mersey Co. v. Naylor, 9 App. Cas. 434, 439. The further provision, that the sellers shall not be compelled to replace any parcel lost after shipment, simply reduces, in the event of such a loss, the quantity to be delivered and paid for. "The times of shipment, as designated in the contract, are l at the rate of about 1,000 tons per month, beginning February, 1880, but whole contract to be shipped before August 1, 1880.' These words are not satisfied by ship- ping 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 inde- pendent circumstances, such as all those deposited in a certain warehouse, or to be shipped in a particular vessel, DELIVERY 551 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 qualification of 'about,' or 'more pr 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 general rule: 'When no such independent circumstances are referred to, and the engagement is to furnish goods of a certain quality or character to a certain amount, the quantity specified is material, and governs the contract. The addi- tion of the qualifying words "about," "more or less," and the like, in such cases, is only for the purpose of pro- viding against accidental variations, arising from slight and unimportant excesses or deficiencies in number, measure or weight. ' Brawley v. United States, 96 U. S. 168, 171, 172. ' ' 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 fulfil the contract on his part in respect to these first two installments justified the defendants in rescinding the whole contract, provided they distinctly and seasonably asserted the right of rescis- sion. "The defendants, immediately after the arrival of the March shipments, and as soon as they knew that the quantities which had been shipped in February and in March were less than the contract called for, clearly and positively asserted the right to rescind, if the law entitled 552 SALES 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 reliance was placed on that omission in the correspondence between the parties. * ' The case wholly differs from that of Lyon v. Bertram, 20 How. 149, in which the buyer of a specific lot of goods accepted and used part of them with full means of pre- viously ascertaining whether they conformed to the con- tract. "The plaintiff, denying the defendants' right to re- scind, and asserting that the contract was still in force, was bound to show such performance on his part as en- titled him to demand performance on their part, and, hav- ing failed to do so, cannot maintain this action. "For these reasons, we are of opinion that the judg- ment below should be affirmed." Question 347: State the facts, the question presented and the Court's decision in this case. Sec. 270. Delivery to a Carrier on Behalf of the Buyer. Case No. 348. Uniform Sales Act, Sec. 46. " (1) Where, 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 transmis- sion to the buyer is deemed to be a delivery of the goods to the buyer, except in cases provided for in section 19, Rule 5, or unless a contrary intent appears. "(2) Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the RIGHT TO EXAMINE 553 case. If the seller omit so to do, and tlie 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. " (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." Question 348: When is the seller liable as insurer of goods in transit? Sec. 271. Right to Examine the Goods. Case No. 349. Uniform Sales Act, Sec. 47. (See page 596, post.) Question 349: (1.) What is the right of examining the goods? (2.) Must a carrier permit examination of the goods? Case No. 350. Zipp Mfg. Co. v. Pastorino, 120 Wis. 176. Fcwts: The facts appear in the opinion. Point Involved: The buyer having the right to test the goods, what constitutes a reasonable test, and the con- sequence of his making an unreasonable test. WINSLOW, J. : * ' This is an action to recover the pur- chase price of a barrel of vanilla sold by the plaintiff to the defendants, who were wholesale manufacturers of candy, under an agreement that if, upon fair test, it did not prove satisfactory it might be returned. The defense was that the vanilla was of poor quality and proved un- satisfactory upon a test being made, and was returned. A verdict for the plaintiff was directed on the ground that the evidence showed without dispute that the defendants 554 SALES had accepted the vanilla by using in their business a far larger amount than was reasonably necessary for testing purposes. Examination of the evidence shows that the direction was plainly right. It appeared without dispute that a satisfactory test could be made by the use of a few ounces; also that the defendants used from four to six ounces daily in the manufacture of candy for a period of more than six weeks, during which time they made and sold about three tons of candy flavored with the vanilla, although by their own admissions they discovered that it was not satisfactory after making the first test. For testing purposes they could only use such quantity as was fairly and reasonably necessary to determine its quality. Cream City G. Co. v. Friedlander, 84 Wis. 53, 54 N. W. 28. When they went beyond this, as they unquestionably did in this case, they made it their own, and lost the right of rejection. ' ' By the COURT : * * Judgment affirmed . " Question 350 : State the facts, the question presented and the Court's decision in this case. Sec. 272. What Constitutes Acceptance. Case No. 351. Uniform Sales Act, Sec. 48. (See page 596, post.) Question 351 : In what three ways may a buyer indicate this acceptance of the goods ? (Note: Acceptance may precede, coincide with or follow delivery, for as we have seen, the buyer who orders by descrip- tion has a reasonable time for inspection; acceptance is not necessarily coincident with transfer of title, for title may pass (as in deliveries to carriers) subject to a right of inspection.) Case No. 352. Cream City Glass Co. v. Friedlander, 84 Wis. 53, 21 L. B. A. 135. Facts: The Cream City Glass Co., manufacturers of glass, bought from Friedlander a quantity of soda ash. WHAT CONSTITUTES ACCEPTANCE 555 The ash was delivered and the buyer on receiving it ex- amined it and found it water-soaked and at once notified the seller that it was unfit for use, and that such soda ash was held subject to the seller's orders. About a month later, the ash being still uncalled for, the buyer used about three-fourths of a ton to test whether it could be used in making glass, and this test was unsatisfactory. The ash had been paid for on its arrival before it was known to be defective. This is a suit by the buyer for the recovery of the money so paid. Point Involved: Whether use of the property by the buyer after his rejection, amounts to an acceptance by him. Whether a test after a rejection is a use of the prop- erty within the meaning of the rule. WINSLOW, J. : ' ' * Assuming that the evidence is sufficient to establish an implied warranty that the soda ash in question was of a quality reasonably fit to be used in the manufacture of glass, the question is, could the plaintiff, after having decided that the material was wholly unfit, and notified the defendant of its decision and its rejection of the material, proceed to use three-quarters of a ton of the material in making a practical test, and still insist on its right of rejection? * But this test is plainly for the purpose only of enabling the pur- chaser to decide whether the material conforms to the con- tract. If the fact can be determined by inspection alone, the test is not necessary, and the use of the material, there- fore, clearly unjustifiable. Now, in this case the plaintiff's officers determined at once, and upon inspection alone, that the material was unfit for their purposes, and so no- tified the defendant, and rejected the entire lot. They did not claim to need any test. They took their position defi- nitely. After that act they could not deal with the prop- erty in any way inconsistent with the rejection, if they proposed to insist upon their right to reject. Churchill v. Price, 44 Wis. 540. They must do no act which they would have no right to do unless they were owners of the goods. Benjamin, Sales, 6th ed., 703. Under these rules 556 SALES it is evident the plaintiff had no right to use up a quantity of the material several weeks after the rejection. By the rejection it became defendant's property, if such rejec- tion was rightful. Plaintiff had no right to use any part of it. It is claimed that the use was simply for the pur- pose of providing evidence of unfitness for the purposes of the trial of this case ; but one has no right to use his opponent's property for the purpose of making evidence. The act was an unmistakable act of ownership, and en- tirely inconsistent with the claim that the material had been rejected, and was owned by defendant. It follows that the judgment must be reversed. y ' Question 352: State the facts, the question presented and the Court's decision in this case. (2.) A contracted with B to manufacture, sell and deliver to B and put in running order a certain machine. A set up the machine and put it in running order. B found it unsatisfactory and notified A that he rejected the machine. He continued to use it for three months, but continually complained of its defect- ive condition. At the end of the three months he took it down and notified A to come and get it. Has B lost his right to reject the machine? (Brown v. Foster, 108 N, Y. 387.) Sec. 273. Acceptance as Barring Action for Damages. Case No. 353. Uniform Sales Act, Sec. 49. (See page 596, post.) Question 353: What does the Sales Act provide with respect to the effect of acceptance on the buyer's right to sue for damages? Case No. 354. Eedlands Orange Growers Ass 'n v. Gor- man, 161 Mo. 203. Facts: Plaintiff sued for $486.50 for oranges sold and delivered to defendant. The defense was that the goods arrived late whereby the buyers were damaged $450, which sum they set up by way of counterclaim. Point Involved: The right to sue for damages caused by tardy performance, where the buyer accepts the goods. WHAT CONSTITUTES ACCEPTANCE 557 GANTT, J., delivered the opinion of the Court : l 1 * * * The position of the appellants is that, when goods are de- livered out of time, and the vendee accepts them without protest he thereby waives his right to damages resulting from the breach of the contract, except where the goods are accepted of necessity, that is, where the surrounding circumstances are such as to make it necessary for him to accept in order to avoid the accumulation of much greater damages. We cannot accede to this view of the law. We believe the law to be that, where time is made the essence of the contract, delay beyond the stipulated time in the shipment or delivery of goods does not preclude the ven- dee from accepting them. If he does so, and is damaged on account of the delay, and he has paid the purchase money, he may bring this action and recover his damage. If he has not so paid, he may recoup his damage when sued for the purchase price. * * *" Question 354: If goods are delivered tardily by the seller and the buyer, having a right to reject, nevertheless, accepts, can the buyer claim damages? (Note : For other cases on the effect of acceptance and rights on breach of warranty see Sec. 293, post.) (In some states the rule is that accepting the goods with knowledge of the defect, or after a reasonable oppor- tunity -for inspection, waives all rights to damages. Un- der the Sales Act, such acceptance has this effect. 1st. It waives the right to afterwards reject the goods. 2nd. It does not as a matter of law waive the right to sue for damages. 3rd. It may as a matter of fact be evidence that the goods are accepted as a fulfilment of the contract, or that they do in fact fulfil the contract, especially if there is no notice given of the defect. But some states [some of which have now adopted the Sales Act] have held that acceptance, after opportunity of reasonable inspection or knowledge of defect, bars not only the right to afterwards reject the gobds but a right to sue for damages.) 558 SALES Sec. 274. Buyer Not Bound to Return Goods Wrongly Delivered. Case No. 355. Uniform Sales Act, Sec. 50. "Unless otherwise agreed, when 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. ' ' Question 355: Is it the buyer's duty to redeliver goods wrong- fully delivered? Case No. 356. Rubin et al. v. Sturtevant et al., 80 Fed. 930. Facts: Plaintiffs sue defendants for the agreed price of certain fur capes, ordered by sample. When the goods were sent, defendants declined to accept them and re- shipped them to plaintiffs who refused to receive them. Later, defendants caused the goods to be resold at auc- tion. Point Involved: Whether the buyer upon refusing to accept the goods as not in fulfilment of the contract, has the right upon failing to get the seller to retake them, to resell them on account of the seller. WALLACE, CIRCUIT JUDGE: "* * * Where there is an express warranty upon an executory contract of sale, and the articles which are the subject of the contract are found, when delivery is tendered to the vendee, not to cor- respond to the warranty, two remedies are open to him : He may return the articles and rescind the contract, or he may accept them, and affirming the contract sue upon the warranty. * * * "A rescission contemplates that both parties shall be placed in statu quo, and ordinarily the vendee of goods, who proposes to rescind the contract for their purchase must rescind in toto. * * * "In the present case the defendants elected to rescind, BUYER'S LIABILITY 559 * * * ; but by the refusal of the defendants to receive the returned goods, they found themselves in the custody of the goods at a distant city. It then became proper for them, if it was not obligatory, to take such measures as would be most expedient to save unnecessary loss to the plaintiffs. If they had stored them, they would have been entitled to recover the reasonable expenses. If it was more expedient to sell them, and if they exercised reason- able diligence in selling them, they only became respon- sible for the proceeds. * * Question 356: State the facts, the question presented and the Court's decision in this case. Sec. 275. Buyer's Liability for Failing to Accept Delivery. Case No. 357. Uniform Sales Act, Sec. 51. (See page 597, post.} Question 357: Where a buyer wrongfully refuses to take delivery, what is the seller's measure of damages? PART XII EIGHTS OF AN UNPAID SELLER AGAINST THE GOODS Chapter forty-four. In general. Remedies enumer- ated. Chapter forty-five. Unpaid seller's lien. Chapter forty-six. Stoppage in transitu. Chapter forty-seven. Resale and rescission by seller. CHAPTER FORTY-FOUR REMEDIES OF AN UNPAID SELLER 276. Definition of unpaid seller. 277. Remedies of unpaid seller enumerated. Sec. 276. Definition of Unpaid Seller. Case No. 358. Uniform Sales Act, Sec. 52. (See page 597, post.) Question 358 : Define an ' ' unpaid seller. ' ' Sec. 277. Remedies of an Unpaid Seller. Case No. 359. Uniform Sales Act, Sec. 53. (See page 597, post.) Question 359: Enumerate the remedies of an unpaid seller against the goods. 560 CHAPTER FORTY-PIVE UNPAID SELLER'S LIEN 278. When right of lien may be 279. Lien after part delivery, exercised. 280. Where lien is lost. Sec. 278. When Right of Lien May Be Exercised. Case No. 360. Uniform Sales Act, Sec. 54. (See page 597, post.) Question 360: Under what circumstances does the seller have a lien upon the goods sold? Case No. 361. Arnold v. Delano, 4 Gush. (Mass.) 33. Facts: Delano sold Lowerly 65 cords of wood, and the same was staked off and identified and Lowerly was to come and get it within a year, and he had a license to come on Delano's land for that purpose. Lowerly, before any of the wood had been taken went into bankruptcy and his assignee claimed the wood as against Delano, claiming that title had passed and that all Delano had was a gen- eral claim with other creditors against Lowerly 's assets. But Delano claimed a lien on the wood for the purchase price. Point Involved: Whether a seller has a lien on goods of the buyer in his possession sold on credit where the buyer becomes insolvent prior to his receipt of the goods. SHAW, C. J., delivered the opinion of the Court: "* * * when goods are sold and there is no stipula- tion for credit or time * * * the vendor has * * * a lien for the price ; in other words he is not bound actu- 561 562 SALES ally to part with the possession without being paid for them. The term lien imports that by the con- tract of sale * * the property has vested in the buyer, because no man can have a lien on his own goods. The very definition of a lien is a right to hold goods, the property of another, in security for some debt, duty or other obligation. * * * A lien for the price is inci- dent to the contract of sale when there is no stipulation therein to the contrary. * * * But when a credit is given by agreement the vendee has a right to the custody and actual possession on a promise to pay at a future time. He may then take the goods away and into his own actual possession ; and, if he does so, the lien of the vendor is gone, it being a right incident to the posses- sion. "But the law, in holding that a vendor, who has thus given credit for the goods, waives his lien for the price, does so on one implied condition * * * that the ven- dee shall keep his credit good. If, therefore, be- fore payment the vendee become bankrupt or insolvent and the vendor still retains the custody of the goods, or any part of them ; or * * then his lien is restored and he may hold the goods as security for the price. * * * Question 361: (1.) State the facts in the question presented and the court's decision in this case. (2.) Does a seller from whom title has not passed have a lien? Why? (3.) Define a lien. Sec. 279. Lien After Part Delivery. Case No. 362. Uniform Sales Act, Sec. 55. (See page 598, post.) Question 362: What does? section 55 provide? Sec. 280. When Lien is Lost. Case No. 363. Uniform Sales Act, Sec. 56. (See page 598, post.) Question 363: How does an unpaid seller lose his lien* CHAPTER FORTY-SIX STOPPAGE IN TRANSITU 281. Right of stoppage. 283. Ways of exercising right. 282. When goods are in transit. Sec. 281. Right of Stoppage. Case No. 364. Uniform Sales Act, Sec. 57. (See page 598, post.) Question 364: What is the right of stoppage in transituf Case No. 365. Farrell v. E. & D. E. E. Co., 100 N. C. 390. Facts: Farrell sold to A and B, a safe, on credit, shipped over the E. & D. E. E. Co., from Philadelphia to Durham, N. C. During the shipment, Farrell learned that A and B were insolvent, and demanded of the railroad company a return of the safe, tendering freight and other charges. The railroad company refused to return the safe and claimed that before it had received the notice, it had itself attached the safe as the property of the con- signee on a claim against such consignee, and it claimed ownership of the safe through such attachment proceed- ings. Farrell sued the railroad company. Point Involved: The nature of the right of stoppage in transitu; whether it precedes liens against the goods of the buyer. SHEPHERD, J., delivered the opinion of the Court: ' ' The plaintiffs ' action is based upon their alleged right to stop the property in transitu. This right 'arises solely 563 564 SALES upon the insolvency of the buyer, and is based on the plain reason of justice and equity that one man's goods shall not be applied to the payment of another man's debts. If, therefore, after the vendor has delivered the goods out of his own possession and put them in the hands of a carrier for delivery to the buyer (which * * is such a constructive delivery as devests the vendor's lien) he discovers that the buyer is insolvent, he may re- take the goods, if he can, before they reach the buyer's possession, and thus avoid having his property applied to paying debts due to the buyer by other people. ' "The mere fact that (the buyers) were insolvent at the time of the sale could not defeat the lien of the plain- tiffs unless they knew of such insolvency. "An attachment or execution against the vendee does no preclude the stoppage in transitu. "The vendor's right of stoppage in transitu is para- mount to all liens against the purchasers. ' ' Question 365: (1.) State the facts, the question presented and the Court 's decision in this case. (2.) What is the basis of the right of stoppage in transitu? Sec. 282. When Goods Are in Transit. Case No. 366. Uniform Sales Act, Sec. 58. (See page 598, post.) Question 366: State when the goods are to be considered in transit, when not in transit for the purpose of exercising the right of stoppage in transitu. Case No. 367. Re W. A. Paterson Co., 186 Fed. 629, 34 L. E. A. N. S. 31. Facts: The Paterson Co. was a manufacturer of ve- hicles at Flint, Michigan. Manley was engaged in selling vehicles at St. Louis, Missouri. Elder & Wood, who were engaged in like business at Mammoth Springs, Arkansas, ordered a carload of vehicles from Manley, in September, STOPPAGE IN TRANSITU 565 1908. Manley thereupon ordered these vehicles from the Paterson Company and directed it to ship to Elder & Wood at Mammoth Springs, Arkansas. After- wards, on September 17, 1908, Manley directed the Paterson Company to ship these vehicles to him at St. Louis, Missouri. On October 3, 1908, the Paterson Com- pany shipped the vehicles from Flint. Michigan, by rail to Manley at St. Louis. The company procured a bill of lading naming it as consignor and Manley as consignee. The Paterson Company sent the bill of lading to Manley, with the invoice of the goods indicating that the goods were sold to Manley for $1,018.75. On the arrival of the vehicles at St. Louis, on October 7, 1908, Manley sent his clerk to the office of the St. Louis & San Francisco R. R. Co. at St. Louis, and he, by direction of Manley, surrendered the bill of lading to the railroad company, which issued, by direction of Manley, a bill of lading wherein Manley was named as consignor and Elder & Wood, Mammoth Springs, Arkansas, as consignees. Un- der this bill of lading, the goods were forwarded to Mam- moth Springs, and Manley sent an invoice of the vehicles to Elder & Wood which indicated a sale from him to them for $1,304.25. On October 10, 1908, Manley made a gen- eral assignment for benefit of creditors. On October 13, 1908, the Paterson Co. and other creditors of Manley filed an involuntary petition in bankruptcy against him, upon which he was subsequently adjudged a bankrupt. On the same day the Paterson Co. telegraphed from Flint, Mich- igan, to the agent of the St. L. & S. F. R. R. Co. at Detroit, Michigan, to hold the car of vehicles for it, and at some time after October 14, 1908, the railroad company returned the vehicles to that company. The Paterson Co. filed a claim against the bankrupt for $17,017.45 for the purchase price of vehicles which it had sold to Manley prior to the transaction in question, and this claim was allowed. Thereafter a motion was made by the trustee to expunge this claim unless the Paterson Co. would pay back to the trustee the value of this carload of vehicles, which it ob- tained after the petition in bankruptcy was filed. This 566 SALES motion was granted and the Paterson Company appeals. Point Involved: When the transit ceases during which the right of stoppage may be exercised. SANBORN, CIRCUIT JUDGE: "* * * [After reciting the facts above given.] "But the right of stoppage in transitu ceases when the transit between the vendor and purchaser ends. The Paterson Company sold the vehicles to Manley. It sent to Manley the bill of lading, which named him as con- signee, and thereby gave him dominion and controPover the goods, and it invoiced them to him as the purchaser. It never sold the goods to Elder & Wood, and was not in any way in privity with them. Therefore, when Manley 's clerk, by his direction, surrendered the bill of lading to the St. Louis & San Francisco Railroad Company at St. Louis, the destination named in the bill, and reshipped and rebilled them to Manley 's purchaser, Elder & Wood, the transit between the Paterson Company and its vendee, Manley, ended and the right of stoppage in transitu ceased. A. J. Neimeyer Lumber Co. v. Burlington & M. Eiver E. Co., 54 Neb. 321, 341, 342, 40 L. R. A. 534, 74 N. W. 670; Eaton v. Cook, 32 Vt. 59, 61; Rowley v. Bige- low, 12 Pick. 307, 313, 314, 23 Am. Dec. 607; Memphis & L. R. R. Co. v. Freed, 38 Ark. 614, 622; Treadwell v. Aydlett, 9 Heisk. 388." Question 367: (1.) State this case. (2.) A sells goods to B, and sends them by freight to C, a forwarder employed by B to send them on to a further point when so ordered by B. B becomes insolvent while the goods are in C 's possession. A attempts to exercise his right to stop. Are the goods still in transit? (Biggs v. Barry, Fed. Cas. 1402.) Sec. 283. Ways of Exercising Right to Stop. Case No. 368. Uniform Sales Act, Sec. 59. (See page 599, post.) Question 368: How may the seller exercise the right of stop- page in transituf CHAPTER FORTY-SEVEN RESALE AND RESCISSION BY SELLER 284. When and how resale may 286. Effect of sale of goods sub- be made. ject to lien of stoppage in 285. When and how the seller may transitu. rescind the sale. Sec. 284. When and How Resale May Be Made. Case No. 369. Uniform Sales Act, Sec. 60. (See page 599, post.) Question 369: State the provisions of Sec. 60 of the Sales Act. Case No. 370. Bagley v. Findlay, 82 111. 524. (Set out as Case No. 374, post.) Question 369: (See question 274.) x Sec. 285. When and How the Seller May Rescind the Sale. Case No. 371. Uniform Sales Act, Sec. 61. (See page 599, post.) Question 371 : State the provisions of Sec. 61, Sales Act. Sec. 286. Effect of Sale of Goods Subject to Lien of Stop- page in Transitu. Case No. 372. Uniform Sales Act, Sec. 62. (See page 600, post.) Question 372: State the provisions of this section. 567 PART XIII ACTIONS FOR BREACH OF THE CONTRACT Chapter Forty-eight. Remedies of the seller. Chapter Forty-nine. Remedies of the buyer. CHAPTER FORTY-EIGHT REMEDIES OF THE SELLER 287. Action for the price. 289. When seller may rescind con- 288. Action for damages for non- tract or sale, acceptance. Sec. 287. Action for the Price. Case No. 373. Uniform Sales Act, Sec. 63. (See page 600, post.) Question 373: State the provisions of Sec. 63 of the Sales Act. Case No. 374. Bagley v. Findlay, 82 HI. 524. Facts: Suit by Findlay, as seller, against Bagley, as buyer, of certain goods for damages for refusing to re- ceive the goods, the seller having tendered delivery to the buyer. Part of the goods were in Milwaukee and part in Chicago. After the buyer refused to accept the goods, the seller gave notice that he would proceed to resell them and held the buyer responsible for the loss. The net pro- ceeds of the resale fell short of the contract price by $1,- 629.86, not including $402.62 expenses for commissions 568 REMEDIES OF SELLER 569 and charges. Judgment was entered for $1,629.86 and defendant appeals. Point Involved: The remedies of the seller where the buyer refuses to take the goods. MB. JUSTICE DICKEY delivered the opinion of the Court : "When a vendee of goods, sold at a specific price, refuses to take and pay for the goods, the vendor may store the goods for the vendee, give him notice that he has done so, and then recover the full contract price, or he may keep the goods and recover the excess of the contract price over and above the market price of the goods at the time and place of delivery, and this means the market price of such goods in such condition and in such quantity as the goods were at the time for delivery. In such case, if goods are bought in large quantities, the market price at retail is not the standard, but the market price in large quantities ; or the vendor may, giving notice to the vendee, proceed to sell the goods, in their then condition and quantity, to the best advantage, and recover of the vendee the loss, if the goods fail to bring the amount of the contract price. The appellee adopted the latter course, and the only question of fact presented is, were the goods sold to the best ad- vantage ? "In such case, the vendor takes the position of agent for the vendee, and is held to the same degree of care, judgment and fidelity that is imposed by the law upon an agent put in the custody of such goods in such condition, with instructions to sell them to the best advantage. "Without reviewing the evidence in this case, it is sufficient for us to say that the evidence fully sustains the finding of the Court that the goods were fairly sold, with reasonable diligence, judgment and care. "Appellant insists that the sale must, in such case, be in the market where the goods are, and objects that the goods stored in Milwaukee were sold in Chicago. The purchaser was found in Chicago, but he bought the goods in their then condition in store in Milwaukee, and if these goods were taken to Chicago at all, it was after the sale. 570 SALES "The appellant has no just cause of complaint against the finding of the Court. Upon the evidence shown in the record, the Court below might, without impropriety, have included in the assessment of damages the $402 expenses incurred by the appellee for commissions and charges in- curred in making the sale. * ' Judgment affirmed. ' ' Question 374: Where the vendee refuses to receive the goods, what are the remedies of the vendor ? Sec. 288. Action for Damages for Non-Acceptance of Goods. Case No. 375. Uniform Sales Act, Sec. 64. (See page 600, post.) Question 375: State the provisions of this section. Sec. 289. When Seller May Rescind Contract or Sale. Case No. 376. Uniform Sales Act, Sec. 65. (See page 601, post.) Question 376: When may the seller rescind the contract of sale? CHAPTER FORTY-NINE REMEDIES OF THE BUYER 290. Action for converting or de- - 292. Specific performance. taining goods. 293. Remedies for breach of war- 291. Action for failing to deliver ranty. goods. 294. Interest and special damages. Sec. 290. Action for Converting or Detaining Goods. Case No. 377. Uniform Sales Act, Sec. 66. (See page 601, post.) Question 377: What are the provisions of this section? Sec. 291. Action for Failing to Deliver Goods. Case No. 378. Uniform Sales Act, Sec. 67. (See page 601, post.) Question 378: "What are the provisions of this section? Case No. 379. Jordan v. Patterson, 67 Conn. 473. (Set out on page 153, supra.) Sec. 292. Specific Performance. Case No. 380. Uniform Sales Act, Sec. 68. (See page 601, post.) Question 380: What are the provisions of this section? Case No. 381. P. & F. Corbin v. Tracy, 34 Conn. 325. (Set out as Case No. 155, supra.) 571 572 SALES Sec. 293. Remedies for Breach of Warranty. Case No. 382. Uniform Sales Act, Sec. 69. (See page 601, post.) Question 382: State the provisions of Sec. 69, Sales Act. Case No. 383. Underwood v. Wolf, 131 111. 425. Facts: Sale by Wolf to Underwood of certain ma- chinery, to be erected on Underwood's premises, and to meet certain requirements according to test. Suit to re- cover the contract price of such machines. Defendant claims a set-off by way of damages. Contention by the plaintiff that by not rejecting the goods, defendant waived his right to damages. Point Involved: Whether the buyer may receive the goods and sue on the breach of warranty. MB. JUSTICE MAGRUDER delivered the opinion of the Court : * ' * * * Where there is a sale and delivery of personal property in presenti with express warranty, and the property turns out to be defective, the vendee may receive and use the property and sue for damages on a breach of warranty, or, when sued for the purchase price, he may recoup such damages under the general issue or set them up in a specified plea of set-off. This is a well-settled rule. In the present case the contract is executory; the title to the property did not vest in the purchaser until the period for making the test had passed. It has been held in some states that, where the contract is thus executory and a time is fixed for making a test, the acceptance and use of the property, after such time has passed, amount to a waiver of the right to claim dam- ages for a breach of the warranty. But such is not the law in this state. In the present case, the evidence tends to show that the defendants took possession about July 1, 1886, of the machines placed in their packing house by the plaintiff, and had been using the same up to the time of the trial of the cause in the Court below. * * * REMEDIES OF BUYER 573 * ' We think that even where the contract is executory, the claim for damages on account of a breach of the warranty will survive the acceptance of the property. * * * In Babcock v. Trice, 18 111. 420, there was an executory contract for the sale and delivery of corn with an implied warranty that it should be of a fair and mer- chantable quality ; it was there said : * It is true that the acceptance of corn under an executory contract, with op- portunity of inspection at the- time of delivery, without complaint, may raise a presumption that it was of the quality contemplated by the parties, but it will not pre- clude the party from showing and setting up the actual defect in quality and condition. * He could * * under the general issue prove the facts out of which the warranty arose, the breach and his damages by way of recoupment Question 383: Can a purchaser, according to this case, accept the goods, knowing that they are not as warranted and then claim damages for the breach of warranty? Case No. 384. North Alaska Salmon Co. v. Hobbs, "Wall & Co., 159 Cal. 380, 35 L. E. A., new series, 501. Facts: The facts are stated in the opinion. Point Involved: The right of a buyer of personal prop- erty upon an express warranty to sue for breach of such warranty where he has accepted the goods with knowl- edge of the breach. SHAW, J., delivered the opinion of the court : * * This is an appeal from an order denying the def end- ant 's motion for a new trial. "The action was brought to recover damages for the breach of an express warranty in the sale of goods. The plaintiff alleged that in November, 1903, plaintiff and de- fendant agreed in writing that the defendant should man- ufacture, sell, and deliver to plaintiff -at the premises of the American Can Company, in San Francisco, 120,000 salmon boxes, the defendant thereby expressly warrant- 574 SALES ing that all said boxes should be of dry stock and free from dampness, and further agreeing to deliver the same between December, 1903, and April 10, 1904 ; that defend- ant at the time knew that plaintiff required for its busi- ness in salmon canning a large quantity of empty cans packed in dry boxes for shipment to the canneries of plaintiff on Bristol bay, by vessels to leave San Fran- cisco on April 15th, 1904, so as to reach the canneries at the opening of the fishing season of that year, which would end about August 1st; that defendant delivered 93,000 boxes under the contract, from January 5, to March 3, 1904, at the premises of the American Can Com- pany, for which plaintiff paid the contract price on de- livery. It is further averred that a large number of boxes were not of dry stock nor free from dampness, and be- cause thereof the cans packed therein became rusty and unfit for use, whereby the plaintiff was damaged in the sum of $15,000. The cause was tried by a jury, a verdict was rendered in favor of the plaintiff for $3,500, and judgment was given accordingly. "The evidence showed the making of the contract, as alleged, that the plaintiff about the same time had en- gaged the American Can Company to make a large num- ber of cans to be packed in said boxes, and directed the defendant to deliver the boxes to said can company for that purpose ; that the defendant knew that the can com- pany was to pack the boxes with the cans for the plain- tiff's use during the fishing season of 1904, and that it was a matter of common knowledge that the plaintiff would not be able to procure dry salmon boxes from other dealers or factories in time for the fishing season, if the defendant failed to deliver the boxes, or if the boxes de- livered were wet or damp. Plaintiff also proved the delivery of 93,000 of the boxes and payment therefor at the contract price. As the deliveries were made, the boxes were inspected by plaintiff. At the beginning of the delivery a number of the boxes were found to be not of dry stock nor free from dampness, and the defendant was immediately notified thereof, and promised that no REMEDIES OF BUYER 575 more of that quality should be delivered. Nevertheless, a large number of the boxes subsequently delivered were not of the quality warranted. They were all, however, inspected by the plaintiff 's servants, and were taken and used by the plaintiff as cases, within which the cans were packed and shipped to Bristol bay. The dampness of the boxes caused a large number of the cans to become rusty and unfit for use, whereby plaintiff suffered damages to the amount given by the verdict. ''The defendant asked the Court to instruct the jury that, if the boxes delivered to plaintiff were damp at the time of delivery, and that fact was visible and apparent upon inspection, and the plaintiff was aware of the said condition of the boxes, but nevertheless accepted them and appropriated them to its own use without notifying the defendant at the time of receiving them, or within a reasonable time thereafter, that they were not accepted as fulfilling the contract, that the plaintiff thereby waived any such defects, and could not recover damages on ac- count of them. This instruction was refused, and the Court instructed the jury that acceptance by the plaintiff and payment of the purchase price did not relieve the de- fendant from liability under its guaranty, and that, if they should find that the boxes were wet and damp at the time of delivery, and were accepted and paid for by the plaintiff, they should render a verdict for such damages as the evidence should show were caused by the wet and damp condition of the boxes. The defendant contends that the Court erred in refusing to give the instruction asked by it, and in instructing the jury as above stated. 1 i The main question in the case, and the one which con- trols the decision upon the merits, involves the right of a buyer of personal property upon an express warranty of quality to recover damages for a breach of such war- ranty, where he has accepted the goods with knowledge of the defect in quality. The defendant contends that the only remedy of the buyer in the case of an executory con- tract for the sale of goods with a warranty of quality, where he obtains knowledge of a defect in the quality at 576 SALES the time the goods are offered for delivery, is to reject such goods and insist upon the due performance of the contract; or, if the discovery of the defective quality is made after delivery, to immediately rescind the contract and return, or offer to return, the goods received, and sue for the money paid therefor. The general rule applicable to all cases of sales of property is that the buyer has an election of remedies for a breach of a contract of war- ranty. If he knows of the defect at the time performance is offered, he may refuse to accept the goods, insist on due performance and sue for damages for nonperformance, if further performance is not duly offered, and if he has paid for the goods in advance, he can recover the amount of money paid thereon as part of the damages. If part performance has been made, he may rescind the contract, restore what he has received, and recover what he has paid. He need not rescind, or reject the goods, however, but may stand upon the contract, and, relying upon the warranty, may take the goods offered and sue for the damages caused by the breach. * * * "The defendant contends that there is a well-recog- nized exception to this rule in cases where the defects in the articles are obvious, or where the buyer knows of them at the time of the acceptance of the goods. * * * If one who buys goods upon an express warranty of quality must refuse to receive them if he knows they are defective at the time, and waives his right of action on the warranty if he accepts them, the warranty would be useless, since he would have the same right if he had not taken the warranty, and his damage for nondelivery of the goods would be practically the same in one case as in the other, except in the one case where greater damages are allowed by the Code. Civil Code, Sec. 3314. "For these reasons we are of the opinion that the Court correctly instructed the jury, and that the evidence suf- ficiently sustains the verdict of the jury." Question 384: What were the main facts, the defendant's contention and what the court held ? REMEDIES OF BUYER 577 Case No. 385. Rogers v. Hanson, 35 Iowa, 283. Facts: Sale of a machine, under express warranty, for which the purchasers gave a mare valued at $100 and their notes for $610. Warranty broken and judgment rescinding the contract, and requiring a surrender of the mare and notes. Appeal by seller. Point Involved: Whether after receipt of the goods under a warranty, the purchaser may, on breach of the warranty, rescind the sale. DAY, J. : ' 'IV. Next it is urged that the Court erred in rendering a judgment rescinding the contract, and re- quiring a surrender of the mare and notes. The author- ities are irreconcilably in conflict as to the right of a pur- chaser with warranty, upon a breach of the warranty to rescind the contract and recover the purchase price. As a result of the authorities Parsons states that the purchaser 'may return the goods forthwith, and if he does so with- out unreasonable delay, this will be a rescission of the sale, and he may sue for the price if he has paid it, or de- fend against an action for the price, if one be brought by the seller/ L. Parsons on Cont. (5th ed.), 592. At the same time he concedes that 'some authorities of great weight limit his right to return the goods for breach of warranty to cases of fraud, or where there was an ex- press agreement to that effect between the parties.' Id. 593. Upon the other hand, in Story on the Law of Sales, it is stated that ' if the contract be executed, and the goods be completely accepted, so as to pass the property therein to the vendee, it is very generally held that he cannot elect to rescind the contract, and return the goods, after actually receiving them, so as to entitle him to bring an action for money had and received ; but he must declare specially on his warranty.' Story on Sales (4th ed.), Sec. 421. But it is admitted that in some states it is held otherwise. In Don v. Fisher, 1 Gush. 271, Shaw, C. J., said: 'It' (a warranty) 'is not strictly a condition, for it neither suspends nor defeats the completion of the sale, the vesting of the thing sold in the vendee, nor the 578 SALES right to the purchase money in the vendor. And not- withstanding such a warranty or any breach of it, the vendee may hold the goods, and have a remedy for his damages by action. But to avoid circuity of action a warranty may be treated as a condition subsequent, at the election of the vendee, who may, upon a breach thereof, rescind the contract, and recover back the amount of his purchase money, as in case of fraud. ' "Such is also the rule in Maryland. See Hyatt v. Boyle, 5 Gill & Johns. 121; Franklin v. Long, 7 id. 407. The same rule has been declared in Maine. See Marston v. Knight, 29 Me. 341; see, also, Bryant v. Isburgh, 13 Gray, 607 ; Kurtzman v. Weaver, 20 Penn. St. 422 ; Scran- ton v. Tilly, 16 Tex. 183. "The doctrine of the Massachusetts cases, though, per- haps, not sustained by the greater number of authorities, is, to our minds, the more reasonable and just. We know of no satisfactory reason why one who desires a good article and is willing to pay a price which will command it, should be required to keep an inferior article at a lesser price. Such a construction of the law substitutes for the party's contract an agreement which he did not make, and requires him to accept an article which he would not have purchased if he had known of its defects. "The true rule, it seems to us, is to give the vendee his option to retain the purchased article and recover the damages sustained, or to restore it within a reasonable time, and recover the price paid. ' ' Question 385: May one who has received goods under an express warranty, afterwards on discovering a breach thereof, return the goods or must he keep them and sue on the warranty ? Are the authorities in harmony on this point ? Case No. 386. Eichelroth v. Long, 156 111. Ap. 108. Facts: The facts are stated in the opinion. Point Involved: Whether, if the contract provides that the goods purchased shall be returned within a certain time in case they are not in fulfillment of the warranty, REMEDIES OF BUYER 579 the buyer's remedies for breach of warranty are thereby limited. ME. JUSTICE PUTEKBAUGH: "Upon an appeal of this cause from a justice of the peace, appellee recovered judg- ment against appellant in the circuit court for $138.16. The suit is based upon a note dated June 22, 1908, pay- able on or before September 1, 1908, to International Harvester Company of America, for the sum of $130 with six per cent interest and signed by appellant. The note was given in payment for a binder sold to appellant by appellee, who was the agent of the Harvester Company, in April, 1908. The order for the binder contains the following warranty: " 'International Harvester Company of America (in- corporated) warrants the above machine to do good work, to be well made of good materials, and durable if used with proper care. If, upon one day's trial with proper care, the machine fails to work well, the purchaser shall immediately give written notice to International Har- vester Company of America at 7 Monroe Street, Chicago, Illinois, and to the agent above named, stating wherein the machine fails, shall allow reasonable time for a com- petent man to be sent to put it in good order and render necessary and friendly assistance to operate it. If the machine cannot be made to work well, the purchaser shall immediately return it to said agent and the price shall be refunded which shall constitute a settlement in full of the transaction. Use of the machine after one day (or harvesting more than twelve acres), or failure to give written notice to said Company and its agent, or failure to return the machine, as above specified, shall operate as an acceptance of the machine and fulfillment of this warranty. No agent has power to change the contract of warranty in any respect, and the above order can be can- celed only by said Company's Chicago office. This ex- press warranty excludes all implied warranties, and said Company shall in no event be liable for breach of war- 580 SALES ranty in an amount exceeding the purchase price of the machine. (Signed) " Question 437: What is a judgment note? Does it necessarily make a note non-negotiable ? What was the holding in this case ? When will a confession of judgment clause have no effect on negotiability ? Sec. 311. Waiver of Benefit of Exemption Laws. Case No. 438. Zimmerman v. Anderson, 67 Pa. 421. Facts: Suit on following note : 654 NEGOTIABLE PAPER i * $125.00. Town of Buffalo, March 25th, 1868. "Six months after date I promise to pay to G. W. Lowe, or order, one hundred and twenty-five dollars for value received, with interest, waiving the right of appeal and of all valuation, appraisement, stay and exemption laws. MOSES ANDERSON." It was contended the note was not negotiable. Point Involved: Whether a waiver in an instrument of benefit of exemption and similar laws, renders the note non-negotiable. BEAD, J. : "* * * But it is urged that the words 'waiving the right of appeal, and of all valuation, ap- praisements, stay and exemption laws' destroy its nego- tiability. In what way? They do not contain any con- dition or contingency but after the note falls due and is unpaid, and the maker is sued, facilitate the collection by waiving certain rights which he might exercise to delay or impede it. Instead of clogging its negotiability it adds to it, and gives additional value to the note. Question 438: What did the court decide in this case ? (Note: Whether the waiver of the exemption law is valid is another question. Whether valid or not, it does not destroy negotiability. In some states certain exemption laws intended to prevent the debtor from becoming a charge on the state can- not be waived by the debtor, especially exemption in wages in- tended not only for the debtor's benefit but also the benefit of his family.) Sec. 312. Seal, Omission of Date, Ante-Dating, Post- Dating, etc. Case No. 439. Uniform Negotiable Instruments Act, Sec. 6, 10-13. "Sec. 6. The validity and negotiable character of an instrument are not affected by the fact that : OMISSIONS, ETC. 655 "1. It is not dated; or "2. Does not specify the value given, or that any value has been given therefor ; Question 654: A corporation adopted a by-law that any member could, on giving 30 days' notice, withdraw, and F, a stockholder, withdrew in accordance with this by-law and with the assent of the officers. The corporation was then solvent. Afterwards becoming insolvent, a receiver was appointed and he sued F. Could he recover? (Farnsworth, Receiver, v. Rob- bins, 36 Minn. 369.) Case No. 655. Edwards v. Schillinger, 245 HI. 231. Facts: "The defendant in error, John B. Edwards, trustee in bankruptcy of Schillinger Bros. Asphalt Com- pany, a corporation, filed his bill in the Superior Court of Cook County against the plaintiffs in error, Gustav A. Schillinger, and A. C. Gumbiner, stockholders of the corporation, to set aside a dividend, declared by the directors in fraud of creditors and applied by the stock- holders in payment of unpaid balances of their subscrip- tions to the capital stock, and to compel plaintiffs in error to pay the amount of their subscriptions repre- sented by the fraudulent dividend certificates. * * * SHAREHOLDERS' LIABILITY 999 At a meeting of the board of directors held in the City of St. Louis, Missouri, on April 28, 1902, when the cor- poration was wholly insolvent and unable to pay any dividend whatever upon its stock, the directors, for the purpose of relieving the stockholders from liability for the unpaid portion of the stock held by them, pretended to declare a dividend of $8,920.65, and authorized the secretary to issue dividend certificates [to the stock- holders and to issue to them certificates of fully paid stock]." Point Involved: Whether a stockholder can be re- lieved as to creditors of his liability upon his subscrip- tion by a declaration of dividends made while the corporation is insolvent and applied in payment of the stockholder 's liability. ME. JUSTICE CARTWEIGHT: "* * * A contract of a corporation limiting the liability of its stockholders to a portion of the par value of their stock is void both as to creditors and the assignee in bankruptcy. * * *" Question 655: What was the scheme in this case to release the stockholder's liability? Was it effective? Why? Sec. 491. What Constitutes Payment for Stock. Case No. 656. N. T. W. Co. v. Gilfillan, 124 N. Y. 302. Facts: Suit by a judgment creditor of a corporation to recover from defendant as a stockholder of such cor- poration, pursuant to a statute, upon the ground that the capital stock had not been paid in either in cash, or in property fairly worth the par value of the stock issued. Further facts in the opinion. Point Involved: Whether stock is to be considered as paid up so far as creditors are concerned when it has been issued in exchange for property knowingly or fraudulently overvalued by the corporation. VANN, J. : "The substantial issue in this section was whether the property procured in exchange for stock 1000 CORPORATIONS was purchased at an over-valuation, not through error of judgment, but in bad faith and to evade the statute. (Douglass v. Ireland, 73 N. Y. 100, 104.) "The trial judge instructed the jury that if they found that the stock issued exceeded in amount the value of the property taken in exchange for it and for which it was issued, and that the trustees deliberately and with knowledge of the real value of the property over-valued it and paid in stock for it an amount which they knew was in excess of its actual value, they must find for the plaintiff. If the jury do not find this to be the fact, then they will find for the defendant. "The jury found a general verdict for the plaintiff, and, as a special verdict, that the property purchased at $300,000 was really worth but $75,000. "The evidence in support of the verdict is sufficient, if not overwhelming. "The company was organized September 18, 1884, with a capital stock of $300,000, divided into 600 shares of $500 each. Within less than a year thereafter it was hopelessly insolvent, with all its property levied upon under an execution issued on a judgment recovered by the defendant, its president and a trustee from the out- set. None of the stock was paid for in cash or other- wise than by the transfer of a lot of unpatented inven- tions of one Bliven. Two corporations had been pre- viously organized, with the defendant as a trustee in each, to handle these inventions, one of which seems to have been merely a corporation on paper that 'had no existence in fact to amount to anything,' while the other was *a disastrous speculation.' "The inventions were purchased by the corporation, whose transactions are directly involved in this action, substantially in the following manner, viz.: Bliven assigned them to the defendant, who, as trustee, trans- ferred them to the company in consideration of the entire capital stock, to be held by him in trust as follows, to-wit : 200 shares for the benefit of the company itself ; 100 shares, par value $50,000, for the defendant (in SHAREHOLDERS' LIABILITY 1001 payment of a debt of $15,000 owing him by Bliven) ; 10 shares, par value $5,000, for one Baxter (in payment of an old debt of Bliven to him of $2,500) ; 27 shares ap- parently given away to qualify persons as trustees and to induce them to act ; the remainder to Bliven or for his benefit. "According to the evidence, the jury made a liberal estimate of the real value of the inventions when they found that they were worth $75,000. The good faith of the trustees, including the defendant, as one of the most active in the transaction of this business, may be inferred from the foregoing facts. If they honestly considered the inventions worth $300,000, why was one-third of the avails, $100,000 in stock, donated to the company by Bliven? Why did the defendant accept of $50,000 in stock in payment of a debt of $15,000? Why was $5,000 given to Dexter to pay $2,500? Why was $13,500 in stock given to persons to induce them to become trus- tees? Would $300,000 in money have been disposed of in this way? The arrangement to thus dispose of the stock was made before the purchase and became a 'part of it. The facts were all known to the trustees, includ- ing the defendant. They were apparently intelligent men, the defendant being a physician. Although they testified that they considered the inventions worth $300,000 or more, the surrounding circumstances per- mitted the jury to find, as the General Term said, that they 'were not only worth less than the price agreed to be paid for them, but it was so understood by the defend- ant and the other parties to the transactions.* From these and other significant facts, not recited, it is evident that a case was presented for the consideration of the jury, and that the motions to dismiss were properly denied. "The merits are with the plaintiff, and when that is the case the exceptions should be overruled, unless a material and manifest error of law has been commit- ted." 1002 CORPORATIONS Question 656: (1.) By what means was payment made in this case? Did the Court hold that such payments were suffi- cient to constitute payments as against creditors? (2.) A company was organized with an authorized capital stock of $500,000. This stock was fully paid up with $2 cash and a breakfast food formula appraised at $499,998. The cor- poration becomes insolvent. The trustee in bankruptcy sues the stockholders. Can he recover? (Wood v. Sloman, 114 N. W. (Mich.) 317.) Case No. 657. Gillett v. C. T. & T. Co., 230 111. 373. MB. JUSTICE SCOTT delivered the opinion of the court: "First It is contended by appellants that in accept- ing certain property in payment of MacKaye's subscrip- tion to the capital stock of the Columbian Celebration Company to the amount of $1,999,600, the directors fixed that value upon the property offered in the fair and honest exercise of their judgment as to its worth, and that the stock must therefore be regarded as fully paid and non-assessable, even if the directors erred in their judgment as to its value. "When the board of directors met on May 16, 1892, the principal asset of the corporation was MacKaye's subscription for stock to the amount above mentioned. The law required the directors, in collecting that sub- scription, to obtain from MacKaye ' money or money's worth' to the full amount of the subscription. (Cole- man v. Howe, 154 111. 458; Garden City Sand Co. v. Crematory Co., 205 id. 42.) 'Money or money's worth' means cash or its equivalent. If the directors saw fit to accept property in lieu of cash they could only take it at its fair cash market value, if it was property which had an ascertainable market value. If it had no ascer- tainable market value, then the only price at which the directors could purchase it was such price as could be realized by selling it to others for cash. "On the date last mentioned the directors of the cor- poration entered into a contract with MacKaye, by which, in satisfaction of his liability on his subscription, Mac- SHAREHOLDERS' LIABILITY 1003 Kaye transferred to the corporation the sole and exclu- sive right to use eleven alleged new, useful and valuable improvements in scenic art; also the right to use and produce a * spectatorio ' or play, entitled ' The Great Dis- covery,' of which it is said MacKaye was the author, in the States of Illinois, Indiana, Michigan, Minnesota, Iowa. and Missouri, for a period of fifteen years, bur- dened with a ten per cent royalty reserved to MacKaye. At the time the contract was made no application had been made for a patent on any of the inventions. The description of the inventions contained in the contract is very general in character. With one or two excep- tions the descriptions are not such as would enable the reader to identify the invention. They consist usually of the name given by MacKaye to the invention, followed by a statement of the object of the invention. The play, 'The Great Discovery,' had not been written. At the time MacKaye 's subscription was so satisfied the direc- tors were MacKaye, Butterworth, Crosley, White and Edmonds. Crosley did not attend the meeting of May 16, 1892, and MacKaye did not vote upon the proposition in reference to the payment of his subscription by the transfer of the rights above enumerated. Those who voted in favor of accepting the proposition were Butter- worth, White and Edmonds. Butterworth was a co- promoter with MacKaye, and a few days later, in accord- ance with an arrangement effected prior to May 16, 1892, received from MacKaye a considerable portion of the stock subscribed for by the latter. Edmonds was an assistant to Butterworth, as secretary of the World's Columbian Exposition. White was a clerk in the employ of MacKaye and Butterworth, doing clerical work in connection with the promotion of MacKaye 's scheme. So far as the transaction of business affecting the corpo- ration was concerned, White and Edmonds were wholly dominated by MacKaye and Butterworth. Edmonds testified that he 'never formed any intelligent conclu- sion as to the value of the patents,' referring to the inventions the right to use which was transferred by 1004 CORPORATIONS the contract; and further: 'I did not consider it (the MacKaye proposition which was accepted) in the sense that I was going to put a lot of money in it myself, but I honestly believed on May 16, 1892, that the resolution was for the best interests of the company and was a good proposition for it.' White says: 'I don't remem- ber making any inquiry, as a member of the board of directors or an officer, into the merits of these inven- tions. ' ' ' It will no doubt be agreed that the rights transferred to the corporation by the contract were without market value. It was then the duty of the directors, before accepting the rights transferred by this contract in pay- ment of this large subscription, to ascertain whether those rights had value, and if so, what the value was. The natural and reasonable method to be pursued in determining that question would have been to have ap- plied to men not interested in the promotion of Mac- Kaye 's scheme, who were of wide experience in the pro- duction of great spectacular plays, for their views in reference to the worth of the rights which MacKaye pro- posed to transfer. No such investigation was made. No other steps were taken to ascertain the value of the rights MacKaye proposed to transfer, such as would have been taken by directors seeking to deal honestly and fairly with the assets of the corporation. It was the duty of these directors to ascertain the value of these rights precisely as they would have done had they in- tended to invest money in such rights themselves, and that they did not do. It is no doubt true that if the directors, in the fair, honest and intelligent exercise of their judgment, make a mistake and accept property at a price greater than its real value, such cannot be re- garded as a fraudulent over-valuation of the property; but that rule only applies where the transaction con- stitutes a valid contract of bargain and sale, made in good faith on the part of the directors and in the intelli- gent exercise of the fair and honest judgment on their part. There was no such transaction here. The trans- SHAREHOLDERS' LIABILITY 1005 fer to the corporation was a mere sham. It was, in fact, a sale by MacKaye to MacKaye, and was, in law, a fraud. It follows that MacKaye 's stock subscription remained wholly unpaid. " Second The certificates for MacKaye 's stock re- cited that the shares were 'fully paid and non-assess- able,' and the law is, that where stock is so issued and the holder thereafter sells or assigns the same, and the assignee acquires it in good faith and without notice that it has not been fully paid, he cannot be made liable if, in fact, the stock is not fully paid. (Coleman v. Howe, supra; Sprague v. National Bank of America, 172 111. 149.) Appellants insist that, even if this stock was wholly unpaid, they acquired it in good faith without notice of that fact, and are therefore not liable. 'No- tice,' in this connection, must be given the ordinary signification of that term, and means knowledge that the stock was unpaid, or knowledge of such facts as would have put an ordinarily prudent man upon inquiry, when the inquiry might reasonably be expected to have led him to knowledge that the stock was unpaid. (Russell v. Banson, 76 111. 167.) Many of the appellants knew precisely how MacKaye had paid for his stock, and all of the appellants acquired their stock, as they knew, within a few months after the organization of this cor- poration. They obtained it without giving any valuable consideration therefor, except in a few instances where it is claimed that a small percentage of the face value of the stock was paid therefor by services rendered or by other methods, not including cash actually paid at the time of the transfer of the stock. The fact that the cor- poration had just been organized, and that its stock was being transferred without, or practically without, any valuable consideration, was, we think sufficient to put a reasonably prudent man upon inquiry, and that inquiry would, in our judgment, have led to knowledge of the fact that the stock was wholly unpaid." Question 657: (1.) What, according to this case, constitutes a bona fide valuation by directors? 1006 CORPORATIONS (2.) When will a transferee of stock be deemed to have notice that the stock is unpaid? Does the recital in the certifi- cates help him? Case No. 658. First National Bank of Deadwood v. Gustin Co. et al., Minn. , 61 L. E. A. 676. Facts: Suit by the bank against the Gustin Company and the other defendants to compel payment of a debt to the bank by enforcement of stockholder's liability. The stock was issued partly at one-tenth of its par value, and partly for nothing. The bank knew this when it loaned the money which represents the present debt. Point Involved: Whether a creditor can enforce stockholder's liability when he knew at the time he became a creditor of the arrangement between the cor- poration and the stockholder by which the stockholder was to have no further liability to the company. MITCHELL, J. : "* * * "While the courts have not always had occasion to state the limitations upon the doctrine that 'the capital is a trust fund for the benefit of creditors, ' yet we think that it will be found that in every case where they have impressed a trust upon the subscription of the share- holders it has been in favor of creditors becoming such afterwards, and hence fairly to be presumed as relying upon the amount of capital which the company was rep- resented as having. We are referred to none, and have found none, where any such trust has been enforced in favor of creditors who have dealt with the corporation with full knowledge of the facts. The reason is apparent, for in such cases no fraud, actual or constructive, has been committed on such creditors. "If a corporation issued new shares after the claim of a creditor arose, it is clear that the latter could not have dealt with the company on the faith of any capital represented by them. Whatever was contributed as capital in respect of the new shares was a clear gain to the creditor's security. So, too, if a party deals with a corporation with full knowledge of the fact that its nomi- SHAREHOLDERS' LIABILITY 1007 nal paid-up capital has not in fact been paid for in money or property to the full amount of its par value, he deals solely on the faith of what has been actually paid in, and has no equitable right to insist on the contribution of a greater amount of capital by the shareholders than the corporation itself could claim as part of its assets. Coit v. North Carolina Gold Amalgamating Co., 14 Fed. Rep. 12, S. C. 119 U. S. 343 (30 L. ed. 4201)." Question 658: State the doctrine of this case. (Note : This doctrine is not universally assented to. In some states, the knowledge of the creditor is immaterial. He can in any event enforce the stockholder 's liability to pay in full either in money or money's worth.) Sec. 492. Payment as Between Corporation and Share- holder. (Note: What is agreed upon between the parties as pay- ment will constitute payment as between them, in the absence of fraud on the other stockholders.) Sec. 493. Forfeiture of Stock for Non-Payment. (Note: By the statutes of many states corporate stock may be forfeited for non-payment. In such a case the stock is re- sold and in case of any deficiency the stockholder is liable there- for. In case of surplus, \ after paying expenses, the same is turned over to the stockholder.) CHAPTER NINETY-SIX TRANSFER OF SHARES; SPURIOUS STOCK 494. Transferability of corporate 497. Liability of transferee to stock; how accomplished. creditors. 495. Lien of corporation on shares. 498. Liability of transferror to 496. Liability of transferee to cor- transferee. poration. 499. Lost, stolen and forged cer- tificates; transfer of. Sec. 494. Transferability of Corporate Stock; How Accomplished. Case No. 659. Ernst v. Elmira Municipal Improve- ment Co., 54 N. Y. Sup. 116. Facts: Suit brought by owners of certain of the capi- tal stock of Elmira Municipal Improvement Company to enjoin the issue of certain preferred stock by it to cer- tain stockholders and to compel the company to recog- nize and register a transfer of stock to the complainants, purchased by them from registered stockholders. The complaint alleges that the corporation has no power to issue preferred shares against the dissent of common stockholders. Points Involved: The right of one acquiring stock from a shareholder to compel the company to recognize the transfer on its books, the right of such a one whom the company has refused to recognize to be considered a stockholder in fact; whether a corporation which has issued common stock can afterwards issue preferred stock without the unanimous consent of all the stock- holders. 1008 TRANSFER OF SHARES 1009 LAUGHLIN, J. : ' ' * The demurring defendants contend that the plaintiffs' only remedy is an action at law to recover the value of the stock as damages for the wrongful refusal to transfer the stock on the books of the company and to issue new stock to the plaintiffs. It is argued that the corporation owes no duty to the trans- feree of stock and that there is no privity between him and the company until he has become a stockholder on its books. I cannot agree with the contention. * * * It has long since been settled that an equitable action may be maintained by a transferee of stock to compel the company to transfer the stocks upon its books, and that a wrongful refusal to transfer amounts to a waiver of the statutory requirement and the corporation will not be permitted to take advantage of its own wrong, but the transfer will be deemed complete, and the company will be bound to recognize it, precisely as if the entries had been made upon the company's books. The plaintiffs are * * * entitled to have the trans- fer entered on the books of the company and to have new certificates of stock issued to them in their own names, to the end that they may stand in the unques- tionable position for the assertion and protection of their rights and interests in the corporation, whatever such rights and interests may be. * * * j n ^g absence of a statutory provision of law reserving such power, there can be no issue of pre- ferred stock in a corporation to the prejudice and injury of the owners of the common capital stock without their unanimous consent. Each stockholder has a vested individual right in his proportionate share of the cor- porate property and of the profits of the business. Such action cannot be impaired by the action of the directors, or of any majority of the stockholders without his con- sent. * * * It is well settled by authority that a suit in equity will lie by a holder of common stock to enjoin any unlawful or unauthorized issue of preferred stock. * * *" 1010 CORPORATIONS Question 659: Answer the questions suggested in the "Points Involved" in this case. Case No. 660. Brisbane v. D. L. & W. B. Co., 32 N. Y. Supreme, 438. Appeal from a judgment, entered upon the trial of this action at the Special Term. The plaintiff brought this action to compel the defend- ant to issue to him a certificate for ten of its shares to which he claimed to be entitled as the transferee of ten shares of the stock issued by a corporation to whose rights and obligations the defendant is shown to have since succeeded, or in case of the inability of the defend- ant to issue such certificate for damages to the extent of the value of such stock. This certificate, of which the plaintiff was the transferee, was a certificate issued to Samuel Benedict, and it contained the statement that he was entitled to ten shares of the capital stock of the corporation issuing it, transferable only on the books of the company upon surrender of the certificate. Benedict executed a power of attorney, indorsed upon the cer- tificate, appointing the plaintiff his attorney irrevocable to sell and transfer to the plaintiff the whole or any part of the shares specified. This power was given on the 1st day of January, 1856, but no transfer of the shares was made under its authority during the life- time of Benedict. After his decease and in the year 1876 his administrator procured a transfer of these shares upon the books of the defendant to himself. The certificate issued for the shares themselves was not and could not be by him produced, and according to its terms he was not entitled to the transfer of the shares which he caused to be made, and the defendant it was claimed made it without authority. It was for that reason held that the defendant was liable to that extent to the plain- tiff in this action. In the intermediate time a stock dividend of fifty per cent had been declared in favor of these shares, and further dividends in cash had also been specifically cred- TRANSFER OF SHARES 1011 ited to them on the books of the defendant. This stock dividend and the cash dividends, with the exception of one of them, were credited to Benedict, who appeared on the corporate books to be the owner of these shares, and they were accordingly paid over to his administra- tor at or about the time of the transfer of the shares themselves. The plaintiff insisted upon his right to re- cover the value of the stock dividend and the amount of the cash dividends paid te the administrator, but these portions of his claim were rejected as not well founded by the decision finally made in the action. The court at General Term said: "His title to the dividends rests upon a different basis from that of his right to the shares themselves, for those shares could not lawfully be transferred without the surrender of the certificate which had been issued to authenticate the right of the person named in it to them. But as long as the books of the company contained evidence that the person who received the certificate was still to be regarded as the owner of the shares it had an authentic record upon which it could lawfully act, and that determined the dis- position which should be made of the dividends. Bene- dict stood upon the books of the company as owner of the shares. Nothing appeared to impeach his title ; and as they were only transferable upon the surrender of the certificate, as long as that had not been done, no other alternative existed than to regard him as still the owner of the shares. To obtain the dividends upon the shares he was not bound to produce the certificate which had been issued for the stock, but he could do so upon the fact of his recorded title as long as no evidence ap- peared from which his right could be impeached or questioned. Payment to him under such circumstances would be a lawful and proper disposition of the divi- dends. This was the view which was taken of the sub- ject in Smith v. American Coal Company (7 Lans. 317); and it is sustained by what was said upon the same sub- ject in McNeil v. Tenth National Bank (46 N. Y. 325). And it was also considered to be a settled principle of 1012 CORPORATIONS law in Manning v. Quicksilver Mining Company, decided by the court in March, 1881. (24 Hun, 360.) "When Benedict died this right, as it appeared to exist in him, passed to his administrator, who by virtue of that relation, acquired the same title to the dividends that Benedict could have asserted in case he had lived. A payment to him was authorized by the evidence of title standing upon the books of the corporation, and his fail- ure at the time it was claimed to present the certificate issued for the shares was not a circumstance subjecting his title to suspicion, or justly -rendering it a subject of inquiry. "If notice had been given by the plaintiff of his right to receive the dividends accruing upon the shares, the case would undoubtedly require a different determina- tion." Question 660: Why was the defendant corporation held to be liable to the plaintiff for issuing shares to the administrator and not liable for having paid the dividends on such shares to such administrator? Do you think the plaintiff could recover in a suit against such executor for the dividends received by or credited to him ? Sec. 495. Lien of Corporation on Shares. Case No. 661. Dempster Mfg. Co. v. Downs and Mullen, 126 la. 80. Facts: Suit by the corporation against Downs on a note and account and to have the amount found due en- forced as a lien against Down's stock in the corporation. The stock had been assigned by Downs to Mullen as security for some loans and Mullen resists the estab- lishment of a lien in favor of the corporation, to the detri- ment of his security, and prays that the officers of the corporation be compelled to transfer the stock on the books of the company. Mullen was ignorant of any lien reserved by the company on Down's stock and there was no notice of such lien in the certificates held by Downs and pledged to Mullen. The company claims the lien by TRANSFER OF SHARES 1013 virtue of a provision establishing a lien of unpaid stock in its charter. The certificates pledged recited that the stock was full paid and non-assessable, and transferable only on the books of the company. Point Involved: Whether a transferee for value and without notice, of shares upon which a corporation holds a lien by virtue of its charter, takes the stock subject to such lien. LAM>, J. : ' * * At common law a corporation had no lien upon the shares of its stockholders for debts due from them to the company. Secret liens, as they impede the safe and speedy transfer of property, are always discouraged; and courts uniformly refuse to en- force the same, as against stock, unless created by stat- ute, charter or by law of the company. * * * Cor- porations are formed in this state by the adoption of articles of incorporation in pursuance of the general laws enacted by the legislature, and such articles in connec- tion with the statutes answer the same purpose as a special charter. They contain the terms of agreement between the company and its stockholders, and indicate the business to be transacted. By accepting the stock in the corporation every stockholder assents to the terms and conditions found in the articles. Such lien is not prohibited and may be created by the articles of incorporation. * * Whether they may be accom- plished by the enactment of a by-law is a controverted question, concerning which the authorities are in sharp conflict * * *" Question 661: (1.) Did a corporation at common law have a lien on the stock of the stockholders? (2.) What three ways are stated by the Court in which a lien may be given ? (3.) If a lien is conferred by by-law, does a transferee for value and who has no notice of the lien, take subject to such lien ? (4.) If a lien is reserved in the charter, does such a pur- chaser take subject to such a lien? (5.) If the certificate recited that the stock represented by 1014 CORPORATIONS the certificate was "fully paid and non-assessable," do yon think that a general lien reserved by the charter on unpaid stock, would be asserted against a purchaser of such stock ? (Note : The recital in the certificates that the stock was fully paid and non-assessable, would seem in all justice to prevent the corporation from asserting its lien. Surely, inasmuch as stock certificates are so commonly transferred on the market, there ought to be no question as to the right of a transferee, for value, to* take a clear title irrespective of the state of accounts between the transf error and the corporation.) Sec. 496. Liability of Transferee to Corporation. (Note : The transferee is liable to the corporation if he knows the shares are not paid up. If the shares recite they are fully paid, a transferee may rely thereon.) Sec. 497. Liability of Transferee to Creditors. Case No. 662. French, v. Harding, 235 Pa. St. 79. Facts: A proceeding was brought in the New Jersey courts to establish the insolvency of the Agnew Com- pany, collect its assets, enforce stockholders' liability on unpaid stock so far as the indebtedness of the company should require, pay off its creditors and wind up its busi- ness. French was appointed receiver and brings suit in the Pennsylvania court to enforce Harding 's liability as shareholder, the stock held by him having never been paid for. Harding defends that he is not an original subscriber, but a purchaser from a shareholder of stock already issued; that he bought the stock in the market through, a broker at Philadelphia, and had no knowledge said stock was unpaid. Point Involved: Whether a transferee of issued stock, who does not know that it is unpaid, can be held for the benefit of the creditors of the corporation. HEAD, J.: "* * * "(1.) From Cook on Corporations, Vol. 1, Sec. 50, where may be found a general discussion of this question, TRANSFER OP SHARES 1015 supported by many notes and citations, we quote the following: 'A bona fide purchaser, for value and with- out notice, of stock issued by a corporation as paid up, cannot be held liable on such stock in any way, either to the corporation, corporate creditors or other persons, even though the stock was not actually paid up as repre- sented. * * The law goes still further and holds that where a person in open market, in good faith and without notice, purchases certificates, such stock is to be deemed "paid up" in his hands, and he is protected as a bona fide purchaser, even though there is nothing on the face of the certificates stating that they are paid up. This can now be laid down as the established rule. It is based on sound public policy, favoring as it does the transfer of personal property and the quasi-negotiability of stock and discountenancing secret liens and constructive no- tice.' * * * " Question 662: State the rule of this case. Case No. 663. Edwards v. Schillinger, 230 111. 373. (Set out as Case No. 655, supra.) Question 663: "Was the transferee held in this case ? Why? Sec. 498. Liability of Transferror to Transferee. Case No. 664. Burwash v. Ballou, 230 111. 34. ME. CHIEF JUSTICE HAND: "* * * "The International Copper and Gold Company was a de facto corporation, and the appellant having purchased its stock of the appellees, in a proceeding like this, no warranty having been made by the appellees that the cor- poration issuing such stock was a de jure corporation, the appellant cannot escape the payment of the considera- tion agreed to be paid by him for such stock, by showing that the International Copper and Gold Company, which issued said stock, was not legally organized, or that its 1016 CORPORATIONS increase of stock of which that purchased by appellant formed a part, was illegally issued. (Marshall v. Keach, 227 111. 35.) In Higgins v. Illinois Trust & Savings Bank, 193 111. 394, it was held that the vendor of stock in a cor- poration impliedly warrants that the stock is genuine and that he is the owner thereof and authorized to transfer title, and that if the assignee desires further protection he must exact a special warranty. See also First Nat. Bank of Sterling v. Drew, 191 111. 186." Question 664: What are the implied warranties of a seller of corporate stock? Sec. 499. Shares Transferred Without Authority; Lost, Stolen and Forged Certificates. Case No. 665. Jarvis v. Manhattan Beach Co., 148 N. Y. 652. Facts: Defendant, The Manhattan Beach Co., had a capital stock of $5,000,000 divided into $50,000 shares of $100 each. A large portion of the stock was issued and the certificates listed on the N. Y. Stock Exchange, and were subject to purchase and sale by the public. The certificates were signed by the President and Assistant Treasurer, and in order to guard against fraud counter- signed and registered by the Central Trust Co., which acted as registrar of transfers in order to authenticate the genuineness of the certificates. The Manhattan Beach Co. had an office in New York City where the trans- fers of its stock were made, and a transfer clerk was em- ployed there. September 30, 1882, this transfer clerk de- livered to a firm of brokers in New York, in the ordinary course of business, a certificate for 100 shares of the stock of the Manhattan Beach Co. to be sold on account. This certificate bore the genuine signatures of defendant's president and assistant treasurer, and was countersigned by Central Trust Company with certificate registration. It certified that one B. Bignell was owner of 100 shares of the capital stock of Manhattan Beach Co., and the TRANSFER OF SHARES 1017 name of B. Bignell was indorsed under the blank form of transfer and this signature purported to be witnessed by the transfer clerk. This certificate was, in fact, spurious, fabricated by the transfer clerk over the gen- uine signatures of the officers, upon blanks used for issu- ing genuine certificates. Bignell was not owner of any stock and did not sign the form of transfer. By the rules of the stock exchange certificates sold there must either stand in the name of some member and be indorsed in blank by him, or else must be guaranteed by a member of the exchange. The brokers who sold this certificate were therefore obliged to guarantee that it was genuine. To find out whether it was genuine they sent it by mes- senger to Central Trust Co. and then to the transfer office and were informed it was properly registered and at the defendant's office that it was all right. They then sold it and remitted the proceeds to the transfer clerk, less commissions. About two years later they were obliged to make the stock good, and this is a suit by Jarvis, who represents the brokers as their assignee to recover the loss thus sustained by the brokers. In 1884 the transfer clerk absconded and it was found he had issued many fraudulent certificates. He had charge of the stock ledger and transfer books, and no supervision had been kept over him or examination made of his books. 'BRIEX, J. : (After stating the facts, substantially as above.) u# # * ' ' The principles upon which a corporation may be held liable to a bona fide holder of certificates of stock, fraudu- lently issued or put in circulation by the wrongful or criminal acts of its officers or agents, are quite well set- tled. Numerous cases involving these questions have received the attention of this Court and quite recently some new features of such transactions have appeared. (N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30; Fifth Avenue Bank v. Forty-second Street, etc., R. R. Co., 1018 CORPORATIONS 137 N. Y. 231; Manhattan Life Ins. Co. v. Forty-second Street, etc., E. B. Co., 139 N. Y. 146; Knox v. Eden Musee, etc., Assn., 148 N. Y. 441.) ' * The liability in such cases *s determined by an appli- cation of the general rules of law that govern the relations of principal and agent as developed and applied to cor- porations, acting solely through such agencies. The principal is liable to a third person in a civil action for the fraud or other malfeasance of his agent, perpetrated by the latter in the course of his employment, although the principal did not authorize, justify or know of the misconduct. In this case the certificate contained the genuine signatures of three authorized officers or agents of the defendant, namely the president, the assistant treasurer and the registrar. The paper upon its face was an assurance to the public, through the acts of its officers, that a person named therein, whether a real or fictitious person, was the owner of one hundred shares of its capital stock. It had upon its face all the essential evidence of genuineness, and it was presented to the brokers for sale, apparently in proper form for transfer, by the very agent of the defendant, that it had held out to the public as the person who had the power to repre- sent and act for it in making such transfer. When the paper was delivered to the brokers by the transfer clerk, having indorsed thereon what appeared to be a regular transfer, it is difficult to see why it was not received by them with every reasonable assurance that the defendant was able to give, that the certificate was not only genuine stock, but in a condition to be transferred upon the books in favor of any one who should receive it in good faith. The paper in fact, however, was nothing but a fictitious and fraudulent device on the part of the transfer agent which he had fabricated for purposes of his own, and although the evidence tended to show that his frauds in this respect could have been detected or prevented by the exercise of reasonable diligence on the part of the de- fendant's officers, yet, as the brokers knew, or ought to have known, that he was dealing with himself in respect to the certificate, it may very well be that tjiis circum- stance was sufficient to put them on their guard and to impose upon them the duty of making some inquiry as to its origin and validity. The paper came to them accred- ited by the genuine signatures of the proper officers of the defendant and countersigned by the registrar, whose duty it was to guard against unauthorized or fraudulent issues of the stock. These signatures carried with them, to strangers at least, the very highest assurance of the genuine character of the security. But we do not think it is necessary in this case to decide what the liability of the defendant would be in case it appeared that the brokers took the certificate without inquiry, since the proof tended to show that they were not negligent in that respect. This was really the only question of fact con- tested at the trial and submitted by the court to the jury. While such certificates do not possess all the quali- ties of commercial paper, they do possess some of them, and innocent parties dealing in them will be protected upon analagous principles and, in a proper case, will be entitled to compel recognition as stockholders, where power exists to issue new certificates or to indemnify if there was not." Question 665: (1.) State briefly the facts of this case and the Court 's decision. (2.) If the transfer clerk had forged the names of the three officers, do you think the corporation would have been held ? Case No. 666. Chicago Edison Co. v. Fay, 164 El. 323. Facts: Fay sues the Chicago Edison Co. to compel it to issue to him 200 shares of its capital stock in lieu of 200 shares of such stock, belonging to him, which upon forged assignments and without his authority had been surrendered up to the company and cancelled and new certificates issued to the assignees, who were innocent purchasers or pledgees. The circumstances were that in June, 1894, Fay went to the seashore for the summer, leaving his office and busi- 1020 CORPORATIONS ness affairs in Chicago in charge of Anderson, his pri- vate secretary, giving Anderson a power of attorney to draw and endorse checks and drafts on the Northern Trust Co. He also directed Anderson to pay the last installment on the Chicago Edison stock and receive and keep the same, and this stock was by Anderson after- wards paid for and delivered to Anderson made out to Fay. Fay had had previous dealings with Slaughter & Co., brokers and bankers, and they knew Anderson to be Fay's private secretary and man of affairs. Anderson sent one of the 100-share certificates to Slaughter & Co. for them to sell, forging Fay 's name to the blank form of transfer. Slaughter & Co. took the certificate to the com- pany and had it transferred on the books in two lots, one certificate for 50 shares being issued in the name of Slaughter & Co. and the other certificate being issued in the name of the purchaser to whom Slaughter & Co. had sold the same, and Slaughter & Co. then sent a check to Anderson made out to Fay for approximately $12,000, representing the amount for which they sold the 50 shares and the amount advanced by them as a loan on the other 50 shares. Anderson, about two weeks later sent over the other 100-share certificate and procured a further loan of $8,000, Fay's signature being forged to this cer- tificate as to the other. This certificate was surrendered to the company and two certificates issued in its stead, one for 25 shares to the purchaser and one for 75 shares to Slaughter & Co. Anderson deposited to Fay's account all of the money so received, and then checked it out for his own use by authority of his power of attorney and then absconded. The Edison Company refuses to recog- nize Fay as a stockholder, and this is a bill to compel such recognition. The Court below entered a decree in Fay's favor. Point Involved: Whether a stockholder can lose his rights as such through a forged transfer of his stock by another who is his agent for other purposes which forged transfer has been recognized by the company and a trans- fer made pursuant thereto on its books. TRANSFER OF SHARES 1021 MR. JUSTICE CARTER: "The decree below was right Appellant acted at its peril in cancelling Fay's certificates of stock and in issuing to others other certifi- cates therefor on the forged assignments. Forgery can confer no rights or authority upon anybody. * * * " (Note: See also Fay v. Slaughter, wherein on this same set of facts, Slaughter & Co. sued Fay for the money paid to the agent, and the Court held that they could not recover.) Question 666: (1.) The M corporation issues a certificate of stock to A. A's name is forged by his agent B, to the blank power of attorney and form of transfer, and the certificate is then sold to C. Has C any right as a stockholder ? (2.) Same case. C takes the certificate to the company and it takes up and cancels the certificate and issues a new one in its stead, delivering the same to C, and C is put upon the books as a stockholder as transferee of A 's stock. Is A deprived of his stock? Is C a stockholder or has he any rights against the company ? (3.) Same case. C takes the new certificate which certifies him as a stockholder and sells same to D. The original forgery by B is discovered and the company refuses to recognize D or give him any damages. D files a bill and asks for a decree estab- lishing him as a stockholder, or in lieu thereof to give him damages. Has he any remedy? Case No. 667. Sarin v. Wilson, Cal. , 13 L. R. A. 605. Facts: Plaintiff is owner of a 100-share certificate of stock in a mining corporation issued to one H. B. Par- sons and properly indorsed by him. An employee of plaintiff stole the certificate and delivered the same to the defendant as a broker to sell said stock for him. The defendant made the sale and turned over the proceeds to the thief. The defendant was ignorant of the theft and acted in good faith. He is now sued for his alleged con- version of defendant's property. Point Involved: Whether a thief of stock certificates so indorsed as to pass by delivery can give a good title thereto to innocent purchasers. 1022 CORPORATIONS DE HAVEN, J. : ' ' To hold the defendant liable, under the circumstances disclosed here, may seem upon first impression to be a hardship upon him. But it is a matter of every-day experience that one cannot always be per- fectly secure from loss in his dealings with others, and the defendant here is only in the position of a person who has trusted to the honesty of another, and has been deceived. He undertook to act as agent for one whom it now appears was a thief, and, relying upon his repre- sentations, he aided his principal to convert the plain- tiff's property into money, and it is no greater hardship to require him to pay to the plaintiff the value of this property than it would be to take it away from the inno- cent vendee who purchased and paid for it. And yet it is universally held that the purchaser of stolen chattels, no matter how innocent or free from negligence in the matter, acquires no title to such property as against the owner, and this rule has been applied in this court to the innocent purchaser of shares of stock. Barstow v. Sav- age Min. Co., 64 Cal. 388; Sherwood v. Meadow Valley Min. Co., 50 Cal. 413 * * *" Question 667: (1.) In what shape was this property when it was stolen, in respect to signatures ? (2. ) If the owner of the certificate had placed it witL a broker as collateral for a loan from the broker, and the certificate was indorsed in blank; so that it could be transferred by mere de- livery, and the broker in violation of his right bad sold to an innocent purchaser, do you think the owner would have been estopped to set up the fraud ? Case No. 668. Otis, Adm'r, v. Gardner, 105 111. 436. Facts : Sheridan Wait, in his lifetime, was the owner of 100 shares of stock in Calumet & Chicago Canal & Dock Co., of par value of $10,000 represented by certifi- cates issued to him. Written on the back of each cer- tificate was a blank assignment and power of attorney, that would authorize the assignee to have the stock repre- sented by such certificates formally transferred to him on the books of the company. March 16, 1875, Wait in- TRANSFER OF SHARES 1023 dorsed the certificates below the blank form of transfer and delivered them to Chauncey T. Bowen, and Bowen gave back a receipt reciting he had ''borrowed" the stock and that it was to be returned on demand. The purpose of this loan did not appear. Afterwards Bowen wrong- fully pledged these two certificates as collateral security for the payment of his notes to Jefferson Gardner, the defendant in this case. The blank form of transfer con- sisting in an assignment and a power of attorney. Otis, as administrator of Wait, filed this bill against Gardner and the corporation. The bill asked for a decree that the stock be declared to belong to Wait's estate; that the old certificate be cancelled, and a new certificate be issued to the administrator by the company, and that he be recognized as a stockholder on the books. Point Involved: Whether placing in the hands of an agent, a stock certificate, so indorsed that it may be trans- ferred by mere delivery, estops the true owner to set up his title against an innocent purchaser or pledgee for value of such certificate to whom such agent has without actual authority transferred it. MR. CHIEF JUSTICE SCOTT: "The intestate placed the certificates in the hands of Chauncey T. Bowen, with a blank assignment written thereon, authorizing an abso- lute transfer of the stock to the assignee, under the by- laws of the company. It was pledged to Gard- ner, in the usual course of business, as collateral security for the indebtedness of the holder, and was taken in good faith, without the slightest knowledge that any one other than the pledger claimed or had any interest in the stock represented by the certificates. As has been seen, the certificates of stock were placed in the hands of Bowen by the intestate in such condition they could be readily sold or hypothecated by him, and if his assignee made an improper use of them, the assignor, if living, could get no relief against that which he deliberately author- ized to be done, if it would affect injuriously an inno- cent purchaser for value, and his personal representa- 1024 CORPORATIONS tive can have no relief that could not be granted on a like bill by the intestate, if living. The principle is, that when one of two or more persons must suffer loss, upon him whose conduct made it possible for loss to occur should the consequences ultimately rest. " Question 668: State what the Court holds in this case. CHAPTER NINETY- SEVEN VARIOUS RIGHTS OF STOCKHOLDERS IN GOING CONCERN 500. Stockholders' meetings; vote. 503. Right to inspect corporate 501. Dividends. books and records. 502. Right to prevent ultra vires 504. Right to contract and deal acts and to sue or defend in with corporation. behalf of corporation. Sec. 500. Stockholders' Meetings; Vote. Case No. 669. Warner v. Mower, et al., 11 Vermont Reports, 385. Facts: Suit involving the title to property, plaintiff claiming, under a deed of assignment executed by the president of the company, and defendant claiming as creditor under attachments made against the company after such assignment. Defendant claims that the assign- ment by the president was void, because never properly authorized by the corporation. The facts were that the regular annual meeting, in accordance with the by-laws, was held April 5, 1837, the secretary having given a gen- eral notice to all stockholders, but not stating the busi- ness to be transacted; that the meeting was adjourned by the stockholders present till April 19, 1837, no further notice being given that at such adjourned meeting the vote in question was taken. Defendant contends that the vote was invalid to confer authority on the president because of the lack of any notice of the adjourned meet- ing, or if the notice of the original meeting was good for the adjourned meeting, then that it was insufficient 1025 1026 CORPORATIONS in its substance, namely, that it did not state the business to be performed. EEDFIELD, J. : " * "The authority of the president to make such con- veyance depends altogether upon the vote of the corpora- tion, at their annual meeting in the year 1837, held by adjournment from the day fixed by the by-laws: It is too well settled to require comment, that all corpora- tions, whether municipal or private, may transact any business at an adjourned meeting, which they could have done at the original meeting. It is but a continuation of the same meeting. Whether the meeting is continued without interruption for many days, or by adjournment from day to day, or from time to time, many days inter- vening, it is evident it must be considered the same meet- ing, without any loss or accumulation of powers. Schoff v. Bloomfield, 8 Vt. E. 472. "It is to be borne in mind, too, that a manifest dis- tinction obtains between general stated meetings of a corporation and special meetings. I know that stated meetings may, nevertheless, be special, i. e., limited to particular business. But stated meetings of a corpora- tion are usually general, i. e., for the transaction of all business within the corporate powers. Unless the object of such meeting is restricted by express provision of the by-laws, it would ordinarily be understood to be general ; and so every corporator would be bound to understand it. But if the object of the meeting be limited by the by-laws, it is then a special meeting, and no other busi- ness could lawfully be transacted at such meeting, unless special notice was given. Where the meeting is stated and general, no notice is required, either of the time or place of holding the meeting, or of the business to be transacted. Angell & Ames on Corporations, 275. Such is the general law of private corporations. "But as all corporations are entities of the law merely, and exist and act solely in conformity to their charter and by-laws, it is obvious that the force and effect of STOCKHOLDERS' MEETINGS 1027 every act of any particular corporation must depend mainly upon the charter and by-laws of that corporation. These are denominated the constitution and laws of the corporation, and, like every other constitution and all other laws, should receive such construction, as to effect the probable intention of the framers. That intention must be judged of as in other cases, by the words used in reference to the subject-matter and circumstances of each particular corporation. ' ' The charter of this corporation provides for the first meeting of the corporation specially, and that at that meeting, and at all other meetings legally notified, they may make and alter such by-laws as may be thought necessary. There being thus no restriction in the charter, in relation to meetings of the corporation, or the busi- ness to be transacted, that subject will be governed ex- clusively by the by-laws. " Those by-laws provide for an annual meeting of the corporation, to be holden at their counting room, on the first Wednesday in April, of each year. Thus far the time and place of the meeting is fixed, and there being no restriction in regard to business, any and all business, pertaining to the interest and powers of the corporation, may be transacted. The annual meeting, of all others, is the one when, not only usually, but always, all business is expected to be transacted. And the common custom of a country is of great force in the construction of statutes, as well as contracts. * "But there is no doubt that a corporation might pro- vide that even stated meetings should be warned in a particular manner, and that unless they were so warned, no business could be transacted. This, in regard to special meetings, is done in the present case, and I have no doubt, as such special meetings rest solely upon the notice given, for their authority, that the notice must be such as is required by the by-laws, or the meetings would be wholly without authority, and all business attempted to be then done, would be of no binding force upon the corporation. For the minority, if any, whether present 1028 CORPORATIONS or absent, could not be bound, except in obedience to the by-laws. For in that mode, and that only, have they con- sented to be bound. Every member is entitled to notice of special meetings unless the by-laws excuse it. Kynas- ton v. Mayor of Shrewsbury, 2 Strange 's R. 1051 ; King v. Theoderic, 8 East's R. 543; 1 Strange 's R. 385; 2 Bur- row's R. 723; do 728; Stow v. Wise, 7 Conn. R. 219." Question 669: (1.) May a stated meeting be held without notice, if none is required by charter or by-law ? (2.) May a special meeting be held without notice? (3.) Must a notice of annual or other regular meeting state what is to be done at the meeting? (4.) Must a notice of a special meeting state the purposes for which it is called ? (5.) If a meeting is properly noticed, must there be further notice of any adjournment of such meeting? Case No. 670. Morrill v. Little Falls M'f'g Co., 53 Minn. 371. Point Involved: As to what constitutes a quorum at a stockholders' meeting (in the absence of express stipu- lation) ; whether one stockholder can hold a meeting; whether notice of a stated meeting is required when not provided in the by-laws. MITCHELL, J. : "As affecting the validity of the deeds executed in 1882, in behalf of the corporation, by Thayer as president, the appellants assail the finding of the Court as to the election of directors in August, 1881. The grounds of objection are : First, that no notice was given of the meeting; and, second, that it required a majority of the shares of stock to constitute a quorum to hold a meeting, or, in any event, that one person could not hold a meeting, that at least two persons are necessary to constitute a corporate meeting. "As to the first point, all that is necessary to say is that the by-laws fixed the time and place of holding the meeting, and neither the charter nor the by-laws required any notice to be given. Under such circumstances, the STOCKHOLDERS' MEETINGS 1029 rule is that the by-laws themselves are sufficient notice to all the stockholders, and no further notice is necessary. 1 Mor. Priv. Corp., Sec. 479. "The second objection is equally untenable. Where the charter and by-laws of a corporation are silent on the subject, the common-law rule is that such of the share- holders as actually assemble at a properly convened meeting, although a minority of the whole number, and representing only a minority of the stock, constitute a quorum for the transaction of business, and may express the corporate will, and the body will be bound by their acts. Cook, Stock & S., Sees. 607, 623; 2 Kent, Comm. 293; Mor. Priv. Corp., Sec. 476; Craig v. First Presby- terion Church, 88 Pa. St. 42; Eex. v. Varlo, Cowp. 248; Columbia Bottom Levee Co. v. Meier, 39 Mo. 53; Ex parte Willcocks, 7 Cow. 402; Field v. Field, 9 Wend. 395. "The contention of appellants that this rule applies only to such organizations as towns, churches, and the like, and not to stock corporations, finds no support either in reason or authority. The correct distinction is be- tween a corporate act to be done by a select .body, of a definite number, as, for example, a board of directors or trustees, and one to be performed by the constituent members of the corporation. In the latter case a majority of those who appear may act. This distinction is clearly made in several of the cases above cited, and also in the leading case of Rex v. Bellringer, 4 Term R. 810. As was said by Lord Mansfield, in Rex v. Varlo (Coup 248) : 'It is in the nature of all corporations to do corporate acts ; and, when the power of doing them is not specially dele- gated to a particular number, the general mode is for the members to meet on the charter days, and the major part who are present to do the act. But, when there is a select body, it is a different thing, for then it is a special appointment.' And, this being so, it is immaterial whether the number present is only one or more than one. It was held in Sharpe v. Dawes, 46 Law J. Q. B. 104, fol- lowed reluctantly in another case, that one person can- not constitute a quorum; that at least two persons are 1030 CORPORATIONS necessary to hold a corporate meeting; but this decision is based upon a narrow lexicographical definition of the word 'meeting,' as the coming together of two or more persons, a reason that does not commend itself to our judgment. " Therefore, in our opinion, the Court was justified in holding that the election of directors in 1881 was regu- lar; and it follows that the deeds executed in 1882 by Thayer, the president elected by them, were the deeds of the corporation." X Question 670: What is a quorum in a stockholders' meeting where there is no express regulation ? Would the same hold true of a directors' meeting? Why? Case No. 671. In re Mathiason M'f 'g Co., 122 Mo. Ap. 437. BL/ND, P. J.: "* * * "The next question to be noticed is, should the motion of H. W. Lammers, to set aside the election or first bal- lot and take a new ballot for three directors, have been voted upon by counting the number of shares of each voter, or by a rising vote and count by the head, as was done. * * * 1 'Cook, in his volume 2 of his work on Corporations (5 Ed.), Sec. 609, says: " 'At common law, in public or municipal corpora- tions, each qualified elector has one vote, and only one. This was a natural rule, since each duly qualified citizen voted as a citizen and not as the holder of stock. But the same rule should not apply to private corporations. Stockholders are interested not equally, but in propor- tion to the number of shares held by them. Naturally and reasonably each share should be entitled to one vote. It has been held, however, that at common law each stock- holder had but one vote, irrespective of the number of shares held by him. Where the statutes are silent on the subject, a by-law may give to each shareholder one vote STOCKHOLDERS' MEETINGS 1031 for each share up to ten, and may fix the proportion of votes which he may cast in excess of that number. " ' Generally the charter or statutes prescribe that each share of stock shall be entitled to one vote. And a statutory or charter provision to this effect applies not only to elections, but also to all other questions that may come before the stockholders' meetings. An election to be held by a "majority of stockholders" means a major- ity in interest.' " Question 671: The M. Corporation has 7 shareholders. A owns 60% of the stock. Can he outvote the other 6 shareholders ? Case No. 672. Venner v. Chicago City Ky. Co., 258 111. 5?3. Facts: Venner, as stockholder of Chicago City Bail- way Company, files a bill for the purpose of having de- clared void a certain agreement creating a voting trust known as the Chicago City and Connecting Railways Collateral Trust and enjoining the trustees from voting any stock in the corporation. Point Involved: Whether a trust among stockholders in a corporation whereby they transfer their stock to trustees as their proxies to vote for them according to a trust agreement, is valid. ME. JUSTICE DUNN: "* * * The stockholders can control the affairs of a corporation only through the election of directors, and at every such election there is necessarily a combination of shares upon the persons elected. Such combination may be made at the time of the meeting, but there is no reason why stockholders may not agree beforehand to vote for certain persons as directors, and often they must do so in order to elect the persons desired. There is nothing in the law to prevent the owners of a majority of the stock from giv- ing proxies to the same person. Unless restricted by its terms or by some statutory provision a proxy confers on the grantee a discretion, unlimited either in character 1032 CORPORATIONS or duration, until revoked. A majority of the stock- holders may therefore, by uniting in the same proxy, confer upon an agent unlimited discretion to vote their stock, and there is no policy of the law to prevent their transferring the stock to a trustee with the like unre- stricted power. It is the purpose for which the trust was created which must determine its legality. Besides those already cited, it has been decided in the following cases, among others, that the pooling of stock by the owners for the purpose of electing directors and officers and controlling the management and business of the corporation was not against public policy so long as no fraud was committed or wrong done to the other stock- holders: Ohio & Mississippi Railroad Co. v. State, 49 Ohio St. 668; Griffith v. Jewett, 9 Ohio Dec. (Eeprint) 627; Weber v. Delia Mountain Mining Co., 14 Idaho, 404; Mobile & Ohio Railway Co. v. Nichols, 98 Ala, 92; Hey v. Dolphin, 92 Hun, 230 ; Havemeyer v. Havemeyer, 43 Super. Ct. (N. Y.) 506; Brown v. Pacific Mail Steam- ship Co., 5 Blatchf. 525. On the other hand, an agree- ment is invalid whose object is not the benefit of all the stockholders equally, but is some unfair advantage to the parties to it, only, as where one of the parties is to have a certain office at a certain salary, or the parties to the agreement are to receive the profits to be made out of certain contracts to be entered into by the management under their direction, or the stock of the corporation is to be voted or its affairs managed by the determination of persons other than its stockholders or by a minority of its own stockholders. (Guernsey v. Cook, 120 Mass. 501 ; Shepaug Voting Trust Cases, 50 Conn. 553 ; Kreissl v. Distilling Co. of America, 61 N. J. Eq. 50; Cone v. Russell, 48 Id. 208; White v. Thomas Inflatable Tire Co., 52 Id. 178; Morel v. Hoge, 130 Ga. 625; Hafer v. New York, Lake Erie & Western Railroad Co., 9 Ohio Dec. [Reprint] 470.) Many of the cases relied upon by coun- sel for the appellant are of this character, and were founded on the principle that the owners of a majority of the stock have no right to use their power to advance STOCKHOLDERS' MEETINGS 1033 their own private interests at the expense of the minor- ity. In others the complaints were made by parties to the agreement or purchasers from parties to the agree- ment, claiming that the agreement was not binding upon them, but was revocable at their pleasure. Cases of this kind are not in point, for the appellant is not a party to the trust agreement and cannot complain of its term unless his rights as a stockholder have been injuriously affected by it or will necessarily be injuriously affected.'* Question 672: (1.) Is a voting trust among stockholders of a corporation valid? (2.) If the stockholders of competing firms join in a voting trust, is the trust legal ? Case No. 673. In re Barker, 6 Wend. (N. Y.) 509. Facts: The report reads as follows: "An election of directors of the Mercantile Insurance Company of New York was holdeiL on the 10th of Jan- uary, 1831. Jacob Barker demanded to vote on 1,290 shares of stock standing in his name on the books of the company, 1,255 in his own right and 35 as trustee for his minor children. His vote was challenged, and the challenge allowed by the inspectors. Had he been per- mitted to vote on the whole number of shares standing in his name, Samuel Hazard, and six other persons named in the proceedings, who the inspectors certified were duly elected, would not have been elected, but seven other persons, for whom Jacob Barker offered to vote, would have been elected in their stead; or had he been permitted to vote only on the thirty-five shares held by him as trustee, the effect would have been to have given a majority of votes to four individuals, who were voted for at the election as directors, and who were not returned as elected over Samuel Hazard and five other persons, who had an equal number of votes, and who were returned duly elected. The objection to Barker's voting on the 1,255 shares was that they were hypothe- cated to the company to their full value. The company was incorporated in 1818. This case also presented the 1034 CORPORATIONS question whether an alien stockholder of this company has the right to vote by proxy: such vote having been offered, and rejected by the inspectors." By the court, SAVAGE, CH. J. : * ' In the case Ex parte Holmes, 5 Cowen, 426, we set aside an election of directors of an insurance company, because a trustee had been allowed to vote upon stock belonging to the com- pany; not because a trustee had been permitted to vote instead of the cestui que trust, but for the reason that the stock in that case could not be voted upon, being the property of the company, controlled by its officers; and we held, that neither within the meaning of the charter of the company, nor of the act under which the proceed- ings were had, could it be tolerated, that the officers of a moneyed institution should wield such stock, however obtained, to control the result of an election of directors. Such is the principle settled by that case, and what was said in relation to the rights of a trustee or cestui que trust to vote on stock, standing in the name of the trus- tee, either generally or specially, in his representative character, was said in reference to the peculiar circum- stances of the case. The court never could have doubted the right of a person to vote upon stock standing in his name although held by him in trust for another; the legal estate is in him, and until divested by assignment, either voluntary or compulsory, he is the only person entitled to vote. Indeed, the case Ex parte Holmes, admits that if the stock stands in the name of the trustee without expressing any trust, he has the right to vote. Jacob Barker, therefore, was entitled to vote upon the thirty-five shares holden by him as the trustee of his minor children. "He was also entitled to vote upon the 1,255 shares standing in his name in his own right, although they were hypothecated to their full value. So was the decision of the court in Ex parte Wilcocks, 7 Cowen, 402, where we held, that until the pledge was enforced and the title made absolute in the pledgee, and the names changed on the books, the pledger should be permitted to vote. ' ' STOCKHOLDERS' MEETINGS 1035 Question 673: (1.) A owning certain certificates of stock by will bequeaths them to B in trust for C, D, and E, who are A's unmarried sisters. B has certificates made out to him as trustee. Who can vote this stock? (The trust in this case is not a voting trust.) (2.) If stock is pledged, can the pledger or pledgee vote it? (3.) If a corporation owns its own stock, can it vote it? Case No. 674. Market Street E. Co. v. Hellman, 109 Cal. 571. Facts: Proceeding to contest the consolidation of cer- tain corporations. Among many other points made, the objection was raised that appears in the following opin- ion: SEABLES, Chancellor: "* * * "In the case of the Omnibus Cable Company, 1,470 of its shares were owned by, and stood in the name of Daniel Stein, who died, say, six months before the con- sent was signed by his executors, and as the stock was never transferred on the books to the names of such executors it is contended they were not authorized to consent. 'The shares of stock of an estate of a minor or insane person may be represented by his guardian, and of a deceased person by his executor or administra- tor/ (Civ. Code, Sec. 313.) "No transfer of the stock to the executors was neces- sary to entitle them to vote it. Spelling on Corpora- tions, at Sec. 380, says : 'In case of the death of a stock- holder his administrator becomes, by operation of law, vested with the legal title to the stock, and is entitled to vote it at all elections without a transfer upon the stock- book, * * * and the fact that the decedent held the stock subject to a trust would not alter it. Upon the death of a trustee of personal property the trust would devolve upon his representative, and he becomes legal owner as to all persons except the cestui que trust, and the corporation has nothing to do with the equities between the immediate parties to the trust or between the legal owner and third parties, as regards the rights 1036 CORPORATIONS of voting.' (See cases cited by same author in footnote to Sec. 380.)" Question 674: Can an executor vote stock owned by him as such executor? Suppose that upon the books the stock still stands in the name of the deceased, but the executor brings in ample proof of his appointment and qualification as such exec- utor, can he vote the stock? Case No. 675. J. H. Wentworth Co. v. French, 176 Mass. 442. HOLMES, C. J. : "This is a petition for a writ of mandamus declaring that Benjamin Dickerman, George W. Dickerman, and Charles W. Boynton are the duly elected directors, and that Benjamin Dickerman is the duly elected treasurer and clerk, of the petitioning cor- poration. Benjamin Dickerman is the holder of a cer- tificate for 100 shares of stock in the company, which states on its face that it is 'held as collateral for the note of James H. Wentworth for $10,000, dated April 8, 1898.' There has been no breach of the conditions of the pledge. If Benjamin Dickerman had the right to vote on these shares, then the persons named have been elected directors, treasurer and clerk, and, subject to cer- tain questions to be dealt with, a peremptory writ ought to issue, as in American Eailway-Frog Co. v. Haven, 101 Mass. 398; otherwise the petition should be dis- missed. "The corporation has to go by its record in determin- ing the right to vote, and therefore, if a certificate of stock shows a certain person to be a member, the corpo- ration must recognize him as member, with the right to vote as an incident to bis membership. Crease v. Bab- cock, 10 Met. 525, 546. National Bank v. Case, 99 U. S. 628, 631. Adderly v. Storm, 6 Hill, 624, 627. Franklin Bank v. Commercial Bank, 36 Ohio St. 350, 355. Magru- der v. Colston, 44 Md. 349, 356. Commonwealth v. Dal- zell, 152 Penn. St. 217, 223. If the certificate holder is a pledgee, it may be that before breach the pledger will STOCKHOLDERS' MEETINGS 1037 be recognized in equity as the general owner for the pur- pose of voting as for other purposes. But in such cases the result ,has been worked out by compelling the holder to give a proxy to the pledgor, and thus the conclusive- ness of the record for corporate purposes has been left unimpaired. Vowell v. Thompson, 3 Cranch C. C. 428. Hoppin v. Buffum, 9 E. I. 513, 518. ' ' The provision in Pub. Sts. c. 105, Sec. 25, by which a certificate of stock issued as a pledge or the like shall express the fact and the name of the pledgor 'who alone shall be responsible as a stockholder, ' goes back through Gen. Sts. c. 68, Sec. 13, to St. 1838. c. 98, Sec. 3, and, it would seem, may have been suggested by the case rff Crease v. Babcock, as the bill in that case was brought in 1837. When the requirements of that section are com- plied with, the form of the certificate allows the pledgor to be recognized as the member of the corporation for the purpose of voting as well as for the purpose of fixing responsibility, and under such circumstances the gen- eral understanding is that he is the proper person to vote. The statute in a different way reaches the result which equity reached by compelling the pledgee to give a proxy." (The Court holds that the statute of Massachusetts by which the right of vote is put in the pledgor has not been complied with and as the pledgee was the record stock- holder he had a right to vote.) Case No. 676. Kinnan v. Sullivan Co. Club, 50 N. Y. Suppl. 95. RUMSEY, J. : The corporation has no power, by its by- laws, to refuse to permit a delinquent stockholder to vote upon its stock than it has to refuse him the privilege of making a transfer of the stock. The right to vote upon stock of a corporation is essential for the protection of its owner. It is one of those inherent rights which goes with the purchase of the stock, and, unless it is limited by the articles of association, which authorized the cor- 1038 CORPORATIONS poration to exclude from the right of voting a person who is in arrears upon his stock, the right does not exist. It cannot be arrogated by the corporation to itself after the stock has been issued. It makes no difference, in this regard, whether the stockholder agrees to take the stock subject to the by-laws of the corporation or not. No by-law can be made which takes away from a stock- holder a right which is vested in him at the time of the purchase of his stock. Question 676: May a corporation deprive a stockholder of his voting power because he is delinquent? Suppose he has subscribed to abide by the by-laws, and a by-law is subsequently passed attempting to deprive him of his voting power, is the by-law binding on him? What if the by-law were already in force when he became a stockholder? Sec. 501. Dividends. Case No. 677. Goodwin v. Hardy, 57 Me. 143. Point Involved: To whom dividends belong as be- tween owners of stock when dividend is declared and owner of stock when dividend is payable. APPLETON, C. J. : ' ' * * The stockholders have no claim to a dividend until it is declared. Until that time, it belongs to the corporation precisely as any other property it may own. When a distribution of the funds of a corporation, whether of the whole or of a part, is ordered, it is to be made between those who, at that time, are the owners of its stock. The law on this subject is very clearly stated by Mr. Justice Sargent, in March v. Eastern E. E. Co., 43 N. H. 520. 'The purchaser of a share of a stock in a corporation,' he remarks, 'takes the share with all its incidents, and among these is the right to receive all future dividends, that is, its pro- portional share of all profits not then divided, and as we understand the law and the usage of such corpora- tions, it is wholly immaterial at what times and from DIVIDENDS 1039 what sources these profits have been earned; they are incident to the share, to which a purchaser becomes at once entitled, provided he remains a member of the corporation until a dividend is made.' * * *" Question 677: The M corporation has on May 20th undivided profits sufficient to declare a 1% dividend. A is owner of stock in M corporation. He sells it to B on May 20th. On May 21st the corporation declares a dividend. The dividend is by its terms made payable July 1st. On June 1st B sells to C, who owns until after July 1st. Who is entitled to the dividend? Sec. 502. Right to Prevent Ultra Vires Acts and to Sue or Defend in Behalf of Corporation. Case No. 678. Hawes v. Oakland, 104 U. S. 450. Facts: Complainant files his bill as a stockholder of the Contra Costa Water Works Company against such company, the city of Oakland, and the directors, alleging that the company is furnishing the city of Oakland with water for all purposes free of charge whereas by its charter it is only required to furnish such city water free for putting out fires and other cases of emergency, that he has applied to the directors to stop this abuse and that they decline to take any action. The company defends by demurrer that the plaintiff as stockholder has no power to maintain such a suit. Point Involved: Whether a stockholder can file a bill to prevent ultra vires acts ; what conditions are precedent to his maintaining such bill. MB. JUSTICE MILLER : " * "We understand that doctrine to be that to enable a stockholder in a corporation to sustain in a court of equity in his own name, a suit founded on a right of action existing in the corporation itself, and in which the cor- poration is the appropriate plaintiff, there must exist as the foundation of the suit some action, or threat- ened action of the managing board of directors, or 1040 CORPORATIONS trustees of the corporation which is beyond the authority conferred on them by their charter or other source of organization; or such fraudulent transaction completed or contemplated by the acting managers, in connection with some other party or among themselves, or with other shareholders as will result in serious injury to the corporation ; or to the interests of other shareholders ; or where the board of directors or a majority of them, are acting for their own interests, in a manner destruc- tive of the corporation itself, or of the rights of the other shareholders ; or where the majority of sharehold- ers themselves are oppressively and illegally pursuing a course in the name of the corporation, which is in violation of the rights of the other shareholders, and which can only be restrained by the aid of a court of equity. Possibly other cases may arise in which, to pre- vent irremediable injury, or a total failure of justice, the Court would be justified in exercising its powers, but the foregoing may be regarded as an outline of the prin- ciples which govern this class of cases * He must make an earnest, not a simulated effort, with the man- aging body of the corporation, to induce remedial action on their part, and this must be made apparent to the Court. " [The Court holds that a stockholder before filing such a bill must attempt to get relief from the directors and if possible from the stockholders, and that his efforts are unavailing, and that the complainant in this case has made no such effort as is required to give him standing to file a bill.] Question 678: (1.) When can a stockholder sue or defend in behalf of the corporation ? (2.) What course must the stockholder take to entitle him to represent the corporation in such a suit? (3.) A filed a bill showing that the corporation in which he was a stockholder was about to enter into an illegal trust, and asked for an injunction. Will it be granted ? (Harding v. Amer. Glucose Co., 182 111. 551.) RIGHT TO SUE FOR CORPORATION 1041 Case No. 679. Babcock v. Farwell, 245 HI. 41. MR. JUSTICE DUNN: "* * * 1 l Since Babcock could not himself have maintained the suit in his personal capacity, neither could his executor, nor appellant as his legatee. By expressly waiving his objections to the transactions now complained of, he de- barred himself from seeking relief against them in his own right. He could not, therefore, indirectly obtain such relief by bringing suit in the right of the corpora- tion or of other stockholders. A complainant cannot maintain a bill, and obtain relief unless he has himself sustained a wrong. The theory of a stockholder 's suit is, that the stockholder has sustained a wrong through the injurious effect upon his stock of the wrong done to the corporation. If he has himself consented to or partici- pated iti the acts constituting such wrong, or has waived his right to object to them, he cannot afterwards maintain a bill, on account of such transactions, for the benefit of the corporation or of other stockholders. (Burt v. Brit- ish Ass'n., 4 DeG. & J. 158; Brown v. DeYoung, 167 111. 549; Wells v. Northern Trust Co., 195 id. 288.) Neither can an assignee of stock maintain a suit in regard to transactions with the corporation done or assented to by his assignor. The purchaser of shares of stock requires no greater rights than his vendor. He holds by the same title and subject to the same liability. Shares of stock are merely choses in action, and the successive owners acquire only the rights held by their predecessors in title. Home Ins. Co. v. Barber, 67 Neb. 644; Venner v. Atchison, Topeka and Santa Fe Eailroad Co., 28 Fed. Eep. 581; Church v. Citizen's Eailroad Co., 78 id. 526; * * * Question 679: A, as stockholder in the M corporation, ac- quiesces in wrongful conduct on the part of the directors in managing the corporation. A assigns to B, who then for the first time learns of the ultra vires acts, and files a bill to set aside the acts. Will such bill obtain relief? 1042 CORPORATIONS Sec. 503. Right to Inspect Corporate Books and Records. Case No. 680. Venner v. Chicago City By. Co., 246 111. 170. MB. CHIEF JUSTICE VICKERS: "* * * " There is a well recognized distinction between the right of a stockholder to inspect the books and papers of a corporation under the common law and an unlimited right given by statute. Under the former the examina- tion can only be compelled where the stockholder asks it in good faith and for reasons connected with his rights as stockholder. "Where the right is conferred by stat- ute in absolute terms, the purpose or motive of the stockholder in making the demand for an inspection is not material and he cannot be required to state his rea- sons therefor. (Thompson on Corporations, 2d ed. Sec. 4516.) The weight of American authority is to the effect that where the right is statutory the stockholder need not aver or show the object of his inspection, and it is no defense under a statute granting the absolute right to inspection to allege improper purposes or that the petitioner desires the information for the purpose of injuring the business of the corporation. A clear legal right given by a statute cannot be defeated by show- ing an improper motive. If this were so, the stockholder would be driven from a certain definite right given him by the statute to the realm of uncertainty and specu- lation. ' ' Question 680: (1.) To what extent did the common law give a stockholder a right to inspect corporate records ? (2.) What is the right by statute ? Do the two differ ? Sec. 504. Right to Contract and Deal With Corporation. (Note: See the remarks of Justice Miller in Twin Lick Oil Co. v. Marbury, 91 U. S. 587, post, Case No. 684. A stock- holder has the same right as a stranger to contract with the cor- poration. In doing so, he may take security on the property of the corporation, and afterwards enforce such security as any stranger might. He may sue and get judgment against the cor- poration and levy an execution against its property.) PART XXVIII DIRECTORS AND ADMINISTRATIVE OFFICERS Chapter Ninety-eight. Directors. Chapter Ninety-nine. Administrative Officers. CHAPTER NINETY. EIGHT DIRECTORS 505. Election and qualification of 508. Director a trustee; his liabil- directors. ity to the corporation. 506. Title to office; contest. 509. Liability of director to third 507. Directors' meetings. persons. Sec. 505. Election and Qualification of Directors. Case No. 681. Wight v. E. Co!, 117 Mass. 226. GKAY, C. J. : " Although the directors of a railroad corporation are usually chosen by the stockholders from their own number, there is no rule of law that makes the holding of stock an indispensable qualification of a director, unless prescribed by some act of the legislature or by-law of the corporation. Question 681: May one not a stockholder be a director? (Note : It is usual of course, to require that a stockholder be a director, but in the absence of statutory provisions, or charter or by-law requirement, a director need not be a stockholder.) 1043 1044 CORPORATIONS Case No. 682. Com. v. Hemingway, 7 L. E. A. (Pa.) 360. WILLIAMS, J., delivered the opinion of the Court: "In the case of Detwiller v. Com., ante, p. 357, in which an opinion has been filed at the present term, we have considered the question: 'Can a citizen of the United States, who is not a citizen of Pennsylvania, become a stockholder in the Farmers & Mechanics Institute of Northampton County?' We are now to push our inqui- ries one step further, and determine whether one who is not a citizen of the United States, but is, and for many years has been, a resident and property holder in Penn- sylvania and in Northampton County, can become a stock- holder in the same association; and whether, if he may become a stockholder, he is entitled to vote as such at the stockholders' meetings; and finally, whether he may be legally elected a director of the association. For the reasons given in Detwiller v. Com., supra, we think he may become a stockholder. The stock being personal property, he may acquire it by gift or purchase. An alien could at common law buy personal goods, and sell them ; and, except in the case of an alien enemy, there was no restriction upon trade with aliens. If he can acquire the stock, he can acquire with it all the rights and privileges which its ownership confers, among which is the right to have a voice in the control of the enterprise, and the selec- tion of those who are to conduct its affairs. He may therefore vote in the same manner, and with the same effect, as any other stockholder may do. Why may he not become a director? The office is not a political one. Question 682: May an alien be a stockholder? a director? . (Note : A stockholder may by the laws of all states be a non- resident or an alien. Ordinarily by by-law or statute a director must be a stockholder and a resident of the state.) Sec. 506. Title to Office; Contest. (Note: A director's title to his office may be contested in the courts. The usual action is an action in a court of law (as dis- DIRECTORS 1045 tinguished from a court of equity) by quo warranto proceed- ings. But a court of equity will take jurisdiction when the affairs of the corporation are in such condition by reason of the contest that immediate control by receivership or injunction or otherwise is necessary.) Sec. 507. Directors' Meetings. Case No. 683. Doernbecher v. Columbia City Lumber Co. et al., 21 Oregon, 573. Facts: The facts are stated in the opinion. Point Involved: Whether a directors' meeting held without notice to all the directors (and not participated in by all the directors notwithstanding such lack of notice) is void, where a majority of the directors attend and such majority all vote in favor of the act in question. BEAN, J.: "* * * 1 ' The company being largely indebted to William Lowe prior to the fourteenth day of May, 1889, Lowe assigned his claim to plaintiff, who on that day duly commenced an action against the company to recover the amount due thereon, which finally resulted in a judgment in plaintiff's favor. After the commencement of this action and before final judgment, Directors Dunbar, Wallace, and McDougall without any notice to the other directors, assembled by mutual consent at the office of Emmons & Emmons in the city of Portland, and pretended to pass a resolution authorizing the president and secretary of the company to assign all its property to R. W. Emmons for the benefit of its creditors, after which a deed of assign- ment was executed in due form. It is claimed by plain- tiff that the proceedings of this meeting are illegal and void, because it was convened without notice, verbal or written, to the directors who did not attend ; and in this we think he is abundantly supported both by reason and authority. "It is indispensable to a legal meeting of the directors of a corporation for the transaction of business, that all 1046 CORPORATIONS the directors have notice, actual or constructive, of the time and place of the meetings. Otherwise, it might hap- pen that a bare majority of the quorum present being a minority of the whole, would do some act contrary and in opposition to the will of the majority. The stock- holders and other persons interested in the corporation are entitled to the combined wisdom of all the directors. Where the time and place has not been fixed by some other competent authority, such meetings must be called by personal notice to each member of the board of di- rectors. 'It is not only a plain dictate of reason,' says Mr. Justice Cowan, 'but a general rule of law, that no power or function entrusted to a body consisting of a number of persons, can be legally exercised without no- tice to all the members composing such body.' (People v. Batchellor, 22 N. Y. 134.) And this is so for the transac- tion of even ordinary business. "It is no excuse to say that the three who were present all voted for the resolution, and had the other two been present the result would have been the same. The right to deliberate, and by their advice and counsel convince their associates, if possible, is the right of the minority, of which they cannot be deprived by the arbitrary will of the majority. (Com. v. Cullen, 13 Pa. St. 133.) "All persons interested in the corporation are entitled to the advice and influence as well as the votes of all the directors. And, says Mr. Morawetz, 'while it may not be the duty of every director to be present at every meeting of the board, yet it is certainly the intention of the share- holders that every director shall have a right to be pres- ent at every meeting, in order to acquire full information concerning the affairs of the corporation and to give the other directors the benefit of his judgment and advice. If meetings could be held by a bare quorum without noti- fying the other directors, the majority might virtually exclude the minority from all participation in the man- agement of the company.' (Morawetz Corp. Sec. 532.) "Where the meeting is a general or stated one, pro- vided for in some resolution or by-law, notice of the time DIRECTORS 1047 and place of the meeting is perhaps, in the absence of a different provision in the charter or by-laws of the com- pany, not necessary. (State ex rel. v. Bonnell, 35 Ohio St. 10 ; People v. Batchellor, supra; Merritt v. Ferris, 22 111. 303; Warner v. Mower, 11 Vt. 385.) In such case each member is presumed to have notice of the day fixed for the meeting. But if the meeting be a special one, personal notice, if practicable, is necessary to each mem- ber unless all are present and participate in the pro- ceedings. And such notice is essential to the power of the board to do any act which will bind the corporation, and without such notice or the presence of all the directors its acts are void." Question 683: Is a notice of a directors' special meeting necessary ? If no notice is given and a majority of the directors attend and vote for the act in question, why is it material that the other directors are not notified? (Note: A majority of the directors is a quorum (in the ab- sence of express provision otherwise) if the meeting is properly called and noticed ; and a majority of the quorum may transact business. Thus it is possible for two out of five directors to pass resolutions.) Sec. 508. Director a Trustee; His Liability to the Corporation. Case No. 684. Twin Lick Oil Co. v. Marbury, 91 U. S. 587. Facts: Marbury was a stockholder and a director in the complainant corporation. The corporation became embarrassed in 1867 and borrowed $2,000 from Marbury, for which a note was given secured by mortgage on all of the property of the corporation. The property was sold under the terms of the mortgage to effectuate the security, and was bought in by defendant Marbury. This bill is filed four years later to have Marbury declared a trustee of such property and for an accounting of the rents and profits. The bill charges that defendant abused 1048 CORPORATIONS his trust relation to the company to take advantage of its difficulties and to buy its property at a sacrifice, con- cealing material facts. The Court finds from the evi- dence that defendant loaned the money in good faith, and honestly for the assistance of the company, and took reasonable security, and that when the money was due there was no prospect of it being paid and the property was then sold, as the only means whereby defendant could get back his money, and that defendant took no advantage of his position and made no concealment. Point Involved: Whether a contract by a director with a corporation is voidable or void ; whether laches will bar a suit by the corporation (or its stockholders) to set aside a voidable contract by a director. ME. JUSTICE MILLEE : ' * * * * "The first question which arises in this state of the facts is, whether defendant's purchase was absolutely void. "That a director of a joint-stock corporation occupies one of those fiduciary relations where his dealings with the subject-matter of his trust or agency, and with the beneficiary or party whose interest is confided to his care, is viewed with jealousy by the courts, and may be set aside on slight grounds, is a doctrine founded on the soundest morality, and which has received the clearest recognition in this court and in others. Koehler v. Black Eiver Falls Iron Co., 2 Black. 715 ; Drury v. Cross, 7 Wall. 299 ; Luxenburg E. E. Co. v. Maquay, 25 Beav. 568 ; The Cumberland Co. v. Sherman, 30 Barb. 553; 16 Md. 456. The general doctrine, however, in regard to contracts of this class, is, not that they are absolutely void, but that they are voidable at the election of the party whose in- terest has been so represented by the party claiming under it. We say, this is the general rule : for there may be cases where such contract should be void db initio; as when an agent to sell buys of himself, and by his power of attorney conveys to himself that which he was author- ized to sell. But, even here, acts which amount to a rati- fication by the principal may validate the sale. DIRECTORS 1049 "The present case is not one of that class. While it is true that the defendant, as a director of the corpora- tion, was bound by all those rules of conscientious fair- ness which courts of equity have imposed as the guides for dealing in such cases, it cannot be maintained that any rule forbids one director among several from loan- ing money to the corporation when the money is needed, and the transaction is open, and otherwise free from blame. No adjudged case has gone so far as this. Such a doctrine, while it "would afford little protection to the corporation against actual fraud or oppression, would deprive it of the aid of those most interested in giving aid judiciously, and best qualified to judge of the neces- sity of that aid, and of the extent to which it may safely be given. "There are in such a transaction three distinct parties whose interest is affected by it; namely, the lender, the corporation, and the stockholders of the corporation. "The directors are the officers or agents of the cor- poration, and represent the interests of that abstract legal entity, and of those who own the shares of its stock. One of the objects of creating a corporation by law is to enable it to make contracts; and these contracts may be made with its stockholders as well as with others. In some classes of corporations, as in mutual insurance compa- nies, the main object of the act of incorporation is to enable the company to make contracts with its stock- holders, or with persons who become stockholders by the very act of making the contract of insurance. It is very true, that as a stockholder, in making a contract of any kind with the corporation of which he is a member, is in some sense dealing with a creature of which he is a part, and holds a common interest with the other stockholders, who, with him, constitute the whole of that artificial entity, he is properly held to a larger measure of candor and good faith than if he were not a stockholder. So, when the lendor is a director, charged, with others, with the control and management of the affairs of the corpora- tion, representing in this regard the aggregated interest 1050 CORPORATIONS of all the stockholders, his obligation, if he becomes a party to a contract with the company, to candor and fair dealing, is increased in the precise degree that his repre- sentative character has given him power and control de- rived from the confidence reposed in him by the stock- holders who appointed him their agent. If he should be a sole director, or one of a smaller number vested with certain powers, this obligation would be still stronger, and his acts subject to more severe scrutiny, and their validity determined by more rigid principles of morality, and freedom from motives of selfishness. All this falls far short, however, of holding that no such contract can be made which will be valid ; and we entertain no doubt that the defendant in this case could make a loan of money to the company; and as we have already said that the evidence shows it to have been an honest transaction for the benefit of the corporation and its shareholders, both in the rate of interest and in the security taken, we think it was valid originally, whether liable to be avoided after- wards by the company or not. "If it be conceded that the contract by which the de- fendant became the creditor of the company was valid, we see no principle on which the subsequent purchase under the deed of trust is not equally so. The defendant was not here both seller and buyer. A trustee was interposed who made the sale, and who had the usual powers neces- sary to see that the sale was fairly conducted, and who in this respect was the trustee of the corporation, and must be supposed to have been selected by it for the exer- cise of this power. Defendant was at liberty to bid, sub- ject to those rules of fairness which we have already conceded to belong to his peculiar position; for, if he could not bid, he would have been deprived of the only means which his contract gave him of making his debt out of the security on which he had loaned his money. We think the sale was a fair one. The company was hope- lessly involved beside the debt to defendant. The well was exhausted, to all appearance. The machinery was of little use for any other purpose, and would not pay trans- DIRECTORS 1051 portation. Most of the stockholders who now promote this suit refused to pay assessments on their shares to aid the company. Nothing was left to the defendant but to buy it in, as no one would bid the amount of his debt. * * * "The doctrine is well settled, that the option to avoid such a sale must be exercised within a reasonable time. This has never been held to be any determined number of days or years as applied to every case, like the statute of limitations, but must be decided in each case upon all the elements of it which affect that question. These are generally the presence or absence of the parties at the place of the transaction, their knowledge or ignorance of the sale and of the facts which render it voidable, the permanent or fluctuating character of the subject-mat- ter of the transaction as affecting its value, and the actual rise or fall of the property in value during the period within which this option might have been exercised. "In fixing this period in any particular case, we are but little aided by the analogies of the statutes of limita- tion ; while, though not falling exactly within the rule as to time for rescinding, or offering to rescind, a contract by one of the parties to it for actual fraud, the analogies are so strong as to give to this latter great force in the consideration of the case. In this class of cases the party is bound to act with reasonable diligence as soon as the fraud is discovered, or his right to rescind is gone. No delay for the purpose of enabling the defrauded party to speculate upon the chances which the future may give him of deciding profitably to himself whether he will abide by his bargain, or rescind it, is allowed in a court of equity. ' * Question 684: (1.) In this case was the contract fair or unfair? (2.) Does the question whether it was fair or unfair decide the right of the corporation or its stockholders to have it set aside? (See Note:) (Note: The rule worked out by the authorities as to con- tracts made between a corporation and a director seems to be this : 1052 CORPORATIONS That such a contract if made by the director through his own vote or other action as the representative of the corporation, is voidable, whether fair or not, at the instance of any stockholder who has not consented thereto, and who is not guilty of laches in prosecuting his suit; that such a contract if made by the director on the vote of other directors who compose the majority, and who are not "dummies" is voidable if not fair, and if not made with the fullest disclosure of facts by the contracting di- rector; but otherwise it is not voidable, but binding.) Case No. 685. Klem v. Independent Brew. Ass'n, 231 111. 594. Facts: The facts appear in the opinion. Point Involved: That fraudulent acts by directors are not validated by a ratification of stockholders, who are controlled by the directors. MR. JUSTICE FARMER: "It is not to be tolerated that the directors of a corporation owning and controlling a majority of the stock shall be permitted to cause their un- lawful acts to be ratified by calling a stockholders ' meet- ing which they control as effectually as they do the board of directors and causing a majority of the stock to be voted in favor of the ratification. If the acts complained of were unaffected by any unlawful and fraudulent mo- tive and conduct and it were a question simply whether the directors had exercised good judgment for the best interests of the corporation, a different rule would per- haps apply; for the directors and a majority of stock- holders have the right to control, direct and manage the corporation. In this case, however, the directors pur- chased from themselves property for an amount much in excess of its value and this was a fraud upon the stock- holders which could not be ratified nor condoned by a stockholders' meeting at which a majority of the votes cast in favor of the ratification were passed by or under the control of the directors who were guilty of the wrong doing. If the reverse were true then the minority stock- holders would be at the mercy of the majority who would be able to elect the directors and be able to control stock- DIRECTORS 1053 holders' meetings and thereby ratify the acts of the directors however wrongful and injurious they might be to the corporation." Question 685: State the point here involved and the Court's decision. Case No. 686. Hun v. Gary, 82 N. Y. 65. Facts: Suit brought by receiver of Central Savings Bank against trustees of the bank to recover damages caused by their alleged misconduct. The bank was or- ganized in 1867. Up to January, 1873, its deposits had averaged $70,000 and its expenses exceeded its income. In May of that year, the trustees voted to purchase a lot for $29,250, paying $10,000 in cash, and put up a building costing $27,000, giving back a mortgage for $30,500. The object was to increase the business of the bank. At the time of the purchase the bank occupied leased rooms and its liabilities exceeded its assets. Point Involved: Whether directors are liable to the corporation for improvidence; whether the acts in ques- tion were mere errors of judgment or reckless acts; the duty of care upon a director in managing the corporate business. EABL, J. : "This action was brought by the receiver of the Central Savings Bank of the City of New York, against the defendants, who were trustees of the bank, to recover damages which, it is alleged, they caused the bank by their misconduct as such trustees. ' ' The first question to be considered is the measure of fidelity, care and diligence which such trustees owe to such a bank and its depositors. The relation existing between the corporation and its trustees is mainly that of principal and agent, and the relation between the trus- tees and the depositors is similar to that of trustee and cestui que trust. The trustees are bound to observe the limits placed upon their powers in the charter, and if they transcend such limits and cause damage they incur 1054 CORPORATIONS liability. If they act fraudulently or do a wilful wrong, it is not doubted that they may be held for all the dam- age they cause to the bank or its depositors. But if they act in good faith within the limits of powers conferred, using proper prudence and diligence, they are not respon- sible for mere mistakes or errors of judgment. That the trustees of such corporations are bound to use some diligence in the discharge of their duties cannot be dis- puted. All the authorities hold so. What degree of care and diligence are they bound to exercise? Not the highest degree, not such as a very vigilant or extremely careful person would exercise. If such were required, it would be difficult to find trustees who would incur the responsibility of such trust positions. It would not be proper to answer the question by saying the lowest degree. Few persons would be willing to deposit money in savings banks, or to take stock in corporations, with the understanding that the trustees or directors were bound only to exercise slight care, such as inattentive persons would give to their own business, in the manage- ment of the large and important interests committed to their hands. When one deposits money in a savings bank, or takes stock in a corporation, thus divesting him- self of the immediate control of his property, he expects, and has the right to expect, that the trustees or directors, who are chosen to take his place in the management and control of his property, will exercise ordinary care and prudence in the trusts committed to them the same de- gree of care and prudence that men prompted by self- interest generally exercise in their own affairs. When one voluntarily takes the position of trustee or director of a corporation, good faith, exact justice, and public policy unite in requiring of him such a degree of care and prudence, and it is a gross breach of duty crassa neg- ligentia not to bestow them. "It is impossible to give the measure of culpable negli- gence for all cases, as the degree of care required depends upon the subjects to which it is to be applied. (First Nat. Bank v. Ocean Nat. Bank, 60 N. Y. 278.) What DIRECTORS 1055 would be slight neglect in the care of a quantity of iron might be gross neglect in the care of a jewel. What would be slight neglect in the care exercised in the affairs of a turnpike corporation or even of a manufacturing corporation, might be gross neglect in the care exercised in the management of a savings bank intrusted with the savings of a multitude of poor people, depending for its life upon credit and liable to be wrecked by the breath of suspicion. There is a classification of negligence to be found in the books, not always of practical value and yet sometimes serviceable, into slight negligence, gross negli- gence, and that degree of negligence intermediate the two, attributed to the absence of ordinary care; and the claim on behalf of these trustees is that they can only be held responsible in this action in consequence of gross negligence, according to this classification. If gross neg- ligence be taken according to its ordinary meaning as something nearly approaching fraud or bad faith I can- not yield to this claim; and if there are any authorities upholding the claim, I emphatically dissent from them. "It seems to me that it would be a monstrous proposi- tion to hold that trustees, intrusted with the management of the property, interests and business of other people who divest themselves of the management and confide in them, are bound to give only slight care to the duties of their trust, and are liable only in case of gross inatten- tion and negligence ; and I have found no authority fully upholding such a proposition." [Held that the trustees were not guilty of a mere error of judgment, but improvi- dence, and reckless extravagance and therefore liable to the receiver.] Question 686: What degree of care must a director show? Does the nature of the business help to determine ? Suppose the director does not act in bad faith, is that alone enough to save him ? Is a director always liable for errors of judgment? Sec. 509? Liability of Director to Third Persons. Case No. 687. Morgan v. Skiddy et al., 62 N. Y. 319. Facts: Certain directors sanctioned the circulation of a prospectus known to contain false statements of ma- 1056 CORPORATIONS terial facts in respect to the assets and condition of the corporation, the natural tendency of which was to induce subscriptions. Plaintiff relying thereon bought stock. He sues the directors for fraud. Point Involved: Whether a director is personally liable who sanctions false statements to induce subscrip- tions. ANDREWS, J. : "* * * ' ' The representations made in the prospectus as to the exploration made on the land of the company were false. But two or three shafts had been sunk upon this property. Very little work had been done upon it, and the presence of valuable ores in any considerable quantities had not been discovered. * The false statement in the prospectus related to an existing fact which ma- terially affected the value of the shares ; it was prepared for the purpose of circulation and to induce investments in the stock of the company. If the plaintiff purchased his stock relying upon the truth of the prospectus, he has a right of action for deceit against the persons who, with knowledge of the fraud and with intent to deceive, put it in circulation. The representation was made to each person comprehended within the class of persons who were designed to be influenced by the prospectus; and when a prospectus of this character has been issued no other relation or privity between the parties need be shown, except that created by the wrongful and fraud- ulent act of the defendants in issuing or circulating the prospectus, and the resulting injury to the plaintiff. (Clark v. Dixon, 6 C. B. [N. S.], 453; Central Eailroad Co. v. Kish, Law Eep. [2 Eng. and Irish App.], 100.)" Question 687: In what way were the false statements made in this case ? Did the directors know the statements were false ? Were they held liable? (Note: Statutes extend or declare the liability of a director. Thus a director may be made liable for knowingly making false financial statements, allowing the debts to exceed the capital stock, etc., allowing the corporation to proceed to business without having complied with certain statutes, etc.) CHAPTER NINETY-NINE ADMINISTRATIVE OFFICERS 510. In general. 511. The various officers. Sec. 510. In General. (Note : The usual administrative officers of a corporation are the President, Secretary and Treasurer. They are elected by the directors. In addition a corporation may have other officers, as vice presidents, chairman of board, cashier, etc. The powers of these officers differ widely in different corporations, according to the actual or apparent power given in each case.) Sec. 511. The Various Officers. (Note: The President The president of a corporation has the duty of presiding at directors' meetings and in some states, but not in others, he is presumed to be, in the absence of evidence to the contrary, a general manager. The Vice-President The vice-president is an officer whose powers as such are very ill defined and usually reference must be made to the particular facts in the case. He may as a matter of fact, have very extensive powers, or his office may be purely honorary. The Treasurer The treasurer has the charge of the books relating to his office, and the funds of the corporation. His duty is to receive the funds and pay them out upon proper vouchers or directions. He has very little implied power to bind the corporation. The Secretary The secretary of the corporation has charge of its books and its seal, and his duty is to keep the usual secretarial books, attend to the ordinary details of management, send out 1057 1058 CORPORATIONS notices of meetings, attend stockholders' and directors' meetings, and act as secretary of those meetings. Other Administrative Officers Besides the officers named, any corporation may have certain other administrative officers whose powers and duties depend in each case upon the particular facts involved.) PART XXIX FOREIGN CORPORATIONS Chapter One Hundred. Foreign Corporation Denned ; Its Gen- eral Status. Chapter One Hundred and One. Same Subject Con- tinued. CHAPTER ONE HUNDRED FOREIGN CORPORATION DEFINED; ITS GENERAL STATUS 512. Foreign corporation defined. 514. Rights under the Federal 513. Right of corporation in other Constitution, than the home state. Sec. 512. Foreign Corporations Defined. (Note: A foreign corporation is a corporation created by another legislative jurisdiction than the one in which its right to come to do corporate acts, to carry on business, to own prop- erty, is being considered. Thus an Illinois corporation is a for- eign corporation in Indiana.) Sec. 513. Right of Corporation in Other Than the Home State. Case No. 688. Empire Mills v. Alston Groc. Co., Tex. Ap. , 12 L. E. A. 366. 1059 1060 CORPORATIONS DAVIDSON, J. : " Again, it may be said in this connec- tion that * it is a fundamental principle that the laws of a state can have no binding force, proprio vigore, outside of the territorial limits and jurisdiction of the state enact- ing them. ' * * * * Hence it follows that a state can- not grant to any person the right to exercise a franchise in a foreign state or country; for a franchise is the result of a law authorizing particular individuals to do acts or enjoy immunities which are not allowed to the community at large. ' Morawetz, Priv. Corp. 1st ed. 500, 535. "A grant of corporate existence is a grant of special privileges to the corporators, enabling them to act for certain designated purposes as a single individual, and exempting them (unless otherwise provided) from in- dividual liability. The corporation, being the mere crea- tion of local law, can have no legal existence beyond the limits of the sovereignty where created. It must dwell in the place of its creation, and cannot migrate to another sovereignty. The recognition of its existence even by other states and the enforcement of its contracts made therein depend purely upon the comity of those states.' Morawetz Priv. Corp. 1st ed. Sec. 500. * * * "The rule of comity is entirely in subjection to the sovereign will of the state, and can only exist by per- mission of the state in which it is sought to employ it. Question 688: Has a corporation a right to enter other states ? By virtue of what does it enter? Case No. 689. Paul v. Virginia, 8 Wall. 168. MB. JUSTICE FIELD : "* * * "Now a grant of corporate existence is a grant of spe- cial privileges to the corporators, enabling them to act for certain designated purposes as a single individual, and exempting them (unless otherwise specially pro- vided) from individual liability. The corporation, being FOREIGN CORPORATIONS 1061 the mere creation of local law, can have no legal existence beyond the limits of the sovereignty where created. As said by this Court in Bank of Augusta v. Earle, 13 Pet. 519, 10 L. Ed. 274: 'It must dweU in the place of its creation, and cannot migrate to another sovereignty.' The recognition of its existence even by other states, and the enforcement of its contracts made therein, depend purely upon the comity of those states a comity which is never extended where the existence of the corporation or the exercise of its powers is prejudicial to their inter- ests or repugnant to their policy. Having no absolute right of recognition in other states, but depending for such recognition and the enforcement of its contracts upon their assent, it follows, as a matter of course, that such assent may be granted upon such terms and condi- tions as those states may think proper to impose. They may exclude the foreign corporation entirely, they may restrict its business to particular localities, or they may exact such security for the performance of its contracts with their citizens as in their judgment will best promote the public interest. The whole matter rests in their dis- cretion. ' ' Question 689: What does this case hold? (Note : This case also held that the issuance of an insurance policy by a citizen of one state to a citizen of another, is not interstate commerce.) Sec. 514. Rights Under the Federal Constitution. Case No. 690. Butler Bros. Shoe Co. v. U. S. Rubber Co., 156 Fed. 1. SANBOBN, J.: "* * * "The review of the decisions of the Supreme Court re- lating to the power of a state to trammel or destroy the right of a corporation of another state to do business within its borders in which we have indulged may have 1062 CORPORATIONS been tedious ; but it may be profitable, if it serve to cor- rect the erroneous view that such a corporation has no such right, and that all its powers and privileges without the limits of the state of its creation are at the mercy of any state in which it attempts to do business. It is not now, and it never has been, the law that no corporation of one state has any absolute right of recognition in other states, or that other states may exclude all the corpora- tions of any state from doing any business within them, or that they may condition their transaction of such busi- ness by such terms as they may think proper to impose. "The Constitution of the United States and the acts of Congress in pursuance thereof are the supreme law of the land. Under that Constitution and those laws a corporation of one state has at least three absolute rights which it may freely exercise in every other state in the Union, without let or hindrance from its legislation, or action : "(1) Every corporation empowered to engage in in- terstate commerce by the state in which it is created, may carry on interstate commerce in every state in the Union, free of every prohibition and condition imposed by the latter. * * * "Every corporation of any state in the employ of the United States has the right to exercise the necessary corporate powers and to transact the business requisite to discharge the duties of that employment in every other state in the Union without permission granted, or condi- tions imposed by the latter. "Every corporation of each state has the absolute right to institute and maintain in the federal courts, and to remove to those courts for trial and decision, its suits in every other state, in the cases and on the terms pre- scribed by the acts of Congress. * * * 1 * Every law of a state which attempts to destroy these rights or to burden their exercise is violative of the Constitution of the United States and void." Question 690: To what extent is the power of a state over foreign corporations limited by the United States Constitution? CHAPTER ONE HUNDRED AND ONE SAME SUBJECT: Continued 515. Usual provisions in the law 518. Penalty for non-compliance affecting foreign corpora- with foreign corporation tions. law. 516. How corporations may enter 519. Jurisdiction of court over in- a foreign state. ternal affairs of foreign 517. What amounts to transacting corporation. business within meaning of foreign corporation laws. Sec. 515. Usual Provisions in the Law Affecting Foreign Corporation. (Note : Of course the laws of the different states vary in their regulation of foreign corporations. The more common provisions are : that in order to qualify to do business, a foreign corporation must file a copy of its charter, state the names and addresses of its stockholders, directors and officers, state how much of its capi- tal is to be represented in the state, pay certain fees, name an agent upon whom service of process may be made, etc., under penalty for non-compliance of a fine and inability to enforce con- tractual obligations.) Sec. 516. How Corporation May Enter Another State. (Note: A corporation may enter another state, and become there constructively present, as follows : (1.) By transacting business in another state. (2.) By performing isolated transactions, as bringing suit, making loans, holding meetings, and the like. (3.) By having property there. (Edwards v. Schillinger, 245 111. 231. "It is the just and reasonable theory that a business corporation is constructively 1063 1064 CORPORATIONS present outside of the place of its origin whenever it has property and carries on its operations by means of its agents.") Sec. 517. What Amounts to Transacting Business Within Meaning of Foreign Corporation Laws. (Note : When a corporation is in another state, the question whether it is "transacting business" there, within the meaning of the foreign corporation laws of that state is very important. If it is not transacting business there it need not comply with the foreign corporation laws, and it is not subject to the pen- alties fixed for non-compliance.) Case No. 691. Kirven v. Virginia, Etc., Co., 145 Fed. 288. DAYTON, D. J.: "* * * "It has further been held that sales of goods by a foreign corporation to a resident of a state, although made by a salesman or agent sent into the state, to be shipped to him in the state from another state, belong to the operations of the interstate commerce and are not subject to these restrictive laws of the states. Also even though the business is done by the foreign corporation through an agent or firm resident in the state, and notes are given in settlement in the state payable in the state. It has, however, been held that this interstate commerce clause does not apply to foreign corporations maintain- ing continuously an agency in a state from which orders are solicited and the goods are delivered to purchasers. "In construing the effect of these statutes in given cases, it has become frequently necessary for the courts to define what constitutes a i doing, transacting or carry- ing on a business,' and, while there is some conflict, the greater weight of authority is to the effect that isolated transactions, especially commercial, between foreign cor- porations and a citizen of the state, do not constitute a 'doing, transacting or carrying on a business,' within the meaning of such statutes using these terms. It has so been held by the courts of Alabama, Arkansas, Colo- FOREIGN CORPORATIONS 1065 rado, Illinois, Iowa, Kansas, Missouri, New Jersey, New York, Oregon, Pennsylvania, Tennessee, Texas, Washing- ton, Wisconsin, and by the federal courts in such cases as Cooper Mfg. Co. v. Ferguson, 113 U. S. 727 ; Frawley v. Penna Casualty Co., 124 Fed. 259 ; Oakland Sugar Co. v. Wolf, 118 Fed. 239. Among such instances of single transactions not constituting a 'doing of business within the meaning of the statutes' are the making of a single sale or contract of goods to a citizen and the taking of a mortgage in the state to secure payment therefor. * * * And the taking of notes in the state for goods sold or a debt contracted in another state, and the suing thereon in the state, does not constitute such ' doing of business. ' And these statutes cannot affect contracts made by a citizen outside of his state with a foreign corpora- tion, as for instance, where an order is sent by the citizen for goods to the foreign corporation, or where such or- der is taken by a local agent, subject to the approval of the corporation, and is approved by the corporation outside the state, and the goods are shipped from outside the state by it to the purchaser in the state. * * * " Question 691: The A corporation organized under the laws of New Jersey, has its general office and factory in New York and opens up a branch office in Illinois, from which contracts are closed and goods are delivered to purchasers. It also has a trav- eling salesman in Massachusetts who solicits orders and sends them in to be approved and filled. It also purchases land in Ohio, and then, deciding not to open an office there, resells the same and takes back a mortgage. In which of these states must it comply with the foreign corporation law? Case No. 692. International Text Book Co. v. Pigg, 217 U. S. 91. Facts: Suit brought by International Text Book Co. to recover of Pigg a sum of money due for instruction in commercial law. Defense, that the plaintiff had not com- plied with the Kansas Foreign Corporation Law, and therefore in accordance with that law could not sue in the Kansas courts. 1066 CORPORATIONS Point Involved: Whether the contract sued on in- volved interstate commerce, which the Kansas statute could not burden. What in general constitutes interstate commerce? MR. JUSTICE HAKLAN: "* * * "It is true that the business in which the International Text-book Company is engaged is of a somewhat excep- tional character, but, in our judgment, it was, in its essen- tial characteristics, commerce among the states within the meaning of the Constitution of the United States. It involved, as already suggested, regular and, practically, continuous intercourse between the Text-book Company, located in Pennsylvania, and its scholars and agents in Kansas and other states. That intercourse was conducted by means of correspondence through the mails with such agents and scholars. While this mode of imparting and acquiring an education may not be such as is com- monly adopted in this country, it is a lawful mode to ac- complish the valuable purpose the parties have in view. More than that; this mode looking at the contracts be- tween the Text-book Company and its scholars involved the transportation from the state where the school is lo- cated to the state in which the scholar resides, of books, apparatus and papers, useful or necessary in the particu- lar course of study the scholar is pursuing and in respect of which he is entitled, from time to time, by virtue of his contract, to information and direction. Intercourse of that kind, between parties in different states particu- larly when it is in execution of a valid contract between them is as much intercourse, in the constitutional sense, as intercourse by means of the telegraph * a new species of commerce,' to use the words of this Court in Pensa- cola Telegraph Co. v. Western Union Telegraph Co., 96 U. S. 1, 9. In the great case of Gibbons v. Ogden, 9 Wheat. 1, 189, this Court, speaking by Chief Justice Mar- shall, said, l Commerce, undoubtedly, is traffic, but it is something more ; it is intercourse. ' Referring to the con- stitutional power of Congress to regulate commerce J FOREIGN CORPORATIONS 1067 among the states and with foreign countries, this Court said in the Pensacola case, just cited, that 'it is not only the right but the duty of Congress to see to it that inter- course among the states and the transmission of intelli- gence are not obstructed or unnecessarily encumbered by state legislation. ' This principle has never been modified by any subsequent decision of this Court. "The same thought was expressed in Western Union Tel. Co. v. Pendleton, 122 U. S. 347, 356, where the Court said : ' Other commerce deals only with persons, or with visible and tangible things. But the telegraph transports nothing visible and tangible ; it carries only ideas, wishes, orders and intelligence. ' It was said in the Circuit Court of Appeals for the Eighth Circuit, speaking by Judge Sanborn, in Butler Bros. Shoe Co. v. United States Rub- ber Co., 156 Fed. Eep. 1, 17, that 'all interstate commerce is not sales of goods. Importation into one state from another is the indispensable element, the test, of inter- state commerce; and every negotiation, contract, trade, and dealing between citizens of different states, which contemplates and causes such importation, whether it be of goods, persons, or information, is a transaction of interstate commerce. ' If intercourse between persons in different states by means of telegraphic messages con- veying intelligence or information is commerce among the states, which no state may directly burden or unneces- sarily encumber, we cannot doubt that intercourse or communication between persons in different states, by means of correspondence through the mails, is commerce among the states within the meaning of the Constitution, especially where, as here, such intercourse and commu- nication really relates to matters of regular, continuous business and to the making of contracts and the trans- portation of books, papers, etc., appertaining to such business. In our further consideration of this case we shall therefore assume that the business of the Text- book Company, by means of correspondence through the mails and otherwise between Kansas and Pennsylvania, was interstate in its nature." 1068 CORPORATIONS Question 692: (1.) Define interstate commerce; what does it include ? (2.) Can a state restrict interstate commerce? Why? Sec. 518. Penalty for Non-compliance With Foreign Corporation Law. Case No. 693. Fmin-Colnon Contracting Co. v. Chat- terson, 146 Ky. 540. CARROLL, J. : " She set up that the appellant had failed to comply with this statute and hence could not recover against her on the contract made with the board of public works for the street improvement. In a reply, appellant admitted that when the contract was awarded and the work completed it had not complied with the statute, but averred that it did so afterwards, and in November, 1909. Chancellor Miller, now a judge of this court, ruled that, under the facts admitted in the pleadings, the plaintiff could not recover and entered a judgment dismissing the petition. On this appeal, the only question presented is, Did the failure of the appellant to comply with the stat- ute before making the contract and completing the work under it deny it the right to recover the cost of the im- provement? * * * "With the question of estoppel out of the way, the exact matter for decision is, Will a foreign corporation be assisted by the courts of this state to enforce a con- tract that was entered into and completed at a time when it was unlawful for the corporation to carry on in this state the business it was engaged in, and out of which the contract arose? The statute does not provide that contracts entered into before it has been complied with shall be void or nonenforceable, nor does it use any lan- guage in reference to the contract; but, when a statute makes it unlawful to do business under certain condi- tions, it seems to necessarily and logically follow that the doing of the business under the prohibited conditions is in itself unlawful. When the doing of the act is made un- FOREIGN CORPORATIONS 1069 lawful, there is no reason why the statute should also declare that contracts made in violation of it should also be unlawful. "When the law prohibits a thing, it is un- lawful to do it, and the courts should not lend their aid to the enforcement of prohibited contracts. Courts are established to afford remedies to litigants who seek relief growing out of lawful transactions, and not to aid those who would invoke their assistance to enforce contracts made in violation of law. Their chief purpose is to se- cure the observation of laws enacted for the safety and protection of life and property and the general well-being of the people, and it would be a startling departure from this purpose if they should also give relief to parties who are seeking to enforce contracts made in violation of law. Such a course of procedure would be a perversion of justice, and convert the courts into instruments to aid lawbreakers, in place of punishing them. It is also argued that it would be a hardship on this corporation to lose the value of its work, but this furnishes no ex- cuse why it should obtain relief, as there is scarcely a penal statute the enforcement of which does not impose severe burdens; and if the severity of the punishment should be treated as a reason for disregarding the stat- ute, many beneficial laws would be unenf orced. ' ' Our attention has been called by counsel for appellant to authorities from other -states, holding that the courts will not deny relief in cases of this character, but will leave the offending corporations to be punished under that penalty feature of the statute. That there is much diversity of opinion on the subject under consideration to be found in the decisions of the courts of other states can- not be doubted by any person who has examined the cases, but we think the weight of authority supports the principle that when a statute expressly declares that it shall be unlawful to do business until its requirements shall have been complied with, a contract made in con- travention of the statute will not be enforced by the courts. * * *" 1070 CORPORATIONS Question 693: What was the defense made in this case ? How was this defense met? Did the defense prevail? Are all the states in accord on this question ? Sec. 519. Jurisdiction of Court Over Internal Affairs of Foreign Corporation. Case No. 694. Babcock v. Farwell, 245 111. 14. Facts: Suit in the Illinois courts, by a stockholder of a corporation organized under laws of Great Britain to set aside certain contracts made between the corporation and Farwell declared void and to compel an accounting. Defense, that the Illinois Court has no jurisdiction over internal controversies in the corporation. MB. JUSTICE DUNN: "The general rule has been de- clared by the decisions of many courts and has been stated by text writers to be, that the courts of one state will not exercise the power of deciding controversies re- lating merely to the internal management of the affairs of a corporation organized under the laws of another state or of determining rights dependent upon such man- agement. * * * "As stated in Thompson on Corporations, supra, this doctrine obviously has its limitations. Except in cases involving the exercise of visitorial powers, the question is not strictly one of jurisdiction but rather of discretion in the exercise of jurisdiction. The reasons which in- fluence courts of chancery to refuse to interfere in the management of the internal affairs of a foreign corpora- tion are, that the rights arising between a corporation and its members out of such management depend upon the laws under which the corporation is organized; that the courts of that state afford the most appropriate forum for adjudication upon the relation between the stockholders and the corporation, and that frequently such courts alone possess power adequate to the enforce- ment of all decrees that justice may require. It is the FOREIGN CORPORATIONS 1071 inability of the Court to do complete justice by its decree, and not its incompetency to decide the question involved, that determines the exercise of its power. The general statement that courts will not interfere with the manage- ment of the internal affairs of foreign corporations must be construed in connection with the particular facts. The rule rests more on grounds of policy and expediency than on jurisdictional grounds; more on want of power to enforce a decree than on jurisdiction to make it. Where the wrongs complained of are merely against the sover- eignty by which the corporation was created or the law of its existence, or are such as require for their redress the exercise of the visitorial powers of the sovereign, or where full jurisdiction of the corporation and of its stockholders is necessary to such redress, the courts will decline jurisdiction. Examples of such cases are suits to dissolve a corporation; to appoint a receiver; to deter- mine the validity of its organization or which of two rival organizations is legal ; to restrain it from declaring a dividend or compel it to make one ; to restrain an issue of stock or of bonds ; to compel a division of its assets ; to restore a stockholder to his right to vote at stockhold- ers ' meetings from which he has been excluded, or to com- pel the recognition of one claiming to have been elected a director. 4 'Where, however, the relief sought is within the gen- eral jurisdiction of a court of chancery, where all the parties necessary to the full and proper adjustment of the rights involved are before the Court and where the relief sought does not require the exercise of the visitorial power of the government, we think the Court should exercise the power of determining controversies brought before it instead of remitting suitors to a foreign juris- diction. ' ' Question 694: Will a Court take jurisdiction to decide con- troversies in internal management of foreign corporations ? When does the Court not have jurisdiction ? Name eight matters that a Court will not decide in reference to a foreign corporation. TABLE OF CASES [REFERENCES ARE TO PAGES] Adams v. Beall 828 Alton Mfg. Co. v. Garrett 971 American Cotton Oil Co. v. Kirk 80 American Nat. Bk. v. Nat. Fertilizer Co 751 Amsinck v. Bogers 768 Ankeny v. McMahon 133 A ndrew v. Stinson 899 Andrews et al. v. Eobertson. . . . 698 Anderson v. Wisconsin By. .33, 516 Arbuckle Bros. v. Kirkpatrick. 441 Arnold v. Delano 561 Ash v. Guie 818 Austin v. Holland 876 Au,stin v. Kuehn 147 Austin v. Seligman 434 Auten v. Gruner 714 B Babcock v. Farwell 1041, 1070 Bagley v. Findlay 568 Bain v. Withey & Ottman 464 Baird v. Shipman 351 Baldy v. Parker 156 Ballen & Friedman v. Bank of Krenlin 770 Barker, In re 1033 Barlow v. Cong. Soc 347 Barnes v. Suddard 969 Barnes v. Vaughn 739 Bartlett v. First National Bank 648 Bartholomew v. Jackson 30 Bass Furnace Co. v. Glasscoek. 313 Beach v. M. E. Church 39 Becker v. Hart. . . 694 Bedford B. K. Co. v. Bowser. . . 997 Bell v. Baxter 97 Belz v. MeMorrow 508 Bellows v. Sowles. 142 Berenson v. L. & L. Fire Ins. Co 609 Bernard v. Taylor Ill Best Brewing Co. v. Klassen . . . 968 Bessenger v. Wenzel 743 Bierne v. Dord 483 Biewer v. Mueller 55 Bird v. Munroe 139 Bixby v. Moore 130 Blank v. Aronson 310 Blinn v. Schwartz 275 Blinns v. Waddell 866 Booth v. Spuyten 243 Bowes et al. v. Shand 226 Brady v. Cole 55 Bradwell v. Pryor 690 Brisbane v. D. L. & W. B. B. Co 1010 Broadax v. Ledbetter 31 Brown v. Foster 231 Bryans v. Nix 507 Buckley v. Huinason 117 Bull v. Griswold 151 Burwash v. Ballou 1015 Burley v. Tufts 520 Butler Bros. Co. v. II. S. Bub- ber Co. . . . 1061 C Calais Steamboat Co. v. Scudder 527 Canning Co. v. Stanley 975 Carlson v. Kenealy 628 Casco National Bank v. Clark . . 343 Case v. Beauregard 894 1073 1074 TABLE OF CASES [REFERENCES Central Lumber Co. v. Kelter.. '967 Chambers v. Seay 412 Challis v. McCrum 728 Chapman v. Haley 123 Chase v. Hinkley 152 Claflin v. Lenheim 419 Chicago Edison Co. v. Fay 1019 Clandeboye 59 Clason v. Bailey 161 Cleveland Rolling Mills v. Ehodes 188 Cohn et al. v. Plumer 257 Columbus Buggy Co., In re .... 435 Columbian Bank v. Bowen 734, 767, 792 Combs v. Scott 295 Commonwealth v. Hemingway. 1044 Commercial Bank of Erie v. Norton & Fox 322 Congar v. Chicago & North- western E. B. Co 384 Converse v. Emerson 976 Cook v. Colehan 639 Coursole v. Wyerhauser 5 Corbin v. Tracy 253 Craft v. S. Boston E. E 389 Cream City Glass Co. v. Fried- lander 554 Cromwell v. County of Sac 700 Cunningham v. Castle 401 Cushion Heel Shoe Co. v. Hartt. 948 Curtiss v. Leavitt. . . 963 D Dale v. Gear 730 Daniel v. Atlantic Coast Line E. E. Co 394 Darrow v. Calkins 903 Dartmouth College v. "Woodward 938 Dorris v. Kings 150 Demarest v. Dunton Lumber Co . 206 Dempsey v. Chambers 290 Dempster Mfg. Co. v. Downs & Mullen 1012 Dentzel v. Island Park Asso. . . . 511 Denver Fire Ins. Co. v. McClel- land 982 Diamond Match Co. v. Eoeber. . 102 ARE TO PAGES] Distilling & Cattle Feeding Co. v. People 105 Distilled Spirits, The 386 Doernbecher v. Columbia City Lumber Co 1045 Doherty v. Shipper & Block. . . 333 Dowling v. Exchange Bank. . . . 709 Duplex Safety Boiler Co. v. Garden 232 Dupont Demours Powder Co. v. Jones 806 Duval v. Wellman 124 E Eberts v. Selover 300 Echols v. State 266 Edwards v. Dillon 863 Ehrler v. Braun 713 Ehrmantraut v. Eobinson 298 Eichelroth v. Long 578 Eldridge v. Finniger 408 Elias v. Whitney 680 Elliott v. Caldwell 230 Ernst v. Elmira Municipal Im- provement Co 1008 F Farrell v. E. & D. E. E. Co. . . 563 Fawcett v. Osborne 522 Fitts v. Hall 21 First National Bank v. Buttery 642 First Nat. Bk. v. Gustin Co 1006 First Nat. Bk. v. Leach 798 First Nat. Bk. v. Lightner 621 First Nat. Bk. v. Miller 752 First Nat. Bk. v. McCullough. . 671 First Nat. Bk. v. Sprague 323 First Nat. Bk. v. Skeen 703 Fisher v. Leland 681 Foley v. Felrath 498 Forsyth Mfg. Co. v. Castlen.447, 171 Four Oil Co. v. United Oil Pro- ducers 42 Fox v. Turner 38 Fox v. Eyan 331 G Galusha v. Sherman 65 Gann v. Zettler. . . 307 TABLE OF CASES 1075 [REFERENCES Gault v. Stormont 158 Geary v. Physic 607 German-American Bk. v. Milli- man 740 Gillette v. Hodge 686 Goddard v. Binney 157 Goodrich v. Tenney 122 Goodwin v. Hardy 1038 Goodyear Co. v. Selz Schwab & Co 194 Gordon v. Levine 793 Gove v. Vining 758 Grand Av. Hotel Co. v. Whar- ton 479 Graves v. Johnson 118 Gregory v. Lee 18 Green v. Green 11 Greenhood v. Keaton 368 Greenwood Groc. Co. v. Canadian County Mill Co 513 Greenwood v. Spring 274 Grigsby v. Stapleton 57 Grommes v. St. Paul Trust Co. 212 Grooms v. Olliff 704 H Hadley v. Baxendale |. 248 Hagardine Co. v. Reynolds 35 Hahn v. Fredericks 489, 493 Hamer v. Sidway 83 Hamilton v. Gordon 496 Hanauer v. Doane 119 Hanford v. McNair 280 Hanna, In re 216 Harrill v. Davis 824-943 Harvin v. Galluchat 214 Hawes v. Oakland 1039 Hawkins v. McGroarty 292 Hazzard v. Shelton 790 Hendren v. Wing 833 Henry v. Caruthers 905 Henry v. Heeb 287 Hereth v. Meyer 613 Hertzog v. Hertzog 180 Hobart v. Young 460 Hobbs v. Massasoit Whip Co ... 43 Hochster v. De La Tour 234 Hodges v. Schuler 633 Hogan v. Stophet 85 ABE TO PAGES] Holbrook v. Payne 215 Hosier v. Beard 712 House v. Beak 501 Howell v. Harvey 897 Huber Mfg. Co. v. Watson 330 Hun v. Cary 1053 Hyman v. Doyle 732 I. D. & W. E. Co. v. Fowler. . . 52 Imperial Building Company v. Board of Trade 943 Indiana Fuel Supply Co. v. In- dianapolis Basket Co 50 International Harvester Co. v. Voboril 67 International Text Book Co. v. Pigg 1065 In re Barker 1033 In re Columbus Buggy Co 435 In re Estate of Speed 923 In re Fishel 113 In re Journalists Funds 962 In re Mathiason Mfg. Co 1030 Insurance Co. v. Davis 424 Jaffray v. Davis * 92 Jarvis v. Manhattan Beach Co. 1016 Jefferson Bank Co. v. C. W. L. Co. ... v 701-865 Jenkins Bros. v. G. V. Eenfrow & Co 382 Jennings T. Stannus 827 Joel v. Morrison 400 Johnson's Admr. v. Seller's Admr 86 Johnson Co., The G. S. v. Be- loosky 530 Johnson v. N. Y. Central Transp. Co 316 Johns v. Jaycox 372 Jones v. Cooper 144 Jones v. Dexter 841 Jones v. Home Furniture Co. . . 607 Jones v. Just 472 Jordan v. Patterson 251 Judge v. Braswell 859 1076 TABLE OF CASES Kadish v. Young 235 Kansas City Paper House v. Foley Rwy. Prtg. Co 108 Karraker v. Eddelman 875 Kayton v. Barnett 376 Keighley, Maxstead & Co. v. Durant 282 Keighler v. Savage Mfg. Co .... 307 Keith v. Jones 635 Keller v. Holderman 32 Kelley v. Thuey 409 Kelley v. Hemingway 640 Kelley v. Whitney 684 Kelley v. Eiley 245 Kempner v. Kohn 37 Kendall v. West 233 Kingan & Co. v. Silvers 270 Kimberly v. Patchin 491 Kingsley v. Davis 381 Kingston v. Preston 237 Kinnan v. Sullivan Co 1037 Kirkeby v. Erickson 149 Kirven v. Virginia 1064 Kohn v. Milcher 120 Komorowski v. Krumdick 370 Kriler v. Trustees of Western College 302 Laing v. Butler 379 Lathrop v. Adams 871 Law v. Stokes 335 Lusk v. Throop 146 Leavitt v. Puttman 668 Lebourdais v. Vitrified Wheel Co 485 Lenz v. Harrison 438 Lew v. Mayer 390 Lindsay v. Stranahan 852 Linz v. Shuck 88 Lloyd v. Grace 392 Lomita L. & W. Co. v. Robin- sm 947 London Guarantee Co. v. Hoin. 217 Louisville Co. v. Lorick 159 Low v. Pew 448 Lowman v. Sheets 862 [REFERENCES ARE TO PAGES] Lucas v. W. U. Tel. Co 45 Lusk v. Throop 146 Lyon & Co. v. Kent 276 M Maciay v. Harvey 34 Mallin v. Wenham 210 Marbury Lumber Co. v. Stearns 478 Market St. Co. v. Hellman 1035 Markey v. Corey 666 Marr v. B. C. R. & N. Rwy. Co. . 144 Martin v. Chauntry 632 Mass. Nat. Bank v. Snow 658 Mason v. Eldred 880 Matthews v. Houghton 633 McCormick v. Kelley 466 McCormick v. Dunville 581 McKellop v. Dewitz 416 McKennon v. Winn 179 McKinley v. Watkins 98 McMann et al. v. Walker 721 McNamara v. Jose 691 Meany v. Pool & McCord 622 Melroy v. Kemerer 93 Melton v. Pensacola Bank 660 Merchants Bank v. Nichols .... 363 Merrill v. Kenyon 379 Metcalf v. Bradshaw 847 Minneapolis Threshing Machine Co. v. Davis 989 Mitchell v. Catchings 682 Mitchell v. Pinckney 468 Mills v. Mills 107 Mills v. Wyman 84 Mitchell v. Reed 843 Moe, Chas. v. J. H. Logue Co. . 524 Moore v. Han dley Hardware Co . 932 Moore v. Bennet 104 Moore v. U. S 546 Morgan v. Skiddy 992 Moore v. Love 166 Morrill v. Little Falls Mfg. Co. 1028 Mors v. Peterson 69 Moskowitz v. Deutsch 765 Mott v. Havana Nat. Bk 617 Mucklow Assignee v. Mangles. . 503 Mueller v. Stoecker 127 Mulhall v. Quirin 209 Muskogee Land Co. v. Mullins. 178 TABLE OF CASES 1077 [REFERENCES National Bank of Bella v. First Nat Bk 723 National Cash Beg. Co. v. Town- send 53 National Exchange Bank v. Lester 716 National Home Building & Loan v. Home Savings Bank 979 Nash v. Inman 15 Nassau Bank v. Jones 980 New v. Wright 907 Newberry v. The Fashion 451 Newhall v. Buckingham 882 Nira Canning Co. v. Leh- man 475-482 North Alaska Salmon Co. v. Hobbs Wall & Co 573 North v. Moore . 832 Oakley v. Carr 753 O 'Connor v. Clarke 526 Oppenheimer v. Bank 630 Osgood's Adm'rs v. Artt 677 Otis, Adm 'r v. Gardiner 1022 Overland Cotton Mill Co. v. The People 959 Pahlman v. Graves 893 Paine v. Central Vermont E. Co. 683 Parker v. Bethel Hotel Co 924 Paterson, W. A. .Co., in re 564 Pence v. Carney 499 Pennock 'a Appeal 519 Pennsylvania Iron Wks. Co. v. Voght Machine Co 951 People v. Chicago Gas Trust Co 961 People v. Bochester E, & L. Co. 956 People v. Eose 823 People's Pleasure Park Co. v. Eohleder 927 Peoria, Etc., Co. v. Turney 481 Percefull v. Platt 834 Perry v. Bigelow 652 Perry v. Mt Hope Iron Co 545 ARE TO PAGES] P. & F. Corbin v. Tracy 253 Phif er v. Erwin 453 Philadelphia Ball Co. v. La Joie 255 Pinnell's Case 89 Poess v. 12th Ward Bank 795 Pope v. Hanke 112 Porter v. Bright 470 Preston v. Fitch 901 Price v. Neal 723 E Bail v. Little Falls Lumber Co. 494 Bann v. Hughes. '. 134-77 Be Co-Operative Law Co 936 Bedland 'a Orange Growers ' Ass 'n v. Gorman 556 Be W. A. Paterson Co 564 Beynold et al. v. General Elec- tric Co 476 Bice v. Winslow 129 Bice v. Wood 308 Bichards v. Shaw 544 Bichmond v. Moore 116 Eiegel v. Amer. Life Ins. Co.. 48 Bobinson Bank v. Miller 836 Bobinson v. Noble's Adm'r. . . . 547 Eoberts v. Smith 632 Bock v. Collins 865 Bockfield et aL v. First Nat Bk 725 Eodgers v. Torrent 204 Bogers v. Hanson 577 Bohde v. Thwaites 505 Bosenkrans v. Barker 872 Bonan v. Bluhn 24 Bubin v. Sturtevant 528 Eussel v. Temple 928 Eyan v. Smith 20 Sanford v. Brown Bros. Co 582 Sanger v. Hibbard 13 Sarin v. Wilson 1021 Schnell v. Nell 79 Scott v. Buchanan 12 Seitz v. Brewer's Befrigerating Co 169 Shea v. Donahue 909 Singer M'f 'g Co. v. Eahn 267 1078 TABLE OF CASES [REFERENCES ARE TO PAGES] Shindler v. Houston 163 Siegel v. Bank 615 Sloan v. Williams . . 205 Smith v. Aiker 229 Smith v. Brown 189 Smith v. Hale 469 Smith v. Nightingale 624 Snell v, Snell 26 Snow v. Griesheimer 91 Souter v. Kellerman 186 Spadone v. Reed 147 Springfield Engine Co. v. Sharp 499 State ex rel. Watson v. Stand- ard Oil Co 929 State v. Morriston Fire Ass'n. . 985 Sterling v. Sinnickson 106 Stitzel v. Millar. 694 Stout v. Baker. . . 882 W Tarkington v. Purvis 73 Telegram Newspaper Co. v. Com 955 Thomas v. Dakin 917 Thompson v. First Nat. Bank. . 820 Thompson v. Williams 747 Thorpe v. Mindeman 624 Thilmany v. Iowa Paper Bag Co 337 Ticknor v. McClelland 537 Towne v. "Wiley 22 Tutt v. Brown 405 Twin Lick Oil Co. v. Marbury. .1047 Tyler v. Moody & Offutt 463 Tyler v. Bailey 211 U Underwood v. Wolf 572 Union Trust Co. v. Preston National Bank 707 United Hardware Co. v. Blue . . 165 Venner v. Chicago City By. Co 1031-1042 Vinton v. King 685 Wallis Iron Wks. v. Monmouth Park Ass 'n 193 Walker v. Nussey 168 Walker v. Tucker 239 Walker v. Walker 135 Walls v. Bailey 176 Ward v. Williams 303 Warman v. First Nat. Bk 689 Warner v. Mower 1025 Warner v. Texas E. Co 153 Warren v. Smith 146 Watson v. Swann 285 Watteau v. Fenwick 377 Webb v. Fordyee 850 Wentworth, J. H., Co. v. French 1036 Westfal v. Jones 212 Wettlaufer v. Baxter 644 Wharton v. McKenzie 19 Wheeler v. Heed 341 White v. Miller 391 White v. Gushing 612 Whitney v. Martin 320 Wiedman v. Keller 481 Wier v. Hudnut 167 Wight v. K, Co 1043 Wileox, Gibbs & Co. v. Aultman 702 Wilhelm v. Eaves 196 Wileox v. Kouth 360 Willetts v. Phoenix Bank 648 Wilson v. Carnley 110 Wilson v. Wilson 318 Wilson v. Finney 433 Wilson v. Walrath 533 Wilkins v. Usher 675 Wisner v. First National Bank 773 Wisconsin Yearly Meeting v. Baber 652 Wolff v. Koppel 327 Wolf v. Mills 868 Wood v. Boynton 51 Wood v. Dummer 996 Wood v. McCain 356 Woodworth et al. v. Huntoon . . . 698 Worden v. Dodge 623 TABLE OF CASES [REFERENCES ARE TO PAGES] 1079 Yeiser v. TT. S. Board & Paper Co 945 Yerrington v. Green 240 Yoekey v. Smith 444 Zander v. N. Y. Security & Trust Co 646 Ziff Mfg. Co. v. Pastorino 55 Zimmerman v. Anderson 653 Zottman v. San Francisco 286 INDEX [REFERENCES ARE TO PAGES] A ACCEPTANCE of defective performance, 229. of goods in sales, what constitutes, 554. as barring action for damages, 556. ACCEPTANCE OF BILLS OF EXCHANGE defined, 770. how made, 773. at what stage to be made, 777. general or qualified, 777. presentment for, required, 779. within what time, 779. requirements of, 780. delay in, 781. dishonor by refusing, 781. ACCEPTANCE OF CHECK, 795. ACCEPTANCE OF OFFER completes contract, 41. must be in terms of offer, 42. may be by conduct, 43. when complete, 45. as affected by "Fraud," "Mistake," "Duress," "Undue Influence," see those subjects. ACCEPTANCE FOR HONOR, 786. ACCOMMODATION PARTY defined, 664. ACCOUNT reference to, in negotiable paper, 620. ACCORD AND SATISFACTION " see ' ' Compromise of Claim. ' ' 1081 1082 INDEX [REFERENCES ARE TO PAGES] ADMINISTEATOES promises by, 142. ADMISSIONS BY AGENT binding on principal when, 390, 391. AGENT defined, 266, 267, 270. kinds of, 273. capacity to be, 276. authority of, see "Authority of Agent," ' ' Eatification of Agency." rights of, see ' ' Duty of Principal. ' ' obligation of, see ' ' Duty of Agent, " " Eights of Third Persons. ' ' see also ' ' Principal, " " Eevocation of Agency, " " Notice to Agent. ' ' AGEEEMENT see ' ' Offer " ; " Acceptance of Offer " ; " Discharge of Contracts. ' ' ALTEBATION discharges contract, 247. of negotiable paper, 715, 716. ANTEDATING PAPEE, 654. ASSIGNMENT OF CONTEACT meaning of, 203. of rights thereunder, 204. of obligations, 205. to be performed in future, 209. effect of, 211, 212, 214. what constitutes, 215. AUCTION SALES transfer of title in, 516. fraudulent bids in, 519. AUTHOEITY OF AGENT how derived, 278, 354. to receive payment, 354, 367. as determined by apparent scope, 356, 360. to borrow money, 361, 363. to make or endorse paper, 365. to sell personal property, 367, 368, 369. to extend credit, 370. to warrant, 372. AUTHORITY OF PARTNER TO B % IND FIRM introductory, 859. to purchase real estate, 857. INDEX 1083 [REFEEENCES ARE TO PAGES] AUTHOEITY OF PARTNER TO BIND FIRM Cont. to purchase and sell generally, 861. to warrant, 863. to borrow money, 864. to bind firm on notes, etc., 865. to settle, release, etc., 865. to mortgage and pledge, 865. to use assets to pay personal debts, 866. to make admissions, 867. to receive notice, 867. BAILMENTS defined and distinguished from sales, 433, 445. BANK paper payable at, 743. BEARER paper payable to, 647. transfer of, 727. BENEFICIARIES when may sue on contract, 201. BILATERAL CONTRACTS defined 3. BILL OF LADING title reserved in, 513. BILLS OF EXCHANGE defined, 767. inland and foreign, 769. acceptance of, see "Acceptance of Bills of Exchange." protest of, see ' ' Protest. ' ' in a set, 789. see also "Presentment for Payment," "Notice of Dishonor." BLANK execution of paper in, 659. failure to cancel, 715, 716. authority to fill in, 660, 661. BREACH by renunciation, 234. as affected by dependence of covenants, 237. 1084 BEEACH Cont. injunction against, 255, see also "Performance of Contracts. 1 BROKER marriage procured by, 124. acting without license, 117. BULK SALES LAW provisions of, 530. CAPACITY see "Minors"; "Married Women"; "Insane Persons"; "Agent"; "Principal." CAPITAL STOCK see "Stock." CAVEAT EMPTOR as applied to contracts generally, see "Fraud in Consideration." CERTIFICATES OF STOCK whether essential, 987. see also ' ' Stock " ; " Stockholders. ' ' CERTIFICATION OF CHECK effect of, 795-798. CHARTER see also ' ' Powers of Corporation. ' ' association without, when partnership, 824. a contract, 938. when defective, 943. CHECKS defined, 792. when to be presented, 793. acceptance of, 794. as assignment, 801. COLLATERAL sale of, 652. COMMERCIAL PAPER see ' ' Negotiable Paper. ' ' COMPENSATION OF AGENT express agreement for, 330. implied agreement for, 331. INDEX 1085 [REFERENCES ARE TO PAGES] COMPENSATION OF AGENT Cont. when agent wrongfully discharged, 333. when agent rightfully discharged, 257, 259. COMPOSITION WITH CREDITORS defined, and validity of, 98. COMPROMISE OF CLAIM validity of, 91, 92, 93, 97. CONDITIONS in contracts, 237. in sales, 459. see also ' ' Warranties. ' ' CONFESSION OF JUDGMENT authorized in note, 652. CONSIDERATION defined, 77, 78. adequacy of, 79. promises as, 80. what constitutes generally, 83. past act as, 84. moral obligation as, 84. legal obligation as, 85. contract obligation as, 86, 88. part payment of debt as, 89, 91, 92, 93, 97. composition as, 98. in negotiable paper, 607, 663. CONSTRUCTIVE CONTRACTS defined, 180. CONSTRUCTION rules of, in contracts, 185-191. in negotiable paper, 656. CONTRACTS see also the specific heads, definition of, 2. kinds of, 3. CORPORATION defined, 917. theory of, 917. as entity, 924. kinds of, 935. purposes for which formed, 936. 1086 INDEX [REFERENCES ARE TO PAGES] COEPOEATION Cont. generally of the charter of, see "Charter." de facto, 943. promoters of, 945. capacity and powers of, see ' ' Powers of Corporations, " ' ' Ultra Vires. ' ' stock and stockholders, see ' ' Stock, " " Stockholders. ' ' directors, see "Directors of Corporations." CRIMES OF COEPOEATIONS power to commit, 955. D DAMAGES liquidated in contract, 191, 198. rule of, 248, 251, 253. DATE in negotiable paper, 654. DEATH as affecting offer, 39. as discharging contract, 239. as dissolving partnership, 899. DEFENSES see ' ' Holder in Due Course. ' ' DEL CEEDEEE AGENCIES defined, 326. DELEGATION OF AUTHOEITY BY AGENT right of, 321. DELIVERY OF GOODS duty of seller to make, 542. concurrent with payment, 542. place, time and manner of, 543. in wrong quantity, 544. in installments, 548. to carrier, 552. acceptance of, see "Acceptance." DELIVEEY OF NEGOTIABLE PAPER when presumed, 657. of blank paper, 659. lack of, as defense, 709. INDEX 1087 [REFERENCES ARE TO PAGES] DEMAND PAPER is negotiable, 637. when overdue, 682, 688. DESTRUCTION OF SUBJECT MATTER as affecting contract, 451. DIRECTOES OF CORPORATIONS election and qualification of, 1043. title to office of, 1044. meetings of, 1045. are trustees, 1047. liability to corporation, 1047. liability to third persons, 1055. DISAFFIEMANCE see ' ' Fraud, " " Duress, " " Minors, ' ' and other specific heads. DISCHAEGE OF CONTRACTS meaning of, 225. by performance, 255, 234. by breach, 225, 239. by impossibility, 239. by agreement, 246. by novation, 246. by alteration, 247, 270. by bankruptcy, 247. by death, 247. of negotiable paper, 759. DISHONOE see ' ' Notice of Dishonor, " " Protest. ' ' DISSOLUTION OF PAETNERSHIP how dissolved, 896. in death, 899. DIVIDENDS, 1038. DOCUMENTS OF TITLE transfer of ownership by, 513, 539, 541. DUE COURSE see ' ' Holder in Due Course. ' ' DURESS defined, 65, 67. in negotiable paper, 706. 1088 INDEX [REFERENCES ARE TO PAGES] DUTY OF AGENT to exercise good faith, 306, general rule, 307. in not acting for both parties, 307. in not dealing with himself, 310. in not competing with principal, 312. in regard to personal behavior, 313. to obey instructions, 316. to use prudence and skill, 310. not to delegate authority, 321. DUTY OF PRINCIPAL to compensate agent, 330-335. E EXAMINATION OF GOODS right to, by buyer, 553. see also "Acceptance." EXECUTORS promises by, 142. EXECUTORY CONTRACTS defined, 3. performing, as consideration, 86. EXPRESS CONTRACTS defined, 3. FOOD warranties in sale of, 481. FOREIGN CORPORATION defined, 1059. rights of, 1059, 1060. how may enter home state, 1063. what is doing business by, 1064. penalties against, for non-compliance, 1068. jurisdiction of court over, 1070. FORGERY, DEFENSE OF in negotiable paper, 713. FORM OF CONTRACT see "Formal Contract"; "Express Contract"; "Implied Contract"; "Parol Evidence Rule"; "Frauds, Statute of"; '' Written Con- tracts " ; " Oral Contracts ' ' ; etc. INDEX 1089 [REFERENCES ARE TO PAGES] FORMAL CONTRACT defined, 3, 132, 136. FRAUD IN CONSIDERATION elements in, 53, 55. silence as, 57. concealment as, 57. disaffinnance of contracts procured by, 73. in auction sales, 519. FRAUD IN EXECUTION denned, 51. FRAUDS, STATUTE OF text of, 137. history of, 139. object of, 139. cases within, 141, promises of executors, 142. promises of guaranty, etc., 144. promises in consideration of marriage, 147. contracts concerning land, 149-151. contracts for more than year, 152. contracts of sale of goods, 155. what is compliance with, 158, 168. GAMBLING AGREEMENTS illegal, 111. GUARANTIES must be in writing, 144. HOLDER IN DUE COURSE importance of inquiring who is, 674. indorsement necessary, 674. paper must be regular to constitute, 680. must purchase paper before overdue, 681. must give value, 690. one is, who purchases from holder in due course, 698. amount recoverable, by, 700. defenses not available against, payment before maturity, 702. 1090 INDEX [REFERENCES ARE TO PAGES] HOLDER IN DUE COURSE Cont. defenses, etc. eont. set off, 703. want or failure of consideration, 703. fraud in consideration, 704. duress, 705. illegality, 707. theft, 708. lack of delivery, 708. lack of authority, 709. defenses available, personal incapacity, 712. forgery, 12. material alteration, 715. illegality, 720. HONOR acceptance for, 786. payment for, 788. ILLEGAL CONTRACTS see ' ' Legality of Contract. ' ' ILLEGALITY defense of, in negotiable paper, 707. IMPLIED CONTRACTS defined, 3, 180. IMPOSSIBILITY OF PERFORMANCE when excuses, 239. INCOMING PARTNER liability of, for past debts, 875. INDEPENDENT CONTRACTOR not an agent, 287, 278. INDORSEMENT manner of, 666. partial, 668. kinds of, 669. where several payees, 670. of paper payable to cashier, 671. rules and presumptions concerning, 672. liability by, 725, 727, 729. gee also "Holder in Due Course"; "Liability of Parties." INFANTS see "Minors. 1 INDEX 1091 [REFERENCES ABE TO PAGES] INFLUENCE see ' ' Undue Influence. ' ' INFOEMAL CONTBACT defined, 3. INJUNCTION against breach of contract, 255. INSANE PERSONS contracts of, 24. as agents, 275 INSANITY as affecting offer, 39. INTEEFEEENCE WITH CONTRACT damages for, 217. INTEEPEETATION OF CONTBACTS general rules of, 185. in respect to time, 188. in respect to penalty, 191. of negotiable form, 656. JOINT STOCK COMPANIES defined, 823. JUDGMENT NOTE validity of, 652. KINDS OF CONTEACTS, 3. LADING, BILL OF see ' ' Bill of Lading. ' ' LAND contracts relating to, to be in writing, 149. LEGALITY OF CONTRACT an esaential element, 101. in restraint of trade, 102, 105. 1092 INDEX [REFERENCES ARE TO PAGES] LEGALITY OF CONTEACT Cont. in restraint of marriage, 106. in corruption of public service, 107. ag?inst public policy in general, 110. of a wagering nature, 111. of usurious nature, 113. made on Sunday, 116. made without license, 117. where contemplated by one party only, 118, 119, 120. lack of, prevents enforcement, 122. lack of, prevents rescission, 123. except in certain cases, 124, 131. of sales of future goods, 111, 449. LEGAL OBLIGATION as consideration, 85. LIABILITY OF PARTNER for torts of copartner, 868. see also "Remedies of Creditors of Partner." LIABILITY OF PARTY TO NEGOTIABLE PAPER of maker, 721. of drawer, 722. of acceptor, 723. of transferror by delivery, 727. of irregular indorser, 725. of regular indorser, 729. procedure to charge, see ' ' Presentment for Payment, " ' ' Presentment for Acceptance, 1 ' Notice of Dishonor, " " Protest. ' ' LICENSE effect of lack of, on contract, 117. LIQUIDATION between partners, 909. LIMITED PARTNERSHIPS defined, 822. M MAIL contracts made by, 45. MALICE defined, 221. INDEX 1093 [REFERENCES ARE TO PAGES] MARRIAGE contracts in restraint of, 106. procured by broker illegal, 124. contracts in consideration of, 147. MARRIED WOMEN contracts of, 26. MEETINGS of stockholders, 1025. of directors, 1045. MINORS who are, 5. contracts of, voidable, 5-14. ratification of, 6, 7, 12, 13, 14. disaffirmance of, 6, 7, 9, 11, 12, 13, 14. necessaries supplied to, liable for, 15-21. torts of, 21-24. as agents, 276. as principals, 274. MISTAKE as affecting contract, 48, 51. MONEY negotiable paper must be payable in, 632. MORAL OBLIGATION as consideration, 84. N NAME of partnership, 831. NECESSARIES, CONTRACTS FOB see ' ' Minors. ' ' NEGOTIABLE PAPER formal requisites, enumerated, 606. writing and signature, 607. unconditional promise or order, 609. certainty of sum, 624. payment in money, 632. time of payment, 637. payment on demand, 637. 1094 INDEX [REFERENCES ABE TO PAGES] NEGOTIABLE PAPEE Cont. formal requisites cont. fixed or determinable time, 638. words of negotiability, 644. provisions not invalidating, provision for sale of collateral, 652. confession of judgment clause, 652. waiver of exemption laws, 653. seal, date, etc., 654. rules of construction, 656. execution, delivery and consideration, 657. negotiation of, 665. see also "Indorsement." holder in due course, see ' ' Holder in Due Course. ' ' liability of parties, see ' ' Liability of Parties, " " Notice of Dishonor, ' ' "Presentment for Payment," "Protest." discharge of, 759. bills of exchange, see ' ' Bills of Exchange. ' ' NEGOTIATION see "Indorsement." NOTICE TO AGENT is, to principal, 382. within scope of agency, 384. time of, to be given, 386. when not, to principal, 388, 389. NOTICE BY OUTGOING PAETNEB what to be given, 876. NOTICE OF DISHONOR provisions of act, 744. waiver of, 756. not required when, 756. delay in giving excused when, 756. NOTICE IN NEGOTIABLE PAPEB what constitutes, 690. OBLIGATION of principal to agent, see "Duties of Principal." of agent to principal, see ' ' Duties of Agent. ' ' of principal to third person, see "Eights of Third Persons Against Principal. ' ' INDEX 1095 [REFERENCES ARE TO PAGES] OFFER propositions not constituting, 32. lapse of, 34, 35, 39. withdrawal of, 36. notice of withdrawal of, 37. rejection of, 38. acceptance of, see "Acceptance." as affected by "Fraud," "Mistake," "Duress," "Undue Influence," see those subjects. OFFER AND ACCEPTANCE see "Offer," "Acceptance." necessary to contract, 30. OPERATION OF CONTRACTS general rule, 200. as to undisclosed principals, 200 (and see also "Undisclosed Princi- pals"). as to beneficiaries, 201. as to assignees, 203. as to strangers, 217. OPINION not basis for fraud, 53. not basis for breach of warranty, 464. ORAL CONTRACTS validity of, 179. ORDER- ID bill of exchange, 607. OUTGOING PARTNER liability of, 876. OVERDUE PAPER- is negotiable, see ' ' Holder in Due Course. ' ' OWNERSHIP see "Transfer of Title." PAEOL EVIDENCE RULE stated, 169. when writing incomplete, 174. when several writings, 174. customs and usages, 176. void and voidable contracts under, 178. 1096 INDEX [REFEEENCES ARE TO PAGES] PAETIES capacity of, to contract, 4. see also ' ' Minors, " " Married Women, " " Insane Persons, " ' ' Aliens, ' ' ' ' Agent, ' ' etc. PAETNEES who may be, 827. mutual rights and duties of, 841, 857. PABTNEBSHIP defined, 806, 809. an association, 806, 808. an association in co-ownership, 809, 818. by estoppel, 820. kinds of, 822. trading and non-trading, 822. limited and unlimited, 822. joint stock companies as, 823. form of agreement for, 824. as result of defective corporation, 824. who may form, 827. purpose of, 830. name of, 831. property of, how to be held, 833, 834. what constitutes, 836. rights and obligations of members of, toward each other, 841, 857. toward others, 858, 895. see "Authority of Partner," "Torts of Partner," "Eemedies of Creditors of Partners. ' ' duration of, 875, 879. remedies of creditors of, 880-895. dissolution of, by lapse of time, 897. by mutual agreement, 898. by transfer of partner 's interest, 898. by death of partner, 899. by bankruptcy and court decree, 907. title of surviving member of, 901. devolution of realty of, 903. PAST ACT not consideration, 84. PENALTY not enforceable, 190. INDEX 1097 [REFERENCES ARE TO PAKBS] PEEFOEMANCE OF CONTEACT must be in accord with terms, 226. substantial, sufficient, 227. defective, acceptance of, 229. when to be to other's satisfaction, 231. of contract of sale, see ' ' Delivery, " " Acceptance. ' ' PEBSONAL DEFENSES in negotiable paper, 702. PEESONAL PEOPEETY sales of, see "Sales," 155. POSSESSION as indicia of title, 522. POST-DATING PAPEE, 654. POTENTIAL EXISTENCE, sales of goods having, 448. POWEES OF COEPOEATION inherent, 951. to commit torts, 951. to commit crimes, 955. express, 960. implied, in general, 963, 968. to acquire, hold and grant real estate, 969. to lease and sell, 971. to borrow money, 971. to loan money, 975. to acquire shares, 976. see also "Ultra Vires." PEESENTMENT FOE PAYMENT not necessary to charge maker or acceptor, 732. necessary to charge drawer and indorser, 733. must be at proper place, 738. must consist in exhibition of instrument, 739. must be at proper hour, 739. must be to proper person, 741. not required and refused when, 742. PEESIDENT duty and power of, 1057. PEICE defined, 453. how determined, 453. 1098 INDEX [REFERENCES ARE TO PAGES] PRINCIPAL capacity to act as, 274. authority of, see ' ' Authority of Agent, " " Ratification of Agency. ' ' rights against agent, see "Duty of Agent." liability to third persons, see "Rights of Third Persons"; "Authority of Agent"; "Undisclosed Principal." liability to agent, see ' ' Duty of Principal. ' ' see also ' ' Agent. ' ' PROMISES indefinite not enforceable, 80. in promissory notes, 609. PROMISSORY NOTES defined, 792. see, generally, "Negotiable Paper." PROMOTERS rights and duties of, 945. PROPERTY OF PARTNERSHIP what constitutes, 836. in what name to be taken, 833, 834. title of surviving partner in, 901. PROSPECTUS liability for issuing false, 1056. PROTEST necessary when, 783. requirements as to, 783. by whom to be made, 784. when and where to be made, 784. for better security, 786. dispensed with when, 786. QUALIFIED INDORSEE liability of, 727. QUASI CONTRACTS, 180. B RATIFICATION of minor 's contract, see ' ' Minors. ' ' RATIFICATION OF AGENCY BY PRINCIPAL by bringing suit, 369, 304. INDEX 1099 [REFERENCES ARE TO PAGES] RATIFICATION OF AGENCY BY PRINCIPAL Cont defined, 282. what essential, 282. what acts, 286. formalities of, 292. knowledge necessary to, 295. of part, 300. effect 1 of, 305. REAL DEFENSES in negotiable paper, 712. REMEDIES OF BUYER for failure to deliver, 571. for breach of warranty, 572. REMEDIES OF CREDITORS OF PARTNERS against partners jointly, 880. against each in solido, 881. against firm assets at law, 881. against individual assets of partner, 882. against firm assets for individual debt, 882. against assets in equity, 888. REMEDIES OF SELLER damages, 248, 568. specific performance, 249. lien, 561. right of stoppage, 563. resale and rescission, 567. REMEDY for breach of contract, damages, 248. specific performance, 253. injunction against, 255. by party guilty of breach, 257. in sales, 560. RESCISSION see ' ' Mistake, " " Fraud, '"' Undue Influence, " ' ' Duress, " " Minors, ' ' "Legality." RESTRAINT OF TRADE contracts in, 102-105. REVOCATION OF AGENCY power of, 412. no power of, when, 412. 1100 INDEX [REFERENCES ARE TO PAGES] EEWAEDS acceptance of, 31. recovery of, by officer, 85. EIGHTS OP AGENT see "Duty of Principal." EIGHTS OF PEINCIPAL against third persons, 404. against agent, see "Duty of Agent. " EIGHTS OF THIED PEBSONS against principal, in general, 355. see ' ' Authority of Agent. ' ' against agent, when lacks authority, 337. when principal undisclosed, 341. by form of contract, 343. in tort, 351. 3 SALES OF PEESONAL PEOPEETY to be in writing when, 155. distinguished from contracts to sell, 432. distinguished from gifts, 432. distinguished from bailments, 433. when not in existence, 447. in undivided shares, 451. as affected by destruction of goods, 451. includes what subject matter, 451. price in, 453. conditions in, 459. warranties in, see "Warranties." liability for, to subpurchaser, for negligence, 485. transfer of title in, see "Transfer of Title." performance, see "Delivery," "Acceptance of Goods." remedies, see ' ' Eemedies of Seller, " " Eemedies of Buyer. ' ' SAMPLES power of agent to sell, 369. warranties in sale by, 471, 475, 482. SEAL contract under, classified, 3. defined, 132. form of, 132. abolition of, 133. INDEX HOI [REFERENCES ARE TO PAGES] SEAL Cont. effect of, 134, 135. on negotiable paper, 654. SECRETARY office of, 1057. SERVANT see ' ' Agent. ' ' SETTLEMENT see ' ' Compromise of Claim, " " Composition. ' ' SHARES see "Stock." SIGNATURE under statute of frauds, 158. form of, by agent, 343, 347, 349, 662. under negotiable instruments law, 607, 662. SPECIALTIES denned, 3. SPECIFIC PERFORMANCE decree for, when allowed, 253. STATUTE OF FRAUDS see "Frauds, Statute of." STOCK defined, 985. division into shares, 986. certificates of, 987. subscription to, 989. upon condition, 989. fraud in securing, 992. liability upon, 996. payment of, 999. transfer of, 1008. lien of corporation on, 1012. lost, stolen and forged certificates of, 1016. STOCKHOLDERS liability to corporation, 996. trust fund doctrine applied to, 996. meetings of, 1025. vote of, 1025. right to prevent illegal acts, 1039. right to inspect books, 1042. 1102 INDEX [REFERENCES ARE TO PAGES] SUM IN NEGOTIABLE PAPER must be certain, 624. SUNDAY CONTRACTS illegality of, 116. TELEGRAPH contracts made by, 45. \ TEEMINATION OF AGENCY how, 411. power of, 412. where agency irrevocable, 412. by operation of law, 423. THREATS effect of, on contract, 65, 69. TIME is of essence of contract, 188. in negotiable paper, 637. TITLE, TRANSFER OF see ' ' Transfer of Title. ' ' TORTS OF AGENT principal liable for, 267, 392. agent liable for, 351. TORTS OF CORPORATIONS power to commit, 951. TORTS OF PARTNER general rule, 868. examples of, 868. TRANSACTION recital of, in negotiable paper, 607. TRANSFER OF TITLE as between buyer and seller, rules governing, where goods unascertained, 489. to ascertain intention, 493. presumption of immediate transfer, 494. in sales on approval, 497. upon appropriation, 503. where sale at particular place, 511. INDEX 1103 [REFERENCES ARE TO PAGES] TRANSFER OF TITLE Cont. as between buyer and seller cont. reservation of, 513. in auction sales, 516. as affecting third persons, true owner estopped when, not by mere possession, 522. by allowing appearance, 527. by giving documentary evidence, 527. in case of recording acts, 529. in case of factors acts, 530. in case of bulk sales law, 530. when seller has voidable title, 532. when seller retains possession, 533. TREASURER office of, 1057. TRUSTS legality of, 104, 105. U ULTRA VIRES see also "Powers of Corporations." meaning of, 979. right of stockholder to object to act of, 979. right to raise defense, 980. UNDISCLOSED PRINCIPAL may be held by third party, 376, 377, 378. UNDIVIDED SHARES sales of, 451, 489. UNDUE INFLUENCE defined, 69. presumed when, 71. disaffirmance of contracts procured by, 76. UNILATERAL CONTRACT defined, 3. USURY defined, 173. VALUE, IN NEGOTIABLE PAPER must be certain, 624. may be what, 663. must be given to constitute holder in due course, 689. 1104 INDEX [REFERENCES ARE TO PASES] VICE PRESIDENT office of, 1057. W WAGEE AGREEMENTS illegal, 111. WARRANTY express, power of agent to make, 372. defined, 460. the affirmation of fact therein, 460. what is, 460. as distinguished from opinion, 464. as relied on by the buyer, 466. implied, of title, 469. in sale by description, 471. of merchantability, 472. of fitness for purposes, 472, 482. in sale by sample, 482. none to subpurchasers, 485. remedy for breach of, 572. WORDS OF NEGOTIABILITY what are, 644. WRITTEN CONTRACTS what, must be in form of, 137. under statute of frauds, 137, 168 (see "Frauds, Statute of"). parol evidence rule concerning, 168, 179. negotiable paper must be in form of, 609. LAW LIBRARY UNIVERSITY OF C LOS ANGELES Ill 1 1 1! A OC 000 687 297 2