L OUTLINES OF COMMERCIAL LAW A TEXT BOOK FOR SCHOOLS AND COLLEGES BY O. B.JPARKINSON, LL. B, OF THE STOCKTON, CALIFORNIA. BAR Students Library STOCKTON, CAL. 1916 " *rr -4 v- . Entered According to Act of Congress In the Year 1898, by O. B. PARKINSON, In the Office of the Librarian of Congress, at Washington. 1 1 610 PREFACE. The fact that most authors of Commercial Law text-books heretofore published have endeavored to supply a text-book which could be used in. every State in the Union, and at the same time sufficiently condensed to be within the scope of a college text- book, and consequently have omitted many important details relating to the every-day business law of particular States, is the reason for the production of this work. This book is based on the Codes and Statutes and judicia? decisions of the State of California, and is designed for use on the Pacific Coast. We have endeavored to avoid general statements, which are always misleading, and have tried to supply the exact law applica- ble to each subject treated. AVe have refrained from any extended discussion of remedies or practise in Court, as they are matters which are understood only by regular attorneys of long practice, and can not possibly be elucidated in the few pages we might devote to them. We have supplemented abstract statements of law with numer- ous examples showing their application, and would call especial attention to this feature, as well as to the test questions requiring thoughtful work on the part of the student. Besides the Codes and Statutes referred to, a number of other works have been freely consulted. The illustrations given, so far as possible, are taken from decided cases of the Supreme Courts of the various States, and of Vl PREFACE. the United States, so that such cases can be relied upon as stating the law correctly. We have omitted the usual collection of forms for the reason that a form seldom can be made to apply to the case at hand, and consequently serves rather to confuse than aid. 0. B. PARKINSON. Stoddon, Gal., November, 1898. CONTENTS. CHAPTER. PAGE I. HISTORY AND INTRODUCTION 9 II. CONTRACTS 13 III. PARTIES TO CONTRACTS 16 IV. CONSENT OF PARTIES 21 V. CONSIDERATION 26 VI. THE OBJECT 29 VII. INTERPRETATION, NOVATION AND CANCELLATION 35 VIII. REMEDIES 40 IX. DEFENSES STATUTE OF FRAUDS 47 X. DEFENSES STATUTE OF LIMITATIONS 52 XI. DEFENSES PERFORMANCE 57 XII. NEGOTIABLE PAPER 66 XIII. PROMISSORY NOTES 72 XIV. BILLS OF EXCHANGE , . 78 XV. CHECKS 84 XVI. TRANSFER OF NEGOTIABLE PAPER 90 XVII. ENDORSEMENT 93 XVIII. PRESENTMENT AND NOTICE 98 XIX. GUARANTY AND SURETYSHIP 101 XX. INTEREST AND USURY 106 XXI. SALES OF PERSONAL PROPERTY 109 XXII. DELIVERY 115 XXIII. WARRANTY 122 XXIV. CONDITIONAL SALES AND MORTGAGES 127 Vlll CONTENTS. CHAPTER. 1'AGE. XXV. BAILMENTS 134 XXVI. COMMON CARRIERS : . . 145 XXVII. SHIPPING 158 XXVIII. AGENCY . 161 XXIX. PARTNERSHIP 170 'XXX. CORPORATIONS 180 XXXI. FIRE INSURANCE 193 XXXII. MARINE INSURANCE 198 XXXIII. LIFE AND ACCIDENT INSURANCE 201 XXXIV. REAL PROPERTY 207 XXXV. DEEDS 214 XXXVI. MORTGAGES 221 XXXVII. LANDLORD AND TENANT 229 COMMERCIAL LAW CHAPTER I. HISTOKY AND INTKODUCTION. Whenever and wherever in the history of the world there has been an association of persons, some rule or regulation of conduct has been found necessary. The first law that we have any record of was almost coincident with the creation. A prohibitory law was given to Adam and Eve in the garden of Eden, and a punishment was meted out for disobedience of that law; and through all authenticated history from that time to the present, there has been no country or nation able to maintain itself without some code of laws. When the wants of people were few and easily supplied, few regulations were required for their government, but as education, arts, sciences, commerce, and civilization generally, have been gradually extended during the centuries, law has become not merely a collection of rules, but a distinct science, consisting of a most complex system of regulations calculated to define and specifically set forth every act and thing which a person may be called upon to do in his intercourse with his fellow-men. While it is impossible to explain the meaning of law in a sin- gle definition, the following may be sufficiently accurate for the purpose of this work: "Law is a rule of action dictated by some supreme power capable of enforcing obedience or punishing die- obedience." 10 COMMERCIAL LAW. Law generally may be classified as Natural, Moral, and Human, or Municipal. Municipal Law consists of those rules prescribed by the supreme power of a state or country, declaring what is right and proper, and forbidding what is wrong. It is with Municipal Law that we have to do in this book, and only with that division of Municipal Law which is called Civil Law. CRIMINAL LAW is tnat division of Municipal J,aw which prohibits acts which are against public peace and harmony, and provides penalties for the punishment of wrongdoers. Such crimes as murder, robbery, and forgery, and the punish- ments of fine, imprisonment, and death, are included in the Crim- inal Law. CIVIL LAW comprises the rules regulating the rights of individuals in their business relations with each other, and the remedies for the breach of such obligations; as in case A owes B $100, the law declares that B has the right to collect it, and in case A refuses to pay, the law provides a means for compelling payment. SOURCES OF LAW. The most ancient source of part of our modern law is the unwritten law established in England many years ago, and which has since been mostly written. It is called the Common Law. The English emigrants brought with them the laws of Eng- land, so that this Common Law became transplanted throughout the United States as the English-speaking people gained control of this country. STATUTE LAW consists of the enactments of the United States Congress and of the Legislature of the several states. In California most of the Statute laws are incorporated in volumes called Codes. The Commercial Law is for the most part contained in the Civil Code and the Code of Civil Procedure. CONSTITUTIONS AND COURTS. The Constitutions of HISTORY AND INTRODUCTION. 11 the United States and the State Constitution, and the judicial decisions of the Supreme Court of the United States, and of the Supreme Court of each State, are further sources of law. CONFLICT OF LAWS. There being so many sources of law it is often the case that the law as declared from one of these sources conflicts with or is opposed to the law as declared from some other source, hence it is important that we should know which law will govern in case of a conflict. The Constitution of the United States is highest in authority, and extends over all the states, and the states are allowed to make only such local laws as do not conflict with the Constitution of the United States. The laws of Congress are next in order, and are in force in every part of the United States. The State Constitution comes next and has authority within the limits of the state. Next to the State Constitution are the Statutes passed hy the State Legis- lature. Lastly, the Common Law regulates subjects upon which the other sources are silent. The laws of one state have no authority in and can not be enforced in any other state. INTF.KNATIONAL LAW. Each country has its own laws, and lias no right whatever over the persons and property of another country; but for mutual protection, the leading nations of the globe have, by common consent, and by agreements and treaties, formed what is known as International Law, or the Law of Nations, which all nations are in honor bound, and in honor only, to respect; e. g., it would be a breach of International Law for a neutral nation to aid with ships or munitions of war one of two nations which are at war with each other, or to protect and refuse to deliver or punish pirates. There is no means of enforc- ing obedience to International Law except by war. ADMIRALTY AND MAHITIME LAW. Admiralty Law consists of the rules of a nation regulating commerce and ship- ping on the high seas. Admiralty jurisdiction extends to acts done on the high seas 12 COMMERCIAL LAW. during a \*ar, while Maritime jurisdiction extends to contracts touching rights and duties pertaining to commerce and naviga- tion in time of peace. Under these laws the term "High Seas" includes the Great Lakes and navigable rivers, even within the limits of a single state. The United States Courts alone have jurisdiction over cases between American citizens arising under these laws. COMMERCIAL LAW. The subjects which form the princi- pal part of this book were originally a part of the Common Law, and are derived mainly from the customs of the merchants of London and Liverpool, and for that reason the particular part referring to negotiable paper and business transactions has been called the "Law Merchant." The legal maxim, "Ignorance of the law excuses no one," applies in business transactions as well as where a criminal offense is committed. No one can say that he did not know what the law was, and thus escape the consequences of his acts, hence it is important that every one should have a practical knowledge of the laws of business. TEST QUESTIONS. 1. Distinguish critically between Criminal Law and Civil Law. 2. Name the different sources of law in the order of their present authority. 3. The captain of a vessel on Lake Superior runs his vessel into and damages another vessel. Under what general law should the damage suit be brought? 4. What was the Law Merchant? CHAPTER II. CONTRACTS. CONTRACTS are the basis of, or enter into, almost every transaction in business life, hence they naturally and properly should be studied first as a whole. The different subjects treated of under the title "Commercial Law," such as agency, partnership, insurance, and negotiable paper, are merely branches of the Law of Contracts. DEFINITION. A Contract is an agreement for a considera- tion to 4o or not to do a certain thing. The word "agreement" implies that there must be at least two persons as parties to the Contract. A mere voluntary promise upon the part of one individual without any corresponding prom- ise on the part of another is not a Contract. ESSENTIALS OF CONTRACTS. It is essential to the existence of a Contract that there should be: (1) Parties capable of contracting. (2) Their consent. (3) A lawful object. (4) A sufficient consideration. Each of these essentials will be fully considered in subsequent chapters. Contracts may be either express or implied, written or oral. An EXPRESS CONTRACT is one the terms of which are stated in words; as for example, A says to B, "I will sell you this horse for $50." B says: "I accept your offer. Here is $50." This is an Express Contract. ' IMPLIED CONTRACTS are those the existence and terms of which are manifested by conduct; as, where a person enters a (13) 14 COMMERCIAL LAW. grocery store, asks for $1.00 worth of coffee, receives it, and walks away without saying anything about payment. It is implied that he will pay for the coffee, and he is as liable for the price of it as though he had expressly said that he would pay. Even where there is an Express Contract made, there are usually one or more Implied Contracts accompanying and connected with the trans- action; as where a person makes an Express Contract for the pur- chase of groceries, it is in cities usually implied that the grocer will deliver the groceries, and also implied that the customer's house will be open to receive them during reasonable hours. And, generally, there is the implied agreement in every trans- action that the parties thereto will do whatever is necessary to make possible the carrying out of the conditions of the Contract. WRITTEN CONTRACTS are those in which the terms of the Contract are set forth by means of handwriting, printing, or by any characters, on any material, with any instrument, and signed by the parties. The particular advantage of Written Contracts is that the exact language assented to by the parties may be preserved for future reference; so it is important in writing a Contract to use such materials as will make the writing indelible and permanent. A Contract written in lead pencil is legal, but is easily altered. ORAL CONTRACTS are those in which the Contract is entered into by means of spoken words. In general, Oral Con- tracts are equally as binding upon the parties as Written Con- tracts. (Exceptions will be noted in a subsequent chapter.) The great advantage of Oral Contracts is in the ease with which they can be entered into. In matters of small consequence Oral Contracts are preferred to the formal written ones. CONFLICTING CONTRACTS. If a Contract in writing is made, and also an Oral Contract concerning the same object and between the same parties, which is materially different from the written agreement, the written agreement will control the Oral Contract. In so *ar as the Oral Contract is in conflict with the CONTRACTS. 15 written one it is of no effect. The reason for this is that the Written Contract is presumed to be more carefully and formally made, and to be the result of deliberation, and therefore more nearly to express the real intentions of the parties than an oral one. For a like reason parts in handwriting control printed parts in a Contract. ENTIRE CONTRACT. An Entire Contract is one in which an entire performance on the part of one party must precede per- formance bv the other; as where a carriage maker agrees to manu- facture a certain carnage at a price of $100. The carriage must be fully completed before the maker can demand any part of the pay. A half -finished carriage would be of no use to the customer. SEVERABLE CONTRACTS are those in which complete performance by one party is not necessary before anything can be required of the other. When the price is expressly apportioned by the Contract or the apportionment may be implied to each item to be performed, the Contract will generally be held to be peverable; as in case a Contract is made for the purchase of ten tons of pig iron at $80 per ton. If only five tons were delivered the contractor could claim payment for the five tons at $80 per ton. TEST QUESTIONS. 1. Name the essentials of every Contract. 2. State fully the difference between "Express" Contract and "Implied" Contract, and the advantage of each. 3. A agrees to build a house for $2,000, the money to be paid when the house is completed. A never completes the house. Can he draw any of the contract price? Ex- plain fully. 4. A agreed with B. that B should deliver 100 tons of hay at $5 a ton to A. B delivered twenty tons and no more. Discuss the transaction fully as a Contract, and the reme- dies of each party. CHAPTER III. PARTIES TO CONTRACTS. ALL PARTIES except those forbidden by law may contract about any legal object in a lawful manner, but there are excep- tions expressly made by the Statute Law, as follows: "All per- sons are capable of contracting except (1) Minors; (2) Persons of unsound mind; and (3) Persons deprived of civil rights." MINORS are: (1) Males under 21 years of age; (2) Females under 18 years of age; and in computing the periods specified the time must be calculated from the first minute of the day on which persons are born to the same minute of the corresponding day completing the period of minority; that is, if a male child is born on the 10th day of March, at 6 o'clock A. M., he becomes of age on the 10th day of March, twenty-one years after, at one minute past 12 o'clock A. M. In general, a minor's Contracts are considered valid until he wishes to avoid them, which he may do either before his majority or within a reasonable time afterwards. Some Contracts, how- ever, the law especially declares a minor may Hot make, hence these are absolutely void from the beginning; as, A Contract appointing an agent. Ail other Contracts (not valid), however, are merely voidable. The marriage of a minor does not remove the disability of minor- ity; that is, a minor who marries does not acquire any more rights and is not deprived of any rights whatever in regard to Contracts by reason of such marriage. (16) PARTIES TO CONTRACTS. 17 By a special Act of Legislature a marriage settlement given by a minor who is capable of contracting marriage is valid, and can not be afterwards avoided. A minor who falsely represents himself as being of full age can not afterwards avoid the Contract on the ground of his minority. This rule is in harmony with the legal maxim, "No one is allowed to take advantage of his own wrongful act." PERSONS OF UNSOUND MIXD. This is quite a com- prehensive term and includes idiots, lunatics, drunken persons, or persons who from great age, sickness, or other causes are not of sound mind. A person who claims that his contract is not valid because of his unsoundness of mind must show that his mind was unsound at the time of entering into the contract. The fact that he was of unsound mind before or after the date of enter- ing into the contract would not be sufficient to relieve him in any degree from responsibility for his contract. A person who enters into a contract while he is of unsound mind, may, when he is restored to sound mind, refuse to carry out his part of the contract, on the ground it was entered into -virile he was not capable of contracting. This sort of a contract, therefore, is said to be a Voidable Contract. A person who has a monomania, that is, who is of unsound mind on one subject only, can not avoid any contract which he may make concerning other subjects. If a person is an absolute idiot, his contract is absolutely void, and of no effect whatever. And where a person has been judi- cially declared insane, and a guardian appointed, his contracts are void even though made during a lucid interval. DRUNKARDS. Drunkenness is in itself no excuse for non- performance of a contract, and contracts entered into while under the influence of, or suffering from the effect of, intoxicating liquor, are only voidable when a person is so drunk as to seriously impair the reasoning faculties, or in other words, to make him of unsound mind. It has been decided that where a person voluntarily becomes 2 18 COMMERCIAL LAW. intoxicated that he may enter into a contract and afterwards avoid it, such intoxication is no defense whatever against a person who wishes to compel him to perform his contract. PERSONS DEPRIVED OF CIVIL EIGHTS are not abso- lutely debarred from making contracts, but may make them, and after they are released from prison or restored to their rights, they may avoid the contracts. In case of a person who is impris- oned for life, however, an exception is made. His contracts are considered valid. DISAFFIRMANCE OF CONTRACTS. A person is said to disaffirm a voidable contract when he refuses to be bound by its terms. The right of disaffirmance may be exerted by one who has entered into a contract while under disability. He is allowed a reasonable time after the disability is removed. As in the case of a minor, a man must disaffirm his contract within a reasonable time after becoming twenty-one years of age. Should the minor die before reaching his majority, the contract may be disaffirmed in the same manner in his behalf, by the administrator of his estate. What would be a reasonable time depends on the cir- cumstances of each case. In one case a minor sold a promissory note, received +he pur- chase money, and endorsed the note to the purchaser, and for eleven months after she arrived at her majority, made no offer to return the purchase money or disaffirm the sale. It was held that eleven months was an unreasonable time, and she therefore could not recover the note. Disaffirmance must be manifested by some positive act. The party disaffirming must do or say something to show {hat he avoids the contract. Thus it is held that where a minor grantor of land on attaining his majority executes another deed, this second deed will avoid the first. AFFIRMANCE. A voidable contract may be affirmed within a reasonable time after (not before) the disability is removed, either. PARTIES TO CONTRACTS. 19 (1) By express ratification in words: or (2) By acts which imply affirmance; or (3) By omission to disaffirm. We observe that disaffirmance must be more formal and explicit than affirmance. By merely saying or doing nothing a person will affirm a contract, while if he wishes to disaffirm, he must make it known in some positive manner. The right of affirmance or disaffirmance is confined exclusively to the person who is under disability; so that while a minor has a right to disaffirm certain contracts, an adult who enters into the contract with the minor has no right to disaffirm. CONTRACTS FOR NECESSARIES. A minor or a person of unsound mind can not disaffirm a contract, otherwise valid, to pay the reasonable value of things necessary for his support or that of his family. This is an exception to the general rule of contracts stated above, and it is just in its operation, both to the person under disability and those dealing with him. It is necessary, however, that the credit be given to the minor or incompetent person himself, otherwise he is not chargeable, though he has received the articles. Reasonable value is a ques- tion of fact and would ordinarily be the market value of the goods at the time they were furnished. NECESSARIES OF LIFE are: (1) Proper food; (2) Clothing; (3) Lodging; C4) Medical attendance; (5) Education. What is necessary depends on a person's station in life, and is not restricted to what is absolutely necessary merely to support life. A person with a large estate can bind himself to pay for more expensive clothes, better food and lodging, and a higher education, than a poor person. Each case must be determined according to its own circumstances. In one case kid gloves, silk '20 COMMERCIAL LAW. cravats, walking canes, aiid cologne, were held not to be neces- saries. Generally, luxurious articles of utility may be included under the term "'necessaries," e. g., a watch; while luxurious arti- cles which are purely ornamental are not included as necessaries, e. g., ear-rings; and even an article which is considered necessary for persons in any station in life, such as flour, would not be a necessary if a person were already well supplied with flour; and a dealer furnishing such person with unusual quantities of rlour could not recover pay for more than was required for ordinary use. ALIEN ENEMIES. In the event of war breaking out between the United States and a foreign country all business is suspended between the countries, and every subject of the foreign country is considered an enemy; hence, by furnishing goods to a merchant in the foreign country, a merchant of the United States would be aiding the enemy; therefore all such contracts are abso- lutely void. TEST QUESTIONS. 1. Who are competent parties to a contract? 2. Distinguish between "void" and "voidable" contracts. 3. A minor orphan contracts a bill for butter and flour, and is sued for the price. He pleads infancy as a defense. In whose favor should the Court decide? 4. A farm hand wrote and signed a promissory note. Upon being sued for the amount, he alleges intoxication as a defense. Can he defeat the suit upon such plea? 5. A person enters into a contract and afterwards becomes insane. The contract being otherwise valid, may it be enforced against his estate? 6. Illustrate fully the manner in which a contract may oe "affirmed" or "disaffirmed." 7. Name the "necessaries of life" and illustrate what articles would or would not be "necessaries" under certain circum- stances. CHAPTER IV. CONSENT OF PAETIES. CONSENT is the agreement by the parties to a contract con- cerning the object of the contract, and must be free, mutual, and communicated by each to the other. Until there is an agreement containing these three elements, there is no consent to the con- tract. A PEOPOSAL or offer must, of course, be made by one party wishing to enter into a contract. This does not bind the person who makes the offer until his offer is accepted, and he may with- draw it at any time before acceptance. The rule is that an oral proposition must be accepted at the time it is made, or at furthest, before the parties separate. If they separate without having entered into the contract, the offer can not be accepted later unless time was expressly given. In case of a written proposal being made a reasonable time is allowed for acceptance or refusal, and what a reasonable time ; s must be determined by the circumstances of each case. ACCEPTANCE. The parties must agree upon the same thing in the same sense, in order to make a valid contract; hence the acceptance must be absolute and unqualified. If it contains any conditions it is not a valid acceptance, but amounts in effect to a new proposal; as if A offers to sell a typewriter to B for $100 cash, and E replies, saying, "I will accept your offer if you will take my note instead of the cash." B thus makes a new offer, which may be accepted by A or not, as he pleases. WEITTEN PEOPOSALS. In case a proposal is sent by let- ter, the offer remains open until the letter in the usual course of mail would reach its destination, and for a reasonable time there- after. (21) 22 COMMERCIAL LAW. The acceptance of a written offer takes effect as soon as the party accepting it has put his acceptance in the course of trans- mission to the proposer, even though the proposer may not receive the acceptance for a long time, or may not receive it at all. This may seem to work a hardship on the proposer, but he may limit the time for holding his offer open for acceptance in this manner: "If I do not hear from you within ten days I shall conclude you do not accept." This would relieve him from hold- ing open the offer more than ten days even though an acceptance had been mailed within the ten days and not received until after the ten days had elapsed. In case an offer is sent by mail, and within proper time is accepted by mail, we have seen that from the moment the letter of acceptance is started, the acceptance is complete, therefore, if the proposer changes his mind and mails a letter withdraAving the offer before the acceptance reaches him, the acceptance is never- theless effective and the contract is complete. -IMPLIED GENERAL PROPOSALS. Every storekeeper by placing goods on his shelves and opening his doors to the public, thereby invites every one to come in and make purchases, and any person may enter such store and demand any article therein dis- played on tender of the proper price. This is the acceptance of the general proposal, and when thus accepted the contract is complete. CONSENT, VOIDABLE. A consent which is obtained by (1) Duress; (2) Menace; (3) Fraud; (4) Undue influence; or (5) Mistake; is not free, and the contract is therefore voidable on the ground of lack of consent. DURESS consists Li (1) Unlawful confinement of a person or his relatives; CONSENT OF PARTIES. 23 (2) The unlawful detention of his property; as where a person holds a sum of money and refuses to deliver it until a contract is entered into. And under the first subdivision above, one who pays money for his release from prison under unlawful confine- ment, may recover the money so paid. MENACE consists of a threat of unlawful injury to the per- son or character or property of a person, made with the intent of compelling consent to a contract. A person who enters into a contract under such menace, may avoid the contract on that ground, and if he has paid anything, may recover everything he has paid by reason of the threat made. It must be remembered that the threat must be of unlawful prosecution. A threat of lawful prosecution against a person will not constitute menace; and a person claiming menace must show not only that he was in fear, but that he had reasonable grounds for believing that he or his property was in actual danger. FEAUD, generally, is said to be some deception practised with the intent of inducing a person to enter into a contract. This, however, is not strictly correct. In order to constitute fraud in a legal sense it is necessary that material damage should be done by reason of the deception. No matter what false statements or representations are made to a person, if he does not believe them, and is not deceived thereby to his injury, he can not claim to have been defrauded; and he is bound to use such diligence as an ordinarily prudent business man would use in entering into contracts, otherwise he can not avoid the contract on the ground of fraud, as the law will not assist any one who is defrauded by reason of his own negli- gence or foolishness. Nevertheless, if, as in the case of a man buying a horse, the person relies entirely on the dealers judgment, stating that he knows nothing about a horse and wishes a gentle, well-broken animal, and the dealer by wilful falsehood -assures him that the horse is all that is desired, when in fact he. is not, the purchaser 24 COMMERCIAL LAW. is entitled to avoid the contract, return the horse, and recem back his money on the ground of fraud. CK1MINAL LIABILITY. A person who defrauds another, or who makes any contract or conveyance with the attempt to defraud or deceive, or to hinder or delay creditors in the collec- tion of their just debts, is, under the provisions of the Penal Code, guilty of a misdemeanor, and may be punished by fine and im- prisonment, in addition to any civil liability in damages to the injured party. UNDUE INFLUENCE consists in taking an unfair advantage of another's weakness of mind, or necessities, or distress, or by using a person's confidence unduly to induce him to enter into contracts; as where a child would take advantage of an aged father's weakness of mind to induce him to disinherit other chil- dren. Undue influence, however, must be carefully distinguished from the ordinary influence which is brought to bear by one per- son upon another in every-day life for the purpose of inducing the making of contracts. Just what amount of weakness of mind or distress on the part of one party, and what amount of influence exerted on the part of the other party, will constitute undue in- fluence, so as to make the contract voidable, is a question of fact to be determined by the circumstances of each case. In any event, the influence so exerted must have resulted in damage to the person influenced, otherwise the contract can not be avoided. MISTAKE is, (1) An unconscious ignorance of a fact material to the con- tract; or (2) A belief in the existence of a thing material to a contract, which does not exist. It is absolutely necessary that the mistake be mutual; therefore mistake, under the law of contracts, means something entirely different from what is ordinarily meant by the term. If the misapprehension is only on the part of one party, the other party knowing full well concerning the matter, it amount* CONSENT OF PARTIES 25 to a deception on the part of the party having such knowledge; as if A thinks he is selling a tract of land, other than that actually conveyed, and B thinks that he is receiving that which is con- veyed, it is a mutual mistake; but if A knows he is selling a tract of land other than that B thinks is conveyed, it is a fraud on A's part, and not a mistake. To take advantage of mistake, rea- sonable diligence must be used in avoiding the contract by the party who is injured, and he must return anything which he has received under the contract before he can avoid it. TEST QUESTIONS. 1. Xame three elements constituting -consent. 2. A physician buys a horse from a dealer for use in his pro- fession; the horse proves to be vicious and refuses to stand. Under what circumstances would the contract be voidable, and under what valid? 3. A man purchases an article for a certain but unexpressed purpose; it proves to be unfit for such purpose. May he return the article and rescind the contract? 4. Distinguish critically between "mistake" and "fraud" in law of contracts. CHAPTER V. CONSIDEKATION. CONSIDERATION. In all contracts there is in reality a consideration offered by each party to the other to induce him to enter into the contract. For convenience, however, money, or its equivalent, is usually spoken of as the consideration in ordinary contracts, and the thing, other than money, is called the object of the contract. As a general rule all contracts require a consideration, but there are two exceptions. (1) Negotiable paper in the hands of an innocent purchaser for value before maturity. (2) Certain mutual promises, as mutual promises to marry. VALUABLE CONSIDEKATION consists of (1) Any benefit to the promisor. (2) Loss or inconvenience to the promisee. It is not therefore necessarily money which is the considera- tion, but any benefit, and the word "any" includes the smallest benefit which is of value. The law does not presume to 'lay what is the reasonable value of an article. Examples. In the absence of fraud, or other legal reason for avoiding the contract, a person who sells a fine horse for $5.00 must abide by his contract. He can not avoid it on the ground of the inadequacy of the consideration. An agreement to pay in future greater interest on a note, is sufficient consideration for the agreement of the creditor not to sue. The part payment of a note when all is due is not sufficient consideration for a promise to extend the time of payment. 1 26) CONSIDERATION. 27 GOOD CONSIDERATION consists of the love and affection which near relatives have toward each other. A man deeds his son a house and lot without any valuable consideration merely as a gift. The love inducing the gift would be a good consideration. Such consideration will only be sufficient after the gift has been made. A mere promise to give something in the future, even to a child, can not be enforced. It is the duty of a father, mother or child of any poor person, who is unable to maintain himself, by working, to maintain such person to the extent of their ability, and the promise of an adult child to pay for necessaries previously furnished to a parent is binding. The law in such cases presumes the love and affection which makes the good consideration. CREDITOR'S RIGHTS. While it is true that as between the parties to a contract, a small consideration, or the considera- tion of love and affection, may be sufficient to support a contract, nevertheless, if a person deeds valuable property for an extremely small sum to a friend, vrith the understanding that it is to be reconveyed to him, and this contract is made for the purpose of de- frauding his creditors, the conveyance may be set aside, and the contract declared void in a suit brought by the creditors. The same is true in case a man gives his property to his relatives in order to prevent his creditors from enforcing their just claims; and in general, when there are creditors, the conveyance of prop- erty for a small or no consideration, is considered good evidence of fraud. ANY CONSIDERATION which is perversive of the letter or intent of the law, is an unlawful consideration, and will not support a contract; as A gives B his note on the consideration that B will procure A's escape from jail, B can not collect any- thing on the note because the releasing of prisoners in such man- ner is unlawful. IMPOSSIBLE. Fverything is deemed possible which is pos- sible in the nature of tilings. A man who has agreed to pay 28 COMMERCIAL LAW. $100 as consideration for services performed can not avoid pay- ment on tiie ground of impossibility by saying that it is impos- sible for him to pay the hundred dollars. It is not impossible in the nature of things. A mere pecuniary impossibility is not a legal impossibility. When the consideration is on its face impossible of execution, the entire contract is void; as where the consideration is that A shall travel from San Francisco to New York in a day. FAILING. If the consideration is apparently sufficient, but in fact worthless, or if sufficient when the contract is made, and subsequently becomes of no value, this failure of consideration will make void the entire contract; as where a person receives shares of stock in a mining company, and afterwards discovers that the certificate of stock has been forged. TEST QUESTIONS. 1. A man in contemplation of insolvency conveys his property to his son. May his creditors enforce payment from that property? 2. A agrees to give B $100 to leave the state until a certain case is tried so as not to be a witness. B does so and returns. A refuses to pay the $100. Discuss the reme- dies of CHAPTER VI. THE OBJECT. THE OBJECT of a contract is the thing which it is agreed on the part of the party receiving the consideration to do, or not to do: or in other words, it is the thing about which the agree- ment is made; as in the case of the purchase of a horse, the horse is the object of the contract. LAWFUL. The object of the contract must be lawful when the contract is made, and possible and ascertainable by the time the contract is to be performed. Where a contract has but a single object, and such object .is unlawful, the entire contract is void; but where a contract has several distinct objects, if one is lawful and the others unlawful, the contract is valid in regard to the lawful object, and void as to the rest; as where a person gives a mortgage securing an individual note, and a company note, if the company note is void, the mort- gage security will nevertheless be good as securing the individual note. UNLAWFUL. That is not lawful which is (1) Contrary to an express provision of law; (2) Contrary to public policy; (3) Otherwise contrary to good morals. Under the definition in subdivision one, it makes no differ- ence in the validity of the contract that the contract is not crim- inal in its nature. It is enough if it is contrary to the provisions of law; as if a man agrees for a consideration to drive a horse through the streets of a city at the rate of fifteen miles per hour; fast driving being prohibited, the contract would be invalid, even though in itself there is no wrong in driving a horse at a rapid rate. (39) 30 COMMERCIAL .LAW. If payment is refused under such a contract, the driver can not recover the consideration in a suit at law, because the con- tract is unlawful, and in accordance with the legal maxim, "The law will not aid wrongdoers." Under subdivision two, it has been decided that agreements in consideration of aiding a candidate to procure an office, to share the salary of the office, are contrary to public policy and therefore void; as is a contract to keep a witness for the gov- ernment out of the way until after a trial is over. In either of these cases no part of the contract can be enforced. CONTRACTS IN RESTRAINT OF TRADE also come within the purview of subdivision two above, as being against public policy. It often happens that a person builds up a profit- able business, and people are attracted to his place of business by reason of his personal qualities. If he sells out his business to a stranger, it is customary for the stranger to require a contract from him to the effect that he will not open another store for the transaction of the same kind of business, as he would probably by so doing take many of his regular customers away from the stranger. Such contracts, however, are not void, provided the seller agrees to refrain from carrying on a similar business within the limits of a specified county, city, or part thereof; and even such a contract is only valid so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein. It is held that where A agreed not to carry on the business of street paving in the city of San Francisco, or the state of Cali- fornia, that the entire contract was void as including more terri- tory than allowed by lav/. A contract which does not specify any territorial limit at all, is, of course, void; as, where a contract was entered into not to engage in "any branch of the yeast powder business," the con- tract was held to be absolutely void. In regard to partners, however, the limit within which any THE OBJECT. 31 outgoing partner may carry on a similar business on dissolution is the boundary of the city or town where the partnership bus- iness has been transacted, or a specified part therein. The theory upon which contracts of restraint of trade are allowed at all, is that the buyer is entitled to the good-will of the business. Good- will is the expectation of continued public patronage. Our law- makers have concluded that in the ordinary lines of business a man can not expect patronage from a larger extent of territory than one county, hence that limit has been fixed. CONTRACTS RESTRAINING MAEEIAGE. Every con- tract in restraint of the marriage of any person other than a minor is void; but this does not affect limitations where the intent was not to forbid marriage, but only to give the use until marriage; thus a contract by which a father agrees to give his son one thou- sand dollars if he does not marry until he is twenty-one years of age, is in all respects valid; but if the contract is that the son shall forfeit all claim to his inheritance if he marries at any time, it is invalid; but where a widow is given the use of certain property until she remarries, the condition is valid, as merely giving the use until marriage and not forbidding marriage. BROKERAGE CONTRACTS are in all cases void. The pro- prietor of a so-called marriage bureau can not enforce the collec- tion of any fee agreed to be paid him for negotiating a marriage, as the contract in itself is against public policy, in that it en- courages marriage of persons hastily, and as a mere matter of business speculation. FRAUDULENT CONTRACTS. All contracts which have for their object an exemption of any one from responsibility for his own fraud, or for fraudulent injury to the person or property of another, are against the policy of the law, and therefore void; as for example, where a debtor in failing circumstances makes a transfer of his property to a friend for the purpose of defrauding his creditors, such contract is absolutely void in all respects, and creditors may recover the property and have it applied to the sat- 32 COMMERCIAL LAW. isfaction of their debts, upon proving that fraud has been com- mitted. The debtor himself, however, is bound by the act of trans- ferring the property to his friend, and can not compel the friend to give back the property, as he himself committed fraud, and the law will not aid wrongdoers. The law provides, however, that a debtor may make assignments of his property to any person in trust for the benefit of his creditors. This act when done with- out fraud is valid, and any surplus that may remain after his creditors are paid, the assignee must return to the debtor. Undei what is termed the Xational Bankruptcy Law, which is in force in all the states and territories, creditors, upon proper application to the Court, may compel the placing of his property in the hands of an assignee for the purpose of being sold to satisfy their claims. Any assignments, if voluntary, must place all creditors on an equal footing. So far as the assignment gives one creditor a larger share than another it is void, as being a fraud upon other creditors. CONTKAEY TO GOOD MOEALS. A note given by a wife for land conveyed to her by her husband in consideration of her allowing him to get a divorce, has been held void, as being con- trary to good morals. Obscene publications come under the head of immoral contracts, and consequently any such contracts are void, and the price agreed to be paid can ^ot be recovered in a suit at law; and under the Penal Code any person who writes, composes, distributes, sells, or publishes any lewd paper, picture, or figure, or sings any lewd or obscene song in public, is guilty of a mis- demeanor, and his contract for performance of any such acts is absolutely void. "Wagers are against good morals, and will not be enforced by the Courts; however, it has been held that before the wager has been decided by the stake-holder either party may recover his money from the stake-holder, but that after the money has been paid by him to one of the parties, the transaction is complete, and the money so paid can not be recovered. THE OBJECT. 33 It has. been held that where a purse is offered by way of pre- mium or reward, for the winner of a horse-race, it does not come within the law against bets or wagers, and the contract may be enforced. SUNDAY CONTBACTS. In many of the states there are laws against making contracts on Sunday, and the impression is so general that it is necessary to state that in California there is no Sunday law, and, consequent!}', any contracts which would be valid on any other day of the week would be valid on Sunday. Even contracts which would appear to be in desecration of the Sabbath, such as a contract to play ball on Sunday, are valid, and the ball player may collect his wages for his services performed on Sunday, if his claim is otherwise valid. Sunday is, however, a legal holiday, and certain acts relating to business of the state and the Courts are not valid if performed on that day; not be- cause it is Sunday, but because it is a legal holiday. ELEMENTS OF FEAUD. As has been stated in a previous chapter, a mere falsehood is not necessarily a fraud, and the fol- lowing elements must all be represented in a contract before the contract can be declared void on the ground of fraud. (1) The means resorted to must be for the purpose of induc- ing the one deceived to enter the contract. (2) They must be false in fact. (3) The party resorting to them must have had no belief in them, or no reasonable ground for believing them. (-1) The party deceived must have relied upon them, and been justified in relying upon them. (5) There must have been material damage to the party de- ceived. From the fourth element it will be seen that a person must exert at least ordinary care in accepting any statements as true, otherwise he can not claim to have been defrauded. In the case of a sale of wool which had been exposed to a rain- storm in order to make it weigh heavier, the seller explained the 3 34 COMMERCIAL LAW. stains on the sacks caused by the water by saying that they were old sacks. It was held that the purchaser exerted due diligence; that all the elements of fraud were present, and that he was en- titled to rescind the contract and receive back what he paid for the wool. TEST QUESTIONS. 1. A baseball player contracts to play a certain game on Sun- day, for a consideration. May he collect the sum agreed upon? 2. A marriage broker procures a wife for A and sues him for a fee of $50. Can he recover judgment? Give reasons. 3. A sells his store to B and agrees not to open another store in the same line of business. Discuss the validity of the agreement. 4. A agrees to give his daughter $5,000 on her eighteenth birthday if she remains unmarried until that time. Can she recover the $5,000 before that time? Give reasons. CHAPTER VII. INTERPRETATION, NOVATION, AND CANCELLATION. Even though a contract may have been entered into by formal and carefully-drawn writing, or by the most explicit oral under- standing, yet it often happens that the meaning is not plain, and has been understood differently by the respective parties; hence certain rules have been laid down for the interpretation of con- tracts; and, in general, all contracts are to be interpreted by the same rules. MUTUAL INTENTIONS. A contract must be interpreted so as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertain- able and lawful. Of course, so far as any part of the contract is unlawful, it is void and of no effect. The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity. In a case where a bond was given the intention was to have it read "two thousand two hun- dred dollars." The word "thousand" was omitted, and it read "two two hundred dollars." The Court decided that the language did involve an absurdity, there being no such thing as "two two hundred dollars," and that therefore oral evidence would be admitted to show what was intended. WRITTEN CONTRACTS. When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, unless, through fraud, mistake, or accident it fails to express the real intention of the parties; as in a case where a man who could not read was asked to sign a promissory note with the understanding that it provided for the payment by him of $100. In fact the note provided for the payment of $500. The Court (35) o6 COMMERCIAL LAW. held that oral evidence of the intention might be given, and the contract was declared void on the ground of fraud. The execu- tion of a contract in writing, whether the law requires it to be written or not, supersedes ail oral agreements concerning the same matter, which preceded or accompanied it. Effect is to be ghen to every part of a contract if reasonably practicable, and the whole contract is to be taken together in construing the mean- ing, and not by parts; and where there are several contracts relat- ing to the same matters between the same parties, they are to be taken together as parts of the one transaction; as in cases where a number of letters have been written containing proposals and acceptances, all of the letters will be read together as forming one contract, the parts of the letters containing rejected proposals being rejected from the contract. TECHNICAL WORDS. The words of a contract are to be understood in their ordinary an^ popular sense, rather than ac- cording to their strict legal meaning, unless they are used by the parties in a technical sense; and such technical words are to be interpreted as usually understood by persons in the business or profession to which they relate. A word which is used with a particular meaning in one portion of a contract is presumed to have been used in like sense in other places. The word "stubble," as used in a lease, was held to be a tech- nical word, including grain remaining uncut after the period of harvest, as well as the straw from which the grain had been cut, it being shown that that was the meaning as usually understood by farmers in that section of the country. LAW OF PLACE. A contract is to be interpreted according to the law and usage of the place where it is to be performed, or if no place of performance is specified, then according to the law and usage of the place where it is made. Mere usage, however, can not be admitted in evidence to destroy the plain meaning of a contract. A contract may be perfectly valid, even though in its terms it declares things which are contrary to the ordinary usage; INTERPRETATION, NOVATION, CANCELLATION. 37 but evidence of usage is used as an instrument of interpretation only: as in the case of the word "stubble" in the case cited above, the decision was based partly on the usage of the place as to the meaning of the word "stubble.'' REPUGNANCIES. Where different clauses of the same con- tract are in conflict with each other, they must be reconciled, if possible, by such interpretation as will give some effect to the re- pugnant clauses. Where, however, there is a flat contradiction between different parts, that in handwriting controls printed parts, and special statements control general statements. Written statements control oral declarations. Parts purely original con- trol those copied from a printed form. In cases of uncertainty which still exist after the foregoing rules are applied, the lan- guage of the contract must be interpreted most strongly against the party who caused the uncertainty to exist. If A agreed to work for a day, he writing the agreement himself, in case it was uncertain as to what the word "day" meant, it would be construed to mean the longest working day rather than the shortest. TIME. If no time is specified for the performance of an act required to be performed, a reasonable time is allowed. If the act is in its nature capable of being done immediately, as, for ex- ample, if it consists in the payment of money only, it must be performed immediately upon the thing to be done being exactly ascertained. The word "immediately" does not mean within any particular minute or hour, but as soon as, with ordinary diligence, the act can be accomplished. What a reasonable time is depends upon the circumstances of each case. In one case where A agreed to convey certain lands, his fail- ure to do so within eight years was held to be an unreasonable length of time, and the contract was broken by reason of such failure. NOVATION is the substitution of a new obligation for an existing one, and is made. 38 COMMERCIAL LAW. (1) By substituting a new obligation; (2) By substituting a new debtor; or (3) By substituting a new creditor. Novation is made by contract, and is subject to all the rules concerning contracts in general. CANCELLATION. A contract not in writing may be altered in any respect by consent of the parties in writing without a new consideration, and the original contract is cancelled thereby to the extent of the new alteration. A contract in writing may be altered by a contract in writing or by an executed oral agreement, and not otherwise; as for ex-, ample, if by a written contract A agrees to sell B a horse for fifty dollars, the parties may alter the written contract by writing "one hundred dollars/' or they may orally agree that the price shall be one hundred dollars, and as soon as the hundred dollars is paid and the horse delivered, the original contract is canceled. Destruction intentionally caused by a party entitled to benefit under the contract, or with his consent, extinguishes all the obligations of the contract in his favor, and in any case the destruction of a written contract with the intent to extinguish the obligations thereof, extinguishes the contract as to all parties consenting to the act. TEST QUESTIONS. 1. A railroad company took a cable rope from the manufac- turers with the understanding that it was to be kept and paid for if satisfactory. The company returned the rope to the manufacturers. The manufacturers sued for the price. Were they entitled to recover? 2. A entered into a written contract with B by which he was to pay $100 for goods. A admitted that he had signed the writing and knew what it contained at the time, but stated that there was an oral agreement at the time that INTERPRETATION, NOVATION, CANCELLATION. he was only to pay $75 for the goods. In case of will he be compelled to pay $75 or $100? Give reasons. 3. In the above case suppose that A could not read and was informed that the consideration was $75. Would he be compelled to pay the $100? 4. A agreed to rent to B a "spike" team. On a trial for dam- age for refusal to furnish the team, A claimed that a "spike" team meant two horses for hauling spikes; B con- tended that it meant three horses for any purpose. State different circumstances which would decide the case for one party or the other. CHAPTER VIII. EEMEDIES. DEFINITION. In every contract, as we have seen, there are mutual promises by the parties thereto. If all of these promises were at all times faithfully kept and performed there would be no damage done and consequently no redress required, but it is the common experience of mankind that contracts are often broken. We have from the old common law the maxim, "There is no wrong without a remedy." Remedies are obtained by appli- cation to the Courts by means of what is called a suit or action at law. SUIT is commenced by filing a written statement called a complaint in Court, setting forth the contract, and that it has been broken, and the damage claimed by reason of the bread i of contract. A summons, or notice, is then issued commanding the one who has broken the contract to appear within a certain time named, and make answer to the complaint against him. After he does this, the trial is had and the Court or jury determines whether the contract has been broken, and if so what relief is proper. The Order made by the Court stating the relief that is granted is called the judgment, and this judgment of the Court is enforced by a Sheriff or Constable, and is called the execution of the judg- ment. Judgment may be for specific performance, injunction, or for damages. EXECUTION". Where the judgment is for damages, the Sheriff or Constable may seize the real and personal property of the debtor and sell it. If there is any surplus, he must return it to the debtor, but he must be careful to sell personal property > (40) REMEDIES. 41 first, then real property, and only so much as is necessary to satisfy the judgment. Execution may issue any time within five years from entry of judgment. EXEMPTIONS. As a matter of public policy, it would not be good policy to allow a creditor to take every article which the debtor owns away from him in satisfaction of his debts, as it might effectually prevent him from earning his livelihood, and thereby create a class of paupers who would be a burden on the general public; hence, the general rule is, that whatever is neces- sary for the actual earning of a person's livelihood, or for his ordinary use, is exempt from execution. The following are illus- trations of what is exempt: (1) Necessary household and office furniture. (2) Necessary farming utensils; not exceeding in value $1,000; also two work animals, harness and wagon. (3) All public property, such as jails, court-houses and town halls. (4) The library of an attorney, the piano of a music teacher, the typewriter of a stenographer, the horses and dray of a dray- man, and other like things by which a debtor earns his living. DAMAGES. In case a party to a contract fails to fulfil his agreements, and a suit is brought and judgment entered, this judgment usually provides that he must pay a certain sum of money as damages to the injured party. In general the damages allowed is the amount which will compensate for all the injury suffered. DI11ECT AND CONSEQUENTIAL DAMAGES. Damage must be the natural and proximate result of an act in order that compensation in money may be obtained. There are only two classes of cases where injuries have been sustained for which dam- ages may be allowed. The injury must be: (1) Direct; that is, such as proceeds immediately from the act, or, (2) Consequential; such as ilows necessarily from the act: for example: 42 COMMERCIAL LAW. A killed a mare. The damage sustained was direct damage in the loss of the animal. She had an unweaned colt. The cost of employing other means to raise the colt was consequential dam- age, and the owner of the inare recovered as damages the value of the mare, and the additional expense of raising the colt. The additional injury caused by the colt kicking its keeper was too remote to charge A. The kicking was neither the direct result of the killing of the mare, nor did it necessarily result therefrom. The colt might have kicked the man had the mother lived. SPECULATIVE DAMAGES. Damages must always be either direct or consequential; and they must also be certain. If a man makes a mere supposition or speculation that he has been damaged, he can not recover damages. In the above example, the extra price which the colt might have brought, had it been reared by the mother, is mere speculation, and not recoverable. No one can tell whether the colt would have been of more value had the mother lived, or not. LIQUIDATED, OB FIXED DAMAGES. In some contracts it is found that, owing to the nature of the contract, it is very difficult to say what amount of damages will compensate for a breach thereof. When from the nature of the case it would be impracticable or extremely difficult to fix the actual damage after it occurs, the parties may agree beforehand upon an amount which shall be allowed as damages to the injured party in case the con- tract is broken. This agreement is usually made a part of the contract itself, but it may be specified in a separate instrument. A purchased a sailing vessel from F. F agreed to deliver the vessel within twenty days, and it was agreed that if he did not he should pay $2,000 as damages to A. He failed to deliver, and on suit being brought, the Court held that it was one of the cases in which it was extremely difficult or impracticable to fix the actual damages, and therefore allowed the $2,000 agreed upon as dam- ages. In the ordinary cases, however, where the damage can 1>3 ascertained, fixed damages are not allowed. REMEDIES. 43 EXEMPLARY DAMAGES are damages which are allowed in addition to any actual damage suffered in cases where there haa been wilful injury inflicted. Such damages, however, are never allowed for mere breach of contract, but only in cases of wilful or malicious injury. Such wilful wrongs are called torts, and addi- tional damages by way of example, or exemplary damages, are allowed in such cases, except in cases where a person by reason of being of unsound mind or a minor is not capable of knowing that the act is wrongful. If a person commits wrongful injury to animals, such as maliciously leaving horses to starve, or die from want of water, exemplary damages may be given in addition to damages for the actual value of the horses. In contracts for the payment of money only, the damage caused by the breach thereof is deemed to be the amount due with interest thereon. The actual loss occasioned by the breach of such a contract may be much greater than the amount due with interest, but the law does not inquire into consequences which may arise beyond the amount due with interest. BREACH OF CONTRACT TO DELIVER PERSONAL PROPERTY. If the property has not been paid for, the damage caused by the breach of contract on the part of the seller is the difference between the value of the property to the buyer, and the price he has agreed to pay; as, if a fruit dealer bought at wholesale certain apples for $50 and they were not delivered, and he had a contract for their sale for $75, his damage caused by the non-delivery of the apples would be the difference between $50 and $75, or $25. If the personal property has been paid for and not delivered the amount of the damages is either, (1) The value of the property at the time it should have been delivered, with legal interest; or (2) The highest market value of the property at any time up to the time verdict is given in a suit for the recovery of damages. 44 COMMERCIAL LAW. BREACH OF CONTRACT TO PAY FOE PERSONAL PROPERTY SOLD. Where a buyer breaks his contract and fails to accept and pay for personal property which he has bought, the damage to the seller is the amount of the contract price, and the seller may store the goods for him, and sue him for the con- tract price. BREACH OF CONTRACT TO BUY PERSONAL PROP- ERTY. In case the title has not passed, but there is a mere agreement to buy upon delivery, if the buyer refuses to accept and pay for personal property the seller may; (1) Resell the property and recover as damages the amount of the difference between what he sold for and what the buyer has agreed to pay him; or,, (2) He may keep the goods and recover as damages whatever profit he would have made by the sale plus the expenses incurred in handling the goods. EMPLOYEE WRONGFULLY DISCHARGED may recover damages which he may suffer by reason thereof. He may either (1) Regard the contract as broken and sue at once for the breach, and may recover the profits that would have been made had the contract been fulfilled; or (2) Treat the contract as rescinded and sue for the reasonable value of his services from the time he commenced work until the contract would have been completed. In either case he must use ordinary diligence in looking for other employment, and in case he secures other employment at less wages, his damage will be the difference between what he does receive, and what he would have received under his contract. It must be carefully remembered, however, that such damages are only obtainable in case an employee is wrongfully discharged. If he has been discharged by reason of failure to properly perform his duties he has no remedy, and if he has injured his employer by reason of his negligence or unskilful performance of his duties, the employer may recover damages from him. SPECIFIC PERFORMANCE is the compelling of n person REMEDIES. 45 to carry out the terms of his contract in case he refuses or neglects to do so. It is the general rule, as we have seen, that where contracts are broken the person who commits the breach of contract is made to pay damages in money to the other for the breach thereof, but there are some cases in which it is considered that mere money damages will not compensate a person for a breach of contract; and in such cases a judgment will be given compelling the full or specific performance of the contract. As to the classes of contracts, the rule is that a breach of con- tract concerning personal property may be relieved by money damages; while if a person agrees to convey real property and fails to do so the Court will compel him to do so upon application by the injured party. In such a case, however, the party injured by the breach of contract must himself perform, or be compellable to perform, his part of the contract, in accordance with the maxim. "He who seeks equity must do equity." A person who applies to the Court for a judgment for specific performance must do so within a reasonable time after the breach of contract. In one case where six years had elapsed the Court held that the injured party had waited an unreasonable length of time, and refused to compel a specific performance by the other. What a reasonable time is, however, depends upon the circum- stances of each case. AN INJUNCTION is a writ or order requiring a person to refrain from a particular act. It sometimes happens that a person inflicts injury upon the property of another, or threatens to do so; and to await the slow process of an ordinary suit at law might result in irreparable injury to the property; therefore when there is no plain, speedy and adequate remedy at law a person injured may apply to a Court for an injunction. Injunction was held to be the proper remedy in the following cases: A tenant was digging up fruit trees; an injunction was granted to compel him to stop. 46 COMMERCIAL LAW. An ex-sheriff was restrained from collecting taxes, by injunc- tion. A person attempted to divert all the water from a miner's ditch. An injunction was issued to compel him to cease. TEST QUESTIONS. 1. Name the various stages of an action for a debt. 2. A agrees to build a ship for B, and in case he fails to com- plete the work he is to forfeit $10,000 as damages. Is that part of the contract valid? Give reasons. 3. A enters into a contract with B for the purchase of B's land. At the time fixed for the performance B refuses to convey. "What remedy or remedies has A? 4. A agreed to keep certain horses in pasture at a certain price. The horses died from lack of food and water in the pasture field. What damages may be recovered by the owner? CHAPTER IX. DEFENSES STATUTE OF FRAUDS. DEFINITION. It sometimes happens that a person sues another for breach of contract through mistake, there having been in fact no breach of contract, or it may happen that the contract has been partly performed, or there may be some legal reason for not performing the contract. When a person has any such rea- sons he may offer them as defenses to the action against him. A defense, then, is a legal reason given by the defendant tending to show that there is no case against him The principal defenses are: (1) Statute of frauds; (2) Statute of limitations; (S) Performance; (4) Counter claim. THE STATUTE OF FRAUDS has for its object the preven- tion of fraud in contracts by requiring certain contracts to be in writing. The statute provides that the following contracts are invalid unless the same or some note or memorandum thereof be in writing, and subscribed by the party to be charged, or by his agent. (1) An agreement that by its terms is not to be performed within a year. (2) A promise to answer for the debt, default, or miscarriage of another. (3) An agreement made upon consideration of marriage except mutual promises to marry. (4) An agreement for the sale of personal property for a price of $200 or over, unless (47) 48 COMMEKCIAL LAW. (a) The buyer accepts or receives part of the thing; or, (6) The buyer pays at the time part of the price; or (c) The sale be by auction. (5) An agreement for leasing real property for more than one year. (6) An agreement for the sale of real property. (7) An agreement employing an agent to purchase or sell real property. EXPLANATION. It has been found by experience that in matters of small consequence people are likely to fulfil their con- tracts, and less dispute consequently arises as to the meaning of ?uch contracts. It would be very inconvenient, moreover, if a person were required to write out a contract every time he wished to make a trifling purchase, so the law has particularly specified, as above stated, what contracts are considered important enough to reduce to writing, and by thus reducing them to writing the interpretation is made reasonably certain. Of course, the statute does not mean by the word "invalid" that a person who orally enters into such contracts as are required to be in writing, is guilty of any crime, or that he will be crim- inally liable for his act. In so far as each party carries out the contract, and no one is injured, the statute does not apply and the contract is valid; in other words the statute does not actually make the contract void, but simply prevents any party who may be injured by breach of the contract from obtaining any remedy by suit at law if the other party sets up the statute as a defense for non-performance. "Note or memorandum" must be full enough plainly to describe the contract and the parties thereto. "Subscribed" means written at the end of the instrument Mere signing of the name in or on some other part of the con tract will not do. "By the party to be charged." The other party need not sub- scribe his name. It is not necessary to state the consideration in the writing. DEFENSES- STATUTE OF FRAUDS. 49 "BY ITS TEEMS NOT TO BE PERFORMED WITHIN A YEAR." The words "by its terms" are particularly important. If it does not appear by its terms that the agreement is not to be performed within a year from the making of it, the contract may be made orally and be valid in all respects. It is only when by its terms it expressly states that it is not to be performed within a year, or that fact otherwise appears by the terms of the contract, that the contract must be in writing; thus, a verbal contract was entered into to deliver saw logs sufficient to keep a sawmill running for two years. It was held that by its terms the contract was not to be performed within a year, and hence not being in writing the contract was invalid, and when the lumberman failed to furnish the logs, the owner Q| the sawmill could not recover damages, nor had he any remedy of any kind. If the contract may be performed within a year it need not be in writing under any circumstances even though it actually takes longer than the year to perform it. As, if A agrees to build a carriage and to begin work immediately, the contract is binding although not in writing, even though by A's delay the carriage is not finished within a year. The object of this provision is to secure good evidence of contracts that will endure for a year's time or more. It has been the common experience of man that the memories of people fail in a very short time. Even where they honestly try to state the exact terms of a contract it is difficult to do so after the lapse of a year or more. "TO ANSWER FOR THE DEBT, DEFAULT, OR MIS- CARRIAGE OF ANOTHER." If A promises to pay B's debt, lie must make his promise in writing in accordance with the stat- ute of frauds, or he can not be bound by the contract; but if A goes into a store with B and tells the storekeeper to let B have certain goods and that he. A, will pay for them, this is a different matter. It is an original promise by A himself, and the debt is not B's, but A's, and he will be obliged to pay, even though he 4 50 COMMERCIAL LAW. does not make the promise in writing. This promise must be made, however, to the creditor, and not to the debtor. If A agrees with B for a consideration that he, A, will pay B's debts, B may compel A to do so, even though the agreement was not in writing. "IN" CONSIDERATION OF MARRIAGE EXCEPT MU- TUAL PROMISES TO MARRY/' This provision has reference particularly to what are known as marriage settlements; as, where a man promises to deed a house and lot to a woman if she will marry him; or where a father promises his daughter $1,000 if she will marry. All such agreements must be in writing, or they are invalid. One exception is made of mutual promises. If ono promises to marry another and does not fulfil his promise, even though it be an oral promise, which is usually the case, the party injured may recover damages. ' U SALE' OF PERSONAL PROPERTY." if the price is uncertain at the time the contract is made, but subsequently proves to be more than $200, it can not be enforced, unless in \\-riting; as, if a stack of hay is sold unmeasured at the rate of $5.00 per ton, and afterwards is found to contain fifty tons, the contract is invalid unless in writing. Whether acceptance of a sample will satisfy the statute depends on whether the sample is a mere specimen, or whether it is to constitute part of the thing sold. If the latter, it is sufficient to make valid an oral contract, even though the price is more than $200, but if a mere specimen, it is not considered as part of the thing sold. PART PAYMENT must be "at the time" of the sale, and 'payment" means actual payment in money, or its equivalent, not a mere credit. If the sale is made by auction, the auctioneer's memorandum must be made at the time of the sale. The auc- tioneer's clerk may make the memorandum. LEASES AND SALES OF LAND. Transactions regarding land have always been deemed important, and, as we shall see in DEFENSES STATUTE OF FRAUDS. 51 a subsequent chapter, instruments affecting the title to real prop- erty must be placed on record with the recorder of the County iii which the land is situated. Long verbal leases of land would tend to confusion in titles, and invite litigation. So in the sale of land, in all cases, a written instrument called a deed must be given from the seller to the buyer before there is any valid sale. SUBDIVISION SEVEN, requiring an agent to be authorized in writing, to buy or sell real estate, is in harmony with the pro- visions of subdivisions five and six. If a principal can not make a valid sale of real estate without a writing, neither should his agent be allowed to do so. TEST QUESTIONS. 1. Discuss the effect of the Statute of Frauds upon a sale by sample. 2. A and B enter into an agreement for the sale of goods. There is no evidence of the contract except that the day after the conversation A pays B $50 on account. Suppop- ing the total price to be $500, will this payment satisfy the Statute so as to dispense with a writing? CHAPTER X. DEFENSES STATUTE OF LIMITATIONS. EXPLANATION. It has been found by long experience that justice and right require that all suits at law for breach of contract should be brought within a reasonable time after the right accrues. If long delays are had, witnesses may be dead or their memories have failed, or in cases of written documents to be used as evidence, they may have been lost, and consequently great difficulty be had in proving the terms of the contract. It is right that a person charged with breach of contract should be afforded an opportunity to defend himself while he still may have evidence on hand with which to do so. It would be unfair to him if the party who claimed to be injured were allowed to wait for years, and then sue him, and compel him unjustly to pay money, or otherwise comply with the terms of an ancient contract. Under the common law system no definite limits were fixed within which acts must be done, or contracts enforced, but rnereh a reasonable time was allowed. 'This, of course, led to a great deal of litigation to enable people to find out in each case what a reasonable time was; so that our modern statutes have in many cases fixed definitely the periods within which certain acts must be done, or suits brought. These statutes are known under the general term of "Statute of Limitations." "When the time has passed within which an action should have been brought, without its having been brought, the claim is said to be barred by the "Statute of Limitations," or, as it is more commonly called, "outlawed." PEOVISIONS. The following are the principal periods of (52) ^ DEFENSES STATUTE OF LIMITATIONS. 53 / /* Jj^/l*w\ jLid I ' limitation. After ten years, the State can not sue for the recovery of real estate claimed by, and in possession of, private persons. After five years, an individual can not sue for the recovery of real property claimed by, and in the possession of, private persons. After four years, an action can not be brought upon any con- tract, obligation, or liability founded upon an instrument in writ- ing, executed in this State. Promissory notes and mortgages come under this head ; also book store accounts. After three years, an action can not be maintained for (1) Trespass upon real property; (2) Taking, detaining, or injuring personal property; (3) Eelief on the ground of fraud or mistake. After two years, an action can not be brought on oral con- Bracts; or on contracts in writing, executed out of the State. After one year, no action can be maintained for libel, slan- Jer, assault, battery, and false imprisonment. After six months, an action can not be maintained against an officer to recover property or taxes illegally collected, nor against a county on claims which have been rejected. In addition to the limitations prescribed for the commencement of actions, a lease of farming land is invalid if given for a longer period than 1 5 years, and a lease of city lots if given for a longer period than 99 years. OUTLAWED IN OTHEE STATES. Where a cause of action has arisen in another State or country, it is considered barred in every other State, without regard to the time of the limitation; thus, if a note became due and payable in Florida, and by the laws of that State became outlawed in two months, the note would also be outlawed in California, even though the Statutes of Cali- fornia prescribed four years as the time of limitation. NO LIMITATION IN FAVOR OF BANKS. There is no limitation to an action brought to recover money or other prop- erty deposited with any bank, trust company, or savings and loan society. 4 COMMERCIAL LAW. BEGINNING OF THE PERIOD. Generally speaking, the Statute of Limitations begins to "run" whenever an action could be legally commenced; as, in case of a note, it begins the day after the note is due. In case of a current account, each item outlaws by itself as it is due, unless time is given, when the entire account outlaws from the end of the time. In mutual accounts,, that is, where goods are purchased by both parties, the time begins to run from the date of the last item on either side. Balances on mutual, current, or open book accounts, though not written contracts, by special statute, outlaw in four years. In actions on the ground of fraud or mistake, the time begins to run from the time of the discovery by the aggrieved party of the facts constituting the fraud, and not from the time of the commission of the fraud, or happening of the mistake. In case of a note payable on demand, the Statute begins to run from the date of the note, and not from the date of the demand. DISABILITY OF CREDITOR. If a person who is entitled to bring an action, be at the time the cause of action accrues, either, (1) A minor; (2) Insane; (3) Imprisoned for a term less than life; such person is said to be under disability, and the time during which such disability exists is not a part of the time limited for the commencement of the action ; therefore, in case of a note being given in favor of a minor, it would not be outlawed until at least four years after the minor became of age, whether it was due before that time or not. It must be remembered that the disability must have existed at the time the right to sue accrued. When the Statute has commenced to run, subsequent dis- ability will not stop it; thus, if the Statute has begun to run against a creditor on a note, and he becomes insane, and continues DEFENSES STATUTE OF LIMITATIONS. 55 hopelessly insane, the Statute nevertheless will run, and the note will be outlawed in four years' time, without any allowance for the disability. DEFENDANT OUT OF THE STATE. If when the cause of action accrues against a person he is out of the State, or if after the cause cf action accrues he goes out of the State, all of the time or times when he is actually out of the State are to be excluded from the time limited for the commencement of the action: thus, if a man leaves the State after the cause of action accrues on a note, and is gone six months, then returns and again goes for six months, the two absences are to be added together and the time of limitation is extended for the period of one year, hence in such a case there would in reality be five years before the note would be outlawed instead of four. It has been held that a foreign corporation, such as an English Insurance Company having its agent in the State, is not absent irom the State within the meaning of the Statute. NEW PEOMISES. At the Common Law it was the rule that after a debt was barred by the Statute of Limitations, a new promise to pay, whether oral or written, would be sufficient to revne the debt. This, has been changed by Statute so that no acknowledgment or promise is sufficient evidence of a new or continuing contract by which to revive the debt, unless the same is contained in some WTiting, signed by the party to be charged thereby, and this written acknowledgment or promise must be direct, unequiv- ocal, and unconditional, and made to the creditor. An admission or promise to a stranger is not sufficient, and in case of joint debtors the promise of one does not avail against another. This new promise itself, being in writing, will be out- lawed four years after the making of the promise. PAKT PAYMENT is not sufficient in itself to revive a debt which has been barred by the Statute, unless it is evidenced by t writing signed by the debtor. 56 COMMERCIAL LAW. It is not sufficient that the creditor signs a writing or makes an endorsement upon a note, or otherwise executes a writing showing the payment. It must be done by the debtor or his agent. IN CASE OF SUIT BIlOUGHT after a claim is outlawed, the person who wishes to rely on the fact of its being outlawed, must set up this fact and prove it in Court. When this is done the Statute of Limitations is a good defense to the suit, and he is not obliged to carry out the contract. TEST QUESTIONS. 1. An account is contracted February 1, 1894, for $100. On March 1, 1898, $50 is paid. May the payment of the remaining $50 be enforced? 2. A note is dated May 1, 1878; payment conditioned one day after date. It is not delivered till July 15, 1879. When is it barred by the Statute? 3. A man signs a note in Stockton. January 1, 1897, payable one year after date. Six months after he signs it he goes to Europe and remains five years. On what date will the note be outlawed? 4. A gave a note July 1, 1896; July 1, 1897, he became hope- lessly insane. When will the note be outlawed? CHAPTER XI. DEFEN SES PERFORMANCE. DEFINITION. Performance is the carrying out of the con- tract in substantial accord with its terms. When this is done, the party so performing has a perfect defense against a suit brought against him for non-performance. This defense differs somewhat from that of the Statute of Limitations and the Statute of Frauds, in that while they are excuses for non-performance, in this defense the defendant simply says that he has performed the contract, and because of having performed it, he should not be compelled to perform his part of the contract a second time. MANNER OF PERFORMANCE. In order that a person may make good his defense of performance, he must show that he has performed his part of the contract in at least a substantial accordance with its terms. It is not absolutely necessary that he should comply with every minute detail set forth in the contract as to the manner of performance, unless those details concern material parts. Even if the contract prescribes a certain manner of perform- ance, a debtor is excused from performing in that manner if his creditor gives him different directions in regard to the perform- ance of his obligation; and if he performs the obligation in accord- ance with the later instructions of his creditor, the obligation is extinguished by such performance, even though the creditor does not receive the benefit of such performance. As, if the agreement is that the debtor is to send certain money at a certain time by bank draft, and his creditor instructs him to send the money by express, the obligation is performed if he sends (57) 58 COMMERCIAL LAW. it by express, even though the money be lost en route. A part performance of an obligation extinguishes the obligation to the extent of the part performance, if the contract is a divisible con- tract, but a part performance does not extinguish the obligation where the contract is indivisible; as, where a man agrees to build a dam before high water comes. He builds part of the dam and abandons the work. The high water comes and destroys the work he has done. The contract is indivisible. The part per- formance was of no value, and hence does not extinguish any part of the obligation. TIME OF PERFORMANCE. In most contracts time is not considered as being of the essence of the contract; that is, that it is not so important that the act must be done at the exact time specified in order to make the performance valid. Unless a person can show that material damage has been suf- fered by reason of a contract's not being performed at a particular time, the performance will be good, even if not done at the exact time specified in the contract. If a contract is to be performed within a certain time after date, the day of the date is excluded, and all of the last day which completes the time is included. If the last day of performance or the particular day specified for performance falls on Sunday or a holiday, the act may be done on the next business day thereafter; as, if the day of performance fell on Sunday and Monday following was Washington's birthday, the next day, Tuesday, would be allowed for the performance. If no time is specified for the performance of an act a reasonable time is allowed. If the act is, in its nature, capable of being done instantly as, for example, if it consists in the payment of money only it must be performed immediately after the thing to be done is ascertained. PLACE OF PERFORMANCE. When the agreement speci- fies a particular place at which performance must be had, the per- formance should be had at that place, although if the perform- DEFENSES PERFORMANCE. 59 ance is accepted at any other place, or can be had at any other place without material damage being done, it will nevertheless be a good performance; as, where a sum of money is to be paid at a certain bank, it should be paid at that bank, but if the creditor accepts payment of the money at any other place, he can not afterwards complain that the money was not paid at the bank, for the performance has been had without any damage to him. PAYMENT. The word "payment" is included in the term "performance," and means the performance of a contract for the delivery of money (which includes any kind of stamped metal or paper authorized by the government to circulate). The delivery of anything other than money is not payment; hence where a per- son owes money and gives a promissory note it is not payment in any sense, but simply an extension of the time within which to pay- HOW PAYMENT APPLIED. It sometimes happens that a debtor owes a certain creditor different sums of money upon dif- ferent contracts; thus, he may owe a simple account, a promissory note, unsecured; and a promissory note secured by mortgage, to the same man. In such a case if he should pay his creditor $100 the question would arise, Which of the three debts should the hun- dred dollars be applied upon? The rule is as follows: (1) It must be applied to whichever debt the debtor directs it to be applied upon. (2) If the debtor fails to make such directions the creditor may apply the payment as he pleases towards the extinction of any obligation, even though the obligation is outlawed at the time of the payment. (3) If neither party make application within a reasonable time, such payments must be applied in the following order: I. On interest; II. On principal; III. On the obligation earliest in maturity; GO COMMERCIAL LAW. IV. On an unsecured note; V. On a secured note. EVIDENCE 01' PAYMENT. The ordinary evidence of the payment of a debt is a written receipt, signed by the creditor, stating in effect that the money has been paid. This is good evidence of payment, but it is not always conclu- sive, as it may be possible that a receipt has been given by mis- take or obtained through fraud, menace, duress, or undue influ- ence; and a creditor may show any of these facts, if they be facts. So when an obligation has been delivered up to a debtor, such as a promissory note or mortgage, it is presumed that he has paid everything under it, though, of course, the contrary may be shown; so in case a person has a receipt for a later installment of money paid, it is presumed that he has paid all former install- ments; but in this case, as in the others, it may be shown that as a matter of fact he has not paid former installments. GOOD TENDER is the offer of something in satisfaction of an obligation made in accordance with the terms of the contract, and with* the intent to extinguish the obligation. This, as a matter of defense to a suit, amounts to the same as actual performance. If a person can show that he has offered to perform in a proper manner, and the offer has been refused, he is not to suffer damage because he has not actually performed. Good tender does not relieve a person from the obligation of performance, but it does relieve him from the consequences of failure of performance. He must hold himself ready to perform the obligation at all reasonable times thereafter, unless the per- formance should, by lapse of time, become impossible, as in case where the agreement was that A should deliver a certain horse, and the horse died after the time tender was made and acceptance was refused, further tender of performance was excused. ESSENTIALS OF GOOD TENDER. (1) It must be in strict accordance with the terms of fhe con- tract; as in case the contract requires gold coin, it is necessary thaf , DEFENSES PERFORMANCE. 61 gold coin should be offered in payment. An offer of silver coin of equal amount would not be good tender. (2) A tender in full is necessary. A tender of part of the amount of a debt is of no effect whatever as good tender. (3) Tender must be made by the debtor or his agent. Ten- der by a stranger is not good tender. ( AGENCY. 167 A may instruct his agent to sell wheat if he can get $1.50 per cental. The agent receives $1.60 per cental. He has no right to appropriate the difference to his own use; on the contrary, should he disobey instructions and sell the wheat for $1.40 per cental, he must bear the loss. The principal is entitled to the highest degree of skill pos- sessed by the agent in the line of his employment, and he is liable to the principal for any loss resulting from his lack of proper attention to the business of the agency. EIGHTS AND DUTIES OF THIRD PARTIES. A third party in dealing with an agent is bound to exercise ordinary care and prudence in learning the extent of the agent's authority, and if he is deceived through lack of ordinary prudence, the principal can not be made to respond in damages. He is not, however, bound to make a special investigation into the details of the agency before transacting business with the agent. Thus, where even a stranger presents himself, representing that he is a selling agent of some well-known business house, and carries with him certain samples, and generally conducts himself and presents such credentials as men in his class of business usu- ally present, a purchaser would be justified in giving an order to such person and holding the principal responsible for a failure to fill such order. NOTICE TO AGENT. As against principal, both principal arid agent are deemed to have notice of what either has notice of, and in good faith and the exercise of ordinary care and diligence should communicate to the other. Hence, if a third person desires to change or countermand an order when it is proper to do so, he may send notice to the agent of his desire, and such notice will be deemed to be notice to the principal. AGENCY TERMINATED. An agency may be terminated, generally speaking, in three ways: 168 COMMERCIAL LAW. (1) By expiration of time; (2) Act of the parties; (3) Change in condition of the parties, or subject matter. BY EXPIRATION OF TIME. An agent may be hired for a specified time, and at the expiration of that time his agency is terminated, unless by his contract he is also required to finish certain work. In such case the time is extended until such work is finished; and in case no time is set, a special agency is termi- nated as soon as the particular business for which the agent was appointed, is consummated. ACT OF PARTIES. The principal may at any time revoke the agency by giving proper notice to the agent, and to third parties dealing through him, unless the agent's power is coupled with an interest in the subject matter, as in case he is part owner of the business. The agent also may renounce the agency at any time upon notice, but he is liable for any damages which may occur by his leaving the employment before the expiration of his term, or before the finishing of his special work. In any case no particular form of notice, either by the agent or his principal, is required. Any notice which will properly inform either of the desire of the other, is sufficient. CHANGE IN CONDITION OF THE PARTIES AND IN SUBJECT MATTER. The agency is revoked by the incapacity or death of either party, though in case of the death or incapacity of the principal, the agent is bound to exercise his powers as agent for a reasonable time if necessary to preserve the property of his principal, and is entitled to compensation for such service. Bankruptcy of either party is such a change in the condition of the parties as terminates the agency. If the principal becomes bankrupt, his property is all placed out of his control, and his authority terminates. By the bankruptcy of the agent, he is technically considered AGENCY. 169 to have lost his business standing for the time: but it seems there is no objection to a person's being employed as an agent while his property is in the hands of a court of bankruptcy. The extinction of the subject of the agency, such as the death of a horse, which an agent was employed to train, or the decaying of fruit which the agent was employed to sell, terminates the agency. TEST QUESTIONS. 1. An agent makes a contract with B, a third party, in his own name. B does not know of the agency. Can the principal enforce this contract with B? 2. In the above case should B discover the real principal, can he enforce a claim for damages against him? 3. An agent to sell goods, buys certain goods for his firm. Discuss the obligation of his firm to pay for the goods. 4. A has authority as a general agent; he is given special in- structions in regard to the business. Can he violate the special instructions and escape liability on the ground of being a general agent? 5. A, as an agent, sold a sewing machine to B at an agreed price of $30. After the machine was delivered the com- pany demanded payment in the sum of $50 for the machine. Which price must B pay? 6. A, who is an experienced man in that line, is employed to "run" a threshing machine. His foot is 'crushed in the machinery. Discuss his right to recover damages from the owners. 7. Farmer Smith's workhand, while burning stubble, negli- gently allowed the fire to extend to Farmer B's land, and B's house is burned. "Who is liable? 8. In the above question would it alter the case if the farm- hand wilfully directed the fire toward B's house so that it was consumed? CHAPTER XXIX. PAETNEESHIP. DEFINITION. Partnership is the association of two or more persons for the purpose of carrying on business together and dividing its profits, and sharing its losses between them. Partnerships may be either General or Special, and formed by either, (1) A written contract; (2) An oral agreement; or (3j By implication. In any case, a partnership can be formed only by the consent of all the parties thereto, and therefore no new partner can be admitted into the firm without the consent of every member thereof. WHEN IS A PAETNEESHIP FOEMED. The best evidence of the formation of a partnership is a written contract which has been entered into by the parties. Such a contract, called "Articles of Co-partnership," is usually a formal document setting forth the names of the parties, the kind of business, the amount of cap- ital contributed by each; and generally, such agreements as they may wish. When oral contracts are made, it is sometimes difficult to deter- mine whether the contract is one of partnership or of agency, especially if one person does all of the work, the other furnishing all of the money or other capital; and in cases of partnership by implication, the acts of the parties alone can be depended upon to determine whether or not a partnership exists. EXAMPLES. A owns land; he enters into a contract with ( 170 ) PARTNERSHIP. 171 B to farm that land, and deliver to him one-third of the products. This is held not to be a partnership, but a mere leasing; while two persons engaging in the farming of land and raising of wheat together, with the understanding that the product was to be divided proportionately, the contract was held to constitute, a partnership; and it is held as a general rule that where a person receives a certain per cent of the profits as profits, he is a partner; but where he receives merely a sum of money equal to a certain per cent of the profits, he is not a partner. LIABILITY OF PARTNERS. Each member of a partner- ship, by entering into such partnership, makes himself liable for all of the debts, if any there be, against the partnership. It matters not that lie may own but a small interest in the business, he is liable nevertheless for all debts to whatever extent, and his personal property may be taken and sold for partnership debts if necessary to satisfy them. This refers, however, only to the usual, or, as it is called, a general partnership. A special partnership is described in the next section. SPECIAL PARTNERSHIP is a partnership formed under special statute, and may consist of one or more general partners, and one or more special partners. The chief difference between a general and a special partner is that the special partner may limit his liability for losses by mak- ing and recording Articles of Co-partnership, in which is stated the amount of stock or share which he has contributed, and for which he will be liable. Such certificate of partnership must also be published, so as to give full notice to the public that such partnership is formed. When the special partners have properly complied with the law in forming the partnership, each special partner can be held liable only for the amount of capital invested. Thus, if A, as a special partner, invests $5,000, he is only 172 COMMERCIAL LAW. obliged to pay in caw of loss $5,000 of indebtedness, while the general partners are each liable as in ordinary co-partnerships for the total indebtedness. FIKM NAME. A firm name is often composed simply of the names of the members of the co-partnership, but any designation may be made, and business conducted thereunder, as "The Cali- fornia Hardware Company;" but in case a fictitious name is used, such as "The California Hardware Company," the partners are required to publish in a newspaper, and file a certificate with the County Clerk of the County where the business is conducted, stating the true names in full of the members of the co-partnership, under penalty of being deprived of the right to bring a suit in court until such publication and filing is done. In the case of a special partnership, it is not lawful to use the name of the special partner in the firm name, unless it be accom- panied with the word "limited." This last provision is for the protection of people who might give extensive credit to the firm on the supposition that the one whose name so appeared was a general partner. CLASSES OF PARTNERS. The classes of partners are: (1) Ostensible; (2) Dormant; (3) Nominal; and (4) Special. AN OSTENSIBLE OR REAL PARTNEE is one who allows his name to be used publicly as a partner, and who is really a partner. A DORMANT PARTNER, as the word indicates, is a sleep- ing partner, or one who is hidden, and does not take any active part in the partnership, nor allow his name to appear in any way, so that no one knows that he is a partner except the members of the firm. The object in concealing his identity as a partner is, of course, to escape liability in case debts are created. PARTNERSHIP. 173 He is, in a sense, a real partner in the firm, and if he is dis- covered by a creditor, he can be compelled to pay any and all debts of the firm in the same manner as though he had at all times been known as a partner, and it makes no difference that the debt was created during the time that he was dormant. A NOMINAL PARTNER is, as the name indicates, a partner in name only, and as between the partners themselves has nothing to do with the business, either to share profits or divide losses; however, as the purpose of a nominal partner is for the strength- ening of the credit of the firm by use of the name of some respon- sible man, this man, the nominal partner, must pay the penalty, should any debts or losses occur. In brief, so far as third parties are concerned he is to all intents and purposes an ostensible or real partner. SPECIAL PARTNERS have already been discussed in dis- tinguishing between special and general partners. AUTHORITY OF PARTNERS. Each partner is a general (as distinguished from special) agent for the firm, and as such general agent he may bind the firm by any and all acts which he may do in the carrying on of the partnership business in the ordi- nary manner. Hence, he may buy and sell goods, give warranties, appoint agents, and make, accept, or endorse negotiable papers in the firm name. The following acts are forbidden him. He can not (1) Make an assignment of partnership property; (2) Sell the good-will of the business; (3) Submit a claim to arbitration; (4) Generally, do any act which would make it impossible to carry on the ordinary business of the partnership. A partner in all business transactions relating to the firm busi- ness must hold the interests of the firm above his personal inter- est; hence, he has no right to make a piirchase with firm funds, 174 COMMERCIAL LAW. and, should the venture be profitable, appropriate the profits, and if unprofitable, charge the firm with the loss. It must be either a firm act or an individual act; and as a rule he can not transact any business in opposition to the interest of the firm. PARTNERSHIP AGREEMENTS. Any agreement in re- gard to the nature of the business, amount of stock to be employed, the conduct of the business, or in fact anything pertaining to the partnership, is valid as between the partners themselves, so long as it is lawful; and as between themselves a court of equity will enforce all such agreements, but as against third parties no secret agreements between the partners Avhich work injury to a third party, are valid. Thus, if A holds himself out as a general partner, while as a matter of fact he has a secret understanding with his partners that he shall be only liable for a small proportion of the debt, he is nevertheless liable as a general partner, and his secret agree- ment is void, so far as the creditor is concerned, although he may enforce contribution from the others. Even where a partner acts in bad faith toward another, so long as the agreement is proper and lawful, all of the partners are bound by it, if third parties would be injured by a refusal to abide by the act, but not otherwise. Of course, in all cases where one partner suffers damage through the act of another, he has his remedy against the other. PROFITS. All profits made by a general partner in the course of any business, usually carried on by the partnership, belong to the firm; and should he engage in business adversely to the interests of his firm, or use partnership funds, all profits be- long to the partnership. Partners may agree as to how profits shall be divided. Two men may enter into co-partnership and agree to divide the profits equally, or one may have put in more capital than the other and PARTNERSHIP. 175 they may divide it, giving one two-thirds, the other one-third of the profits, or in any way that they may agree upon. As we have seen, persons may enter into co-partnership with- out intending, or without really knowing that they are partners under agreements for the share of profits, but a mere clerk or employee, who is to be paid a commission in proportion to the amount of profits made, is not a partner. LOSSES. It is usual for partners to agree among themselves that they each will pay all losses in the same proportion as they divide profits. This agreement, so far as it concerns the partners, is binding upon them, but as we have noted, can not bind creditors, as the law provides that each partner shall be liable for the entire indebt- edness of the firm, unless he has limited his liability, as in the case of a special partnership. CAPITAL. The capital of a partnership consists of any- thing and everything which is used in the conduct of the partner- ship business. It may consist of money, merchandise, store fixtures, horses, wagons, hay, or even the services of one of the partners, or the use of a horse and wagon. It is frequently the case that one partner invests a certain amount of money as his pro rata of the capital, while another con- tributes his skill, knowledge, and experience in the business as his pro rata. SUITS. A general partnership may sue and be sued in the firm name in the same manner as an individual. In the case of partnerships doing business under a fictitious name they must, as we have seen, file with the County Clerk the true names of the partners before they are allowed to bring suits, while any one wishing to sue the firm, may sue it under the ficti- tious name, and when the true names of the partners are discov- ered, they may be inserted in the papers. 176 COMMERCIAL LAW. DISSOLUTION. A general partnership is dissolved as to all the partners, (1) By a lapse of time prescribed by agreement for its dura- tion; (2) By the expressed will of any partner, if there is no such agreement; (3) By the death of a partner; -(4) By the transfer to a third party of the interest of any partner; (5) By a judgment of dissolution. BY AGREEMENT. In all cases where articles of co-partner- ship are formally drawn up, it is customary to state the time for the continuance of such partnership, and when that time elapses any partner may consider the partnership at an end and demand a division of the property. Of course, if the firm continues to do business after the lapse of such time, it is still a partnership. Where a partnership is formed for a particular purpose, there is an implied agreement that the partnership shall end when that purpose has been accomplished. When there is no agreement the partnership may be, as stated above, dissolved by anj r partner by his simply declaring that he withdraws from the partnership, and demanding an accounting and settlement of the affairs. BY DEATH. Partnership is a confidential and personal relation between men. Men combine only with others whom they can trust, or for whom they have a particular liking, or in whose judgment they have confidence. Hence, when one partner dies, it would be injustice to the other members to allow his heirs to take a part in the conduct of the partnership business without the consent of the others, and the law has declared that the death of one partner dissolves the partnership, and there must be an accounting and a settling up of the business. PARTNERSHIP. 177 TRANSFER TO THIRD PERSONS dissolves a partnership, and for a similar reason, as stated in the last section. A third person entering into the firm inight not be a person desired by the remaining members; hence when a sale is had the partnership is dissolved and a new one created, if the business is to be further conducted. BY JUDGMENT. A court of equity is seldom called into requisition to dissolve a partnership, unless the partners are unable to agree upon the terms of dissolution. A general partner, however, is entitled to judgment of disso- lution under the following and similar grounds: (1) AVhen a partner becomes legally incapable of contracting; (2) "When he fails to perform his duties, or is guilty of serious misconduct, such as habitual drunkenness; (3) "When there is a permanent loss in the conduct of the business; (4) Where there is serious quarreling or contentions among the partners so as to render it impracticable properly to carry on business. In any of these cases the partner complaining must present in his complaint to the proper court full statements of the facts upon which he seeks to dissolve the partnership. In a proper case, the court may appoint a receiver to settle up the business, and make proper division of the proceeds, if any. RIGHTS OF THIRD PARTIES. In the event of a dissolu- tion of the firm, the parties who retire from the firm must give proper notice to all creditors of the fact of dissolution in order to protect themselves from liability. This notice is usually given by means of an advertisement inserted in a newspaper, and by changing the firm name on the ^igns and office stationery, and sometimes by sending notices by mail to the creditors of the firm. A retiring partner is, however, liable at all times for debts incurred while he was a partner in the firm. 178 COMMERCIAL LAW. Creditors may enforce their rights against the capital stock for old debts, even after a new partner has come into the business. PARTNERS' AUTHORITY AFTER DISSOLUTION. When a firm has been dissolved, it is customary for one of the partners to settle all outstanding accounts and collect all moneys due the firm, and he is clothed with the power to do all such things, and only such things, as are necessary to properly settle up the business of the partnership. In case there is a loss, he should apply the proceeds of the partnership property to the settlement of all claims against the firm. If there is a surplus he should divide it amongst the partners in accordance with the agreement entered into in forming the partnership. It is only after partnership assets are all exhausted that cred- itors may hold the members of the firm individually liable for partnership debts. TEST QUESTIONS. 1. A allows B to farm his land for a year, agreeing to accept as rent one-third of the crop raised. Does this agreement constitute a partnership? 2. The same parties farm the land together, A furnishing seed and implements, and B doing the work, B taking one-half of the crop. Is it a partnership? 3. A and B are partners in the grocery business. A buys a horse and gives a note in the firm name in payment. Dis- cuss the obligation of the firm to pay the note. 4. After a partnership is dissolved, one of the partners orders a bill of goods in the firm name. Can the firm be com- pelled to pay for the goods? PARTNERSHIP. 179 5. A and B are engaged in the real, estate business as part- ners. A buys a piece of property, and immediately resells it at a profit. He does not pay for the land until he is paid. Must he account to B for a share of the profits? 6. A and B are partners in a grocery business. A wishes to buy a large amount of flour. B objects and the flour is not bought. It turns out that had the flour been purchased, a large profit would have been realized. Is B liable to A for the loss? "Would such conduct on B's part justify A in applying for a Decree of Dissolution? CHAPTER XXX. CORPORATIONS. DEFINITION. A corporation is a creature of the law hav- ing certain powers and duties of a natural person. Being created by law, a corporation has only such powers as may be specially granted it by the law, or which are necessarily implied, and required in order to carry out such powers as are expressly given. They are divided into two classes: (1) Sole; and (2) Aggregate. CORPORATIONS SOLE. These corporations are quite com- mon in England and some other European countries, but are little known in America. As the name indicates, they consist of one person in whom is invested an artificial being with prescribed powers and duties. In England the sovereign is a corporation sole; also bishops and other high officials in the established church. The principal object in creating these certain officials corporations is that they may have the power of succession; that is to say, when the indi- vidual dies, the corporation lives, and thus the new bishop or church officer takes the place of the other as such official, without any formal changing of title, or probating of the estate. So it is when the sovereign dies, the next in succession is, by virtue of law y considered king the instant life has departed from the sovereign. These corporations concern us, however, but little, except as a matter of history. (180) CORPORATIONS. 181 CORPORATIONS AGGREGATE, as the name indicates, are composed of a number of persons, usually associated together for the transaction of business. CHARITABLE CORPORATIONS are such corporations aggregate as are formed for assisting the indigent, or for educa- tional purposes, and also what are sometimes called religious cor- porations, those formed for the purpose of caring for the property of churches and societies of like nature, are included under the head of charitable corporations. CIVIL CORPORATIONS include all other corporations aggregate, and are further divided into two classes, public and private. PUBLIC CORPORATIONS are those which are formed for governmental purposes, counties, cities, towns, school districts, and townships, are common examples of public corporations. After a city has been incorporated it has power to enact for its own government such laws as do not conflict with the general laws. Hence, such a city may levy taxes within its boundaries for the improvement of streets, the building of sewer systems, or sup- plying the city with water, or any such like purpose. It may also regulate, the sale of foods or drinks, so far as such regulations do not conflict with State or National laws. They may sue and be sued in their corporate name. All this, it will be readily seen, is of great advantage to any community. Such corporations are formed by charter from the State Legis- lature, or under general laws. These general laws must be strictly followed in order properly to form the public corporation. PRIVATE CORPORATIONS. It is this class of corpora- tions which we wish particularly to consider in our discussion of the subject. The business of private corporations comprises every line of 182 COMMERCIAL LAW. commercial enterprise, and the formation of such corporations affords a means of combining individual wealth so that gigantic enterprises are undertaken and carried through, which would otherwise be impossible or extremely difficult. Nearly all railroad, canal, steamboat, and other companies, doing a large business, are incorporated. Private corporations may be formed for any purpose for ***tcn individuals may lawfully associate themselves. FORMATION. Private corporations may be 'xrfmed by the voluntary association of any three or more persons, a majority of such persons being residents of the State Vn which the corporation is formed. Such formation is under general statute. Formation by char- ter is superseded so far as private corporations are concerned. ARTICLES OF INCORPORATION. The instrument by which a private corporation is formed, is called "Articles of Incor- poration.'' Such Articles must be prepared setting forth, (1) The name of the incorporation; (2) Its purpose; (3) The place where its principal business is to be transacted: (4) The term of existence, not exceeding fifty years; (5) The number of its directors ; not less than three ; (6) The amount of its capital stock, and the number of shares thereof; (7) The amount of capital stock subscribed, and by whom. These Articles are filed with the County Clerk of the count/ in which the principal business of the company is to be trans- acted, and a certified copy filed with the Secretary of State, who, upon such filing, must issue to the corporation, under seal of the State, a certificate to the effect that such Articles are filed. When these proceedings are had, the company may then pro- ceed to make by-laws, elect officers, and transact business gener- ally, aR provided for in their Articles. CORPORATIONS. 183 Sometimes no capital stock is issued. In such case, of course, this fact must be stated in the Articles. AGREEMENTS FOR STOCK. When an undertaking of great magnitude is begun, such as the building of a railroad, it is usual for those who first enter into the enterprise, and who are called "promoters," to circulate a paper called a subscription paper, headed something like this: "January 3d, 1897. "We, the undersigned, hereby subscribe for, and agree to pur- chase the number of shares of stock set opposite our respective names at a price of $10 per share, at any time within One (1) year from date hereof" (or, "when the total amount of 10,000 shares are subscribed," or any other like condition). Such stock subscriptions are binding upon the signers, tht consideration being the detriment caused to the promoters and the co-signers by reason of the withholding of money from other purposes for stock payments. However, in case of conditional agreements like the above, the subscription does not become absolutely binding until the condi- tion is fulfilled. CERTIFICATE OF STOCK. Stock consists of the money or property contributed in the formation of the corporation, and because of many people having interests in this capital stock, the stock is said to be divided into shares represented by what is called a "Certificate of Stock." These Certificates of Stock are mere pieces of paper issued to each stockholder for the purpose of certifying to the number of shares which he holds. The ordinary form of a stock certificate is as follows: Stockton, Cal., Jan. 2d, 1897. No. 24. ) 10 Shares, f CAPITAL STOCK, $20,000.00 THIS CERTIFIES That Edward Johnson is entitled to Ten 184 COMMERCIAL LAW. (10) shares of the capital stock of THE CALIFORNIA HARD- WARE COMPANY; transferable on the books of the Company only by endorsement hereon and surrender of this Certificate, sub- ject to the By-laws of this corporation. R. BOYD, Secretary. S. MAXIN, President. fr*********** j CORPORATE SEAL. {. ****+******* 2000 shares, $10 each. To this Certificate is attached a "stub" which remains in the Certificate book. The "stub"' contains the number of the Certifi- cate, number of shares, date, name of person to whom it was issued, etc., as a matter of memorandum for the Secretary. This stock certificate, as has been intimated, is not the stock itself, but simply the evidence of ownership of stock; hence it can be changed or divided into any number of certificates of less num- ber of shares, not greater in the aggregate than the number of shares it certifies to. TRANSFER. A certificate of stock may pass from hand to hand by endorsement in a manner similar to the transfer of negotiable paper, though no holder of it can acquire any rights as, against the corporation until he presents the certificate to the Secretary, and has it transferred to him on the books of the cor- poration. Suppose Mr. Johnson, holder of ten shares as shown in the form above, wishes to sell live shares of his stock to Andrew White. He makes an endorsement upon the back of the certificate in something like the following form: "I hereby sell, assign, and transfer to Andrew White, Five (oj shares of. the capital stock of THE CALIFORNIA HARDWARE COMPANY, represented by the within certificate, and hereby appoint R. Boyd my attorney to transfer the said stock on the books of said corporation. "Dated January 27th, 1898. "(Signed) Edward Johnson." CORPORATIONS. 185 Andrew White then takes the certificate to the Secretary, who cancels it and issues a certificate of five shares to White, and another certificate of five shares to Johnson, making proper entries on his own books. CORPORATE RESIDENCE. As we have seen the Articles of Incorporation are required to set forth the place where the principal business of the corporation is to be carried on, and it also requires that a majority of the incorporators shall be resi- dents of the State in which the corporation is formed. The reason for this is, to fix the place where the corporation may sue and be sued, and to determine under what law it shall be governed. In case of railroad companies and other such corporations transacting business in a number of different States and terri- tories, it is often important to know in case of conflict of laws, under what law the corporation must do business. As a general rule the law of the place where the corporation has its principal place of business governs it in the conduct of its affairs, and other States recognize the rights which accrue to it under the laws of its place of residence. In case of foreign corporations having general agencies in this State, the law of the State will control as to the manner of trans- acting their business. A common example is that of fire and life insurance companies. PQ WEIIS. Every corporation has such power to act in the business world as is expressly given it, or is necessarily implied for the carrying our of the express powers, and no other or greater powers. Thus, if a corporation is given power to buy and sell real estate, there is also necessarily implied the power to execute deeds of real estate. The following are the general powers given to corporations: (1) Of succession; 186 COMMEKCIAL LA77, (2) To sue and be sued; (3) To make and use a common seal; (4) To buy and sell property; (o) To appoint officers and allow them compensation; (6) To make by-laws; (7) To admit stockholders or members; (8) Generally, to enter into any obligations or contracts essen- tial to the transaction of its ordinary affairs, or for the purposes of the corporation. PEEPETUAL SUCCESSION.- -The word "perpetual" does not mean that the corporation may never at any time be dissolved or cease to exist by lapse of time. It means simply that when a member dies, his representatives at once succeed to his interest in the corporation, and the corpo- ration continues to do business without any dissolution or account- ing. This is one great advantage a corporation has over a partner- ship. It will be remembered that when a partner dies, the part- nership is dissolved thereby. The life of a corporation, however, is fixed at fifty years, conse- quently there is no power of succession for a longer period than fifty years. The company may, however, reincorporate at the end of such period. TO SUE AND BE SUED. A corporation may be sued in any court, and in any State where it does business; and it may also sue in any State, provided it has properly filed its Articles of Incorporation, according to the law of that State. TO BUY AND SELL PKOPERTY. Every corporation has power to purchase, hold, and convey such real and personal estate as the purposes of the corporation may require; and this law is to be construed, as regards the amount of property, to be only so much property as is reasonably necessary for the transaction of it* business, and no more. CORPORATIONS. 18'< The object of this restriction is to prevent so far as possible, the accumulation of immense landed estates by rich corporations to the detriment of individual owners. It sometimes happens, as in the case of a bank loaning money, with real estate as security, that the corporation is obliged to buy a great deal more property than is actually necessary for the con- duct of its business. In such cases the rule is that the corpora- tion must dispose of such property within five years. Under the words "hold real estate" it has been decided that a corporation may hold lands as trustee, and such is frequently done. TO APPOINT OFFICERS. The officers of a corporation generally consist of a board of directors, with a President, Secre- tary, and Treasurer, and often a managing agent, and such other subordinate officers as may be necessary for the particular busi- ness transacted. Each member, or stockholder, has a right to vote in the choos- ing of directors, a stockholder having one vote for each share of stock he owns. In case several officers are to be elected, a stockholder has one vote for each share multiplied by the number to be elected. This number he may vote all for one officer should he choose. A stockholder may also delegate his right to vote by giving authority to another to vote for him. This other is called a proxy, and also the written authority which is given is called a proxy, and is simply a written statement to the effect that A authorizes B to vote A's shares of stock for him. In corporations having no capital stock each member is entitled to one vote only. BY-LAWS. Every corporation has power to make by-laws which are not inconsistent with any existing law, for the manage- ment of its property, the regulation of its affairs, and for the transfer of stock. 188 COMMERCIAL LAW. The by-laws -of a corporation, after being adopted by the cor- poration, become a part of the law governing the directors and :>ther officers, and must be regarded as such. The by-laws usually provide in detail as to the power and duties of the officers, and the conduct of the business of the cor- poration. They must, in addition to being in accordance with the gen- eral law, he reasonable in their application, and otherwise proper. STOCKHOLDERS OK MEMBEES. Any number of mem- bers may be admitted into a corporation, and any number of stockholders, provided that the amount of stock issued does not exceed the amount. provided for in the Articles of Incorporation. Thus, if the amount of stock is 2,000 shares there may be five stockholders of four hundred shares each, or there may be two thousand stockholders holding one share each, or it may be divided in any other manner so that no more stock is issued than what is provided for. The stock may be assessed for the purpose of raising money to pay expenses in conducting the business of the corporation. A certain per cent of the amount of capital stock is usually reckoned on levying an assessment. The corporation has power to sell the stock of such holders as do not pay all legal assessments or instalments due on stock, in case it is not fully paid up at the time of delivery. A member of a corporation, which is not formed for profit, and in which he has no pecuniary interest, may be for proper cause expelled from the corporation, and even in extreme cases it has been held that he may be expelled even where he has some pecuniary interest: but a stockholder can not be expelled for any cause, so long as he is a lawful holder of stock. GENERAL POWERS. The powers of corporations have been greatly extended in recent years, and as above stated they may enter into any obligations necessary for the transaction of the ordinary affairs of the corporation. CORPORATIONS. 189 Thus, they may take mortgages, or give mortgages on prop- erty, may execute or accept any commercial paper, but, as stated in the general discussion above, a corporation has no implied powers except such as are necessary to the proper exercise of the express powers herein enumerated. And in particular, a corporation is prohibited from issuing bills, notes, or other evidences of debt for circulation as money. 'This, of course, docs not apply to National bank notes, for National banks are incorporated under the laws of the United States, and governed by them, and, as we have stated in the first chapter of this book, where a State law is in conflict with a law of the United States, the law of the United States must control. The statement, however, is in full force and effect so far as concerns State corporations, whether banking corporations or othenvise. OFFICERS' "DUTIES. The Board of Directors, and other officers of a corporation, are the agents of the corporation in the transaction of its business, and as such agents can bind the cor- poration in every respect, and in a similar manner as in the case of partnership, and other like agencies. It is to be noted as a peculiar fact that a corporation can only act by its agents. It is a creature of the law, "intangible and incorporeal/' as an old law writer expresses it, and hence can only transact business by and through its agents. The directors, as such agents, have full power to transact all the business of the corporation. They are the trustees of the property of the corporation, and are liable for any breach of good faith in the transaction of the corporate business. They are not liable, however, for damage caused by lack of good judgment, if they have acted in good faith. The directors of a corporation are usually elected for a speci- fied time, and can not be removed from office before that time has expired, except for misconduct in their official capacity. 190 COMMERCIAL LAW. Subordinate officers, such as business managers and clerks, are, 01 course, removable at any time by the Board of Directors, unless under special contract. LIABILITY OF STOCKHOLDERS. Each stockholder is individually and personally liable for such portion of the cor- porate debts as the amount of stock owned by him bears to the whole of the subscribed capital stock, and to no further extent. Thus, if A owns one-quarter of the subscribed capital stock, he is liable for one-quarter the amount of any and all debts of the firm. Thus will be noticed another great advantage from a business standpoint which a stockholder in a corporation has over a part- ner in a partnership, the partner being liable for the entire indebtedness no matter how small his interest may be. In case of members of corporations having no capital stock, each member is individually and personally liable for his propor- tion of its debts and liabilities, and no further. Thus, if there are ten members each one is liable for one-tenth of the indebtedness. DIVISION OF PROFITS. In case of gain in business, stock corporations usually divide such profits on a basis of so many dol- lars or cents for each share of stock subscribed. Thus, if a dividend of $2.00 per share is declared, A, holding one hundred shares, would be entitled to $200 of the profits; B, holding fifty shares, would be entitled to $100. Where there is no capital stock, in the absence of special agree- ment, there would be an equal division of all profits among the members. DISSOLUTION. Corporations may be dissolved, (1) By forfeiture; (2) By voluntary surrender of franchise; (3) By lapse of time. BY FORFEITURE. There are two ways in which a cor- poration may forfeit its corporate rights. CORPORATIONS. 191 (1) By non-user. The law provides that if a corporation does not organize and commence the transaction of its business within one year from the date of its incorporation, its corporate powers cease, and this with- out any action upon the part of the corporation or the State. (2) By misuser. In case a corporation violates the provisions of its Articles of Incorporation, or in any way illegally uses its franchise, it may be dissolved by the judgment of a competent court on suit of the attorney-general of the State in an action brought for such pur- pose. BY VOLUNTARY SURRENDER OF FRANCHISE. A corporation may be dissolved by the Superior Court of the county where its principal place of business is situated, upon its volun- tary application for that purpose. Before it can be dissolved, a petition must be prepared and presented showing that at least two-thirds of the stockholders or members wish to dissolve it, and that all claims and demands against the corporation have been satisfied and discharged. BY LAPSE OF TIME. A corporation is dissolved by the expiration of the time limited in its Articles for its existence, and if no time be limited, it is dissolved at the expiration of fifty years from filing of the Articles of Incorporation. POWERS AFTER DISSOLUTION. The Board of Direc- tors are after dissolution the trustees of the creditors and stock- holders or members of the corporation dissolved, and have full power to settle the affairs of the corporation, and they must do so in all events, except in case where a corporation is dissolved under judgment of a Court, and receiver appointed by the Court for that purpose; and even in any event should the directors refuse or be incapable of acting, a court has power on proper application to appoint a receiver to attend to the affairs of the corporation. 192 COMMERCIAL LAW. JOINT STOCK COMPANIES are associations of persons for the transaction of business, and in many respects are like corpora- tions. They have, as the name indicates, a capital stock, and they are managed by a Board of Directors. They differ from corporations mainly in the liability of their stockholders. In this respect they are like partnerships. Each member is liable for all of the debts, if any, of the company. Joint stock companies are practically obsolete. Their place is taken by corporations proper, where the liability of stockholders and members is limited. TEST QUESTIONS. 1. The cashier of an incorporated bank cashes a check to which the signature has been forged. Can the injured party compel the corporation to bear the iossr 2. The handling of money by the cashier of an incorporated bank is in the nature of a bailment. For what degree of care will the cashier be responsible in the handling of the corporate funds? 3. In case the directors of a corporation wilfully mismanage the business so that loss occurs, what remedies, if any, have the stockholders? 4. Five directors are to be elected. A has twenty shares. Explain how he may divide his vote for one or more of the directors to be elected. CHAPTER XXXI. FIRE INSURANCE. DEFINITION. Insurance is a contract whereby one under- takes to indemnify another against loss, damage, or liability aris- ing from an unknown or contingent event. The ordinary forms of insurance are Fire Insurance, Marine Insurance, Life Insurance, Health Insurance, and Accident Insurance. INSURABLE INTEREST. "Every interest in property or any relation thereto, or liability in respect thereof, of such a nature that a contemplated peril might directly damnify the insured, is an Insurable Interest." The above definition is broad enough to cover almost every conceivable form of an interest in property, the only restriction being that it must be such an interest as will directly injure the insured in case of loss. Thus, a partner may insure his partnership interest; a mort- gagor may insure his interest; a mortgagee may insure his interest; also a lessee and lessor; a trustee, and a bailee, or all of such par- ties, may place insurance on the same property at the same time, provided the total amount of insurance so placed is not greater than the reasonable value of the property. THE POLICY is the written instrument in which the con- tract of insurance is set forth. It must contain, (1) The names of the parties; (2) The rate of premium; (3) The property insured; (4) The interest of the insured in the property; 194 COMMERCIAL LAW. (5) The risks insured against; and (6) The period during which the insurance is to continue. Tn addition to these general items contained in the policy there are always other agreements, statements, and conditions inserted. Most of these conditions refer to the care of the property by the insured, such as providing that he shall not store gunpowder or other inflammable material within the building; that he shall not leave the premises vacant except for short periods of time; that he shall use all reasonable means to protect the property from fire, etc. PREMIUM. The premium is the price paid the insurance company for the insurance. It is usually based on a certain per cent of the amount insured for, and these rates vary according to the supposed danger from fire, which of course is in some locali- ties greater than in others, and would be greater in a wooden building than in a brick building. Most companies provide that in case the insurance policy is canceled before the expiration of the term of its existence, they will return a proportionate part of the premium. PROPEETY INSURED. The property insured must be accurately described in the policy, together with the interest of the insured in the property. The statements made by the insured as to the property insured, and his interest in it, are taken as warranties against him, and if he makes false statements, particularly in regard to the descrip- tion of the property, the material of which it is made, its distance from other buildings, and in such like matters, he can not recover insurance money in case of the destruction of the property. RISKS INSURED AGAINST. A fire insurance policy covers all risk of loss by fire from whatever cause the fire may have originated, unless certain causes are particularly excepted. Fires caused by lightning are sometimes excepted, but all accidental fires and fires set by incendiaries, unless set by the insured himself, are included in the insurance. FIRE INSURANCE. 195 Loss or damage by water or other means used to extinguish fire is also covered by the insurance policy, even though nothing is said in regard to it in the policy. If a material change is made in the risk, such as the build- ing of a new room to a house, the company will not be liable in case of fire for any damage, unless they have accepted the risk as changed. AMOUNT INSURED. A building may be insured for $5,000, and it may be entirely destroyed by fire. If the insurance company can show, however, that the building was not actually worth $5,000, they will not be obliged to pay any more than the actual value of the building, and it is provided in most policies that the insurance company and the insured shall each appoint appraisers to appraise the loss; and also that the company may have the option of replacing the burned premises in the same con- dition as they were before the fire, instead of paying the amount fixed as the loss. Of course, in the event that the building is but slightly dam- aged by fire, there could be no possibility of obtaining the full face of the policy, but only the proportionate amount as shown by the appraisement. INSURANCE IN SEVERAL COMPANIES. Where a building is a large one, and the amount of insurance asked for is consequently large, a company will sometimes refuse to insure for the full amount required, on account of the heavy loss to the com- pany should the building be destroyed. It is also a matter of good business policy on the part of the insured, not to insure a large biiilding for a large sum in any one company, as the company may be irresponsible at the time of the burning, or may delay or refuse payment. Hence, for these two reasons it is customary to divide the total amount of insurance among several companies, and in the event of fire these companies bear their pro rata of the loss. 196 COMMERCIAL LAW. Thus, a building is insured for $50,000; $20,000 is taken out with the A Company; $10,000 with the B Company, and $20,000 with the C Company. If the building is damaged to the extent of $10,000 the A and C Companies each must pay two-fifths or $8,000, and the B Company one-fifth or $2,000. This method of pro-rating between the companies is usually provided for in the contracts of insurance. PEK10D OF INSURANCE. This is specified in each policy of insurance, and may be any length of time that the parties may agree upon. It usually, however, runs either one or three years, and in order to fix the time exactly, it begins with 12 o'clock noon on a certain day, and expires at 12 noon on the corresponding day one or three years later. The reason for taking an insurance for three years is that most companies give an insurance for three years at the same rate and for the same premium as if issued for two years. REINSURANCE. It will be observed that an insurance company which agrees to pay a loss in case of destruction by fire is damaged in case of such destruction to the extent to which it has insured the property destroyed, and hence has itself an insur- able interest in the property so insured by it. Such insurance company may therefore insure in some other company in favor of itself to the extent of its own insurance on the building. This is called reinsurance. A company obtaining reinsurance must, of course, pay for it, and hence loses money by the transaction. The reasons for reinsuring may be that the company has dis- covered some fact concerning the property which makes it a poor risk; or the company may become financially embarrassed, and may wish to relieve itself from some of its liabilities in order to t>re- Berve its credit. FIRE INSURANCE. 197 ASSIGNMENT OF POLICY. It frequently happens that insured property is sold, mortgaged, leased, or the like, and when this is the ease the insurable interest of the parties changes. In order to avoid the necessity of canceling the policy, return- ing premium, and the issuing of a new policy, and the payment of a new premium, it is usually provided in the policy that it may be assigned and transferred from one person to another, with the consent of the company, indefinitely, so that in case of loss of property, the payment may be actually made to a person who holds it, after having passed through a dozen hands. TEST QUESTIONS. 1. Suppose that A, the owner of a house, procures insurance upon it, and afterwards employs B to set fire to the house. If the fact becomes known can he collect the insurance? 2. Suppose A throws a pan of ashes containing live coals into a barrel containing inflammable materials, and which is directly against the walls of his house, and a fire is thereby started which destroys the house. Will his act in so plac- ing the pan of coals be such an act of carelessness as will defeat his right to collect insurance? 3. A, in applying for insurance, describes his property as being a house containing brick flues, or chimneys. His state- ment is true, but it is also true that one flue, which is con- stantly used, is made of tin. A fire occurs by reason of defects in this tin flue. Will the representations made be such a material concealment of facts in this case as will relieve the insurance company from paying the loss? CHAPTER XXXII. MARINE INSURANCE. DEFINITION. Marine insurance is an insurance against risks connected with navigation to which a ship, cargo, freight- age, profits, or other insurable interest may be exposed during a certain voyage or a fixed period of time. The subject in general may be treated exactly as in case of fire insurance. The insurable interest may be of the same nature, and, as is stated in the definition, the ship or any part of its cargo may be insured. THE RISK. A marine insurance usually covers what are generally termed "perils of the sea," such as damage from rocks, shoals, collisions, piracy, or barratry, the latter being a violation of duty on the part of the master of the vessel, which results in injury to the cargo. Loss by fire is also insured against, as well as incidental loss or damage caused by water or other fluid used in extinguishing the fire. The time of insurance is a matter of agreement between the parties. It is usually either for a specified time agreed upon, or for a particular voyage, and when it is for a particular voyage the voyage must be accurately determined in the policy; and if, in such case, a deviation is made which results in damage, which would otherwise have been avoided, the insurance company will not be liable unless it is made in good faith upon reasonable grounds of necessity. WARRANTIES. The warranties in the case of marine insur- ance are of much more importance generally than in the case of (198) MARINE INSURANCE. 199 fire insurance, and the law especially provides that in all cases there is an implied warranty that the ship is seaworthy. A ship is seaworthy when reasonably fit to encounter the ordi- nary perils of the voyage contemplated by the parties to the policy. Thus, it seems not only that a ship itself should he in proper condition, but that it be properly laden, provided with a competent master, a sufficient number of competent officers and seamen, and all necessary equipments, such as ballast, cables, anchors, food, water, fuel, and lights. Such seaworthiness is in itself an insurance against the ordi- nary perils of the sea and damages of navigation. The insurance policy does not cover this. It is only the extraordinary perils which are insured against. As in the case of fire insurance, fraud in the nature of conceal- ing any facts material to the risk, will avoid the policy in so far as it may be affected thereby. BASIS OF INSURANCE. The policy may be what is called an "open" policy, that is, one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss, and in such case the value is to be based on the value at the time the insurance was effected; or it may be a "valued" policy, that is, one in which it is agreed that the value of the ship or cargo shall be fixed at a specified sum. In such cases the rule of payment for loss is different from that of fire insurance. The company in case of loss only pays the proportion of loss which the amount named in the policy bears to the valuation; e. g., if a cargo is valued at $20,000, and it is insured for $10,000, and the cargo is entirely destroyed or lost, the insurance company must pay $10,000, which is one-half of the valuation; but if only one-half of the cargo is destroyed, the company will only be re- quired to pay one-half of the amount insured for, or $5,000. When the ship and cargo are so badly damaged as to reduce the 200 COMMERCIAL LAW. parts remaining tc less than half the original value, the owner may "abandon" or relinquish to the insurance company all claim upon the thing insured, and demand insurance from the company as for a total loss. The abandonment, however, must be neither partial nor con- ditional, and must be made within a reasonable time after informa- tion of the loss, and upon notice given to the insurer, either oral or in writing. In legal effect an abandonment is equivalent to a transfer by the insured of his interest to the insurer, with all chances of re- covery and indemnity. The abandonment when once made and accepted, is irrevoca- ble, unless it can be shown that the loss did not exceed one-half of the subject matter of the insurance. Of course, an insured need not abandon the property unless he chooses, but the insurer must accept an abandonment in proper case unless by his contract he has declined to do so. TEST QUESTIONS. 1. A vessel runs on the rocks and finally becomes a total loss. The owners of the cargo abandon it to the insurance com- pany, and are paid as for a total loss. The company suc- ceeds in saving three-fourths of the cargo, before the ship breaks up. Could either party claim the abandonment void on the ground that not more than one-half of the cargo was destroyed? 2. A ship and cargo are regularly insured and start on a voy- age. Her drunken captain causes the vessel to be run upon shoals where ship and cargo are lost. Discuss the right of the insured to recover insurance money. CHAPTER XXXIII. LIFF, AND ACCIDENT INSURANCE. DEFINITION. -Life insurance is a contract by which one party, called the insurer, agrees to pay a sum of money to another when a certain person, called the insured, dies, or reaches a certain age. The insured may have the policy made payable to himself, and if he reaches a certain age it is paid to him. If he dies before that time it belongs to his estate. Generally, however, there are three parties to the insurance, the insurer, the insured, and a third party, called the beneficiary, to whom the money is to be paid on the death of the insured. INSUEABLE INTEREST. Every person has an insurable interest in the life and health (1) Of himself; (2) Of any person on whom he depends wholly or in part for Education or support; (3) Of any person under a legal obligation to him for the pay- ment of money, or respecting property or services, of which death or illness might prevent or delay the payment; or (4) Of any person upon whose life any estate or interest vested in him depends. Thus, a sister, mother, brother, wife, or other relative, or any one in fact, whether a relative or not, has an insurable interest in the life of one whom he depends upon in any degree for his sup- port or education. So a partner may have an insurable interest in the life of his (201) 202 COMMERCIAL, LAW. partner; a creditor in the life of his debtor; a tenant for the life of another, in that, other's life. It does not matter whether the relations of debtor and cred- itor, or husband and wife, or other relation continue, or whether the dependent state continues after the insurance is taken out or not, it is sufficient if the relation exists at the time of taking out the insurance. This is, in this respect, unlike fire insurance, where it will be remembered that the interest must exist at all times during the life of the policy. In case where a creditor takes out a policy upon the life of his debtor, and the debtor dies, he may claim the full amount of the policy, and the amount of the debt in addition; but where the debtor takes out a policy on his own life, made payable to the creditor, merely as security, the creditor must return whatever surplus there may be, if any, of the proceeds of the policy, to the estate of the debtor. The policy of insurance may pass by transfer, will, or succes- sion to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered. APPLICATION FOE POLICY. The law allows insurance companies great latitude in regard to the contract, and hence the various insurance companies have their own rules and regulations regarding the procuring of insurance. In all of them, however, the applicant for insurance must answer in writing a long list of questions in regard to his personal habits, as to the use of intoxicants and tobacco, opium and other injurious poisons, and regarding the present state of his health, and whether he has had illness, and its nature; also as to the number of brothers and sisters he has, their ages and state of health, the ages of his parents, If living, and their age at their death, if dead; the ages at death of his grandparents, and many LIFE AND ACCIDENT INSURANCE. 203 other questions which will guide the company in the issuance of a policy. A company is not obliged to insure all applicants, but only those whose health, habits, and family records are such as render them what is called a "good risk." Each company in addition to requiring the applicant to answer the questions, requires him to pass a physical examination by some physician designated by the company. If the report of the physician is favorable, and the questions are satisfactorily answered, a policy will be issued. The answers made by the insured, if he is accepted, form a part of the contract of insurance, and if he has made materially false statements, the policy may be avoided by the company. THE POLICY. As stated in the previous section, the law allows great latitude to the insurance companies, and they may issue policies containing about such provisions and statements as they choose, and these vary materially with different companies. There are usually provisions to the effect that the policy will become void if a person travels to great distances from his resi- dence without permission of the company, or removes from the temperate to the torrid or frigid zones, or otherwise exposes hiin- gelf to great changes of climate. Policies usually provide that a person must not change his occupation to a more dangerous one without consent of the com- pany, and in cases where persons in dangerous occupations, sucE as miners or ponder makers, are insured at all, it is only at a high rate of premium. The premium on the policy is always to be paid in advance, and the policy usually provides, in case this is not done, that the policy shall lapse and become null and void. In addition to these statements, the policy contains the names of the insured and the beneficiary, and che amount of premium. 204 COMMERCIAL LAW. KINDS OF INSURANCE. Insurance companies have mul- tiplied rapidly in recent years, and plans of insurance have multi- plied nearly as rapidly. What are known as "straight life" companies agree to pay a certain amount at the death of the insured on condition of pay- ment of certain premiums. An "endowment" insurance is a plan by which premium is to be paid for a certain number of years, and at the end of that time the face of the policy is to be paid to the insured himself. This plan amounts to a mere investment of small sums for a certain time, to be returned with interest. There are also various fraternal associations which provide insurance under a great variety of plans, under the general term of "the assessment system." Such societies usually have no surplus, but depend on a large number of members paying each small assessments for the pay- ment of their death losses. ACCIDENT INSURANCE. This is a class of insurance, as the name indicates, where persons are indemnified by insurance companies in case of accident, such as the loss of an arm or hand, or the injury to an eye. There are companies who make a special business of insuring travelers by rail, or otherwise, against accident. The policy usu- ally contains a long list of injuries, with a corresponding list of amounts which will be paid; e. g.: Loss of forefinger $200 Loss of hand 300 Loss of arm 400 Loss of eye 300, etc. providing in all cases that the aggregate shall not exceed a certain sum agreed upon in the policy. Such policy usually provides also for a certain sum weekly in the nature of benefits while the insured is disabled by reason of the injury. The time is usually limited to a certain number of weeks. LIFE AND ACCIDENT INSURANCE. 205 PAYMENT OF LOSS. The policy usually provides that in case of death, insurance money is to be paid within a certain time, upon proper proofs of death or injury being presented. A life policy usually provides that an investigation concerning, the cause of death may be made, and if it be found that the de- ceased was killed in a duel, or that he died by his own hand, they may refuse to pay the money. The courts, however, have generally held that a person who commits suicide is not in his right mind, and that the beneficiary must not suffer for the act of an insane person; hence they have held that such conditions in a policy are void, except where it can be plainly shown that there was criminal intent on the part of the insured to defraud the company. So in the case of accident policies, provisions are made that in case of negligence or wilful design to injure himself, on the part of the insured, the policy shall be void. Ordinarily, then, the policy is payable within a limited time after the death of the insured, or his disability, and payment can be enforced by resort to the Courts, if refused. TEST QUESTIONS. 1. A obtains insurance upon his life in favor of a child, which he states is his own, and which is depending upon him for support. At A's death it is discovered that A was not the father of the child. Can the insurance company refuse payment on that ground? 2. A son is beneficiary under a policy of insurance on his father's life, taken out while the son was dependent upon the father for support. In course of time, the father be- comes dependent upon the son for support. What effect will this have upon the validity of the insurance? 206 COMMERCIAL LAW. 3. In answering the usual questions on application for insur- ance, a man states that his grandfather died of pneumonia. It afterwards appears that in fact the grandfather died of smallpox. Will such a mis statement invalidate the pol- icy? CHAPTER XXXIV. EEAL PROPERTY. uEFINITION. Real property consists of land and every- thing that is contained on or in the land, and affixed permanently thereto. Hence under the above definition, all minerals, oils, and water, including streams flowing through the land, are a part of the realty; so also are houses, barns, fences, and other like improve- ments placed in a permanent manner on or in the soil. All treeo are a part of the realty; but it is held that crops of grain arc personal property. HISTORY. Most of the nations of Europe, including Eng- land, were at some time conquered by force of arms, and as land began to be tilled and become more valuable, it was then taken away from weaker nations and divided by the conqueror amongst his favorites. These in turn divided their holdings under some sort of rent, usually under agreement that the renter should serve in the army when called upon; and so under this system, which came to be known as the "feudal system/' the land was all owned by the king or ruler, and all others simply had rights in the prop- erty in the nature of leases. A similar theory has been extant in the United States since the Revolutionary War, though it differs in this, that the United States Government has made actual sales of government land to purchasers, giving them full title. As between individuals, however, a right to real property is not always an absolute ownership. These rights are called estates. (807) 208 COMMERCIAL LAW. KINDS OF ESTATES. Estates in real property, in respect to the duration of their enjoyment, are either, (1) Perpetual estates; (2) Estates for life; (3) Estates for years; or (4) Estates at will. PEKPETUAL ESTATES, sometimes called estates in fee simple, are those in which there is a full and complete ownership in the property. A person, then, who has a perpetual estate may sell, mortgage, lease, or otherwise encumber the property; may cut wood upon it, or, in general, do any and all acts in regard to it which can be conceived of, so long as he does not injure the property of his neighbor in so doing. The word "perpetual'* does not mean that he must hold it for- ever, but that it is his absolutely, and he may hold it for an indef- inite time. In case of his death, the property descends to his heirs. If he leaves no heirs, and no will directing its distribution to other parties, the property reverts to the state, and is sold, and the pro- ceeds applied to the public school fund of the state. ESTATES FOE LIFE. As the name indicates, an estate for life is an interest in real property, giving the use of such prop- erty during the person's life who thus holds it. A person may have an estate for life, and at his death the property then reverts to whomever held the full ownership or per- petual estate. In other words, a life estate is a part of a perpetual estate. The holder of a life estate may use the property in all ordinary ways, but he has no power to sell the land, or to mortgage, or even lease it, except for a period not longer than his own life. In the case of a perpetual estate, as we have noticed, the owner may do any act, even to chopping down all timber or burning all buildings on his property if he chooses. REAL PROPERTY. 20S The holder of a life estate, however, must not cut timber, more than he needs for his use, nor burn nor destroy any buildings, or in any way injure the property. If he does, he is said to be guilty of "waste," and is liable for all damage to the holder of the perpetual estate. "Waste" may be even committed by negligently allowing buildings or fences to fall down for want of proper and ordinary repairs. The holder of a life estate is not bound to make extraordinary repairs, such as building a new house. He is bound to pay all taxes during the time he holds the property. While the life estate terminates at the moment of death of the person holding it, nevertheless his heirs are entitled to any crops which may be growing on the land as result of his labors, and may enter the land for the purpose of removing them. ESTATES FOR YEAES. This is a very common form of estate, and is granted under what is commonlj known as a lease. The holder of a perpetual estate, or an owner, is said to lease land to another, or give him an estate for years in it. The holder of an estate for years has the same right to use the land as the holder of an estate for life. There is one important difference which is to be noted between a holder of a life estate and a holder of an estate for years, and that is in regard to the crops or emblements, as they are called, which may remain at the expiration of the term. In the case of the estate for life, the heirs of the Hie estate holder may claim them after his death. This is so for the reason that he does not know the hour of his death, and could not be expected to do otherwise than provide for future crops at all times, while in the case of a tenant for years, he .knows definitely when his lease will expire, and if he HUB crops in, and which mature after the expiration of his lease, it is his own fault, and he must suffer for it. 14 210 COMMERCIAL LAW. Of course, he may especially agree, under his contract for leasing, that he may be allowed to remove emblements after the expiration of his lease. A lease of farming land is limited by statute to ten years, and a lease of city lots to fifty years. ESTATES AT WILL. An estate at will is created when the owner of real property permits another to occupy it without any lease or agreement to pay rent, and such tenant merely takes care of the land for the owner. It is often created simply by neglect of the owner, as where a tenant holds over after the expiration of his lease, or where a tenant takes possession without any authority whatever. In such estates the owner may terminate the holding at any time, without notice. REVERSIONS AND REMAINDERS. A reversion is the residue of an estate left in the grantor or his successors, and com- mences where a particular estate ends; as an owner of land gives B an estate for life in the -land. When B dies the land reverts to the owner. So if A has a life estate he may lease the land for a year, and at the end of the year, if A is alive, the land reverts to him. When a future estate, other than a reversion, is dependent on a precedent estate it may be called a remainder; e. g., A, the full owner, may grant an estate for life to B, and at the same time grant to C an absolute ownership or perpetual estate, to begin after B's death. That is, A has a perpetual estate; he gives part of it to-B and the remainder to C. EASEMENTS are such burdens or rights attached to land adjoining other land, as incidents or appurtenances; as the right of way over the land of a neighbor to reach a highway, the right of using a wall as a party wall and as support for a building, a wall which is placed on the line dividing property belonging to two persons. Other easements are: The right of pasture; the right of fish- REAL PROPERTY. 211 ing; the right of taking game; the right of having water flow with- out disturbance. These rights are obtained either by long usage, or custom, or are attached to land by statute. It is to be noted that while the right of taking game is granted, still if an owner of land posts notices forbidding "hunting," any one who enters upon land for such purpose is liable, not for the shooting of game, but for the trespass upon the land. STREAMS. A person having an estate in land may use the water of a stream flowing through the land, or on its boundaries, for all purposes which lie may desire, such as the watering of stock and irrigation of the land, so long as he does not use it to the injury of others, such as using all of the water in the stream, or contaminating it with rubbish which would be carried to the land of others to their injury. So, also, he may not change the course of the stream unless he returns it to the natural channel before it leaves his land. In case of a stream forming a boundary, if it is a navigable stream, his title extends only to high water mark; but if the stream be not navigable, his title extends to the middle of the stream. The reason for this difference is that the navigable waters are public property. HIGHWAYS. The state, county, or .municipal government may designate such roads and streets as may be proper for the convenience of the public, and set them apart for public use. All such lands so set apart are termed highways. Eoads are. often made along the boundaries between lands owned by differ- ent persons, each owner conveying the right of way to a certain part. In such cases, each land-owner owns the land as before to the middle of the highway, and in case the. highway is ever aban- doned by the public, the full ownership reverts to him. As the land is only given for the use of the public, the owner 212 COMMERCIAL LAW. has the right of pasturage or of cutting trees upon it, or doing any other act in relation to it which does not affect its use as a public highway. EMINENT DOMAIN. The original and ultimate right to all property, real and personal, is in the state. Under what is called Eminent Domain, the state may acquire title to private property for public use. Thus it may acquire property for road purposes, for toll bridges, or ferry purposes, for wharves, chutes, or piers, for reclamation purposes, sewerage pur- poses, telegraph lines, electric light lines, canals, reservoirs, dams, ditches, and various like public uses. Before any private property can be appropriated to public use, under the right of eminent domain, a proper proceeding must be brought, showing, (1) That the use to which it is to be applied is a use author- ized by law; (2) That the taking is necessary to such use; (3) If already appropriated to public use, that the public use to which it is to be applied is a more necessary public use. As in the case with highways, when such public use is aban- doned, the land so taken reverts to the former owners. In all cases where land is taken under the right of eminent domain, reasonable compensation must be given to the owner of the land so taken. This is determined usually by appraisers, who are presumed to be disinterested parties. TEST QUESTIONS. 1. A leases a vineyard for one year, which expires October 15th. It being an unusually "late year" all of the grapes axe not fit for picking when the lease expires. May he REAL PROPERTY. 213 enter the premises and remove them after the expiration of the lease? 2. A, the owner of land bounded by a navigable stream, at- tempts to prohibit fishing in the stream. May he do so? 3. If a person who has an estate for years buys the perpetual estate in the same property, does that thereby terminate his estate for years? 4. A has an estate for life. May he sell his right to the estate, and to its use and occupancy until his death? CHAPTER XXXV. DEEDS. DEFINITION. A deed is a written instrument by which the title to real property is transferred from one person to another. The essentials are as follows: (1) A sufficient writing; . (2) Proper parties, grantor and grantee; (3) A thing to be granted; (4) A consideration; (5) Execution, i. e., signing; (6) Acknowledgment; (7) Delivery and acceptance; (8) Recording. These will be considered in their regular order. A SUFFICIENT WRITING. In order that the deed may be a good contract, the writing should be clear and distinct, and the language free from uncertainty. It is not necessary that there should be strict observance of the rules of grammar, as long as the intention is clear. It may be as other contracts, either written or printed, or in any way engrossed upon an impressible substance, but it must be complete before it is delivered. Any alterations or filling out of the blanks after delivery, will not give life to the deed, and where alteration is made before delivery, it should be noted by the officer who takes the acknowl- edgment. (214) DEEDS. 215 PARTIES. To make a valid deed there must be, of course, a competent grantor. He must own the property and have the capacity to convey it. As we have seen under the general discussion of contracts, any person can make a deed who is not an infant, of unsound mind, or deprived of civil rights. As to grantees, the same rules exist in regard to competency, except that a person under disability may accept gifts of land, or any conveyance which does not require action upon his part;, so if there is any condition imposing duties on the grantee, he can not be compelled to perform them, if under disability. The names of the grantor and grantee must be written in the deed. They are necessary in order to render the parties cer- tain. In deeds of property owned by both a husband and wife (called community property), both must sign the deed to make the con- veyance valid under all circumstances. In case of the separate property of either, only the one who owns it need sign the deed. It is customary, however, to require the signature of each party to all deeds of real estate sold by either husband or wife. A deed to a fictitious person would be absolutely void. THING GEANTED. There can, of course,, be no convey- ance unless there is something to convey. The property must be sufficiently described in the deed so as to be capable of being easily identified. A ''grantor should state in the deed the nature of his interest, whether it be a full ownership, or a half of a certain property, or all of it, or as the case may be. THE CONSIDEKATION must, as in other contracts, be either good or valuable. It is not absolutely necessary that a con- sideration be expressed in the deed, although it is proper and may save trouble to do so. It is quite customary in real estate conveyances to place a 216 COMMERCIAL LAW. nominal sum in the deed as consideration, such as $5, the real consideration not being named, and it is held that where such nominal sum is stated, the parties will be allowed to prove, if necessary at any future time, what the real consideration was. EXECUTION. By the execution of a deed is meant the signing of the instrument by the grantor, and subsequent acknowl- edgment. The grantor should sign his name in exactly the same manner as it is written in the body of the deed. His signature need not be witnessed, although it is customary to have two witnesses who sign their names as witnesses to his sig- nature. Where it is impossible or inconvenient for a grantor to sign his own name, he may give a power of attorney to an agent to sign his name for him, and this power of attorney must be exe- cuted in all respects with the same formalities as the deed itself, and must be recorded before the deed is recorded, in order that the chain of title may be in order and unbroken. ACKNOWLEDGMENT is simply stating before some prop- erly authorized officer, by the person who executes the deed, that he has executed the deed, and that the signature is his signature, or words to that effect. The officer then endorses upon the deed his certificate, to the effect that the person whose name appears as a signature, acknowl- edged to him that he did execute the deed. The proof or acknowledgment of a deed, or ottier like instru- ment, may be made before a County Clerk, a County Recorder, a Court Commissioner, a Notary Public, or a Justice of the Peace. The object of acknowledgment is simply for the purpose of proving the execution. The deed is valid as between the parties if it is not acknowl- edged, but it can not be recorded unless acknowledged, and hence it is not valid as against third parties having no notice of its exist- DEEDS. 217 ence. A married woman may acknowledge a deed in the same manner and with the same effect as if unmarried. DELIVERY AND ACCEPTANCE. These acts are abso- lutely essential to the validity of a deed. As long as it remains in the possession of the grantor, it is mere waste paper, and so it is if it should be stolen, and by the thief delivered to the grantee. The grantor, or his duly authorized agent, alone may deliver the deed. The rule is the same in regard to acceptance. Only the grantee or his duly authorized agent may accept the deed. The delivery of the deed, as in case of delivery of any personal property, may be either actual or constructive, that is, it may be actually placed in the hands of the grantee, or it may be placed under the control of the grantee, where he can readily reduce it to actual possession; Delivery should not be made until after acknowledgment, in order that the grantee may be fully protected by being able to record the deed. DELIVEEY IN ESCBOW. A deed may be deposited by the grantor with a third person to be delivered to the grantee on the performance of a condition, and when the condition is performed and the deed delivered by the depositary, it will take effect. While in the possession of the third person and subject to the con- dition, it is called an escrow. The delivery to the depositary is called a deliver}' in escrow. When final delivery is made by the depositary to the grantee, the deed becomes effective from the time it was delivered to the depositary. EXAMPLE. A person in expectation of death sometimes delivers a deed of his property in escrow, to be delivered to the grantee at his death. When he dies, and the depositary delivers the deed, the title of the grantee becomes complete from the time cf the first delivery. The form of a deed in escrow is not necessarily different front 218 COMMERCIAL LAW. that of other deeds, but it is best to accompany the deed by a memorandum in writing, signed by the grantor, explaining the nature of the deed. RECORDING. The County Recorder of every county is required to keep books called record books, in which he must record or copy, word for word, and figure for figure, every instru- ment properly deposited with him for record. This copying of instruments into these record books is called "recording." The Recorder keeps separate books for separate instruments. It is his duty to record documents in the order in which they were received; so for the purpose of determining which of two docu- ments has been first recorded, an instrument is deemed to be recorded as soon as it is placed in the Recorder's office. It is the Recorder's duty to indorse upon each instrument offered for record, the exact time, day, hour, and minute, at which the instrument was. offered. After 'the contents of the instrument are properly copied in the record book, the Recorder must further endorse on the deed the number of the volume, and the page at which the record of the deed may be found. The original deed may then be returned to the person who desired its recordation. EFFECT OF RECORDING. As we have seen, as between parties thereto, and to any one having knowledge of the transac- tion, a deed is valid after delivery is had, whether it is recorded or not, but as regards subsequent purchasers, mortgages, and persons having judgment liens against the property, an unrecorded deed is void. It will be observed therefore that it is of the highest impor- tance that a purchaser should record his deed immediately upon receiving it. If he does this, the law presumes by that act that the world has DEEDS. 219 notice of the transaction, and no one can claim to be ignorant of it; and any judgment rendered against the grantor after such recording, or any second sale made by him in fraud of the first one, would be absolutely \oid as against the rights of the grantee. FORMS OF DEEDS. The common law provided very lengthy and cumbersome forms for transfer of real property, and had a variety of deeds containing different warranties and con- ditions. Our modern statutes have simplified these forms to a great extent. The following form is prescribed as sufficient by the Civil Code of California: "I, A B, grant to C D all that real property situated in San Joaquin County, State of California, bounded and described as follows: Being the West One-half of Section Two, Township One Xorth, Range Three East, M. D. B. & M., containing Three Hun- dred and Twenty (320) acres of land, more or less. "WITNESS My hand this 1st day of July, 1898. "A B." It will be noticed that the above form omits the recital of a consideration, as the recital of a consideration is unnecessary in any kind of a written contract. It may be proved orally. It also omits any statement regarding a seal, seals being prac- tically abolished. In writing out deeds, however, many add a clause to the effect that the grantor will warrant and defend the title. This he is bound to do, however, in any event, so that there is no longer any distinction between warranty deeds and others. QUIT-CLAIM DEED. This is a form of deed given for the purpose of removing a cloud upon the title, or making the record clear. - The person giving the deed may not even claim any interest, Lut he may at some time have had some interest which is not prop- erly released; hence for the purpose of disclaiming any title to the 220 COMMERCIAL LAW. property, he gives what is called a Quit-claim Deed; e. g., A may have owned a small interest in certain land upon which there was a mortgage. When the mortgage was foreclosed, he was not prop- erly served with notice of the proceedings. Ten years pass, and while he is, as a matter of law, debarred from making any claim to the land, still the record is not perfect, and in order to release his apparent claim, he will sign a quit-claim deed. The operative part of a quit-claim deed is about as follows: "I, A B, have remised, released, and quit-claimed, and do hereby remise, release, and quit-claim unto C D all that tract of land described as follows:'' etc. As a matter of course, a person who gives a quit-claim deed does not give any covenants or warranties in regard to the prop- erty. TEST QUESTIONS. 1. A executes a power of attorney to B to sell land. B has the power of attorney recorded. Before B sells the land, a judgment is recorded against the land and against A. Would the purchaser take the land subject to the judg- ment lien, or free from it? 2. A executes a deed of certain property to B. Afterwards A executes another deed of the same property to C. Illus- trate different circumstances under which either B or C might lawfully claim the ownership of the land. 3. A attempts to deliver a deed of property to B at a distance by sending the deed by mail. The deed is lost, and never reaches B. Is the delivery complete? 4. A executes a deed of certain land to B. There is a house on the land, but it is not mentioned in the deed. Will th< deed pass title to the house? Discuss fully. CHAPTER XXXVI. MORTGAGES. DEFINITION. As has been before observed, under the com- mon law system, mortgages were regarded as conditional sales. The actual title to the property passed, with a mere right of buy- ing back. Under our modern system this is not the case. A mortgage is defined as follows: "Mortgage is a contract by which specific prop- erty is hypothecated for the performance of an act without neces- sity of a change of possession." A mortgage can be created, renewed, or extended only by a writing executed with the formalities required in the case of a grant of real property. It will thus be seen from the definition that a mortgage is a mere lien upon property, independent of possession, the evidence of the lien being the writing. The modern theory of mortgages, of course, does not prohibit a person from making a conditional sale of his real estate should he see fit. PARTIES. The parties to a mortgage are the mortgagor, the one who executes the mortgage, and the mortgagee, the one to whom it is executed. As in other contracts, all competent persons may be parties to a mortgage. In case of mortgage of community property, both husband and wife must sign the mortgage. In case of the separate prop- erty of either, only the one whose property is mortgaged need sign. (231) 222 COMMERCIAL LAW. It is customary, however, for each to sign all mortgages made by either. FOKM OF MORTGAGE. As in the case of a grant of real property, the common law form of mortgage was a very cumber- some one. The following is the modern form of mortgage of real estate: THIS MORTGAGE, Made the 1st day of July, in the year 1898, by A B, of Stockton, San Joaquin County, California, mort- gagor, to C D, of the sjarne place, mortgagee, WITNESSETH: That the mortgagor mortgages to the mort- gagee all that certain property described as being Section Four (4), Township One (1) South, Range Two (2) East, M. D. B. & M., and containing Six Hundred and Forty (640) acres of land, as security for the payment to him of Two Thousand ($2,000.00) Dollars on the 1st day of July, 1899, according to the terms of a certain promissory note, a copy of which is as follows: $2,000.00 Stockton, Cal., July 1st, 1898. One year after date I promise to pay to C D, or order, Two Thousand ($2,000.00) Dollars, with interest thereon at the rate of Ten (10) per cent per annum. A B. IN WITNESS WHEREOF, I have hereunto set my hand thi? 1st day of July, 1898. Signed and delivered in the presence of A B. Besides the above, there may be additional clauses to the effect that the mortgagor will pay all taxes, except what is assessed on the mortgage itself, and will keep buildings insured on mortgaged property, and assign the policy of insurance to the mortgagee. WHAT MAY BE MORTGAGED. Any interest in real prop- erty, which is capable of being transferred by deed, may be mort- gaged. MORTGAGES. 223 An estate for years, or for life, can therefore be mortgaged as well as a perpetual estate. In such cases, however, should the mortgagee foreclose, he can only get such interest in the land as his mortgagor had, and not an absolute title. RENTS AND PROFITS. The mortgagor, being usually in possession of the mortgaged property, is entitled to the rents and profits from the mortgaged premises until the time the mortgage is foreclosed. After the mortgage is foreclosed, the mortgagee is entitled to the rents and profits from the date of the decree of foreclosure, and if he is in possession, he is entitled to the rents and profits of the land accruing after his entry into possession. In cases \vhere the land has been leased by the mortgagor, the lessee must pay the rent to the mortgagee from the time he becomes entitled to possession of the land. ASSIGNMENT OF THE MORTGAGE. An assignment of a mortgage may be made either by writing on the back of the mortgage itself a statement to the effect that the mortgage is assigned and transferred from the holder to another, together with the delivery of the instrument to that other, and any instru- ment of indebtedness which there may be, such as a promissory note; or a formal written assignment may be made by a separate instrument, and acknowledged and recorded in like manner as the original mortgage. The following is the ordinary form of assignment: KNOW ALL MEN BY THESE PRESENTS, That I, A B, of Stockton, California, have granted, bargained, sold, and assigned, and by these presents do grant, bargain, sell, and assign unto C D, of the same place, a certain mortgage bearing date the 1st day of July, 1897, executed by E F to said A B to secure the payment of the sum of Eight Hundred ($800.00) Dollars, together with a promissory note therein described, and all moneys 224 COMMERCIAL LAW. due, or to become due thereon which said mortgage was recorded in the office of the County Kecorder of the County of Butte, State of California, in Book 10 of Mortgages, page 400, on the 5th day of July, 1897. IN WITNESS WHEREOF, I have hereunto set my hand the 20th day of July, 1898. A. B. RELEASE OF MORTGAGE. A recorded mortgage may be discharged by an entry on the margin of the record thereof, signed by the mortgagee, or his personal representative, or assignee, acknowledging the satisfaction of the mortgage, in the presence of the Kecorder, who must certify to the acknowledgment in form substantially as follows: "Signed and acknowledged before me this 1st day of Septem- ber, in the year 1898. "A B, County Kecorder." Or where it is inconvenient for a mortgagee personally to visit the Recorder's office, he may execute a release of the mort- gage by a separate instrument, which must be acknowledged and recorded in like manner as the mortgage. The release of mortgage thus made may be in the following form: KNOW ALL MEN BY THESE PRESENTS, That that cer- tain mortgage made by C D, of San Joaquin County, California, the party of the first part, to A B, of the same place, the party of the second part, and recorded in the office of the County Recorder of the County of Santa Clara, State of California, in Volume 40 of Mortgages, at page 351, on the 20th day of September, 1897, together with the debt thereby secured, is fully paid, satisfied, and discharged. IN WITNESS WHEREOF, I have hereunto set my hand me 1st day of October, 1898- A. B. A partial release of mortgage may be made; that is, the release may be made so a? to specify that a certain portion of the land described in the mortgage is released. MORTGAGES. 225 This is frequently done when a portion of the mortgage debt has been paid. ACKNOWLEDGING AND RECORDING. These subjects have been fully discussed under the chapter on deeds. The execution of a mortgage is acknowledged in the same manner, and the mortgage is recorded in the same manner as in the case of a deed. The effect of recording a mortgage is to give notice to the world that there is a lien to the extent of the mortgage debt, upon the property mortgaged. When an assignment is recorded, its effect is to protect the purchaser of the mortgage from the possibility of the mortgagee's making a second sale of the mortgage debt. The effect of recording a release of mortgage is to give notice that the land is freed from the lien of the mortgage. PRIORITY OF MORTGAGES. As has been intimated, a mortgage which is first duly acknowledged and recorded lias priority over any subsequent liens or incumbrances. It is not uncommon for two mortgages to be given with the same piece of property as security, and even a greater number may be given upon the same property. In such cases the mortgage which is recorded first, must be paid first, and when foreclosure is had, if there is any surplus after paying the first mortgagee, the next in rank as regards time, takes his turn at the surplus, and so on in the order of time, if there is any surplus remaining, until the last mortgage is satisfied. It makes no difference what the actual date of the several mortgages may be. The record books are conclusive, and a pur- chaser or mortgagee will be protected in relying upon them. In general, then, the rule is that whatever is of record first has precedence. There is an exception, however, in the matter of taxes. Legally levied taxes, as a matter of public policy, must be paid in preference to other liens. 15 226 COMMERCIAL LAW. SALE OF MORTGAGED PROPERTY. Property which is mortgaged is nevertheless the subject of conveyance by deed. The conveyance, however, does not destroy the lien of the mortgage. The mortgage lien follows the property into whoseso- ever hands the property may pass as owner, and before he can have an absolute title, he must pay off the mortgage. It is customary, however, in cases of sale of mortgaged prop- erty, for the purchaser either to pay off the mortgage, or execute a new one binding himself to pay the debt. Where no such arrangement is made, the parties usually recite in the mortgage that "this conveyance is made subject to that certain mortgage bearing date," etc. (Describing the mortgage.) In this manner the records are made to show the exact con- dition of the land as regards title. FORECLOSURE. In case the mortgage debt is not paid when it is due, the holder of the mortgage may commence an action in court for the enforcement of his lien against the property, and may obtain a judgment decreeing the foreclosure of the mort- gage, and sale of the mortgaged property. A commissioner is appointed by the court to sell the property, which he must do at public auction, to the highest bidder. The proceeds of the sale are first applied to the expenses thereof and costs of foreclosure, and then to the satisfaction of the mortgage debt. If there be any surplus remaining, it must be paid to the mort- gagor. If there be a deficiency, an additional judgment, called a deficiency judgment, is entered against the mortgagor personally for the amount of the deficiency, and any other property which he has (not exempt) may be sold to satisfy the deficiency. EQUITY. OF REDEMPTION. A judgment debtor, or any one, as redemptioner, may redeem the property from the purchaser at the foreclosure sale, within twelve months after the sale, upon paying to the purchaser the amount of the purchase price, with MORTGAGES. 227 ^ interest at the rate of one per cent per month in addition thereto up to the time of redemption, together with any assessments or taxes which the purchaser may have paid since his purchase, and interest on such payments, if any. After the property has been once redeemed, it may be again redeemed within sixty days, by a third party, upon his paying sim- ilar interest and costs; and within sixty days after such redemption it may be further redeemed, and so on indefinitely so long as one whole year does not elapse from the time of the first redemption, or sixty days from the time of any preceding redemption. In case such times do elapse, however, without redemption, the purchaser is entitled to an absolute conveyance from the commis- sioner, called a commissioner's deed. If the debtor redeem the property himself, the effect of the sale is terminated, and he is restored to his estate, and the person to whom the payment is made, must execute and deliver to hiir a certificate of redemption, which must be acknowledged any a carrier, evidencing the transaction of sending goods by him. BLANK ENDORSEMENT. A writing on the back of a negotiable instrument of the endorser's name only. BOND. 1. A written instrument binding the maker to pay money, as penalty for breach of an undertaking. 2. A very formal negotiable instrument, issued by a munici- pality. BOTTOMRY BOND. An instrument in the nature of a mortgage, given on a vessel to seciire a loan. BY-BIDDER. In auction sales, a person employed to bid to raise the price of articles to be sold, without any intention of buying. BY-LAWS. The rules made by a corporation for the management of its prhate affairs. CAPITAL STOCK. Whatever is contributed to a corporation a.s it* working property. 238 COMMERCIAL LAW. CAVEAT EMPTOJl, meaning, "Let the purchaser beware," applies to the case of a purchaser who has an opportunity to inspect an article before buying it. CERTIFICATE OF DEPOSIT A certificate issued by a bank, stat- ing that the holder has certain money deposited in the bank, payable to his order. CERTIFICATE OF STOCK. A paper issued by a corporation as evi- dence of the number of shares of the capital stock which a holder has. CERTIFICATION. The signature of a banker written across the face of a check, with or without other words, to indicate that the check is good, and will be paid by the bank. CHARTER. To hire a vessel, or part of it. CHARTER PARTY. The written contract by which the vessel is hired. CHATTEL MORTGAGE. A mortgage of personal property, by which it is held as security for the performance of some act. CHECK. A written order drawn upon a bank, or a banker, for the payment of money. CIVIL CODE. A body of laws, enacted by the Legislature, relating to civil contracts. COMMON CARRIER. One who undertakes for hire, and as a busi- ness, to carry passengers or freight. COMMON LAW. The ancient law of England, originating in mere customs. CONDITION PRECEDENT. An act, which must be performed by one party to a contract, before the other party need do any act. COMPLAINT. The written statement of a plaintiff in an action. CONSIDERATION. The inducement for entering into contracts. CONSIGNOR. A person who ships goods. CONSIGNEE. One to whom goods are sliipped. CONVEYANCE. 1. Carrying anything by land or water. 2. A written instrument by which an estate in real property is transferred from one person to another. CO-PARTNERSHIP. An association of persons for the transaction of business, and division of losses and profits. CORPORATION. An artificial being having powers and duties of a natural person. COUNTER CLAIM. A claim set tip as a defense to a suit, by which the defendant claims something from the plaintiff. GLOSSARY. 239 COVENANT. Any agreement contained in a contract in regard to real property. DAMAGES. Compensation awarded to one person to be paid by another for injuries inflicted. DECEDENT. A dead person. DECREE. A judgment rendered by a court of equity. DEFENSE. A legal reason given by a defendant, tending to show that there is no cause of action against him. DEFENDANT. The party sued in an action. DEMAND. The act of asking for payment. DEPOSIT. A kind of bailment where goods are merely left for safe keeping. DEPONENT. One who makes an affidavit. DEVIATION. In marine insurance, a departure from the regular course of the voyage insured for, without necessity. DEVISE. A gift of real estate by will. DIES NON. (No days.) Holidays, or days when Courts do not transact business. DISABILITY. Legal incapacity to contract. DISAFFIRMANCE. The act of making void a voidable contract. DISHONOR. The refusal of the debtor in a negotiable instrument to pay it when due. DIVIDEND. 1. The profits of a corporation distributed among its stockholders. 2. The proceeds of a bankrupt's estate divided among credits ors. DRAFT. An inland bill of exchange. DRAWEE. One who is ordered to pay a sum of money named in a bill of exchange. DRAWER. The person who makes, or draws, the bill of exchange. DURESS. Unlawful restraint of person or property. EASEMENT. A privilege of using another's land, such as right of EMBLEMENTS. Growing crops of any kind. EMINENT DOMAIN. The right of the government to take private property for public use. ENDORSE. To put one's name on the back of an instrument in writing. ENDORSEE. The person in whose favor the endorsement is made. ENDORSER. The one who makes the endorsement. 240 COMMERCIAL LAW. EQUITY OF REDEMPTION. The right of a mortgagor, or others, to redeem mortgaged property after foreclosure. ESCHEAT. The reverting of land to the state at the death of the owner without heirs or will. ESCROW. Any written instrument delivered to a third party to be held and delivered at some future time to the grantee or other person designated. ESTATE. The interest of a person in real property. EXECUTION. 1. A writ issued to a peace officer commanding him to enforce a judgment. 2. The signing of any legal document so as to make it valid, particularly of a deed or mortgage. FEE SIMPLE. An absolute or perpetual estate in lands. FIRM. The members of a partnership collectively. FORECLOSURE. The proceedings in a suit to enforce the lien of a mortgage, together with the sale of the mortgaged premises. FRANCHISE. A special privilege conferred by the government; as, the right to build a railroad through city streets. FRAUD. Deceit practised upon another to his injury. FREEHOLD. Any estate of inheritance, or a life estate. FREIGHT. 1. The price paid a carrier for shipping goods. 2. The goods themselves while in transit. GENERAL AVERAGE. A contribution by owners of a vessel and cargo on account of loss sustained l>y a person whose property has been sacrificed for the common safety. GOOD WILL. The expectation of continued public patronage of a business house. GUARANTOR. One who agrees to be responsible for the perform- ance of some act by another. GUARDIAN. One appointed to have the care and custody of the person or property of an incompetent person. GUEST. A person who is received and furnished entertainment at an inn. IDIOT. One without reasoning powers from birth. INCAPACITY. Lack of legal qualifications to do business. INCORPORATE. To form a corporation. INFANT. A person under age; in case of males, under 21 years; females, under 18 years. INJUNCTION. A writ or order of a Court or Judge commanding a certain person to refrain from doing some act. INSANE PERSON. One who has lost his reason. GLOSSARY. 241 INSOLVENT. A person unable to pay his debts in the usual course of business. INSURABLE INTEREST. That interest which a person has in property, or another's life, which, if the property is destroyed, or the person dies, would result in pecuniary loss to him. INSURANCE. A contract by which a person, called the insuvc., agrees to indemnify another, called the insured, against loss from specified causes. INVALID. Not enforceable under the law. JOINT STOCK COMPANIES. An association of persons similar to partnership, but having capital stock, and a Board of Directo . like a corporation. JUDGMENT. The sentence of the law given by a Court against the party who is defeated in the trial of a case. JUDGMENT DEBTOR. The person against whom the judgment is rendered. JURISDICTION. The extent, either in territory or kind of property, over which a Court lias authority. LANDLORD.- -1. The keeper of an inn or hotel. 2. One who rents lands or houses. LAW MERCHANT. The old English law in regard to commercial transaction^. LEASE. The instrument by which an estate for years is given. LEGAL TENDER. Anything which is designated by law as lawful money ior the payment of debts. LETTER OF CREDIT. A general letter drawn by a banker author- izing certain banks to pay to the holder any amount of money up to a limit, and draw drafts upon the bank which issues the letter for the amounts advanced. -I jjlEN. The right to retain the property of another as security for the payment of a debt. LUNATIC. A person who has lost his reason, but has occasional lucid intervals. MATURITY. The time at which commercial paper becomes due. MINOR. A person under age. (See Infant.) MISUSER. Wrongful using of a franchise. MONTH. In the law of contracts, a calendar month. MORTGAGE. A written contract by which a person, called a mort- gagor, creates a lien on his property to secure a debt, owed by him, to another, called the mortgagee. 242 COMMERCIAL LAW. MUNICIPAL. Relating to a city. MUNICIPAL LAW. The law of any city, state or nation IfEGOTIABLE PAPER. Certain written instruments, which, under certain conditions, may be transferred by endorsement, and give the holder full power of collection. NOTARY PUBLIC. An officer invested with power to administer oaths, take acknowledgments, protest negotiable instruments, etc. ORDINANCE. A law passed by a city council, or board of super- visors of a county. OUTLAWED. A debt which remains uncollected beyond the time allowed by law for collection. PARTNERSHIP.- An association of persons in business, under agree- ment to contribute capital, and divide losses and gains. PARTY WALL. A wall placed on the line between two adjoining estates for the purpose of supporting a building on either side. PERILS OF THE SEA. All dangers naturally pertaining to naviga- tion. PLEDGE. A delivery of personal propertj', by a person called the pledgor, to secure the payment of a debt, to a person called the pledgee. POLICY. The contract of insurance. POST-DATED. Bearing a later date than that at which an instru- ment was actually made. POWER OF ATTORNEY. A written instrument by which an agent is appointed. PREMIUM. The price paid tor insurance. PRESUMPTION. An inference of law, from certain facts, of the existence of other facts. PRINCIPAL. 1. A sum of money bearing interest. 2. A person who employs an agent. PROMISSORY NOTE. A promissory note is an unconditional prom- ise in writing by a person to pay a certain sum of money, gen- erally "to bearer" or "lo order" of some one named therein, at a specified time. PROTEST. A formal declaration in writing by a notary public, of his demand, and the refusal of a debtor to pay the amount of a note, or bill. A writing by which one authorizes another to vote in his place; used by corporations. Also the one who represents the other. GLOSSARY. 243 PUFFER. (See By-Bidder.) RATIFICATION. Agreeing to be bound by the terms of a voidable contract. REAL ESTATE. Land, or anything affixed thereto or contained therein. RECEIPT. A written acknowledgment of monej- or property re- ceived. RECEIVER. A person appointed by a Coxirt to take charge of prop- erty, such as the property of a bankrupt, or of a dissolved cor- poration. RELEASE. An instrument similar in form to a deed, used to evidence the extinguishment of a debt. REMEDY. The legal method of enforcing rights or redressing- wrongs. KENT. The sum paid for the use of real property. RECISS1O A . The abrogating, or making void, of contracts. RESPONDED TI A BOND. A bond in the nature of a mortgage, giver for a loan upon the cargo of a vessel. REMAINDER. An estate which takes effect after another's estate, is terminated. SALVAGE. Compensation for saving a vessel from wreck. SET-OFF. (See Counter Claim.) STATUTE. An act passed by a Legislature. STATUTE OF FRAUDS. A statute requiring certain contracts to be made in writing. STATUTE OF LIMITATIONS. A statute limiting the time within which actions can be brought upon a debt, or other demand. SUBJECT MATTER. The thing concerning which a contract is made. SUBROGATION. The substituting of one person in another's place, as substituting a new creditor. SUIT. An action on a claim in a Court of justice. SURETY. One who promises in writing to answer for the debt, de- fault, or miscarriage of another. SURRENDER VALUE. The sum which an insurance company will pay for an unexpired policy. TENANT. One who has possession of lands of another temporarily. TENDER. An offer to carry out the terms of a contract. TRUSTEE. One who holds property for the benefit of another. USURY. Illegal interest. 244 COMMERCIAL LAW. VALUED POLICY. An insurance policy which fixes the value 01 the property insured. VENDEE. One to whom anything is sold. VENDOR. The person who sells. VOID. Without any legal effect. VOIDABLE. That which may be made void at the option of one of the parties to a contract. WAIVER. A relinquishment of a right. WARRANTY. A statement, as a fact, of some material matter con- cerning an article offered for sale. THE LIBRARY UNIVERSITY OF CALIFORNIA Santa Barbara THIS BOOK IS DUE ON THE LAST DATE STAMPED BELOW. 3 \i 1