THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW This volume contains two parts, each one of which is arranged as a separate book, complete in itself, with independent title pages, tables of contents, and indices, and with separate paging. The parts so treated are as follows : 1. General Survey and Contracts ; and im- mediately following, 2. Agency. At the end of each subject see Questions and Problems. AMERICAN COMMERCIAL LAW SERIES Second Edition General Law of Contracts WITH PRELIMINARY CHAPTERS ON GENERAL SURVEY AND QUESTIONS AND ANSWERS BY ALFRED W. BAYS, B. S., LL. B. Professor of Law, Northwestern University School of Commerce, and Member of Chicago Bar CHICAGO CALLAGHAN AND COMPANY 1920 COPYEIGHT, 1920 BT CALLAGHAN & COMPANY T BW7 c. DEDICATED TO A. H. B., C. If. B., and M. B. 686168 PREFACE TO REVISED EDITION. The first edition of these books was prepared and pub- lished in 1911 and 1912, largely with the idea of meeting the class room needs of the author's own students. They have, however, been widely sold throughout the country and used in a large number of schools and colleges with much success. A revision is now offered in order to enable the author to extend somewhat the scope of the work as well as to incorporate some new ideas and bring the work down to date. Time was when an author of books upon business law, adapted for use in lay instruction, felt called upon to justify his endeavor. The law was a holy and mysterious thing not meant for common gaze. Possibly this view was based upon a belief that "a little learning was a dan- gerous thing." The obvious answer that if a little is dangerous, safety lies in getting more, was overlooked. For law is something with which the business man must deal. There is no escape. He cannot leave it alone. Every business man is continually dealing with legal facts. He is held by legal presumption to a knowledge of the law. How absurd to say that he must make con- tracts, but must not have explained to him that there is such a thing as consideration, or a statute of frauds, or a parol evidence rule ; that he must become bound upon negotiable paper, but must not know the significance of its negotiable quality. If it is felt that he will strive to 7 8 PREFACE. be "his own lawyer," the fear is groundless. In a certain sense every man is his own lawyer, just as every one is his own physician. But in so far as that expression means that the reader will strive to dispense with the services of an expert where an expert is needed, experi- ence shows that the more one knows of law, and the more generally intelligent he is, the less likely he is to step into legal pitfalls. In that sense only, the lawyer loses business. Law of business arises out of business practices and business needs ; it is, or should be, to serve business. To serve business efficiently a business man should know of it as much as he can ; not in order to practice it, for he has neither the skill nor the time for that, and the more he studies law, the more he realizes that fact. The layman who studies these pages will realize the vastness of the field of law. He will appreciate that it is as broad as human endeavor ; that it has countless appli- cations; that it is ever in development. He will, how- ever, learn also, that some principles of law have become fundamental, that some rules and practices of law have become permanently established and can be relied upon not to change; that he can acquire practical knowledge that will help him in immediate ways in his own busi- ness ; and that he must, not alone for safety's sake, but to have workmanlike assistance, consult the expert when occasion demands. A study of law strengthens the reasoning faculties, broadens the general view, and has an important part in one's liberal education. A few forms have been appended. The author is, however, not a great believer in the desirability of forms in a book of this character. Forms of deeds, charters, etc., are primarily for the lawyer, and each jurisdiction PREFACE. 9 has its variations. Hence, there has been no attempt to do much in the way of forms. Questions and problems follow each text. Authorities are quoted more extensively than in the first edition, and are to enable further research where it is desired. ALFRED W. BAYS. Chicago, September i, 1920. TABLE OF CONTENTS. GENERAL SURVEY. CHAPTER i. LAW DEFINED. Sec. i. What is law. Sec. 2. International law. Sec. 3. National or municipal law. Sec. 4. Branches of municipal law. CHAPTER 2. THE BRANCHES OF MUNICIPAL LAW. Sec. 5. Constitutional law. Sec. 6. The federal constitution. Sec. 7. The state constitutions. Sec. 8. Administrative law. Sec. 9. The law of crimes. Sec. 10. The law of torts. Sec. n. The law of judicial procedure. Sec. 12. Other branches of municipal law. CHAPTER 3. FORM OF LAW. Sec. 13. Purpose of this chapter. Sec. 14. Written law. II 12 TABLE OF CONTENTS. Sec. 15. Codes. Sec. 1 6. Uniform laws. Sec. 17. Unwritten law. Sec. 1 8. Judicial reports. Sec. 19. Doctrine of stare decisis. Sec. 20. Secondary sources of the law. CHAPTER 4. THE JUDICIAL SYSTEM. Sec. 21. Function of the courts. Sec. 22. Courts of law and courts of equity. Sec. 23. Courts of original jurisdiction and of review. Sec. 24. The progress of a case through the courts. CHAPTER 5. ADMINISTRATIVE HOARDS AND COMMISSIONS. Sec. 25. In general. Sec. 26. The Interstate Commerce Commission. Sec. 27. The Federal Reserve Board. Sec. 28. The Federal Trade Commission. Sec. 29. Public utility commissions. Sec. 30. Commissions to revise or regulate taxes. Sec. 31. Other boards or commissions. TABLE OF CONTENTS. 13 THE GENERAL LAW OF CONTRACT. PART I. FORMATION OF CONTRACT. CHAPTER i. DEFINITION AND CLASSIFICATION. Sec. I. Contract defined. Sec. 2. Essential elements in contracts. Sec. 3. Kinds of contracts. CHAPTER 2. PARTIES TO CONTRACTS. A. Who Are Parties. Sec. 4. Parties defined. Sec. 5. Capacity of parties generally. B. Minors. Sec. 6. Who are minors. Sec. 7. Power of minors to contract. Sec. 8. Minor's liability for necessaries. Sec. 9. What are necessaries. (a) Kind of advantages that may constitute necessaries. (b) Station in life as factor. (c) Minor already supplied. (d) Necessaries must be actually supplied. Sec. 10. Disaffirmance of minor's voidable contracts. (a) Right to disaffirm. (b) Time of disaffirmance. 14 TABLE OF CONTENTS. (c) Conditions of disaffirmance. (d) Disaffirmance of minor's deeds to real estate. (e) Ratification. Sec. ii. Tortious liability of minors in cases involving contracts. C. Other Parties Under Disability. Sec. 12. Married women. Sec. 13. Insane persons. Sec. 14. Drunken persons. Sec. 15. Aliens. Sec. 16. Corporations. CHAPTER 3. OFFER AND ACCEPTANCE (l) WHAT CONSTITUTES. A. Necessity of Offer and Acceptance. Sec. 17. No contract without offer and acceptance. B. What Constitutes Offer. Sec. 1 8. No offer and acceptance because no communi- cation to offeree. Sec. 19. No offer because offer not uttered. Sec. 20. Preliminary announcements intended to secure offers distinguished from offers. Sec. 21. Offer indefinite. Sec. 22. Offer incomplete. C. How Long Offer Continues. Sec. 23. Duration of offer. Sec. 24. Termination of offer by rejection. Sec. 25. Termination of offer by destruction of subject matter. TABLE OF CONTENTS. 15 Sec. 26. Termination by death and insanity of offerer or offeree. Sec. 27. Revocation of offer. Sec. 28. Contracts to keep offers open. D. The Acceptance. Sec. 29. What constitutes acceptance. Sec. 30. Acceptance by promise or act. Sec. 31. Communication of acceptance. (a) Communication of offer. (b) Communication to agent. (c) Communication by mail or telegraph. (d) When acceptance by mail or telegraph authorized. (e) Acceptance may be by any method if it reaches offerer in time. Sec. 32. Silence as acceptance. CHAPTER 4. OFFER AND ACCEPTANCE (2) VALIDITY OF ASSENT THEREIN. Sec. 33. Introduction. A. Extrinsic Circumstances Defeating Contractual Intent. Sec. 34. Fraud in inception or execution. Sec. 35. Mistake. (a) Mutual mistake as to existence of sub- ject matter. (b) Mutual mistake as to identity of sub- ject matter. (c) Mutual mistake as to terms employed. 16 TABLE OF CONTENTS. B. Circumstances of Undue Advantage Rendering Contract Voidable. (a) Fraud in the inducement or consideration. Sec. 36. Fraud in the inducement defined. Sec. 37. Express statements of fact as fraud. Sec. 38. Opinions and predictions not fraud. Sec. 39. Active concealment as fraud. Sec. 40. Silence as fraud. Sec. 41. Silence as fraud facts not discoverable. Sec. 42. Silence as fraud contract one uberrimae fidei. Sec. 43. Silence as fraud relationships of trust and confidence. Sec. 44. Summary of what constitutes fraud. (b) Duress. Sec. 45. Duress defined. (c) Undue influence. Sec. 46. Undue influence defined its effect. (d) Disaffirmance and ratification of contracts void- able for foregoing reasons. Sec. 47. Conditions of disaffirmance. Sec. 48. Ratification. CHAPTER 5. CONSIDERATION. A. Theory and Nature. Sec. 49. Consideration defined ; a necessary element. Sec. 50. Inadequacy of consideration. B. Examples of Consideration. Sec. 51. Consideration may consist in promise or act. Sec. 52. Past act. TABLE OF CONTENTS. 17 Sec. 53. Performance of or promise to perform obliga- tion imposed by law. Sec. 54. Promise to perform unexecuted contract. Sec. 55. Part payment of debt as consideration of re- lease of balance. (a) Part payment of liquidated debt general rule. (b) Any disadvantage to debtor in addition to part payment of debt. (c) Payment other than by money. (d) Debt unliquidated. (e) Composition with creditors. Sec. 56. Compromise of disputed claim. Sec. 57. Forbearance of suit as good consideration. Sec. 58. Consideration in subscriptions. CHAPTER 6. LEGALITY OF CONTRACTS. A. Legality of Contract an Essential Element. Sec. 59. Illegal agreements void. B. Particular Classes of Illegal Agreements. I. CONTRACTS WHOSE OBJECTS ARE IN VIOLATION OF LAW. Sec. 60. Contracts in restraint of trade. (a) Contracts in restraint of trade, when reasonable, are valid. (b) Contracts in unreasonable restraint of trade are invalid. (c) Contracts in general restraint of trade, when reasonable, are upheld by some, and denied, by courts. (d) Contracts in restraint of trade unlim- ited in time. Bays 2 1 8 TABLE OF CONTENTS. (e) Must be ancillary to contract protecting good will. (f) Invalidity does not impair rest of con- tract. Sec. 61. Contracts of monopolistic tendency. Sec. 62. Contracts limiting liability. (a) Common carriers and other public serv- ice corporations. (b) Employers and employees. (c) Other cases. Sec. 63. Usurious contracts. Sec. 64. Wager contracts. Sec. 65. Contracts tending to corrupt the public service. Sec. 66. Agreements in restraint of marriage. 2. CONTRACTS ILLEGAL BECAUSE OF MANNER OF FORMATION. Sec. 67. Sunday agreements. Sec. 68. Contracts without required license. C. Intent to Put to Illegal Use Avails of Legal Contract. Sec. 69. Knowledge by one of other's intent to commit crime. D. Judicial Remedies in Illegal Agreements. Sec. 70. No remedy by way of enforcement. Sec. 71. No remedy by way of rescission. Sec. 72. Parties not in equal guilt. Sec. 73. Defendant's contract wholly executory. Sec. 74. Where statute allows recovery. Sec. 75. Where contract partly legal, partly illegal. CHAPTER 7. FORM AND EVIDENCE. Sec. 76. General statement. TABLE OF CONTENTS. 19 A. The Formal Contract or Contract Under Seal Sec. 77. Definition of sealed instrument. Sec. 78. Effect of seal in early law. Sec. 79. Instruments requiring seal at common law. Sec. 80. Modern legislation in respect to sealed instru- ments. B. Contracts Required by Law to Be in Writing. Sec. 81. Certain kinds of contracts to be in writing. C. Contracts Not Enforcible Unless in Writing. (a) Nature and object of statute of frauds. Sec. 82. The statute of frauds. Sec. 83. Text of the statute. Sec. 84. Statute relates to enforcement, not validity of contracts. (b) The cases within the statute. Sec. 85. Promises of executors and administrators. Sec. 86. Promises to answer for the debt, default or miscarriage of another person. Sec. 87. Promises in consideration of marriage. Sec. 88. Contracts for the sale of lands or interest therein. Sec. 89. Contracts that cannot be performed within a year. Sec. 90. Contracts for the sale of goods, wares and merchandise. (c) What amounts to compliance with statute. Sec. 91. The memorandum and the signature. Sec. 92. Compliance by delivery and acceptance in sales. Sec. 93. Compliance by payment or part payment in sales. 2o TABLE OF CONTENTS. Sec. 94. Contracts of "work and labor" not within the statute. Sec. 95. The statute of frauds and the uniform sales act. D. The Parol Evidence Rule. Sec. 96. The parol evidence rule defined. Sfec. 97. Parol evidence rule permits contract partly in writing, partly oral. Sec. 98. Parol evidence rule permits proof of customs. Sec. 99. Evidence not forbidden by parol evidence rule. E. Oral and Implied Contracts. Sec. 100. Oral contracts. Sec. 101. Contracts implied in fact. F. Contracts Implied in Law (Quasi Contracts). Sec. 102. Definition of quasi contract. PART II. THE INTERPRETATION OF CONTRACTS. CHAPTER 8. GENERAL RULES OF INTERPRETATION. Sec. 103. The governing principle in construction of contracts. Sec. 104. General rules of construction. CHAPTER 9. CONSTRUCTION IN RESPECT TO TIME OF PERFORMANCE. Sec. 105. In a court of law time is of the essence. Sec. 106. Time of performance in a court of equity. TABLE OF CONTENTS. 21 CHAPTER 10. INTERPRETATION OF PROVISIONS AS TO PENALTIES AND LIQUIDATED DAMAGES. Sec. 107. In explanation. Sec. 108. Damages difficult to ascertain and amount reasonable. Sec. 109. Larger sum than debt payable in event of de- fault. Sec. no. Certain sum payable for breach of any of several covenants. Sec. in. Forfeiture of amounts paid. PART III. OPERATION OF CONTRACTS. CHAPTER ii. OPERATON AS TO PARTIES. Sec. 112. General rule. CHAPTER 12. BENEFICIARIES TO CONTRACTS. Sec. 113. General statement. Sec. 114. Incidental beneficiary cannot sue. Sec. 115. Beneficiary may sue when. CHAPTER 13. ASSIGNMENT OF CONTRACTS. Sec. 116. General statement. Sec. 117. Power to assign mere contractual rights. 22 TABLE OF CONTENTS. Sec. 1 1 8. Power to assign contractual obligations. Sec. 119. Power to assign contractual rights accom- panied with personal confidence or liability. Sec. 1 20. Contractual rights to be acquired in future not assignable. Sec. 121. Effect of assignment as to assignor. Sec. 122. Assignee as successor to title of assignor. Sec. 123. Effect of assignment as to other party. Sec. 124. What constitutes assignment. Sec. 125. Assignment by operation of law. CHAPTER 14. INTERFERENCE WITH CONTRACTUAL RELATIONSHIPS BY THIRD PERSONS. Sec. 126. Duty not to interfere with contract rights. Sec. 127. Contract for indefinite period. Sec. 128. Prevention of future contracts. PART IV. DISCHARGE OF CONTRACTS. CHAPTER 15. DISCHARGE BY PERFORMANCE, TENDER AND BREACH. Sec. 129. Meaning of phrase discharge of contracts. Sec. 130. Of the performance which will discharge contracts. Sec. 131. Contracts to be performed to satisfaction. Sec. 132. Of performance which will not discharge and breach. Sec. 133. Effect of acceptance of insufficient perform- ance. TABLE OF CONTENTS. 23 Sec. 134. Performance or tender as condition prece- dent. Sec. 135. Breach of one part of several contract. Sec. 136. To what contract performance relates. Sec. 137. Anticipatory breach. CHAPTER 16. DISCHARGE OF CONTRACTS BY OTHER MEANS THAN PERFORMANCE OF BREACH. Sec. 138. Discharge by impossibility of performance. Sec. 139. Discharge by alteration of written instrument. Sec. 140. Discharge by novation. Sec. 141. Discharge by merger. Sec. 142. Discharge by agreement. Sec. 143. Discharge in bankruptcy. Sec. 144. Discharge by statute of limitations. CHAPTER 17. REMEDIES OF THE PARTIES. A. Actions for Damages. Sec. 145. In general. Sec. 146. Kinds of damages in contract cases. Sec. 147. Rule for computing damages in contract cases. B. Bill for Specific Performance. Sec. 148. General rule. Sec. 149. Contracts for sale of real estate. Sec. 150. Contracts for sale of personal property. Sec. 151. Contracts for personal services. C. Bill for Injunction. Sec. 152. When court will enjoin breach of contract. GENERAL SURVEY. GENERAL SURVEY. CHAPTER i. LAW DEFINED. Sec. 1. WHAT IS LAW. To obtain an accurate estimate of the idea contained in the word law (i. e., political law) it must first be divided into that law which governs sovereign nations in their relationships with each other and that law by which each sovereignty governs individuals within its terri- tory. Between the two is a basic distinction so basic in fact that some writers have hesitated to call the first division law at all, although it is generally accepted as properly so described. This distinction is in the fact that sovereign bodies have as to each other by their very nature no legislative, judicial or executive superior to declare, interpret or enforce rules to govern them, but each of them has as to its own constituent inhabitants superiority of power by which it can prescribe and enforce its rules enacted to preserve its integrity and maintain its peace. If each of these divisions is properly called political law what is the common element or characteristic? It consists in this that both branches are composed of rules of political action emanating from sovereignty. Even in the case of international law, such rules as have the moral sanction of common international opinion merit the mandatory word "law." Let us note more particularly each division and first, international law. 27 28 THE LAW OF CONTRACTS. Sec. 2. INTERNATIONAL LAW. International law may be defined as the body of rules and customs which have become recognized by the sovereignties of the world to de- termine their mutual rights and to govern their intercourse with each other. We have noticed that sovereignties, being bodies with- out political superior, cannot, therefore, be legislated upon. They may be parties to compacts, but by the very nature of things there is no superior authentic tribunal out of which law may come to govern them. Yet sover- eignties must trade together, they must use the common highways of the world, they war upon each other. In the process of time common customs become established, treaties are entered into, recognition of principles deter- mined. The sum total is international law. And because it has behind it the recognition of the consenting nations, it has a moral force to sanction it, and has the true char- acter of law. "The agreement or consent which is essential to the validity of a rule of international law is said to be express or positive when it is embodied in treaties or formal dec- larations of public policy, or in statutes which are enacted in support or recognition of the accepted usages of na- tions ; it is said to be tacit when it takes the form or con- formity to the approved practices of the state in their international relaions." J Sec. 3. NATIONAL OR MUNICIPAL LAW. Municipal law is political law in its fullest sense. It is the law imposed by the sovereignty (or its dependencies or subdivisions) upon its subjects. It is prescribed by a superior and must be obeyed. i. Davis, The Elements of International Law, p. 2. AMERICAN COMMERCIAL LAW. 29 Sec. 4. BRANCHES OF MUNICIPAL LAW. The objects sought to be attained by municipal law by which we may divide it into branches for the purpose of comprehending its character, are as follows : A. Public Law: or that Law with Whose Objects the State at Large Is Primarily Concerned. 1. Constitutional law ; 2. Administrative law; 3. Criminal law and procedure. B. Private Law: or the Law Provided for the Benefit of the Individual with Whose Enforcement the State Is Not Concerned Except for the Individual's Benefit and at His Instance. 1. The law of the obligation of individual to in- dividual. a. The law of contract; b. The law of quasi contract; c. The law of torts. 2. The law of property. a. The law of tenure; b. The law of transfer inter vivos; c. The law of descent and wills. 3. The law of status. 4. The law of delegation of authority. 5. The law of business associations. a. The law of partnerships; b. The law of corporations. 6. The law of judicial procedure in civil cases. a. The law of pleading; b. The law of evidence ; c. The law of judicial procedure generally. 30 THE LAW OF CONTRACTS. The above division is not scientifically accurate or com- plete. It cannot be. Grouping may be made from other standpoints. There might readily be a difference of opin- ion as to some of the divisions and subdivisions. One division cannot be made exclusive of the others, for all of the branches of the law interlace with and cross each other. Further divisions might be added. But the above division is fairly in accord with accepted terminology and subdivision. In the following chapter we will discuss the various branches of the law. CHAPTER 2. THE BRANCHES OF MUNICIPAL LAW. Sec, 5. CONSTITUTIONAL LAW. The law by which a government is organized and by which basic principles of its existence are formulated and enforced is known as constitu- tional law. The constitutional law of any country may be in a highly advanced or a very crude condition. It may consist in a document drawn up to embrace all of the constitu- tional law (as in our Federal constitution), or it may consist merely in detached charters or in practices and principles recognized as fundamental in the life of the nation. In the former case we say that the constitution is written ; in the latter unwritten. "In a much qualified and very imperfect sense every state may be said to possess a constitution, that is to say, some leading principle has prevailed in the administration of its government until it has become an understood part of its system, to which obedience is expected and habit- ually yielded ; like the hereditary principle in most mon- archies, and the custom of choosing the chieftain by the body of the people which prevails among some savage tribes. But the term constitutional government is applied only to those whose fundamental rules or maxims not only locate the sovereign power in individuals or bodies desig- nated or chosen in some prescribed manner, but also define the limits of its exercise so as to protect individual rights and shield them against the assumption of arbitrary power. The number of these is not great, and the pro- 31 32 THE LAW OF CONTRACTS. tection they afford to individual rights is far from being uniform." 2 It will be noticed that there are properly two ideas em- braced in the words "constitutional law" the idea of organizing the government upon a working basis by es- tablishing its departments and offices, and the idea of limiting the power of those who legislate and rule by es- tablishing certain principles for the protection of the individual which may not be departed from. Thus in our Federal Constitution we have these two ideas highly ex- emplified the organization of our government and the limitation of its power over individual rights. Where the rights of the individual are assured in this manner, the government is a truly "constitutional government." A law is said to be "unconstitutional" when it is op- posed to the constitutional law. The effect of an attempt to enact such a law varies according to whether the con- stitution itself declares all such laws void, or whether the legislating body is permitted to keep unrestricted power to legislate as it will. In the former, as in the United States, the law is void, is in fact, no law at all, and the word "unconstitutional law" is a self-contradic- tion, although custom has sanctioned its usage. In the latter, as in England, the phrase "unconstitutional law" is used to indicate merely that the law so enacted is contrary to the fundamental principles of the government as com- monly understood, and therefore should by subsequent legislation be repealed. Let us now notice more particularly our Federal and the state constitutions. Sec. 6. THE FEDERAL CONSTITUTION. The Fed- eral constitution is a grant of power by the states to the 2. Cooley, Constitutional Limitations, 7th Ed., p. 4. AMERICAN COMMERCIAL LAW. 33 Federal Government by which sovereignty is bestowed and prescribed powers conferred. The original colonies, after experimenting unsuccess- fully without centralized power in the "league of friend- ship" known as the Articles of Confederation, 3 were driven by the logic of events to the adoption of the present Federal Constitution. The United States Constitution was adopted in convention on September 17, 1787, to go into effect by the ratification of nine states. It was ratified by the necessary number on June 21, 1788, and went into effect March 4, 1789. The first ten amendments were ratified by the various dates from November 20, 1789, to December 15, 1791, and are restrictions on Congress in the nature of a Fed- eral bill of rights. The nth amendment was declared ratified January 8, 1798, and relates to the judicial power. The 1 2th amendment was proclaimed as ratified Sep- tember 25, 1804, and relates to the mode of election of the President and the Vice President. The 1 3th amendment resulted from the civil war and abolishes slavery and was declared ratified December 18, 1865. The I4th amendment was declared ratified July 21, 1868. It relates to citizenship. The 1 5th amendment was declared ratified March 30, 1870. The 1 6th amendment was effective February 23, 1913, and gives Congress the power to tax incomes. The 1 7th amendment was effective May 31, 1913, and provides for the election of senators by direct vote. The i8th amendment was in force January 17, 1920, 3. Adopted July 9, 1778. Bays 3 34 THE LAW OF CONTRACTS. and establishes national prohibition of the making or sale of intoxicating liquors. The iQth amendment was proclaimed adopted in August, 1920, and establishes woman suffrage. The federal constitution is in its nature a grant of power. Each state, being in effect sovereign, granted to the federal government the powers therein stipulated, all power not therein granted being retained. Accordingly we speak of the federal government as a grant of power, and from this fact arises the governing principle of con- struction that the federal congress has no power of legis- lation except such as has been granted in the federal constitution, either expressly or by reasonable implica- tion. The federal constitution ( i ) sets forth the form of the federal government, (2) stipulates the powers of con- gress, (3) contains a bill of rights. The federal government has a threefold division created by the constitution the executive, the legislative and the judicial. These departments are co-ordinate in rank. The question early arose whether the judiciary had the power to declare unconstitutional a law enacted by congress. But Chief Justice Marshall in a strong opinion, 4 basing his reasoning upon the provision of the constitu- tion that it shall be the supreme law of the land, decided that it is within the power and that it is the duty of the court to declare an enactment null and void if it shall be found against the constitution or without the power of congress to enact. This right is now taken as a matter of course. What are the powers delegated to the federal govern- ment? First, sovereignty has been granted. As far as other 4. Marbury v. Madison, I Cranch. (U. S.) 137. AMERICAN COMMERCIAL LAW. 35 sovereignties are concerned, the federal government is the repository of all power and the states are unknown except as divisions of the United States. Second, we may say that the states have retained the general power to deal with questions of local commerce, with questions of individual rights and status, with ques- tions of property. Third, to the federal government has been given juris- diction on matters deemed to be of more than local im- portance, particularly interstate commerce, coinage of money, patents, post office, bankruptcies, and taxation for federal revenues. The enumeration of the particular powers of the constitution is in Section Eight of the con- stitution. Another question which agitated men's minds in our early history was whether the constitution should have a strict or a liberal construction, and Chief Justice Marshall in McCulloch v. Maryland 5 resolved this doubt in favor of a liberal construction which may be formulated in words to this effect, that congress has not only power to enact such laws as are specifically provided for in the con- stitution, but all laws that are necessary or reasonable for carrying into effect the express constitutional powers. The manner of the amendment of the constitution is provided therein. Sec. 7. THE STATE CONSTITUTIONS. The state con- stitutions are those by which the people of the state con- stitute their local form of government and limit the powers of their own representatives. We have seen that the states reserved all power not granted away by the federal constitution. They adopt 5. 4 Wheat. (U. S.) 316. 36 THE LAW OF CONTRACTS. their own written constitutions for two purposes: (i) to prescribe the form of the state government, and (2) to limit and determine the power of their representatives. A state constitution is a limitation of power. The federal constitution is a grant of power. If the power of con- gress to pass a law is in question, we must inquire whether the federal constitution or its amendments con- fer that power by express grant or reasonable implication ; if the power of the state assembly to pass a law is in ques- tion (assuming it not to be a power taken from the state by the federal constitution) we inquire if the state consti- tution has limited the power. If it hasn't then the state assembly has the power. A state constitution may be amended at the pleasure of the state. Sec. 8. ADMINISTRATIVE LAW. The administrative law is that branch of the law wherein is included all laws by which the government functions and administers its affairs, as the laws by which territorial divisions are made, revenue law, etc. We may gather into one large body laws of a public nature by which the government administers its affairs, and call the group administrative law. Laws creating territorial divisions, revenue laws, the laws creating and governing highways, public improvements, etc., are all placed in this large and important branch of law. Sec. 9. THE LAW OF CRIMES. A crime may be defined as any act or omission to act, declared by public law to be punishable by the state in a proceeding in its own name. ' The state must preserve its own integrity as well against inward demoralization as outward attack. It AMERICAN COMMERCIAL LAW. 37 exists by virtue of the obedience of its citizens or other subjects to the laws by which it is held together as a political body. It prevents this inward demoralization (so far as overt act is concerned) by its criminal law, or those laws whose infraction by a subject will be deemed an injury to the state itself. Theoretically every disregard by one individual of the rights of others, every invasion by one subject of the sphere allotted by general law to another, is an attack upon the communal system, the tendency of which, how- ever slight, is toward the demoralization of the scheme of mutual protection for which the state exists. But in practice it cannot always be so regarded on account of its remote tendency to affect the state in its public capacity. And although reparation may be sought by the individual injured by way of damages or other form of restoration in the courts furnished by the state, the state itself takes no notice of the act other than by thus furnishing the means of redress, deeming that sufficient remedy, unless the act is also of such a nature that it has as a practical tendency a demoralizing effect upon public peace and order. To effectuate its declaratipn'that the infraction will be considered injurious to the state in its public capac- ity, it affixes a punishment, ordinarily by way of a mone- tary charge called a "fine" or by imprisonment or both. A crime, then, may be defined as any act or omission to act, declared by public law to be punishable by the state in a proceeding in its own name. The act thus constituting a crime may or may not be an act injuring an individual. The test is whether according to the public policy of the state it is an act injurious to the state itself. If it also injures an individual he has also his redress. Thus, having in one's possession appliances for counterfeiting money may be a crime, but no individual 38 THE LAW OF CONTRACTS. is so far by that act injured. So, killing another unjusti- fiably and inexcusably is a crime, and here we have both the public and private wrong. But, as we shall see, there cannot be a private wrong unless private injury is present. Crimes are usually divided into three classes according to the enormity of their turpitude ; treasons, felonies and misdemeanors. Treason is declared by our federal con- stitution, to "consist only in levying war against them (The United States) or in adhering to their enemies giv- ing them aid and comfort" (Article III, Sec. 3). A felony at common law was a crime which worked a for- feiture of the offender's lands or goods. In this country there is no such thing as forfeiture of property as a punishment for crime, and felonies are those crimes pun- ishable by death or imprisonment in a state prison. Mis- demeanors are all crimes below the grade of felony. The distinction is sometimes important because of the fact that certain civil disabilities (as the right to vote, or to hold public office) are attached in some states to convic- tion of felony. There are some acts which are adjudged a public evil by the sense of all civilized communities. These are the acts (usually) which the common law declared criminal. They are said to be acts "mala in se." But an act may be evil only because legislation declares it so. Such acts are called "mala prohibita." Thus it may be a crime in one jurisdiction to drive an automobile in a public street at a speed greater than twelve miles an hour, while in another jurisdiction such act may not be declared un- lawful. Sec. 10. THE LAW OF TORTS. The law of torts is the law which determines the obligations of each person toward AMERICAN COMMERCIAL LAW. 39 his neighbor as imposed by the general law of the land and by the breach of which the neighbor sustains damage. In the arrangement of the social order each individual must be assigned his own sphere, limited by the very hypothesis by the spheres of the other members of the community. To pass out of this sphere into the sphere of another is a trespass that may, as we have seen, be so serious in its disintegrating tendencies as to constitute an offense against the collective whole, but whether that be so, it is in derogation of the rights vouchsafed by the general law to that other. As such transgressor takes so must he be made to return as far as may be, an equiva- lent. The law defining the sphere is known as the law of torts. The word tort signifies "wrong." The correlative right has no one accepted word to describe it. Whether an act is a tort depends obviously upon the question whether the actor is regarded by the general law as under a legal obligation not to do that particular act, or, in other words, whether the doing of that act is regarded as a legal harm. By way of illustration, the general law might or might not regard it as a legal harm for me to refuse without cause, to recommend to another the services of my former employee. The law might or might not regard it as a legal harm for me to cause mental fright (without physical injury) to another. We must determine first what sort of acts are regarded by law as legal harms. And in establishing whether or not an act is a legal harm, the law in its development looks to vari- ous circumstances ; whether the alleged harm is of a nature that its existence can in any creditable way be tested; whether the freedom of individual action is not thereby too much confined ; whether a recognition of the 4O THE LAW OF CONTRACTS. act as a harm would not lead to difficulty in the enforce- ment of the remedy. We find that the most common classes of wrongs now settled as such in our law are as follows : physical interference by one with the possession by another of real property or personal property (tres- pass quare clausum fregit and trespass de bonis asporta- tis) ; physical assault by one upon the person of another (trespass ad personam or assault and battery) ; disturbing one's enjoyment of his property by maintaining noxious smells, noises and the like, adjacent to the property (nui- sance) ; defaming one's reputation (slander and libel) ; failing to observe due care for the safety of another's per- son or property (negligence) ; deceiving or defrauding one and thereby causing him loss (deceit and fraud) ; conspiring with others to injure one (conspiracy) ; and others. Having decided that the act complained of is a wrong act within the meaning of the law, we next determine the responsibility for the act, that is, we discover the connec- tion between the wrong and the wrong doer. The actor may have a justification or excuse for his act. Admitting that the act is one which constitutes an invasion of the civil sphere of another, and that he is the cause thereof, yet he may claim special circumstances that either justify him or excuse him. Plaintiff may have been him- self the aggressor, or may have consented, or may have contributed by his own fault to the harm done, or may have been a law breaker. These are all excuses based on the plaintiff's conduct. Other things may justify. The needs of public justice (as where a judge on the bench utters calumny in the course of a trial) or of public safety (as where a fireman pulls down a building to stop the progress of a fire) and other needs resting on the AMERICAN COMMERCIAL LAW. 41 good of society as a whole, may fully justify the act and bring exemption from damages. Sec. 11. THE LAW OF JUDICIAL PROCEDURE. The law of judicial procedure is the law that governs the presenta- tion and trial of cases in the courts. A very important branch of the law is that law by which the prosecution and defense of cases in the courts is governed. This law, it will be noticed at once, differs from all of the other branches in a very basic way. It confers no rights, but only determines how the rights con- ferred by the other branches shall be asserted. It is sometimes called "adjective law," and the other branches of the law "substantive law." The adjective law includes the law of pleading by which the written statement of the case and of the defense is governed. This law by the early common law courts was very technical and exact, so that frequently great injus- tice was done to litigants by the enforcement of the rules of pleading. The rules now are vastly more liberal, and pleadings are subject to ready amendment. It must al- ways remain true, however, that in any system of judicial procedure there must be rules to govern the statement of the respective sides, and suitors must be required to con- form to these rules. The decision of the case upon its merits should however, be the governing consideration, and all rules of pleading made subservient thereto. The adjective law also includes all of the law of judicial procedure and practice governing the progress of the case in its trial, the rendition of the judgment, the right and manner of appeal to higher courts, and all of the steps that have to do with judicial determination of a cause. 42 THE LAW OF CONTRACTS. Sec. 12'. THE OTHER BRANCHES OF THE MUNICI- PAL LAW. We have considered above the chief branches of the law which we will not consider elsewhere at length. The other branches are taken up at length in this volume and companion volumes. CHAPTER 3. FORM OF LAW. Sec. 13. PURPOSE OF THIS CHAPTER. In this chapter we propose to inquire into the form which the law takes in its expression. Where it is stated, so that we may read it ? Who has authority to state it ? Sec. 14. WRITTEN LAW. Written law is the law pre- scribed by a body having law making power, and is so called because the permanent memorial of it is in writing. Law, as we have noticed, is essential to government. Necessarily, then, there must be a law maker or a law making body. In England it is the Parliament, in the United States, the Congress, and in the various states, the State assemblies. As law when made by a law making body is in the form of a permanent written record, it has come to be called written law. Obviously, this term would include all state papers that have the force of law, treaties and constitutions as well as statutes and city ordi- nances. Let us briefly notice each of these. Constitutions we have already considered. Treaties are compacts between nations. In the United States they are in the nature of legislative acts and are expressly declared by the constitution to be with the con- stitution the "supreme law of the land." Accordingly, the state legislatures as well as Congress must observe them. 43 44 THE LAW OF CONTRACTS. "Statutes" is a word sometimes used in a larger sense to include state papers of any sort, but as commonly employed and understood signifies the enactments of the law making body in the pursuance of its normal powers. In our discussion of constitutional law we have noted the power of the federal congress and the power of the state assemblies to enact statutes and that any attempted enactment that is contrary to or inhibited by the constitution is void and of no effect and the court will so declare it. Sec. 15. CODES. A code is a statutory enactment which assumes to put the law of any particular subject in a complete written form, or which assumes to embody the entire law of the jurisdiction in orderly shape. A form of statutory law is that of the code. A code is a textual embodiment of the law on a given subject or of all the law. The Code Napoleon is the first great ex- ample in history. In the United States there has been but little codification until the 3d quarter of the iSoo's. Georgia, Iowa, Dakota and California were the first states to codify their entire law; about a dozen states now have such codes. The statutory law of the United States and of the several states has been enacted from time to time as need has required. But attempts have been made to codify on various subjects. While there is much to be said in favor of codification, especially of the law of certain subjects, there are dangers that surround it. Unskilful codification is likely to twist and warp the law from the symmetrical growth which it would have with time by the enactment of statutes from time to time and the development of the common law. AMERICAN COMMERCIAL LAW. 45 For this reason codification more befits subjects of the law that are already fairly well developed. Sec. 16. UNIFORM LAWS. A number of laws, chiefly on essentially commercial subjects, have been drafted by a commission, known as the Commissioners on Uniformity of Legislation, and adopted more or less widely by the various states for the purpose of establishing a uniformity on the subjects covered throughout the several states. As the federal constitution takes over into national do- main only the powers specifically enumerated, and leaves to the state the great bulk and reserve of power over com- mercial and other questions we have the possibility of the law developing differently in different states. To overcome this tendency, the different states have within times fairly recent appointed commissioners upon uni- formity of legislation who have drafted bills upon various subjects and proposed them for enactment to the several states of the union. Some of these acts have been quite widely adopted, while others have been slow of ac- ceptance. The principal acts are as follows: (1) Negotiable Instruments Act. 9 (2) Sales Act.' 1 (3) Bills of Lading Act. 1 (4) Warehouse Receipt Act. 7 (5) Partnership Act. 6 (6) Limited Partnership Act. 8 (7) Stock Transfer Act? Sec. 17. UNWRITTEN LAW. The unwritten or com- mon law is the law declared by the judges in the decision of 6. See Volume on Negotiable Instruments in this series. 7. See Volume on Bailments, Carriers and Sales in this series. 8. See Volume on Partnerships in this series. Q. See Volume on Corporations in this series. 46 THE LAW OF CONTRACTS. litigated cases which there is no written law to cover and is derived from the common ideas of right and expediency. It is a little difficult to define the common law without giving the impression that the judges are law makers in all cases in which the legislature has not spoken. Such an impression would be very far from the truth. The early English writers defined the common law as that law which had been in existence for so long that the memory of man runneth not to the contrary. They thought of it as law the origin of which had been lost in the mists of antiquity. One writer says that it originated in statutes worn out by time. This is pure fiction and is an example of the fictions in which the earlier writers delighted to deal in the explanation of legal facts. Common law is really judge made law, but only in the sense that judges must declare and apply the fundamental ideas of justice developed by the people at large. My- riads of cases must come before them for decision that involve questions of common right and wrong and ques- tions of customs and even of expediency upon which there is no statutory law which they must decide. In so decid- ing them they make law, and other judges in future cases will strive to follow the precedent unless they believe it manifestly wrong, in which case it will be modified or overridden. The great foundation of our law is the common law. Statutes add to it or modify it or alter it, or re-state it. Let us see if we cannot get a more adequate idea of the nature of the common law by an illustration. Sup- pose one man slays another without cause. No statute has been enacted defining this to be a crime. The slayer is brought before the bar of justice. The court declares him to be guilty of a crime by the common law. Note AMERICAN COMMERCIAL LAW. 47 that in this instance, the judge does not proclaim a general rule to govern future cases, as statutes do, but merely decides the case before him. Or, again, we shall notice in the law of contracts, the contractual rights and liabil- ities of minors. That whole subject has developed as a part of the common law as innumerable cases involving particular facts have arisen for decision. The common law is found in the reports of cases to be considered in a following section. Sec. 18. JUDICIAL REPORTS. The decisions of the courts, with the opinions sustaining them, are preserved in books called judicial reports. The courts in deciding the cases coming before them, whether involving statutory law or common law or both, generally in the higher courts accompany them with opin- ions setting forth the reasons for their decision. The opinions are published in books termed judicial reports and they constitute one of the most important sources from which the lawyer obtains his estimate of the law. In the early days reporting of the cases was done as private enterprise and most of these earlier reports go by the name of the reporter. Thus Marbury v. Madison, I Cranch, 137, means the United States Supreme Court case of Marbury against Madison, reported in Cranch's reports, Volume I, at page 137. Reports now go by the name of the jurisdiction, as McDonald v. City, 258 111. 52, and the earlier reports have been numbered in the series so that the report of I Cranch could now also be identi- fied as 5 United States. The judicial reports are as important in determining the statutory law as the common law. They are, generally speaking, the only repository of the common law. Text 48 THE LAW OF CONTRACTS. books which are written upon the common law derive their information from the reports. But while the statutes are preserved in the legislative archives and separately published, and we need not go to the reports to find them out, yet the judges must construe and apply the statutes as they decide cases covered by them; and it is as im- portant to our knowledge of the statutory law to find how it has been construed and applied to different sets of facts as it is to know the text of the statutes. For stat- utes are necessarily very general in their terms, and fre- quently need construction, and certainly need a great amount of consideration in applying them to the thousand different sorts of cases that arise. For instance, if a stat- ute says that a workman injured in the course of his em- ployment shall have compensation, we have a multitude of questions as to what constitutes the course of employ- ment, upon which the statute cannot possibly be explicit not only because of the great amount of detail that would be required but because also of the impossibility of fore- seeing all of the divers facts that will arise. Is an acci- dent in the course of going to or from work in the course of the employment? If it occurs during the lunch hour upon the premises? Suppose the workman is doing an errand for the employer upon his way home from work ; suppose that being sent upon an errand during working hours he deviates for a purpose of his own and is in- jured. We can readily see that if we had a case involving facts of this sort we would not only have to consult the statute on that subject, but also the reports to find the construction and application of the statute to a case as near our own as possible. So that we may readily see how important the judicial reports are, first, as the sole repository of the common law, second, as the exposition of the statutory law. AMERICAN COMMERCIAL LAW. 49 Sec. 19. DOCTRINE OF STARE DECISIS. In. the English and American law it is the policy to stand by de- cided cases. From what has been said in the former section it is apparent that we depend upon past decisions as guides to what the court will do in future decisions upon similar facts. From what the court has said we determine what the law is, that is, what the court will continue to say. The court will stand by precedents and the precedents form the law. This doctrine is expressed in the words "stare decisis." Precedents will be overruled by the courts where mani- festly unjust or erroneous or out of harmony with the decisions. And the law may be so gradually modified that a precedent of years ago may become overruled al- most without any appearance thereof. Legislation, may of course at any time, override prior decisions. Decisions of other jurisdictions have only a persuasive force ; they are not binding. Sec. 20. SECONDARY SOURCES OF THE LAW. Text books, encyclopedias, digests, derive their information from the statutes and reports and constitute very great helps in finding the law. Finding the law is greatly facilitated today by the fact that there are cyclopedias, text books, digests and other law finders by which the law in the reports is arranged and pointed out. Were it not for the fact that this work is done for the lawyer, he would find himself helpless in the enormous mass of material he would have to digest for himself. To thoroughly investigate the law on any point he of course goes to the statutes and reports them- selves, but he is able to find his cases expeditiously through these secondary authorities. Bays 4 CHAPTER 4. THE JUDICIAL SYSTEM. Sec. 21. FUNCTION OF THE COURTS. The courts are the constituted tribunals for the trial of cases according to the law as interpreted by them. In our scheme of government we have the legislature to make the law, the judiciary to interpret and apply it to cases, and the executive to execute it. We have al- ready seen, that the judges in their declaration of the common law, practically assume the function of law makers upon matters of fundamental principles where the legislature has not spoken, although theoretically they have no law making power, and practically also they have none except in the sense indicated that is to apply the customs that have become established and the principles of right which are generally accepted. The interpretation of statutes and their application to varying sets of fact constitutes an essential adjunct to the statutory law and must always be considered in the understanding of the law. We have also seen that it is the function of courts to determine whether statutes are constitutional or not. The courts sit for the trial of cases and it is only in the consideration of actual events that call for the application of the law that they will render any opinion upon it. Sec. 22. COURTS OF LAW AND COURTS OF EQUITY. In English and American jurisprudence rights, titles and remedies are of two classes: those developed in the 50 AMERICAN COMMERCIAL LAW. 51 so-called courts of law; and those which are of the kind de- veloped in the courts of equity. The courts of law in England, established by the King to constitute the judicial system of the realm, except as he might himself dispense justice as a part of his preroga- tive, developed a jurisdiction based upon precedent, which was well enough and the theory of our own judicial law today, except that they permitted themselves to be limited, fettered and hindered by such precedents in the law of pleading they came to think of a right and a remedy in terms of a "form of action." The word action means suit, and a form of action is the form of pleading in which one must bring his suit. These forms became es- tablished by precedents and then were limited by those precedents. A suitor had no right of action unless he could find a form of action to suit his case ; if he could find no such form, he had to twist, warp or limit his right until it did conform; and if he could not even do this he was without remedy. Forms of action as they came to be developed were chiefly of three sorts. 1 i ) Real actions, for the recovery of one's real estate ; (2) Personal actions ex contracts; (a) Covenant, or suit for damages on a sealed promise ; (b) Debt, or suit for money debt; (3) Personal actions ex delicto; (a) Trespass; (b) Detinue, or suit for damages for wrong- ful detention of personal property. Each of these forms of action had definite rules to govern it, violation of which was fatal, as though plead- ing were a game for the sharpest to win at. Not only were the forms of action thus limited ; but it will be noticed how narrow the court's power by way of 52 THE LAW OF CONTRACTS. remedy. If one's real property were withheld from him by one who had no right thereto, he could obtain a judg- ment for its recovery; if one's personal property were wrongfully detained he could recover it or its value in an action of detinue ; if the limited kinds of contracts recog- nized by the forms of action were broken, or if the limited number of torts so recognized were committed he could have damages. Damages, recovery of one's property these were the only remedies recognized as within the court's power to give. In the time of Edward I, to relieve this situation, Par- liament enacted the Statute of Westminster which author- ized and directed the issuance of new writs, and by virtue of this statute common law pleading took a long step forward and became far more elastic and permitted the development of the common law into the admirable struc- ture that it came to be. Forms of action known as Actions on the Case were devised and cases founded on negli- gence, which today forms so large a body of law, could be brought ; also actions for the breach of executory un- sealed contracts in which damages are unliquidated until assessed by a jury were recognized, and thus came into being our simple bilateral contract as we have it today. But still the courts in spite of this statute, enforced with great rigidity the rules of pleading, and forbade the multiplication of forms of actions except where similar to those already existing, and limited their remedies as theretofore. But in the meantime English law was finding an outlet otherwise. The King still had his jurisdiction of litiga- tion if he chose to exercise it. He was the fountain of justice. Litigants who could not obtain redress in the established courts of law petitioned it of the King, recit- ing as the basis of their right, that they had no adequate remedy "by the hard and fast rules of the common law." AMERICAN COMMERCIAL LAW. 53 Such petitions came to be referred to the Chancellor "the keeper of the King's Conscience," to whom in course of time the petitions were made directly and thus came to be formed the Court of Chancery. Now the Court of Chancery being a court of conscience established its jurisdiction on the theory of equity, and so also came to be known as the Court of Equity. It put in force many equitable maxims, as "He who wants equity must do equity"; "he who comes into equity must come with clean hands"; "equity aids the vigilant and not those who slumber on their rights"; "equity will not suffer a wrong without a remedy"; "equity abhors for- feitures"; and a number of others. Wherein did the court of equity give a more adequate remedy than the court of law? In three broad general ways: It recognized rights which the law courts knew not of, rights based on mistake, accident, fraud, and the like ; it recognized and established titles the law court did not know, title by assignment, trusts, etc.; it enforced remedies of a great range injunctions, specific per- formances, accountings, cancellations, partitions, removal of clouds on titles, discovery of evidence, administration, receiverships, and so on. One can readily see how in the matter of remedy it brought about an administration of justice far superior to that exercised by the courts of law. This jurisdiction was based upon the inadequacy of the legal remedy. In other words if a suitor made a case which showed he had an adequate remedy at law, the chancellor refused to touch it. When is a remedy ade- quate at law ? The remedy of the law courts is considered adequate when one seeks the recovery of real estate wrongfully withheld from him. The remedy of the law courts is adequate when one seeks the recovery of, or value of, personal property be- 54 THE LAW OF CONTRACTS. longing to him and wrongfully taken and withheld frcm him. The remedy of the law courts is adequate where one bases his action upon the breach of a contract (with some exceptions) ; damages are an adequate remedy. The remedy of the law courts is adequate where one bases his action upon injury sustained by him in the com- mission of a past tort ; damages will compensate him. In all of these cases the court of equity will refuse to listen. The court of equity as it developed was looked upon with disfavor by the common law courts, who feared its inroads ; but gradually it became recognized that the mis- sion of the court of chancery, being based on the inade- quacy of the legal remedy was not to replace, but to sup- plement the common law jurisdiction. And so came harmony and co-operation. Today we have in some states an attempted abolition between courts of law and courts of equity. In other courts the distinction is still preserved, although the same court exercises the law jurisdiction and the equi- table jurisdiction, having a law side and an equity side. A judge may hear law cases one day and chancery cases, the next. In the Federal Courts the distinction is clearly maintained between law cases and equity cases. Sec. 23. COURTS OF ORIGINAL JURISDICTION AND OF REVIEW. Our courts may be divided into those courts which take original jurisdiction for the trial of cases and those courts to which a defeated party in the original court may take the cause for purposes of review. The re- viewing court does not retry the cause, but merely reviews the record. Courts in which cases are begun and in which they are tried are known as courts of original jurisdiction. After AMERICAN COMMERCIAL LAW. 55 the trial has been had and the judgment rendered, the party who has been defeated may feel that the law has been misinterpreted or misapplied and in that case he may take the cause to a higher court by way of appeal or sim- ilar procedure. The higher court has been constituted as a court of review, and serves as a check upon the lower court, for it is not likely that both courts will make the same error. This higher court does not retry the cause ; it hears no evidence; it merely passes upon the record that is brought before it, to consider whether in the deci- sion of the court below there was error which wrought an injustice or that may have done so. If convinced of such error, it will reverse the judgment below, and if justice requires will send the case back for a new trial. It is in these courts of review that the opinions are rend- ered that are published in the judicial reports. It is true that we have some sets of reports of opinions rendered in the lower courts, but this is not now usual or practicable. It is of course only a small percentage of litigated cases that come before courts of review. A defeated party only increases his expenses and consumes his time by an appeal unless there is hope of reversal. And the court above will not interfere with the function of the court below by disturbing findings of pure fact unless clearly against the weight of the evidence. In other words, sup- pose, plaintiff testifies one way and defendant to the con- trary, and the judge or jury below (according to whether there is a jury trial or not) believes the plaintiff, and judgment is accordingly so rendered. The court above would not disturb this finding of fact even if had such higher court been sitting as the trial court, it would have believed the defendant, but will only consider whether improper evidence was admitted, proper evidence ex- cluded, erroneous instructions given to the jury, or any 56 THE LAW OF CONTRACTS. other error committed by which the defendant has been denied a fair trial according to law. Sec. 24. THE PROGRESS OF A CASE THROUGH THE COURTS. Below is given in a very general way a view of the progress of a civil case through the law courts. (a) Service on defendant. It is essential that the defendant be brought into court to answer to plaintiff's claim. He may voluntarily file his appearance, which brings him before the court without further action ; but unless it is a friendly suit ordinarily he must be summoned in. A process therefore issues at plaintiff's request known as a summons, which is served by the sheriff (in United States Courts he is called the Marshal and in some courts he is called the Bailiff), noti- fying the defendant to appear. This must be served upon the defendant personally in ordinary law cases, by read- ing it to him and leaving a copy with him. In some cases involving property within the jurisdiction of the court, service may be had by publication if defendant cannot be served personally. Unless there is an appearance, or the service that the law requires, the court is without jurisdic- tion to hear the cause, and any proceedings thereafter are void. (b) The pleadings. I. Plaintiff's statement. The plaintiff must set forth in writing the general facts upon which he bases his claim. At common law this is called a declaration, and there were a great many technical rules that had to be observed in drafting it. Under reformed procedure a simplification and greater liberality has been attempted, and the state- ment is now frequently called a Statement of Claim. (In AMERICAN COMMERCIAL LAW. 57 equity the statement of the case is called a Bill of Com- plaint.) 2. Defendant's statement. The defendant, being prop- erly summoned in, must answer, within the time pre- scribed by the rules, and his pleading is called in com- mon law pleading a Plea (in some states, an answer). If he is convinced that plaintiff's statement is insufficient as a statement of a case, he may demur, that is, allege that the statement, taken in its most favorable aspect, does not make out a case. The court will pass upon this and either overrule it and order defendant to answer, or sustain it, and allow plaintiff to amend, unless it appears his case is such that amendment cannot cure it. In the same way plaintiff may demur to the defense. The defense under reformed procedure has likewise been simplified. 3. Plaintiff's reply. Plaintiff may reply to the plea if it calls for reply. This is called the Replication in com- mon law pleading. If no reply is necessary, plaintiff merely joins issue; at common law, by filing a similiter. (c) The trial. The case being put at issue, now proceeds to trial. In courts of law either side is entitled to a jury trial (this is not true in equity cases). Plaintiff puts in his evidence to support his declaration or statement of claim. Defend- ant puts in his evidence sustaining his defense. Questions of the law, the court decides. Questions of fact are de- cided by the jury under the instructions of the court as to the law governing the facts. If both sides waive a jury, the court acts also as arbiter of the facts. The jury's decision is known as a verdict. The decision of the court where there is no jury is called a finding. 58 THE LAW OF CONTRACTS. The formal pronouncement by the judge upon the ver- dict or finding is called a judgment. (d) Appeal. The defeated party may appeal, as we have discussed in another connection. CHAPTER 5. ADMINISTRATIVE BOARDS AND COMMISSIONS. Sec. 25. IN GENERAL. There have been created in the federal government and in the state governments, boards and commissions of con- siderable importance in the administration of certain laws. These boards and commissions do not constitute a part of the judicial system. They may have hearings, make investigations, subpoena witnesses, and enter decrees, and the conduct of an investigation before them may have the appearance of the trial of a cause, but they are not judi- cial courts, except in a very limited sense, and generally their final orders are appealable to the regular courts for final decision. The chief boards and commissions for the administra- tion of the law under the federal acts are: (1) The Interstate Commerce Commission; (2) The Federal Reserve Board ; (3) The Federal Trade Commission; (4) The Federal Land Office. The chief boards under the state acts are : (1) Public Utility Commissions; (2) Employer's Liability Commissions; (3) Commissions to regulate or revise matters of taxation. (4) The Insurance Commission; (5) The Securities Commission (Blue Sky Law); (6) The Board of Pardons; 59 60 THE LAW OF CONTRACTS. (7) The Licensing Boards (law, medicine, dentistry, accounting, etc.) ; (8) The Corporation Commission. Sec. 26. THE INTERSTATE COMMERCE COMMIS- SION. The Interstate Commerce Commission is a body cre- ated to inquire into the management of the business of in- terstate common carriers, and to regulate such business. The Interstate Commerce Commission is an administra- tive body with quasi judicial powers consisting of seven members, appointed by the President by and with the advice and consent of the Senate. It was created to in- quire into the business of common carriers doing an inter- state business, and to that end might subpoena witnesses and require the production of books and papers. It did not originally have power to fix maximum rates but that power was given in 1906 (The Hepburn Act). (See "The Rise of the Interstate Commerce Commission," by Bruce Wyman, in 24 Yale Law Review, 529, for interesting his- tory of the commission showing the amendments from time to time adding to the powers and converting it from a body of inquiry into one with quasi judicial powers.) Sec. 27. THE FEDERAL RESERVE BOARD. The Federal Reserve Board is a board or commission created in connection with the Federal Reserve Banking System to maintain a supervision over and to issue regulations govern- ing the Federal Reserve Banks. The Federal Reserve Board, consisting of seven mem- bers, was created by the Federal Reserve Act, enacted 1913, as a part of Federal Reserve Banking System to maintain an advisory and administrative supervision over Federal Reserve Banks. It has power to examine the ^ and accounts of the Federal Reserve banks, may AMERICAN COMMERCIAL LAW. 61 permit the rediscount of discounted paper of other Fed- eral Reserve banks, at rates fixed by it, to suspend the reserve requirements of the law for short periods, to supervise and regulate issue and retirement of notes, tc suspend or remove officers of Federal Reserve banks, and so on. (Associated with this board is the Federal Advisory Council, consisting of as many members as there are Fed- eral Reserve districts. Their powers are purely ad- visory.) Sec. 28. THE FEDERAL TRADE COMMISSION, The Federal Trade Commission is a commission empowered to inquire into unfair trade and monopolistic practices, to hold hearings thereon, to enter orders, appealable to the federal courts, and to report upon and advise legislation. The chief function of the Federal Trade Commission is to inquire into and prevent unfair trade practices. It was authorized by an Act pf 1914, to consist of five mem- bers appointed by the President, by and with the advice and consent of the Senate. It has power to inquire into alleged unfair trade practices in specific instances, to hold hearings, and subpoena witnesses. Its orders are re- viewable by any party who is ordered to desist from any alleged unfair practice by an appeal to the United States Circuit Court of Appeals. It may gather data from cor- porations respecting trade practices and may advise the enactment of trade laws. It has jurisdiction, of course, only in respect to interstate commerce. Sec. 29. PUBLIC UTILITY COMMISSIONS. In the various states there are boards or commissions for super- vision and regulation of public utility corporations. By various names and with varying powers, commis- sions have been established in the different states for the 62 THE LAW OF CONTRACTS. purpose of administering the law governing public util- ities (railroads, telegraph and telephone companies, pub- lic warehouses, street railways, pipe lines, lighting com- panies, and the like). Their powers depend entirely upon the statute, but generally speaking, they may conduct hearings, establish maximum rates, regulate the conditions of service, etc. Sec. 30. EMPLOYERS LIABILITY COMMISSIONS. In most states there are laws enacted to provide for the compensation of employees by employers for injuries sus- tained while at work regardless of the employer's fault or the employee's lack of fault. Boards are created to award the compensation. These orders are appealable to the courts. Formerly the law was that an employee could not re- cover for an injury sustained in the course of his em- ployment unless his employer was negligent and the em- ployee was not negligent. But the theory of the law now is that the employer should compensate for injuries sus- tained by the employee regardless of the question of negli- gence (unless under some laws the employer or employee elect before the injury occurs not to come under the act). These damages are awarded by a board or commission. These boards are administrative, as the law fixes the amounts payable for various injuries, but they are quasi- judicial in that they decide questions of fact, e. g., as to whether an accident happened in the course of the em- ployment; but their decisions may be reviewed by the courts. Sec. 31. COMMISSIONS TO REVISE OR REGULATE TAXES. Such boards are in existence in the different states. Bodies to assess taxes, and to review and equalize taxes exist in all jurisdictions. AMERICAN COMMERCIAL LAW. 63 Sec. 32. OTHER BOARDS OR COMMISSIONS. The boards and commissions listed above in Section 25 have the powers and functions indicated by their titles. Space will not permit fuller description here. It would be interesting to note the powers and functions of various other boards and commissions by which the law is administered but it is not possible in a book of this sort to make more than a general description. GENERAL LAW OF CONTRACT. Bays 5 GENERAL LAW OF CONTRACT. PART I. FORMATION OF CONTRACT. CHAPTER i. DEFINITION AND CLASSIFICATION. Sec. 1. CONTRACT DEFINED. A contract is an agree- ment that contemplates as its object and results in an obliga- tion for the breach of which a suit for damages may be main- tained in a court of law. The word "contract" is a word in common usage, con- veying the idea of agreement. But every agreement is not a contract. It must be an agreement intending to create and that does create a legal obligation of certain characteristics. Some agreements are merely passive, and result in no obligation whatever, and some are intended to create obligations of a merely social sort, and some agree- ments create legal obligations of a different nature, as those connected with the marriage relation, or those at- taching to holding property in trust. Those agreements which are of a contractual nature are those which, accord- ing to usually accepted standards, show forth an intention to create obligations of legal force, for the breach of which the injured party may have his legal remedy. This is no more than saying that the law has developed con- sequent upon a demand permitting individuals to assume 6 7 68 THE LAW OF CONTRACTS. obligations by making agreements with each other, and to accomplish this establishes the conditions which the agreement must meet. The following ideas enter into the legal concept : (1) An agreement, contemplating and resulting in (2) An obligation (3) Enforceable in a court of law by an award of damages and in some cases other remedies. Sec. 2. ESSENTIAL ELEMENTS OF CONTRACTS. In every contract we must have : 1. Competent parties; 2. Offer and acceptance ; 3. A legal object; 4. Consideration, or, a certain form. These are all considered in Part I of this book. Sec. 3. KINDS OF CONTRACTS. The broadest division of contracts is into formal and simple contracts. From other standpoints divisions may be made in order to furnish a ter- minology indicating the condition, state, and evidence of the contract. We will make a classification of contracts at this time in order to get before us a general view of the subject, and to define in part the terminology hereafter to be used. To one who is just entering upon the study of the law of contracts, these terms seem strange and have little significance ; yet they should receive careful consideration at this point for the purposes mentioned. Their discus- ' sion will follow in appropriate place throughout the text. We may classify or divide contracts as follows: AMERICAN COMMERCIAL LAW. 69 (1) A classification of contracts in respect to their validity as derived from form or consideration. a. Formal contracts, whose distinctive element of validity is form, 1. Contracts of record ; a. Judgments. b. Recognizances. 2. Contracts under seal, or specialties. b. Simple contracts, whose distinctive element of validity is consideration. 1 . Written, but not under seal ; 2. Oral contracts; 3. Implied contracts. (2) A classification in respect to the manner or form of their expression. a. Express contracts. 1. Formal contracts. 2. Contracts in writing, but not under seal. 3. " Oral contracts. b. Implied contracts. (3) A classification indicating state of performance. a. Executory contracts. 1. Contracts in which one party performs an act for the prome of the other party thereafter to perform an act (executory on one side, called also unilateral). 2. Contracts consisting in their inception of promise for promise (executory on both sides, also called bilateral). b. Executed 1 contracts ; or contracts which have been fully performed. It will be noted that a judgment is classed as a con- 7o THE LAW OF CONTRACTS. tract. But this is really a fiction, and we need not further consider it here. 1 Example i. John Doe enters into a written agreement with Richard Roe whereby John Doe undertakes to sell and Richard Roe to buy a farm for $20,000.00 upon terms stated. We have in this example a contract which is: A. Bilateral ; B. Simple; C. Express ; D. In writing. If the contract above had the seals of the parties attached to their signatures, it would be a contract under seal instead of a simple contract. Example 2. John Doe orders groceries from Richard Roe's store saying nothing about paying for them and Roe promises to send them over. We have in this ex- ample a contract which is: A. Bilateral ; B. Simple ; C. Implied as to Doe's promise to pay ; D. Express as to Roe's promise to deliver. Example 3. John Doe offers a public reward to any- one who will procure certain information for him. Rich- ard Roe furnishes the information. Here we have an example of a contract which is accepted by the act as well as thereby performed. It is a unilateral simple contract. All contracts are two sided and in that sense bilateral, but the word unilateral signifies a contract in which one side only is executory. I. "It is an obligation of this character which is unfortunately styled a contract of record in English law. The phrase is unfor- tunate because it suggests that an obligation springs from agree- ment, which is really imposed on the parties ab extra." Anson, Contracts, Knowlton's Am. Ed., p. 7. CHAPTER 2. PARTIES TO CONTRACTS. A. Who Are Parties. Sec. 4. PARTIES DEFINED. A party to a contract is a person who by himself or his agent, has a part in making the contract. A contract carries an adversary idea, that is to say, an arrangement of those who form it on different sides having interests that may in fact be mutual but which may at any time become antagonistic through the failure of one side to perform and thus force the other into court for the protection of his interests. Accordingly every contract must have at least two sides ; but it may have more. There may be any number of persons on any side. A "party" is any person who by himself or through his agent has been a maker thereof. No other person is a party, even though named in the contract, and, generally speaking, can have no rights or liabilities thereon. Sec. 5. CAPACITY OF PARTIES GENERALLY. A natural person has a full capacity to contract when of legal age and in possession of the natural faculties, unless the law has imposed upon him, as a member of a class, a disability. A corporation has such capacity as the sovereign has be- stowed upon it. We note at the outset that unless a person is not of full age, or is not in the possession of the ordinary nat- 71 72 THE LAW OF CONTRACTS. ural faculties, or is not a member of a class which the law, for reasons of public policy, has placed under a total or partial disability, he has the full capacity to contract; he is free to impose upon himself whatsoever contractual obligations he will. We are, then, concerned only with those exceptional cases, in which some dis- ability is imposed by the law. The chief of these are, (a) minors, (b) married women, (c) insane persons, (d) drunkards, (e) aliens, and (f) artificial persons or corporations. The class composed of minors is of course far the most important as it is a class in which every natural person is for a time a member. B. Minors. Sec. 6. WHO ARE MINORS? A minor or infant is one who has not attained the age which the law deems neces- sary to give him his full maturity of mind and below which he requires a special protection from the state. In the legal conception all children are under guardian- ship, directly by their parents or other legal guardian, and indirectly by the state. They are mentally incom- petent through lack of experience and because of im- maturity of mind, and therefore not legally competent to protect their own interests to the full extent. To afford them a protection to which the adult is not entitled, the law qualifies their liability upon contract. Now the distinction between infancy and adult life is not arbitrary, and we all recognize the distinction and act upon it, but we cannot point to any particular moment or year as a dividing line. Yet to have a workable rule the law must do this rather arbitrary thing and apply it generally, although in specific instances it must accom- AMERICAN COMMERCIAL LAW. 73 plish the result of affording a person of a certain age a protection he does not need, as much as another of a greater age does need it to whom the protection is denied. Some young men of eighteen are more mature than others of twenty-two ; but one can see at once that there is no workable test to measure these things except by setting a line to apply for all, as suggested by normal experience. This the law has done by saying that from the standpoint of contract, a person is an infant or a minor until his twenty-first birthday. In some juris- dictions, females attain full age at eighteen. Sec. 7. POWER OF MINORS TO CONTRACT. A minor has the power to contract, but for his own protection he is given the right to disaffirm, or withdraw from, any con- tract made by him, except that the law makes him absolutely liable for the reasonable value of necessaries furnished him at his request; and except also that in some jurisdictions he has no power whatever to appoint an agent for important purposes. The careless statement is frequently made, that a minor has no power to contract, except for necessaries, but this conception is erroneous. Thfc law does not deny him the power to contract, but furnishes him with relief by way of disaffirmance if he chooses to rely upon his in- fancy. This seems to be the true view of the present law. The contract made by the minor he may not care to disaffirm, and the other party cannot avoid on the ground of the minority of the party with whom he has contracted. 2 In some states the position is taken that a minor can- 2. Wright v. Buchanan, 287 111. 468. 74 THE LAW OF CONTRACTS. not appoint an agent, 3 but the better view is that there is no distinction between this and his other voidable contracts, and that the appointment of an agent is not void, but merely voidable. Being merely voidable, it is capable of ratification by him when he becomes of age. 4 Sec. 8. MINOR'S LIABILITY FOR NECESSARIES. A minor is liable for the reasonable value of necessaries pur- chased by him upon his credit and actually supplied him. The law gives a minor the right to elect whether he shall be bound for all contracts made by him except his executed contracts for necessaries. If a minor could not render himself absolutely liable for the things which are supplied to him as actual needs, he might be com- pelled to go in want. He is not bound to pay what he may have promised, but only the reasonable worth of the thing supplied, that is to say, the market or real value. Thus, if he purchases a suit of clothes reasonably worth the sum of fifteen dollars, and gives his promissory note for thirty dollars, he may elect not to be bound upon the note, and fifteen dollars would be the measure of the seller's damage. His liability has been said to be not strictly con- tractual, as it is imposed upon him by law, irrespective of his actual promise. "Its real foundation is an obliga- tion which the law imposes on the infant to make a fair payment in respect to needs satisfied." 5 But it is of the nature of contract in this sense that the minor gets the benefit through agreement, and no harm is done to think of it as a true contract if we remember simply that the 3. McDonald v. Spring Valley, 285 111. 52; Cole v. Pennoyer, 14 111. 158. 4. Coursolle v. Weyerhauser, 69 Minn. 328. 5. Nash v. Wyman (1908), 2 K. B. I. AMERICAN COMMERCIAL LAW. 75 state in its regard for the welfare of the minor protects him against his unreasonable promises, and also that an executory contract even for necessaries is not enforce- able against a minor. Sec. 9. WHAT ARE NECESSARIES? Necessaries are advantages supplied to a person under age which are requisite to his physical well-being, and common school education, and with which he is not already supplied by parent or guardian, and which are suitable to his station in life. (a) Kind of advantages that may constitute necessaries. A comprehensive definition of necessaries in general terms is difficult. The term does not signify that a thing be absolutely indispensable to the physical well-being of the minor. It is not necessary that he be saved from actual hunger or exposure. 6 Yet it can never be a mere luxury. A necessary will fall under some such head as food, lodging, apparel, medicine and surgery (or other health requirement), academic instruction and working tools when the minor makes his own living. These head- ings are not absolutely exhaustive, yet they are nearly so. Let us further consider each of them. Food, Lodging and Apparel. Here is no difficulty as to the nature of the supply. Other questions, however, may arise, as indicated further in this Section. Medicine and Surgery (or Other Health Requirement). Under this heading things which would not ordinarily be necessaries may be so considered. 6. Strong v. Foote, 42 Conn. 203. 76 THE LAW OF CONTRACTS. Example 4. A physician orders horse riding as a means of health for a minor in comfortable circumstances. The minor is liable for the purchase of the horse bought for this purpose. 7 Example 5. A dentist renders dental services to a minor and sends a reasonable bill. The minor must pay. 8 Academic Instruction. A common school education is classed as necessary and so is an education for a trade. Example 6. "A" learns the trade of pattern making and promises to pay his instructor a sum of money for teaching him. He is liable on his contract. 9 A college education has been held, however, not to be a necessary. 10 This is a rule of doubtful wisdom. Working Tools. To a minor in trade, working tools are properly classed as necessaries, but even if making his own living, his purchase of a business is voidable, as he therefore risks his fortune. Example 7. A minor who has learned the trade of a barber, buys a barber-shop business including the usual fixtures and supplies. He may avoid the contract if he wishes ; but he would be liable if he purchased the usual number of implements necessary to enable him to pursue his trade. 11 7. McKanna v. Merry, 61 111. 177. 8. Strong v. Foote, 42 Conn. 203. 9. Pardey v. Amer. Ship Windlass Co., 20 R. I. 147. 10. Middlebury Coll. v. Chandler, 16 Vt. 683. 11. Ryan v. Smith, 165 Miss. 303. AMERICAN COMMERCIAL LAW. 77 (b) Station in life as factor. The station in life of the minor involved is an item in determining whether the article in question is neces- sary. What is necessary to the son of a millionaire may not be necessary to a boy whose family are in poor cir- cumstances. And yet, in any case, the thing supplied must not be a mere luxury. "Suppose the son of the richest man in the kingdom to be supplied with diamonds and race horses." 12 These could not be considered nec- essaries. So it has been held that expensive suppers given by a wealthy young man to his friends, could not be considered necessaries. So an automobile or bicycle could not constitute a necessary except under very pecu- liar circumstances. For, no matter what one's station in life, or how highly pampered its occupant has been, a thing is not a necessary unless referable to some such heading as indicated. The position of the youth is to be taken into account more to determine upon the grade of a thing ordered, than the kind of a thing ordered. The son- of the poor man and the son of the rich man both need overcoats, if not supplied. But the former cannot bind himself to pay for such an expensive one as the latter; but neither the son of a rich man nor the son of a poor man needs automobiles, race horses, club mem- berships, theater tickets, etc. (c) Minor already supplied. Suppose that the needs of the minor are already abun- dantly supplied, is that which he purchases necessary? If so, how is the merchant to know and to protect him- self? The rule is that in determining whether a thing 12. Wharton v. McKenzie, 5 Q. B. 606. 78 THE LAW OF CONTRACTS. supplied is a necessary, the actual needs of the minor with respect to that class of necessaries, must be con- sidered, and if he already has a sufficient supply, the thing in question is not a necessary. The person dealing with the minor must take the risk. Example 8. Nash, a tailor, supplied Inman, a fresh- man at college and a minor, during his school year with a quantity of clothes, including eleven fancy waistcoats. Inman was already adequately supplied with clothing ac- cording to his station in life. Held, Nash could not maintain a suit for the price. 13 (d) Necessaries must be actually supplied. The minor is not liable upon his executory contract for necessaries. Example p. A minor, being in college, rents a room for the entire school year. He gives up the room after a short time and the owner cannot rent it for the balance of the year. Held, that the minor is not liable, conced- ing that if he had occupied the room, he would have been liable. 14 Sec. 10. DISAFFIRMANCE OF MINOR'S VOIDABLE CONTRACTS. A minor has the right to disaffirm any con- tract except for necessaries made by him during minority, at any time during minority and at any time after majority un- less he has ratified after majority. An exception is of his deeds to real estate which he can disaffirm only after attain- ing his majority. Upon disaffirmance he must restore what he has received if he still has it; but his right to disaffirm is 13. Nash v. Inman (1908), 2 K. B. I. 14. Gregory v. Lee, 64 Conn. 407. AMERICAN COMMERCIAL LAW. 79 not barred by his inability to place the other party in statu quo. If, after becoming of age, he ratifies a contract made during his minority, it becomes binding, upon him. (a) Right to disaffirm. We have seen that contracts made during minority are voidable, unless they are for necessaries actually sup- plied. In this Section we will discuss the rules govern- ing disaffirmance. (b) Time of disaffirmance. A contract, whether executed or executory, may be disaffirmed by a minor at any time during minority ; and may be disaffirmed at any time after majority unless, and until the minor ratifies after majority. His deeds to real estate, however, he cannot disaffirm until he ar- rives at age. See below for further discussion. (c) Conditions of disaffirmance. The rule is that a minor can disaffirm any voidable contract, whether executed or executory upon giving back the benefits received thereunder if he still has them, but the fact that such benefits are injured, lessened or gone, through willful dissipation, negligence or accident, does not destroy the minor's right to disaffirm. 15 Example 10. Hauser brought a suit against the Marmon Company to recover back $450.00 paid by him while a minor, on a $600.00 automobile. The automobile has been used by Hauser and has deteriorated in value. Held, 15. Wuller v. Chuse Groc. Co., 241 111. 398. 8o THE LAW OF CONTRACTS. that upon restoration of the machine, the plaintiff can recover the $450.00. 16 (d) Disaffirmance of minor's deeds to real estate. The minor cannot disaffirm his deeds to real estate until after he becomes of age, and then he must disaffirm them within a reasonable time by some overt act of equal dignity with his deed, as by bringing suit, or deeding to another, or by making entry. In some states the time is made specific by Statute, as, say, three years. (e) Ratification. A minor cannot ratify during minority. After at- taining his majority, he may ratify expressly or by his acts. His mere failure to disaffirm is not in itself rati- fication unless he is dealing with the benefits of the con- tract. If he still has benefits under the contract, he can- not retain them, yet he has a reasonable time to disaffirm. Upon ratification, the contract becomes absolutely bind- ing upon him, that is, his right to disaffirm has gone for- ever. Example n. A minor enters into a contract to pur- chase land, paying $1,000.00 cash, balance in install- ments. He made several payments before coming of age. He became of age in October, and made a payment in November and another in December. He then hired a lawyer and tendered back the contract and a quit claim deed and demanded his money back. Held, that the con- tract, While voidable by him, before or after age, had * 16. Hauser v. Marmon Co., 208 111. App. 171. AMERICAN COMMERCIAL LAW. 81 been ratified by his payments made under it and thereby became binding. 17 Sec. 11. TORTIOUS LIABILITY OF MINORS IN CASES INVOLVING CONTRACTS. A minor is respon- sible for his torts. If in connection with some voidable con- tract made by him he commits a wilful and independent tort, he may be held liable for the damages caused by the tort, but if the wrong alleged consists in a mere breach of his contract, he cannot be rendered liable by calling his default a tort. A minor is liable for his torts ; his minority is no pro- tection. If, for instance, he deliberately breaks a window, a judgment may be had against him for the damages caused. Cases arise in which a minor commits a wrong tortious in its nature, about the time of or in connec- tion with a contract made by him, and when sued in tort responds that his act was at most a mere breach of contract and not a tort. Thus, if he should hire a horse to drive to an adjoining town and in his inexperience should drive it so immoderately as to injure it, the injury not being wilful, he can reply if sued in tort for negligence or conversion, that the other party is attempting to de- prive him of a defense to a charge of breach of con- tract, by simply calling his breach a tort, and this can- not be permitted. But if a minor takes advantage of a contract to commit a wilful tort he is liable notwith- standing he would not have been able to commit it if he had not entered into the contract, as where he maliciously beats a horse hired by him, or drives it further than his contract permitted. 18 Also if in order to hire the horse he misrepresented himself to be of age, he has committed the tort of deceit and is liable. 19 17. Rubin v. Strandberg. 288 111. 64. 18. Towne v. Wiley, 23 Vt. 355. 19. Fitts v. Hall, 9 N. H. 441. Bays 6 82 THE LAW OF CONTRACTS. C. Other Parties Under Disability. Sec. 12. MARRIED WOMEN. By the common law a married woman had no capacity to 'contract even for her nec- essaries, although she had an implied authority to bind her husband for her necessaries, which he could not by any act on his part deprive her of. By modern statutes, her disability to contract has been largely removed. An unmarried woman, or feme sole, had capacity to contract, but a married woman had no power to con- tract. Courts of equity, it is true, allowed property to be settled upon her for her sole use and developed the doctrine that such separate estate could be charged with debts contracted by her, but she could not be sued per- sonally. By modern statutes, married women may con- tract freely. Sec. 13. INSANE PERSONS. Contracts by an insane person, except for his necessaries, are voidable if he restore the consideration; or in many jurisdictions by statute if he has been legally declared insane and a conservator appointed, his contracts are voidable at all events, or void. The law as to contracts with insane persons varies somewhat in the different states. Statutes quite gener- ally govern the matter. Many of these declare that the contracts of an insane person, whose insanity has been adjudged by the law, and is a matter of record, and over whom a conservator or guardian has been appointed, are voidable at the option of the insane person or such con- servator, but are fully binding on the other. Before such adjudication, a contract with an insane person is void- able by the insane person, unless it is for necessaries. If the other person knew of the insanity he is only en- AMERICAN COMMERCIAL LAW. 83 titled to such of the consideration as the insane person has not parted with. But if the insanity was not known, the insane person on avoidance must place the other party in statu quo. Sec. 14. DRUNKEN PERSONS. A drunken person is liable upon his contract unless the drunkenness is so great as to drown reason, judgment, and memory, or unless he was made drunk that he might be imposed upon. The defense of drunkenness is not regarded with fa- vor, unless it has induced a temporary insanity which ob- scures reason, judgment, and memory, or unless it was produced as a part of a scheme to defraud on the part of the other party. 20 Sec. 15. ALIENS. An alien has power to contract when his country is at peace with this country. But during hos- tilities he may not enter into any contract with citizens of this country. Rights acquired prior to the declaration of war are suspended, but not annulled, and may be enforced in our courts when peace is resumed. An alien enemy may be sued in our courts and when sued may make his defense. Alien enemy acts are passed in time of war specifically governing the rights and disabilities of alien enemies. Sec. 16. CORPORATIONS. A corporation's capacity to contract is determined by its charter. Generally speaking it may make contracts that are fairly intended to further its legitimate corporate purposes. A full discussion of the capacity of a corporation to contract would be out of place here. That must be sought 20. Martin v. Harsh, 231 111. 384. 84 THE LAW OF CONTRACTS. in some treatise upon the law of corporations. See the Law of Corporations in this series. We may say gen- erally that a corporation has the power to make such contracts as reasonably tend to the furtherance of its legitimate business, but no others. CHAPTER 3. OFFER AND ACCEPTANCE. (1) WHAT CONSTITUTES. A. Necessity of Offer and Acceptance. Sec. 17. NO CONTRACT WITHOUT OFFER AND AC- CEPTANCE. In every contract, there must be an offer and an acceptance thereof. Offer and acceptance are essential to contract. That is, there must be, as the courts say, a meeting of the minds. It is true that in some instances we may hold parties to a contract although their minds have not ab- solutely met on every point, as where one party has not read his contract. And some educators have criticized the statement that there must be a "meeting of minds." But the criticism does not seem sound from a practical standpoint. It is true, as a general proposition, that in every contract there must be an offer, complete enough to result in obligation, either by its express terms or by its implications, and an acceptance of that offer consisting in an agreement with it on every term. If, in any par- ticular case, we hold a person to a term to which he claims he has not in reality assented, as for instance, that he was ignorant of a custom which we must charge him with as entering into the contract, or because he has not read the contract, we do so upon the theory that he must be charged with the knowledge of those terms, whether in fact he knew them or not. This may be a 85 86 THE LAW OF CONTRACTS. fiction, but it is a fiction necessary to any reasonable and workable rule. In the same way we are not con- cerned with a person's secret thoughts, where he claims they were different from what the party with whom he was contracting was entitled to believe them from the words used or acts done by him. With these explanations we may say that the rule is that in every contract, one party must make a definite offer, intended as such when judged by usual standards of interpretation, complete and definite enough to be en- forceable against him if accepted, and the party to whom the offer is made must accept the offer as made, that is, without qualifications, (if he does qualify it, he thereby makes a counter offer which the original offerer may accept). The party who makes an offer is called an "Offerer," the party to whom it is made is called the "Offeree." An offeree may be, (and usually is), a definite person or persons, or may be any person or persons in a class, as an offer to anyone who will secure a certain number of subscriptions to a newspaper. B. What Constitutes Offer. Sec. 18. NO OFFER AND ACCEPTANCE BECAUSE NO COMMUNICATION TO OFFEREE. There is no con- tract where the offer is not communicated to the offeree. Cases occur in which an offer is made, and then the person who would have accepted the offer does the very thing that the offer calls for yet without knowledge of the offer; there is no contract. Example 12. A offers a public reward to any one who will furnish information as to the whereabouts of an ac- AMERICAN COMMERCIAL LAW. 87 cused person. B, ignorant of the reward, furnishes him such information. He is not entitled to the reward, as he did not act in response thereto, what he did he would have done had there been no reward. 21 Sec. 19. NO OFFER BECAUSE OFFER NOT UT- TERED. Though an offer is framed, offeree cannot accept it if it lacks utterance or delivery to him. Clearly an offer is not legally made, even if put in final form, unless it is uttered to or delivered to offeree. We all know of cases in which letters are written, and even signed, but not sent. The final act of delivery is essential to the offer, otherwise it is not an offer. Example 13. A writes a letter to the janitor of the building, explaining that he has lost a ring about the premises and offering a certain reward to the janitor if he will find the ring. He signs this letter and leaves it on his desk intending to think it over before he delivers it in the morning. The janitor sees it on the desk and reads it. Whether this is an offer would depend on whether the letter were left in such a way that the jan- itor would be entitled to suppose it was meant to be read by him. Example 14. A tells B he will give C $200.00 for his horse Dick. B tells this to C. Here is no offer unless A intended B to tell C, or unless B were C's agent for that purpose. Example 15. The Board of Directors of the X Cor- poration vote to offer a reward for certain information. 21. Broadnax v. Ledbetter, 100 Tex. 375. 88 THE LAW OF CONTRACTS. The X Corporation does not, however, offer the reward. A learns of the vote and furnishes the information. There is no contract, for the offer lacked delivery. 22 Sec. 20. PRELIMINARY ANNOUNCEMENTS IN- TENDED TO SECURE OFFERS DISTINGUISHED FROM OFFERS. Announcements made in a preliminary way, in the nature of advertisements meant to attract trade are not offers and cannot be accepted. Responses to them are the offers which the original announcer can accept or re- ject as he chooses. Cases frequently arise in which a person claims that a contract is complete because he has ordered goods or taken some action in response to a proposition which the proposer claims was not intended as an offer, but as a mere advertisement or preliminary proposition intended to invite offers. Whether such a proposition is an offer or not, depends of course on the construction that the alleged acceptor would be entitled to place on it, accord- ing to reasonable rules of interpretation. Example 16. The Johnson Company, a manufacturer of firearms, selling only to jobbers, sent out a circular letter to its prospective customers, setting forth the terms upon which revolvers would be sold to the jobbing trade. Ward, having received the letter, sent in an order for revolvers. This is not a contract without acceptance by The Johnson Company, as the circular letter was not an offer. 23 It is very clear that circular letters are not intended as offers, even if they contain the phrase, "We offer," 22. See Sears v. Kings Co. El. Co., 9 L. R. A. (Mass.), 117. 23. Montgomery Ward & Co. v. Johnson, 209 Mass. 89. AMERICAN COMMERCIAL LAW. 89 and even if there is no reservation of right to reject. It is wise business policy to include in any such letter a statement that the right to reject orders is reserved, for that may save a lawsuit, but such letters are clearly not offers. If the letter is by one person to another, it may still have the nature of a circular letter, even though of a definite nature, if, by its terminology it suggests that it is such a letter as may have been sent generally to other customers, whether in fact it has been or not. Thus, a statement by a merchant that he has on hand a quantity of material which he is offering at certain prices and on certain terms is not an offer. Example //. Harsh wrote Nebraska Seed Company, "I have about 1800 bushels of millet seed, of which I am mailing you a sample. This millet is recleaned and was grown on sod and is good seed. I want $2.25 per cwt. for this seed, f. o. b. Lowell." Held, not an offer and an attempted acceptance would not complete a con- tract. The court said, "The language used is general and such as may be used in an advertisement or circular addressed generally to those engaged in the seed busi- ness, and is not an offer by which he may be bound, if accepted, by any and all persons addressed." 2 * It is very clear, however, that there may be cases of this sort where it is very hard to draw the line. It took a Supreme Court decision to convince the loser in the above example, and the winner would have saved his trouble if he had put a reservation in the letter. But, of course, if one really intends an offer, he would not care to put in such reservation. 24. Harsh v. Nebraska Seed Co., L. R. A. 1915 F. 824 (Nebr.). 90 THE LAW OF CONTRACTS. On the other hand, if one party makes a definite prop- osition to another in terms the reasonable construction of which indicates an offer, an acceptance thereof com- pletes the contract and the offeror is bound. Advertisements in public newspapers or by public an- nouncement of any sort may or may not be offers ac- cording to how the same are worded. Thus advertise- ments of rewards are clearly offers to those who will do wfaat is called for, but advertisements of goods for sale or of sales to be held are not offers. Catalogues are generally qot offers, as catalogues sent out by mail order houses and the like. They are in the nature of circular letters. But catalogues may contain offers. So in fact may circular letters, if that is the rea- sonable construction of them, as where they offer a re- ward. 25 Sec. 21. OFFER INDEFINITE. If the proposition is too indefinite to be enforceable, if accepted it is clearly not an offer, even though intended as such. A proposition, although intended as such, may be either too indefinite or too incomplete to constitute an offer. An offer must be definite enough so that a con- tract may be made out of it by the mere reply, "I ac- cept." In other words it must be definite enough and complete enough to be enforceable. Example 18. A offers B 100 acres of land, if B will work for him until B's marriage. B accepts and per- forms. A's promise is unenforceable because "100 acres of land" is too indefinite. It may mean fertile or barren land, improved or unimproved land, valuable or poor land. 20 25. Bank v. Griffin, 66 111. Ap. 577. 26. Sherman v. Kitsmiller, 17 S. & R. (Pa.) 45. AMERICAN COMMERCIAL LAW. 91 Example 19. A promise by an oil dealer to sell oil on favorable terms so that the buyer could compete suc- cessfully with other parties selling in the same territory is too indefinite to constitute an offer. 27 Sec. 22. PROPOSITION INCOMPLETE. If the propo sition, although definite enough to be an offer, so far as stated, is incomplete in its terms, it is not an offer; but where by fair interpretation the terms alleged to be lacking were meant to be implied, the offer may thereby be rendered com- plete. The alleged offer must be of sufficient completeness to constitute a valid offer. This is of course very closely connected with the subject matter of the last section, but here we refer to those cases in which the offer as far as it goes is definite enough, but it omits details that are essential to make it complete, as an offer to sell a certain farm, no price being stated. Clearly there is no offer here that an acceptance can turn into a con- tract. But another consideration presents itself in these cases. It is a .very common occurrence to have terms' included in an offer by implication, provided, the implication is a reasonable one to make under the circumstances. In the case supposed above of the sale of the farm no terms as to price could be implied, but if one orders goods stating no price and they have a market value, it is to be assumed that he intends to pay the prevailing prices. By reasonable construction, the price is a part of his offer. Contracts which may be reduced to certainty by refer- ence to events stipulated in the contract are good, as sales for future market prices. 27. Marble v. Standard Oil Co., 169 Mass. 553. 92 THE LAW OF CONTRACTS. C. Duration of Offer. Sec. 23. DURATION OF OFFER. An offer remains open for acceptance: (1) The time stated; or (2) if no time is stated, a reasonable time; provided in either case it is not sooner withdrawn. An offer being made, how long will it last? Within what time must the offeree act upon it ? The offeror may in making the offer expressly stipulate how long it shall remain open, but more than likely he will say nothing about it. If he sets the time, that will of course gov- ern; if he does not set the time, then we are forced to the general statement that an offer will remain open a reasonable length of time. In either case the offeror may withdraw his offer un- less he has contracted to keep the offer open. See Sec- tion 27 below for further discussion. If no definite time is stated, what is a reasonable time? Is it one day, one week, or one month? Clearly this depends entirely on the circumstances, as the nature of the subject matter, the locality, the previous dealings of the parties, prevail- ing customs. Example 20. Kempner offers to sell land to Cohn by letter reaching Cohn February 2. On February 7th Cohn accepted the offer by letter reaching Kempner February 9th. Seller lived in Hot Springs and buyer in Little Rock, Arkansas. Land was a lot in Little Rock. Jury found time not unreasonable. 28 Example 21. An offer reaching offerer by telegram Monday morning between 8 o'clock and Q o'clock offer- ing to sell oil which at the time was rapidly fluctuating 28. Kempner v. Cohn, 47 Ark. 519. AMERICAN COMMERCIAL LAW. 93 in market price was attempted to be accepted by telegram sent out Tuesday morning at 8:53 A. M. The court held the time to be unreasonable. 29 It is apparent from these considerations that it is an impossible task to lay down a rule of yardstick char- acter which one may go by. The jury is the final arbiter, subject of course to the instructions of the court. The time cannot be measured off by the clock and one who accepts after some delay may not be able to absolutely know whether he has a good case or not, and his lawyer may not be able to tell him. No matter when the offer would expire by mere lapse of time, it may be accepted thereafter if the offerer still treats it as being in force. Sec. 24. TERMINATION OF OFFER BY REJEC- TION. A rejection of an offer by the offeree terminates it. A counter offer is equivalent to a rejection. If the offeree positively rejects the offer, it is of course within the offerer's power to tell him that the offer is no longer open, but he may not think to do that and may have no opportunity to do so. An offeree may reject an offer, and then within the time that it would have remained open may attempt to accept it. Must the of- feror honor the acceptance? The law is that the rejec- tion terminates the offer. For clearly, if A offers B goods at certain prices, and B replies with a definite rejection, A ought then to be able to forget all about B and seek another buyer. A counter offer is regarded as a rejection and there- fore also terminates the offer. 30 29. Minn. Linseed Oil Co. v. Collier White Lead Co., 4 Dill. 431 (Fed. Cas. No. 0635) ; 17 Federal Cases 447. 30. Shaw v. Ingram Day Lumber Co., 152 Ky. 329, L. R. A. 1915 D. 145- 94 THE LAW OF CONTRACTS. Sec. 25. TERMINATION OF OFFER BY DESTRUC- TION OF SUBJECT MATTER. If the offer relates to defi- nite subject matter, and such subject matter is destroyed prior to acceptance, there is no contract. If A offers to sell a certain horse to B and the horse dies before B accepts, there is no contract. If, however, the subject matter is destroyed out of which A intends to perform, but he may perform out of any other subject matter, the destruction of such subject matter does not terminate the offer. Sec. 26. TERMINATION BY DEATH OR INSANITY OF OFFEROR OR OFFEREE. The death or insanity of offerer or offeree before acceptance will terminate an offer. Except in cases of a consideration to keep an offer open, death of the offeror before acceptance, or his in- sanity, will cause the offer to lapse, 31 and so will the death or insanity of the offeree. 32 Sec. 27. REVOCATION OF OFFER. An offer may be withdrawn at any time, unless a consideration has been given to keep it open; but the attempted revocation must actually reach the offeree before acceptance. An offer may be withdrawn at any time, even if the offeror in withdrawing it breaks his promise to keep it open; except where the promisor for a valid considera- tion has agreed to keep it open (and except where under seal in those jurisdictions which still adhere to the law of the seal). The withdrawal must actually reach the offeree to be effectual. 31. Beach v. M. E. Church, 96 111. 177. 32. Sutherland v. Parkins, 75 111. 338. AMERICAN COMMERCIAL LAW. 95 Example 22. A mails an offer to B on Monday which reaches B on Tuesday. B, after receipt of the letter on Tuesday, mails his acceptance. (This completes the con- tract, see Section 31, post.} Prior to B's acceptance on Tuesday, A wires B a revocation which reaches B after B has deposited his letter. The revocation is ineffec- tive. 33 Sec. 28. CONTRACTS TO KEEP OFFERS OPEN. A contract to keep an offer open, operates to prevent its with- drawal within the time stated. As we have seen, an offer may be withdrawn at any time before acceptance, no matter how long it would have otherwise remained open and although the promise to keep it open is thereby violated. But parties may contract that an offer shall remain open, as they may contract almost anything else, and in that case, retrac- tion amounts to a breach of such contract. Example 23. A offers to sell B his house for $10,000.00. B is undetermined. A, therefore, at B's request, promises to keep the offer open for ten days, in consideration that B will pay him $50.00 for the option. B agrees. A has no right to revoke.' If he attempts to do so, some courts look upon the revocation as a breach of his contract not to revoke, and some look upon it as ineffectual, leaving the offer still in effect. The result is substantially the same under either theory. D. The Acceptance. Sec. 29. WHAT CONSTITUTES ACCEPTANCE. Ac- ceptance is a definite manifestation of a purpose to be bound 33. Kempner v. Cohn, 47 Ark. 519. 96 THE LAW OF CONTRACTS. according to the terms of the offer. Therefore there is no acceptance where there is doubt or difference expressed or except in unusual cases where there is mere silence. Accept- ance may be by promise or act whichever is contemplated by the offer. We have seen in the discussion of the offer that the acceptance completes the contract and is therefore irrev- ocable; that it must be in the terms of the offer; and a few questions only remain for our discussion. Sec. 30. ACCEPTANCE BY PROMISE OR ACT. The acceptance must be in manner and form as contemplated by the offer which may be by promise or by act. One may accept an offer by a promise to do what the offer calls, for if that is the manner of acceptance con- templated by the offer, but if the offer calls for the do- ing of an act by way of acceptance the offer could not be accepted by promising to do the act in the future. It would be no objection in that case that the offeree sig- nified that he did accept; and in all cases acceptance calls for notification to the offerer that the offeree has accepted. A few examples will elucidate this subject: Example 24. A in June makes an offer to B consist- ing in a promise by A to sell goods for the fall trade to be made up on B's order. This is an offer clearly to be accepted by B's promise to buy such goods. The con- tract when accepted, consists in mutual promises. 34 Example 25. A offers a public reward to any person who will furnish him certain information. B furnishes 34. Trademen's Nat. Bk. v. Curtis, 167 N. Y. 194, 52 L. R. A. 430. AMERICAN COMMERCIAL LAW. 97 that information. In this case B accepts the offer by doing an act. 35 Example 26. A, being- about to go to Chicago to buy goods at wholesale, takes with him a letter of credit from B, promising to guarantee A's credit with anyone of whom A purchases the goods up to a certain amount and over a prescribed period. M sells A goods on the strength of this letter and M accepts this offer by selling the goods, as such is the reasonable interpretation of the letter, but M must notify B within a reasonable time that he has accepted the letter. 36 Example 2J. A sends an order by mail to the M. Company, ordering goods as per catalogue prices. The Company accepts this offer by shipping the goods, but must notify A, so that he may know of the acceptance. 37 Sec. 31. COMMUNICATION OF ACCEPTANCE. When complete the acceptance must be communicated to the offerer or his agent in that behalf, except in cases in which the offer evidently contemplates communication by an act without previous communication. If a contract is made by mail or telegraph the offer is not complete until it reaches the sendee or his agent in that behalf, but the acceptance is complete when delivered to the post office or telegraph com- pany, unless the offer stipulates otherwise; provided the mail or telegraph in the specific case is the proper method of com- munication, as expressly or impliedly authorized by the offer. (a) Communication of offer. We have discussed this principle in the previous sec- tion. 35. Elkins v. Bd. of County Com'rs, 86 Kan. 305, 120 Pac. 542. 36. Wm. Deering & Co. v. Mortell, 21 S. D. 159, no N. W. 86. 37. Main v. Tracy, 76 Ark. 371. Bays 7 98 THE LAW OF CONTRACTS. (b) Communication to agent. The communication of the acceptance to an agent of the offerer is at that moment a communication to the offerer, whether in fact the offeror ever receives it or not, but such agent would have to have actual or ap- parent authority to receive the offer. The fact that he was an agent of the offeror for some purposes would not necessarily carry . with it authority to receive the acceptance of any offer. See generally, the subject of Agency. (c) Communication by mail or telegraph. It is clearly established by the cases that if the accept- ance is properly made either by mail or telegraph, the contract is complete when the acceptance is delivered to the postoffice or telegraph company, properly addressed and paid for, and that subsequent delay or miscarriage will not defeat the contract. This has been supported on various theories, a favorite one being that the post- office or telegraph company is the agent of the offeror to receive the acceptance, which according to the prin- ciples stated in the paragraph next above, would make the contract complete at that time. According to this rule, an attempted revocation of the acceptance after so made, is ineffectual even if it actually reaches the of- feror before the acceptance reaches him. 38 (d) When acceptance by mail or telegraph authorised. The difficult question is to determine when the ac- ceptance is authorized to be sent by mail or telegraph. The offer may of course be explicit, as "wire reply," 38. Brauer v. Shaw, 168 Mass. 198. 4 AMERICAN COMMERCIAL LAW. 99 or "reply by return mail," but if nothing is said, what is the rule? The authorities differ. It has been said that if there is nothing in the case to the contrary, an offer sent by mail is an authorization to the sendee to use only the mail in reply; and if the offer is sent by wire that is an authorization to the sendee to use only the telegraph in reply. 39 But, other authorities hold that an offer by mail may be accepted by telegram and vice versa, and that the acceptance is complete when put in course of transmission. 40 (e) Acceptance may be by any method if it actually reaches the offerer in time. No matter what mode of communication is employed by the offeree, it is clearly good, if it reaches the offerer provided also it reaches him before the offer has lapsed. Thus if A mails an offer to B and asks for a reply by mail, and B wires his reply, the contract is not complete at the time of sending the message, but if the reply goes to A in due season, the contract is complete when it reaches A, but he takes the risk that it will reach A and reach him in time. 41 Sec. 32. SILENCE AS ACCEPTANCE. Mere silence cannot be construed generally as acceptance, nor can one claim he has accepted, where he has merely remained silent, but one's conduct in not replying where under the circum- stances, he would be expected to reply may debar him from saying he did not assent. 39. Lucas v. W. U. T. Co., 6 L. R. A. new series, 1016. 40. Farmers Produce Co. v. Schreiner (Okla.), L. R. A. 1916 A. 1297. 41. Lucas v. W. U. T. Co., supra. ioo THE LAW OF CONTRACTS. Suppose an offer is made to one, and he remains silent? Does his lack of reply signify acceptance? It might be contended that it did or did not either from the offeror or offeree's standpoint. The offeror cannot claim acceptance by the offeree merely because the offeree does not reply. One cannot impose a duty on another to speak. 42 But, there are cases in which from previous dealings, an offeree's re- fusal to reject may be a circumstance from which the offeror may infer an assent. The offeree cannot claim he has assented where he did not speak, or at least show by his conduct, known to the offeror, that he accepts. 43 42. Hobbs v. Massasoit Whip Co., 158 Mass. 194. 43. Thurber v. Smith, 25 R. I. 60/54 Atl. 790. CHAPTER 4. OFFER AND ACCEPTANCE. (2) VALIDITY OF ASSENT THEREIN. Sec. 33. INTRODUCTION. We have discussed what will constitute offer and what acceptance. In so doing we have assumed a true con- tractual intent on both sides without mistake as to sub- ject matter, or any undue advantage taken by one side over the other by way of fraud, coercion or undue in- fluence. In other words we have looked only to the words used or acts done indicating offer and acceptance without inquiring whether there may be extrinsic cir- cumstances which prevent those words or acts from ex- pressing the true contractual intent of the parties. We will find that we may group these circumstances under the following headings: (A) Circumstances defeating contractual intent (mistake and deception as to act done). (B) Circumstances of unfairness giving party im- posed on a right to disaffirm the contract (fraud as to consideration or in the inducement, duress and undue influence). A. Extrinsic Circumstances Defeating Contractual Intent. Sec. 34. FRAUD IN THE INCEPTION OR EXECU- TION. A fraud practiced by one person upon another, whereby the other's seeming assent is procured to a con- IOI IO2 THE LAW OF CONTRACTS. tract which he in reality never agreed to, prevents a contract from being formed. This is variously called fraud in the in- ception, in the execution, and in the procurement. Suppose A is sued upon a note, to which his signature is attached, but which he does not know he has signed, having been misled by the payee into believing he was signing an agreement for an agency. Is he bound on the note ? A contract signifies an agreement, and clearly there has not been such a'n agreement in this case. We have heretofore considered that one may sign an instrument and still be bound thereon, though .he has not read it, but this is upon the theory that he has been willing to take a chance on what it contains, and no other rule would be a workable one. But in those cases there has been no mis- representation as to what the instrument contains. We are now considering a case of fraud by which the con- tent of the alleged contract is misrepresented. The rule is that such a contract is void. Example 28. Plaintiff was injured in a railroad acci- dent. While in a dazed condition and about an hour and a half after the accident, he was conducted into the superintendent's office, and told that the railroad company was willing to pay the sum of $17.00 for the injury to his hat and trousers, and asked him to sign a receipt for same. Plaintiff was seriously injured and brought suit. It turned out the paper he signed was a release in full for his injuries. Held, that it was a question for the jury whether he was defrauded or not, and a jury's verdict that he had been so defrauded, would not be disturbed. 44 In these cases the contention is sometimes made that it is the defendant's own negligence that he did not read 44. Bliss v. N. Y. C. & H. R. Co., 160 Mass. 447. AMERICAN COMMERCIAL LAW. 103 what he signed, and therefore ought not to be permitted to avoid it. In answer we may say, first, that in many cases there is no ground for claiming negligence, as in the case above, where the party was dazed, or in cases where the other party by some excuse or device prevents him from reading. And, second, that in a contest between one who has been guilty of fraud, and one who has been merely negligent, the justice ought to be with the latter, or in other words that it ought not to be for the court to assist one guilty of fraud to recover the gains thereof, on the ground that his victim was careless. 45 This is therefore regarded as the better rule, although the con- trary rule has been laid down in some cases, and a negli- gent person held to be bound to a contract which he never really assented to, by reason of the fraud of the other. Sec. 35. MISTAKE. A mutual mistake of fact, (a) as to the existence of the subject matter, (b) as to the identity of the subject matter, (c) as to terms employed, prevents the existence of a contract, but mistake as to value or quality, does not affect the validity of the contract. The subject of mistake in contract has occasioned a great deal of difficulty and a diversity of views, and what is said here will be an attempt to formulate that part of the subject upon which there is a general agreement. (a) Mutual mistake as to existence of subject matter. This prevents contract. Example 29. Riegel had a policy of insurance upon the life of his debtor. The debtor disappeared and Riegel 45. Maxfield v. Schwartz, 45 Minn. 150, 47 N. W. 448. IO4 THE LAW OF CONTRACTS. kept up the premiums, but finding the matter burdensome, took out a paid up policy for a less sum, in exchange for the old policy. At the time of this change, the debtor was dead, unknown to both parties, and Riegel had the right to recover on the former policy. Held that the mis- take prevented the new policy from taking the place of the old and that it would be set aside and a recovery al- lowed on the faith of the old policy. 46 (b) Mutual mistake as to the identity of the subject matter. If one person has in mind one thing and the other has in mind another thing, and each attempts to contract as to thing he had in mind, there is no "meeting of the minds" and no contract results. Example 30. A has a quantity of hemp and also tow for sale all done up in bales, and identified by numbers. The auctioneer made out a catalogue describing the bales by numbers and not disclosing the difference in the com- modities. B examined some of the bales of hemp, but not of tow. At the auction the auctioneer offered a quantity of tow, describing it by the number of the bale, and B bid, intending to buy hemp. Held that there was no con- tract because of the mistake. 47 (c) Mutual mistake as to terms employed. Mistake as to terms employed is not a mistake that ordinarily can be set up by a party to a contract, if we eliminate the cases of mistake induced by fraud. Those cases we have already considered, and are not to be 46. Riegel v. Amer. L. Ins. Co., 153 Pa. 134. 47. Scriven Bros. v. Hindley & Co., L. R., K. B. 1913, p. 564. AMERICAN COMMERCIAL LAW. 105 thought of as cases under the heading of mistake, but rather as cases under the subject of fraud. If, there being no fraud present, a person will not read a contract, he will be bound by what it contains. 478 Any other rule, as has been explained, could not be a work- able rule, for the reason that there is really no test whereby we could determine the actual fact, and because also, such a rule would encourage laxity. Example 31. A landlord presents a lease for B, his prospective tenant, to sign. B signs it without reading it. B is bound by the provisions of the lease although he neglected to read the lease, there being no fraud on the part of the landlord. If a document as finally written contains a scrivener's error, as where the parties agree to a one year lease, and the typist in preparing makes it ten years, a court of equity would, upon that fact being proved, reform the instrument to meet the true intention of the parties. Mistake as to Terms of Oral Contract. If there is a mutual mistake as to the terms of an oral contract, and it is evident to the court that there was such a mistake, and if the party claiming the mistake has not acted in any way to prejudice the other, there is no contract. 48 (d) Known Mistake as to Terms Taken Advantage of by the Other Party. If one party makes a mistake as to the terms of the contract which the other party knows he has made and takes advantage thereof, there is no real meeting of minds, and a contract does not result. 47a. Bateman v. Small, 100 S. E. 573 (Geo.). 48. Rupley v. Daggett, 74 111. 351. io6 THE LAW OF CONTRACTS. Example 32. Butler wrote Moses he would sell him cloth at "five cents a yard that Gale would charge you." This cloth was worth from $2.00 to $6.00 a yard, and Butler meant he would sell cloth for five cents a yard less than Gale would charge. Moses knew this, as he knew that Gale would not sell for the absurd price of five cents a yard. Held no contract. 49 B. Circumstances of Undue Advantage Rendering Contract Voidable. (a) Fraud in the inducement or consideration. Sec. 36. FRAUD IN THE INDUCEMENT DEFINED. Fraud in the inducement consists in a representation of fact by one party to the other, known to be false, or with disre- gard as to whether true or false, made to be acted upon and which is relied upon to the other's damage. If a party to a contract has secured its execution by the other party by making a statement as to a material fact which he knew to be false and which he made in order to secure its execution and thereby did secure it, the party thus misled may, by proceeding aptly, avoid the contract and may have the aid of the courts, where necessary, to secure rescission. In cases involving this sort of fraud, the party de- frauded is not misled as to the nature of his act, but is simply misinformed as to its advantages or value to him. He has, for instance, been defrauded in buying the Maple Leaf Farm, but he knezv that he was buying that farm. Facts were asserted which misled him in order to induce him to make that contract, but he did the very 49. Butler v. Moses, 43 Ohio St. 166, I N. E. 316. AMERICAN COMMERCIAL LAW. 107 act and entered into the very contract he intended. He may abide by this contract, or avoid it if he chooses. Sec. 37. EXPRESS STATEMENTS OF FACT AS FRAUD. Statements of fact which misrepresent, whether by reason of their falsity, or by being so framed as to actually mislead, constitute fraud. Any statement of fact by which another person is actually misled, is fraudulent. In Twin Lakes Land & Water Company v. Dohner, 50 the Court said: "And it is not at all improbable that defendant's agents, without any literal misstatement of fact, would have created in Dohner's mind the impression that they were claiming the existence of this quantity of reserve water, and should have they known that what they said would create that impression and so must be deemed to have misrepresented in this respect just as much as if they had used the very language charged against them." Sec. 38. OPINIONS AND PREDICTIONS NOT FRAUD. Opinions and predictions are not fraud even if stated by one who himself does not believe them to be true. It is well established that the statement of an opinion or the making of a prediction cannot be fraud. The rea- son is clear. First, because if a statement is uttered as an opinion we know that an opinion is a mere matter of personal judgment; and second, we must look for extravagances of language from any person who is seek- ing to drive a bargain. Parties will "puff their wares" and indulge in "dealer's talk," 51 and the principle ex- tends not only to sales but to all contracts. 50. 242 Fed. 309. 51. Deming v. Darling, 148 Mass. 504. io8 THE LAW OF CONTRACTS. Example 33. Townsend bought a cash register upon the statement that its use would save the expense of a bookkeeper and half of a clerk's time. Held a mere opinion and defendant not guilty of fraud. 52 "The reason of this rule is that while the person to whom the representations were made has a right to rely upon them, he is assumed to be equally able from his own opinion to come to as correct a decision as the other party, and therefore cannot claim to be misled by such opinion." 53 According to this rule a statement as to value is gen- erally regarded as not actionable for value is a mere mat- ter of opinion. "Purchasers are presumed to know that the vendor will, if asked as to value, place it as high as he thinks the property will bear, and, on the other hand, the vendor knows that the purchaser will endeavor to convince him that the property is worth considerably less. ' "It is naught, it is naught," saith the buyer, but when he has gone his way, he boasteth.' " 53a But, state- ments as to value may be made as statements of fact, as where they purport to be so made and the party making them has superior means of knowledge. 54 Sec. 39. ACTIVE CONCEALMENT AS FRAUD. If a person conceals facts for the purpose of preventing them from being discovered by the other party to the prospective contract, this is fraud which renders the contract voidable. We will see that mere silence as a general rule (with notable exceptions) is not fraud. But if one covers up 52. Nat. Cash Reg. Co. v. Townsend, 137 N. C. 652. 53. Brady v. Cole, 164 111. 116. 53a. Morgan v. Hodge, 145 Wis. 143, 129 N. W. 1083. 54. Biewer v. Mueller, 254 111. 315. AMERICAN COMMERCIAL LAW. 109 facts of a material nature to prevent the other party from discovering them, this is fraud. Example 34. A sues T for damages for fraud and deceit in inducing him to purchase interests in a mining lease. T, upon becoming the owner of the lease, looked about for a purchaser and in order to make the proposi- tion attractive, concealed former mining operations show- ing that the place had been long since abandoned for mining purposes. To this end, he built a new shaft which led into the old mines, but this was concealed by boards across its bottom, covered by dirt. He represented to A that the shaft was in virgin territory, of great richness and therefore would require years to exhaust. The ground over the abandoned areas was sunken because of withdrawal of supports. This he represented to be a blow-out. A was without practical knowledge of mining. Upon T's representations and after inspecting the mine, he purchased the lease from T. Held, that he could re- cover. 55 Throwing one off his guard by artifice so that he will not discover the facts is fraud, as where his attention is distracted, evasive answers to his questions are given, or he is otherwise kept in ignorance by the other's con- duct. Sec. 40. SILENCE AS FRAUD. Mere non-disclosure or silence is not fraud; with exceptions as later noted. Suppose that one, being about to contract with another, merely keeps silent as to a point upon which he knows that the other is, without any action on his part, unin- formed or misinformed is it his duty to speak and cor- 55- Tooker v. Alston, 159 Fed. 599, 16 L. R. A. N. S. 818. no THE LAW OF CONTRACTS. rect the misimpression ? We have previously noted that if he is aware of a mistake as to a material term of the contract, his taking advantage of that mistake prevents the minds of the parties agreeing upon the terms, as where one intends to offer to sell at one figure, but really proposes another which the other party purports to ac- cept, knowing of the error. In that case there is no con- tract at all. But now we have that class of cases in which the terms are agreed upon, the identity of the subject matter is not in question, but there is some material ele- ment of fact that one of the parties to the other's knowl- edge, is uninformed or misinformed about. Must he in- form him? The general rule is that, the parties dealing at arm's length, information is not essential. Example 55. A gave B an option to purchase real estate for a certain price. B knew of the fact that a manufacturing plant was going to be established nearby which would make the land much more valuable. A did not know this. B's failure to disclose does not arfect the contract. 56 Parties must be on their own lookout; if we attempted to apply a test to cases of this sort, it would in the nature of things be indecisive. Sec. 41. SILENCE AS FRAUD FACTS NOT DIS- COVERABLE. If one party has information as to material facts, which are, as he knows, practically non-accessible to the other by the exercise of all diligence one may reasonably expect of such other, the non-disclosure is fraud. A duty may be upon one to speak by reason of the peculiarity of the facts making the ascertainment of the 56. Guaranty Co. v. Liebold, 207 Pa. 399. AMERICAN COMMERCIAL LAW. nr facts not discoverable by the other upon the exercise of reasonable diligence. This is well illustrated by the "texas fever" case, as follows: Example 36. A has cattle which he knows to be afflicted with "texas fever," a disease not apparent upon any examination one could be expected to make upon buying cattle on the market. He sells them to B for a sound price, B examining them and not discovering the disease. This is fraud and B may on account thereof rescind the contract or have damages. 57 Sec. 42. SILENCE AS FRAUD CONTRACT ONE UBERRIMAE FIDEL If a contract is of such a nature that it presupposes full disclosure non-disclosure is fraud. This has been applied to cases of suretyship and insurance. But there is difference of opinion among courts as to the opera- tion of this rule. It is said that certain classes of contracts are based upon the presumption of the highest good faith in making them, and this has been often said as to contracts of in- surance and suretyship. But perhaps the true reason for the rule requiring full disclosure in such cases is the fact a risk is taken and the risk is determined by the actual facts and in order to cover this risk the actual facts must be known. In other words, if I ask an in- surance company to insure my life, what they assume to undertake is not a sham risk which I can make them believe exists but a real risk based upon facts as we both know them. The importance of this principle is largely diminished in life insurance cases by the fact that such insurance is written only after a list of questions is an- 57. Grigsby v. Stapleton, 94 Mo. 423. H2 THE LAW OF CONTRACTS. swered and the applicant may generally assume that the omitted questions are those whose answer the insurer does not care for. Nevertheless, even in such a case, a failure to disclose a material fact which the applicant must know is material amounts to fraud according to many cases. Example 37. A desires insurance upon his house. He is acquainted with the fact that incendiary fires have been attempted upon his property very recently. He must inform the insurance company of his knowledge to get valid insurance. 58 Example 38. A desires to obtain a bondsman for his employee, and seeks a fidelity company for that purpose. The employee has been a defaulter and is so known to A. A must so inform the company. Sec. 43. SILENCE AS FRAUD RELATIONSHIPS OF TRUST AND CONFIDENCE. If one stands to an- other in a relationship of trust and confidence, any contract made by him with the other party must be upon full disclosure of all material facts known by him, for the reason that the other party because of such relationship is not upon his guard. The rule that one contracting party need riot acquaint the other with material facts which might affect his de- cision to contract were they known to him is based at least partially upon the fact that the parties are at arm's length and one owes no duty to protect the other. In those relationships in which there is a duty of protection and for that reason the party is off his guard and not at 58. .Pelzer Mfg. Co. v. St. Paul Co., 41 Fed. 271. (There is a difference of opinion as to this rule and its application in the American courts.) AMERICAN COMMERCIAL LAW. 113 arm's length in the bargain, the law requires full dis- closure. This is true of the following relationships: principal and agent, attorney and client, guardian and ward, trustee and beneficiary, and director and corpora- tion. Example 5p. P employs A to sell his real estate for him. A states that he will buy it himself. If he knows of any material fact that P does not know which affects the bargain he must so inform P. 59 Sec. 44. SUMMARY OF WHAT CONSTITUTES FRAUD. Below is a table summarizing what constitutes fraud. (For disaffirmance and ratification in cases of fraud see sections 47 and 48.) Fraud consists in 1. Positive statements of fact or any affirmative representation by which the truth is distorted. 2. Not mere opinions and predictions. 3. Active concealment of material facts. 4. Not mere silence or nondisclosure, unless a. Facts' are not discoverable by the other by reasonable diligence. b. Contract is one assumed upon the theory of full disclosure, as insurance and surety- ship. c. Relationship of trust and confidence. attorney and client. principal and agent. guardian and ward. trustee and beneficiary. director and corporation. 59. Brooke v. Berry, 2 Gill (Md.) 83. Bays 8 ii4 THE LAW OF CONTRACTS. (b) Duress Sec. 45. DURESS DEFINED ITS EFFECT. Duress consists in securing a contract from another by imprisonment or by fear induced by threats regarding his personal safety or liberty or his property whereby the free exercise of his will is overcome. A contract must not be secured from another by threat or force. The theory of contract is that it is an obliga- tion freely assumed by agreement. If it is forced from another, he may avoid it. Mere persuasion, no matter how constant or unpleas- ant, is not duress. There must be force or fear. Duress by Imprisonment. Actual imprisonment may be duress whether the imprisonment is lawful if pro- cured for the purpose of extorting a contract and a con- tract is thereby extorted. "Though a person is arrested under a legal warrant by a proper officer, yet if one of the objects of the arrest is thereby to enforce the settle- ment of a civil claim, such arrest is a false imprisonment and a release and conveyance of property by means of such arrest is void." co But it has been held that a con- tract will not be set aside though procured under duress if it expresses or settles a real indebtedness. 61 Duress by Threats (per Minas) . It was once said that a threat would not amount to duress unless it was of such a nature that it would overcome the will of a con- stant and courageous man; later, that it was duress if it would overcome the will of a person of ordinary firm- ness; but the latest development is that it is duress if it is used for the purpose of overcoming, and actually does overcome the will of the person involved. 62 60. Jordan v. Beecher, L. R. A. 1915 D. 1122 (Ga.) 61. Kronmeyer v. Buck, 258 111. 586. 62. Galusha v. Sherman, 81 N. W. (Wis.) 495. AMERICAN COMMERCIAL LAW. 115 Example 40. Anna Voboril gave notes to pay her hus- band's indebtedness upon threat that if she would not do so her husband would be imprisoned. Being sued on the notes she claims they were obtained from her by duress. Plaintiff contends that the alleged threat, even if true, could not constitute duress as the husband had done nothing for which he could be arrested. But it ap- peared that Anna Voboril was an illiterate foreigner, ignorant of our laws, a mother of seven children, un- versed in business affairs, and the court held that such a threat was calculated to induce in her a fear which would destroy the freedom of her will in making the contract in question. 63 It was formerly held that duress by threatening injury to one's property was not duress, but this absurd view is abandoned. 64 To threaten a person with arrest for a crime that he is believed to have committed is duress according to the weight of authority; except that it has been held that a promise to pay or the payment of a real indebtedness (as in case of embezzlement) will not be disturbed when so secured. 65 (c) Undue influence. Sec. 46. UNDUE INFLUENCE DEFINED. ITS EF- FECT. Undue influence consists in an abuse of influence or power which one by reason of a fiduciary relationship or of the sickness, infirmity or necessitous distress of the other, has over that other, thereby to induce him to enter into a 63. Voboril v. International Harv. Co., 187 Fed. 973. 64. Spaids v. Barrett, 57 111. 289. 65. Kronmeyer v. Buck, 258 111. 586. n6 THE LAW OF CONTRACTS. contract he would not have freely made. It renders the con- tract voidable by the other party. The courts will not interfere to relieve a person from his contracts merely because they are unjust or oppressive and constitute hardship upon him. Even if he were in distress or great necessity, or sick, or infirm from age, or mentally weak, his contract is not for that reason voidable, though unfair and hard, provided he exercised his own will and judgment. For, by such circumstances he is not deprived of his freedom to contract. But it must be shown in addition thereto that an advantage was taken of him, depriving him of his own mental free- dom. Argument, solicitation and pleading, however strong, do not in themselves constitute undue influence. The chief cases of undue influence arise when the parties sustain a relationship to each other which puts one of them in a position calculated to give him great advantage over the other in directing his conduct and acts. Under such circumstances, the parties may still contract with each other; yet if after a contract is made, the party at a disadvantage, in apt time, avers that he was imposed upon, the court will presume in his behalf that such was the case, casting the burden upon the other of showing that such was not the case. The chief relationships in which the law will presume undue influence are: (i) family relationships in which one party stands in an influentially superior position ; (2) the relationship of guardian and ward; (3) that of attorney and client; and (4) that of physician and pa- tient. It is, however, not necessary that there be any technical relationship. "Courts have refused to set any bounds to the circumstances out of which a fiduciary relation may spring. * * * it extends to every possible case AMERICAN COMMERCIAL LAW. 117 in which a fiduciary relation exists in fact, and in which there is confidence reposed on one side and resulting domination and influence on the other." 66 (d) Disaffirmance and ratification of contracts voidable for foregoing reasons. Sec. 47. CONDITIONS OF DISAFFIRMANCE. A party wishing to disaffirm on the ground of fraud, duress or undue influence must do so with reasonable promptness un- der the circumstances after he has discovered the fraud, or after the undue influence or duress has been removed; and he must put the other party in statu quo. In cases of fraud he may either disaffirm or sue for damages. Contracts obtained by means of fraud, duress or undue influence are voidable, not void. Until avoided they have the status of contracts. The injured party may not care to disaffirm. It is for him to do so after discovering the fraud, or after the duress and undue influence have ceased to operate. This he must do, if at all, within a reasonable time, and what is a reasonable time depends on all of the circum- stances. 67 He must also give back what he has received under the contract. Unless he has done so, or made a tender of doing so, he cannot rescind. 68 Sec. 48. RATIFICATION. A contract avoidable for the causes considered in this chapter may be ratified by undue 66. Mors v. Peterson, 261 111. 532. 67. Mortimer v. McMullen, 202 111. 413, 67 N. E. 20. 68. Burwash v. Ballou, 230 111. 34. n8 THE LAW OF CONTRACTS. delay and by express affirmation, or by any acts that are inconsistent with disaffirmance. The contract being voidable only, and not void, may be ratified. This may be by mere delay ; 70 or by language affirmative of the contract; or by conduct which is in- consistent with the idea of disaffirmance, as selling the property, 71 or in any way dealing with it in a manner which shows affirmance. One cannot affirm and then dis- affirm, he must do one or the other. Of course nothing said or done before the fraud is discovered or before the duress or undue influence has ceased to operate can be considered ratification. 70. Burwash v. Ballou, 230 111. 34. 71. Tarkington v. Purvis, 128 Ind. 182. CHAPTER 5. CONSIDERATION. A. Theory and Nature. Sec. 49. CONSIDERATION DEFINED; A NECES- SARY ELEMENT IN EVERY SIMPLE CONTRACT. A promise or undertaking not under seal is not legally binding upon the promisor unless the promisee thereof has on its faith and pursuant to it parted with or promised to part with something to which he has a legal right, or, in other words, unless such promisee has sustained a legal detriment. This legal detriment constitutes the consideration. By the English common law two classes of promises were enforceable : First, where the promise was made in solemn form, that is, under seal ; and second, where something was given, done, or promised by the promisee on account of the promise. In the formation of simple contracts, whether written, oral or implied, consideration must enter, and it must enter also in sealed contracts where the statute has abolished the ancient meaning of the seal in that regard. We have noticed that contracts result from offer and acceptance. In every simple contract the offer must consist in a promise to do something or to part with something, if in return therefor, the offerer will also do something or part with something or promise to do so. There is here an exchange of values, that is to say, each party gives up or undertakes to give up something to which he is legally entitled in return for the other party's 119 I2O THE LAW OF CONTRACTS. similar act or engagement. And the test of the validity of the contract alleged to be found in an offer and accept- ance consists in this: Did the party now seeking to en- force a promise made by the other (either by way of offer or acceptance) sustain a legal detriment give up some- thing to which he was entitled? There may have been an offer and an acceptance, but the offerer or the acceptor may have promised to do something he was already bound to do ; he may have promised to surrender something to which he had no right. If so, no contract resulted. We define a consideration by saying it is a detriment to the promisee, or a benefit to the promisor; but it is only in rare cases we need consider whether it is a benefit to the promisor. For it is not usually to be considered a benefit to the promisor unless it is also a detriment to the promisee. It is a benefit to the promisor when he can demand something or has obtained something to which he was not otherwise legally entitled. We may then for our purposes simplify the discussion by referring to consideration in its aspect as a detriment to the prom- isee. Thus, A offers to sell B a certain acre of ground for $5,000 on certain terms, one year from date. B ac- cepts the offer. Each are promisors; each promisees. Each has promised to part with something to which he was legally entitled. He has therefore in the eyes of the law sustained a legal detriment. A contract has resulted. Again, A orders a sack of flour from his grocer. A promise to pay the reasonable value of the flour is im- plied. B delivers the flour, thereby accepting the promise with an act. B in this case never was the promisor. But he becomes a promisee by accepting the promise by part- ing with that which the promise calls upon him to part with. He has sustained a legal detriment. The consid- AMERICAN COMMERCIAL LAW. 121 eration for A's promise is B's act, that is, it is a detriment to the promisee. A detriment is sustained whenever one gives up some- thing to which he has a legal right, though he may have no moral right to it. Thus, we have a line of cases in which a young man is induced by promise of reward to give up a self-indulgent way of life. It is held in such cases that if he lives up to his agreement he may recover though it was to his benefit to live so, and no personal benefit to the promisor. Yielding up his right to live as he chooses within the law is a legal detriment. 72 When a person comes into court to sue upon a promise, he comes in his capacity as promisee. He alleges that a promise was made -to him and the law asks him what he paid for it, what detriment would it be to him if the promise was not enforced? If he has given or promised nothing in return for the promise to him, that promise is said to be without con- sideration "nudum pactum." Sec. 50. INADEQUACY OF CONSIDERATION. The adequacy of consideration, as between the parties, is imma- terial, so long as there is no fraud. Gross inadequacy may in a proper case be considered as evidence tending to prove an allegation of fraud. If one in full possession of his faculties parts with a right for an inadequate return, there being no fraud, he cannot ask the courts to aid him. The law leaves the parties to bargain for themselves and one may give away his property or sell it for whatsoever he chooses. 73 Where the rights of creditors are involved, and affected 72. Hamer v. Sidway, 124 N. Y. 538. 73. Nelson v. Brassington, 116 Pac. (Wash.) 629. 122 THE LAW OF CONTRACTS. by the contract or gift, other considerations appear; alto- gether it may be said generally that creditors who have no lien cannot complain where the debtor sells for even an inadequate consideration, so long as he and his vendee are not acting fraudulently to defeat or delay the creditor. If a consideration is grossly inadequate that may, with other circumstances, make out a case of fraud, but in itself such inadequacy is not material. B. Examples of Consideration. Sec. 51. CONSIDERATION MAY CONSIST IN PROM- ISE OR ACT. The detriment sustained by one as a con- sideration may be either his promise or his act, whichever is responsive to the expression of the other side; but a prom- ise to be a consideration must be a promise to do or refrain from doing a definite thing within an ascertainable time. A promise on one side is a good consideration for a promise upon the other. In other words, it is not neces- sarily doing an act, but may be the making of a promise to do an act, which may constitute the consideration. This depends upon the requirements of the offer and accept- ance. In all bilateral contracts the consideration for the promise of each is the promise of the other. A promise cannot be a good consideration unless it binds one within a definite time to do or refrain from doing a definite thing, a promise cannot be a considera- tion^nless it is definite enough to be broken. Example 41. A agreed to sell and K to buy at stipu- lated prices 10,000 barrels of oil as the buyer might desire them. Held to be no contract. "But suppose Kirk & Company do not desire, and do not order, or order in such quantities as would require a hundred years to AMERICAN COMMERCIAL LAW. 123 complete delivery is there any way open to the defend- ant to put plaintiffs in default?" 74 Example 42. N agreed to sell and K to buy all of a certain quality of pig iron which K would need, use or consume in its business during the coming season from July 9, 1879, to July I, 1880. Held, a good contract. "It cannot be said that K was not bound by the contract. It has no right to purchase iron elsewhere for use in its business." 75 Where the promise is to sell, and the corresponding promise to buy, the needs of a future period, the period should be definite and the amount should be all that the buyer needs or all that he needs up to a certain amount, or, of course, a prescribed amount. It has been argued that it is not certain that the buyer will need any amount, and this has been answered by the statement that in all probability he will. But that answer is not the correct one. If the seller promises to sell and the buyer to buy, his needs during a certain future period, the considera- tion is in fact that the seller must stand ready to de- liver at the prices and terms agreed on all that the buyer may order, and the buyer must, if he needs any of such commodity buy it from this seller at the prices and terms agreed upon. He gives up his right to buy elsewhere on possibly better terms. Sec. 52. PAST ACT. An act done prior to the promise sought to be enforced and therefore without reference to it does not constitute a legal detriment and therefore is not a 74. American Cotton Oil Co. v. Kirk, 68 Fed. 791. 75. Nat. Furn. Co. v. Keystone Mfg. Co., no 111. 427. 124 THE LAW OF CONTRACTS. consideration to support such subsequent promise and make it enforceable. If one performs an act with no right to claim any- thing for doing it, and after that time a promise to pay him for doing it is made, such promise is without con- sideration and cannot be enforced. No detriment has been sustained by the promisee on the faith of the prom- ise. One must not confuse such cases with the cases in which, where one does an act, he does it under such circumstances that he may reasonably demand compen- sation therefor. In such case we know there was really a promise, though not expressed, in reliance upon which the act was done. But if the act is without reference to receiving the reward afterwards promised, the subse- quent promise is an unenforceable promise. Example 43. A father made a promise of compensa- tion to a stranger who had cared for his son as an act of kindness. He then refused to perform the promise. Held, no contract. 76 Where a discharge in bankruptcy has been obtained, or the statute of limitations has run, a subsequent prom- ise to pay is enforceable, though in some states it must be in writing. Sec. 53. PERFORMANCE OF OR PROMISE TO PER- FORM OBLIGATIONS IMPOSED BY LAW. The per- formance of or promise to perform an act required of one as a legal duty cannot be a legal detriment, and is therefore not a consideration. Where one does an act which the law requires of him, he cannot claim a promise of reward made to him 76. Mills v. Wyman, 3 Pick (Mass.) 207. AMERICAN COMMERCIAL LAW. 125 for doing it. Take, for instance, the case of a reward offered for the capture of an accused person to an of- ficer whose public duty is to capture such person if he can. Such reward is not recoverable, not only because there is no consideration, but because public policy op- poses rewards in such cases. This is true even though the officer actually exercised a greater degree of diligence than he would otherwise have done. An officer cannot bargain in respect to his zeal and graduate it according to the remuneration offered. 77 If an officer does that which his legal duty does not require of him pursuant to an offer he may recover. This would be the case where a fireman at the risk of his own life, made a rescue pursuant to promise of re- ward made him. Sec. 54. PROMISE TO PERFORM UNEXECUTED CONTRACT. A promise to perform or the performance of that which one is under an existing contract to perform is not a good consideration. Suppose that A has contracted with B, that he will dig a cellar for B, within a certain time at a certain price. In the progress of the work, A comes upon a substratum of shale on whose existence he had not fig- ured. To dig the cellar will require a greater expense than that of his original calculations, and he will lose money on the project. He therefore informs B that he will not proceed further unless B will pay him $100.00 in addition to the original contract price. To this B, being in a hurry for the cellar, assents. He refuses, however, to pay more than the original contract price. Can A force him to pay the $100 ? B's argument is that 77. Hogan v. Stophlet, 179 111. 150. 126 THE LAW OF CONTRACTS. A was already under a contract to do this work, and if he offered him $100 for doing it, his promise had no legal effect, because A suffered no detriment. He did noth- ing he was not already bound to do. This is the view of many of the courts. 78 Some, however, allow a re- covery where unforeseen circumstances arise (as in the above case) which make the demand justifiable. 79 It is always permissible for parties to rescind an old agreement and substitute a new one, as where A having agreed to put in single doors in B's dwelling, after- wards for a larger price, agrees to put in double doors. In such a case, there is no trouble in finding mutual considerations. But a mere promise to increase the contract price for no other reason than that the other party regrets his contract and threatens to break it, is unenforceable. Sec. 55. PART PAYMENT OF DEBT AS CONSID- ERATION FOR RELEASE OF BALANCE. A payment of a part of a debt whose amount is liquidated and not in question is not a good consideration for a release of the entire debt; but any disadvantage in addition by the debtor constitutes a consideration; and the rule does not apply if the payment is other than by money or if the debt is un- liquidated or its validity in dispute, or a compromise by a debtor with his creditors. (a) Part payment of liquidated debt General rule. It was laid down in early cases 80 and has been gen- erally adhered to since, that a part payment of a debt cannot possibly be a good consideration for an agree- 78. Johnson's Adm'r v. Seller's Adm'r, 33 Ala. 265. 79. King v. Duluth, M. & N. Ry. Co., 61 Minn. 482. 80. Pinnell's Case, 5 Co. 117. AMERICAN COMMERCIAL LAW. 127 ment to release the entire debt. The reason given was that in paying a part of his debt, the debtor was only doing what he was already under legal obligation to do, and the creditor was receiving no benefit except that to which he was already entitled; that therefore the promise of the creditor to release the balance had no consideration to support it and it was therefore unen- forceable. 81 Example 44. A owes B $100, due and payable. A tells B he will pay him $75.00 if B will receive it in full of the debt. B agrees and gives A a receipt in full. B may nevertheless sue A for the balance despite his promise, on the theory that his promise was without consideration. B gave up no right or thing to which he was entitled and A got no advantage he was not other- wise entitled to. This is an undesirable doctrine in our law inasmuch as it encourages bad faith on the part of creditors and is against sound morality. It has been repudiated in several states, 82 has been deplored though enforced in nearly all jurisdictions 83 and prediction has been made that the courts will in time abrogate the rule. 84 This disfavor has led the courts to limit the rule strictly to the payment of a mature debt of a liquidated amount. The various situations that will prevent the operation of the rule are given below. 81. Oilman v. Gary, 198 Mass. 318, 84 N. E. 312. 82. Clayton v. Clark, 74 Miss. 499; Herman v. Schlessinger, 114 Wis. 382 (stating that the rule has been abolished by statute in Alabama, Georgia, Maine, North Carolina, Tennessee and Vir- ginia and perhaps some other states). 83. Harper v. Graham, 20 Ohio 105. 84. Schlesinger v. Schlesinger, 39 Colo. 44. 128 THE LAW OF CONTRACTS. (b) Any disadvantage in addition to part payment of debt. If the debtor pays the part of the debt before it is due, or at another place than that at which he is bound to pay it, or suffer any other disadvantage, the agree- ment is supported by ample consideration and the creditor cannot sue for the balance. 85 (c) Payment other than by money. If the payment is other than by money the release is good. Example 45. A owes B $500. He offers B a note of X, which he holds for $350, if B will receive the same in full payment. B agrees and gives A a receipt in full. This will discharge A's debt to B. 86 If one gives his own promissory note in full payment for a liquidated debt of a larger amount, authorities dif- fer whether there is any consideration for the agree- ment to discharge the balance. Clearly, if there is any change in the obligation, as to pay interest where none was payable before, or to pay a larger rate of interest, or by giving security, there is consideration. (d) Debt unliquidated. If the debt is unliquidated, any agreement to settle it is based upon a good consideration. Example 46. G was tenant of S and made repairs. He claimed the landlord agreed to re-imburse him, but 85. Harper v. Graham, supra. 86. Varney v. Conery, 77 Me. 527. AMERICAN COMMERCIAL LAW. 129 the landlord denied that he had agreed to do so, and claimed that he was under no obligation to make or pay for such repairs. The dispute was in good faith. The tenant sent a check for the month's rent with a deduc- tion to re-imburse him for the repairs marking such check in full payment. The landlord retained the check protesting that he received it in full payment and brought suit for the balance. The court held that one must re- ceive a check upon the condition upon which it is sent, and that' the landlord's retention of the check was tanta- mount to an agreement by him to receive the check in full payment, that the amount being unliquidated such an agreement was supported by a good consideration. 87 (e) Composition by debtor with creditors. A composition by a debtor with his creditors or some of them is an arrangement whereby such creditors agree to take a percentage of their claim in full discharge thereof in order to enable the debtor to successfully weather a financial period of distress. The element is here introduced of the creditors agreeing with each other and with the debtor, and the releases of each of them is good consideration for the others. Such an arrange- ment is everywhere upheld as being upon good considera- tion. 88 Sec. 56. COMPROMISE OF DISPUTED CLAIM. If the validity of a claim is disputed, any compromise thereof constitutes a good contract. A promise to pay an amount of money to settle a dis- puted claim, is upon acceptance by the other side en- 87. Snow v. Greisheimer, 220 111. 105. 88. Baxter v. Bell, 86 N. Y. 195. Bays Q 130 THE LAW OF CONTRACTS. forceable by either side. The waiver of the right to have the validity or invalidity tried out in Court con- stitutes the consideration. In such a case, the actual merits of the original controversy will not be inquired into, for it has been settled by the contract of the parties. If the party against whom the claim is made repudiates ?t, he may be sued upon the promise, or as he has not kept his promise, the claimant may also ignore it and sue on his original cause of action. It is essential to the validity of a compromise of a claim that the claimant make it in good faith, that is, believing he has a claim. Some courts also hold that there must also be a basis in fact justifying the belief, although it is never necessary that the claimant should have prevailed. Example 47. A is struck by B's automobile. A threatens suit against B. B denies liability claiming that A was at fault in stepping in front of the car. B agrees however in order to avoid a law suit to pay A $200.00 and A accepts. A can enforce B's promise and the Court will not hear evidence as to the validity of A's original claim. B can also plead this promise in defense of any suit brought by A for the injury, unless B repudi- ated the promise or refused to perform it. In that case A may sue either on the promise or for the original injury. Sec. 57. FORBEARANCE OF SUIT AS GOOD CON- SIDERATION. A forbearance to sue for a definite time is a good consideration for a promise. If a person deems he has a good cause of action and defers suit upon the same for a definite period, this will AMERICAN COMMERCIAL LAW. 131 constitute a good consideration for a promise whereby the forbearance was secured. Example 48. A threatens to sue B. B denies lia- bility, and in hopes of a settlement or for other reasons prevails on A not to bring his suit for three months, B promising to pay him $50 for this delay. This is a good contract and B can enforce the promise to pay the $50 independent of his right to recover on the original cause of action, and without regard to the validity of the original cause of action. Sec. 58. CONSIDERATION IN SUBSCRIPTIONS. A subscription made for purposes of donation, etc., is unen- forceable until acted upon by incurring liability, or unless it is given in actual reliance on other subscriptions. Where one subscribes to pay funds to a church, a charitable organization, or any institution, he is in reality only promising to make a gift. Such promise is there- fore unenforceable. 89 If, however, the promise is acted upon, as by incurring liability or expending money on the faith of it in the way it calls for, or by raising else- where a certain amount of money, if that is the condi- tion of the gift, it becomes enforceable. So if there are mutual subscriptions and each is in fact a reliance on the others and not independent thereof, a consideration exists and the promise is enforceable. 89. Pratt v. Trustees, 93 111. 475- CHAPTER 6. LEGALITY OF CONTRACTS. A. Legality of Contract an Essential Element. Sec. 59. ILLEGAL AGREEMENTS VOID. Any agree- ment to violate the law and any agreement forbidden by law is void. An illegal agreement cannot be a contract. "Illegal contract" is a contradiction in terms, although a frequent phrase and from usage permissible. Contracts are illegal for two reasons: first, because their object is illegal ; second, because though the ob- ject is perfectly legal, the manner of making them is against the law. A distinction is taken between contracts illegal in character and contracts merely unenforceable as being against public policy for instance, gambling agreements and agreements in restraint of trade. The one is abso- lutely illegal, the other is illegal only in the sense it is unenforceable on account of being against public policy. B. Particular Classes of Illegal Agreements. (i) Contracts whose objects are in violation of law. Sec. 60. CONTRACTS IN RESTRAINT OF TRADE. Contracts in restraint of trade are good if not unreasonable under the circumstances of the case and if not unlimited as to territory. 132 AMERICAN COMMERCIAL LAW. 133 (a) Contracts in restraint of trade, when reasonable, are valid. A contract in restraint of trade is a contract whereby a person undertakes that he will not engage in trade or in some particular line of trade ; usually entered into by one who sells his business to another. It is valid if not unreasonable, and what constitutes unreasonableness we must determine, but first let us notice why such a con- tract, if reasonable is valid. The common law and also our statutory law has de- veloped upon the assumption, first, that the country ought not to be deprived of the services of a person who is possibly skilled in one trade and that trade only, by any contract he may make with another agreeing not to exercise his calling ; second, that such a person ought not be permitted from the standpoint of public policy to create a situation that will compel him to leave the coun- try in order to make a living, and third, and more impor- tant that competition between persons in trade is a good thing and beneficial to the community. From these con- siderations, it would appear that the common law would condemn all agreements in restraint of trade, but here another phase of public policy runs counter and results in compromise. If a person has built up a business, public policy requires that it be a transferrable business, otherwise its building up would be discouraged, and many things might interpose to destroy it or impair its usefulness to the community. But, it cannot be sold unless that most valuable and intangible part of it can be delivered to the purchaser, namely, the good will, the expectation of continued custom hard to define and composed of many elements. This good will is not de- liverable unless the vendor shall be allowed to say that he will not next day set up a competing establishment in 134 THE LAW OF CONTRACTS. the neighborhood, perhaps upon adjoining premises and by his reputation draw to himself all of that good will which is the most valuable asset of the business sold. The law therefore says that it will allow a person or corporation to enter into a contract in restraint of trade 89a provided it is in reasonable restraint, that is to say is such restraint (1) as is necessary for the protection of the purchaser against the competition of the vendor, and (2) provided also it is not unlimited as to the terri- tory of the country even if the business in question is so large as to really require unlimited restriction for the protection of the vendee ; but on this last clause there is a difference of opinion as we shall see. (b) Contracts in unreasonable restraint of trade are invalid. Let us consider what constitutes unreasonableness of restraint. Whether or not a covenant in restraint of trade for the protection of good will is reasonable or not depends upon the facts of the case; that is to say, on whether the area covered by the covenant not to com- pete is substantially greater than the area covered by the business affected. Example 49. B, a dentist, having an established busi- ness drawing customers from various points in the coun- ty, sold to T, a dentist, and agreed not to compete in the county. Afterwards B opened an office within the county. At A's suit, an injunction was granted. 90 Spa. Harris v. Theus, 10 L. R. A. N. S. 204. 90. Tillinghast v. Boothby, 20 R. I. 59. AMERICAN COMMERCIAL LAW. 135 Example 50. An incorporation of fish dealers in a sea port town, with provision in the bill of sale of each business to the corporation, that the seller will not en- gage or become in any way interested in the same busi- ness in that and an adjoining county, and within a hun- dred miles from the town in a period of ten years; and it appearing that the business engaged in by the corpo- ration so formed was at least co-extensive with the ter- ritory prohibited, held to be valid. 91 Example 51. A had a cracker and biscuit business which extended over an area of approximately 100 miles' radius. B bought it. As a part of the contract of pur- chase, A agreed not to engage in the same business within a radius of 1000 miles. He afterwards started a busi- ness within a radius of 100 miles. Held, that the cove- nant was unreasonable and therefore void. 92 (c) Contracts in general restraint of trade, when reasonable, are upheld by some, and denied by other courts. If a contract is in unreasonable restraint of trade, whether limited or unlimited as to area, it is void for that reason, as we have seen ; it is conceivable, however, that the business may be of such magnitude that it requires a general restraint of trade to protect the purchaser. In such a case it was stated in the earlier English cases, which have been followed by many of our courts, that the agreement was void. Any restraint was considered unlimited as to space which covered the entire country. The ground of this view was that under the operation 91. Moorehead Sea Food Co. v. Way, 169 N. C. 679. 92. Althen v. Vreeland, 36 Atl. (N. J.) 479. 136 THE LAW OF CONTRACTS. of an agreement, the vendor would likely be forced into another country where he could pursue the sort of busi- ness or calling which he had formerly followed in the home country. Some of the American cases have fol- lowed this doctrine and in applying it treat either the whole country or the entire state as an unlimited area, for the reason stated. 93 But in other courts, this doctrine has been departed from, and a covenant by a vendor of a business which is of such a scope that unlimited restriction is necessary to protect the buyer from the seller's competition, is upheld. 94 (d) Covenants in restraint of trade unlimited in time. It is not necessary that there be any limitation as to time to make a restraint legal. (e) Contract in restraint of trade not good unless ancil- lary to a contract protecting good will. As was explained in the beginning, contracts in re- straint of trade are permitted merely for the purpose of protecting the good will where ancillary to another contract which is almost always one of a sale of the business. A contract in restraint of trade entered into by itself is void. (f) Invalidity does not impair rest of contract. A provision in a contract which is invalid because of unreasonably restraining trade does not impair the rest 93. Henschke v. Moore, 257 Pa. St. 196, L. R. A. 1917 F. 450 (entire country) ; Lanzit v. Mfg. Co., 184 111. 326 (state). 94. Hall Mfg. Co. v. Western Steel & Iron Works, 227 Fed. 588, L. R. A. 1916 C. 620 (annotated). AMERICAN COMMERCIAL LAW. 137 of the contract. Such a contract will stand, though the restraint falls. Sec. 61. CONTRACTS OF MONOPOLISTIC TEN- DENCY. Contracts of monopolistic tendency are illegal by the principles of the common law and by statute. A contract whose purpose or effect is to create mo- nopoly is condemned by the common and by statutory law as opposed to public policy. A monopoly signifies an attempt to control the mar- ket by destroying or preventing competition and con- trolling the sources of supply. 95 It consists in a wide diversity of practices from agreements between competi- tors to maintain prices and restrict output, to practices of powerful concerns to use unfair means to force other concerns out of business. A corporation is not monopolistic merely because it is large. 96 There is no monopoly where a concern controls the market through enterprises in manufacturing a better product, selling policies and the like. Corporation Trusts. The word "trust" in its general legal sense indicates a legal ownership of property by one person for the benefit of another, and is an approved legal concept. The word "trust" as applied popularly to indicate an arrangement among corporations to regu- late prices and stifle competition, describes an illegal co- operation monopolistic in character. The original scheme was to have a trusteeship of the stock of competing cor- porations, trust certificates being issued therefor, the 95. "An attempt to monopolize means an attempt to get control of the industry ' * * by means which prevent other men from engaging in fair competition with him." U. S. v. Whiting, 212 Fed. 460. 96. U. S. v. Naval Stores Co., 172 Fed. 455. 138 THE LAW OF CONTRACTS. board of trustees holding the stock in trust, and voting it, and thus controlling the directorate of all the corpo- rations. Such a scheme has always been denounced by the courts. 97 The word "trust" also has come to describe popularly a monopolistic corporation, though no technical trust is involved. A corporation is not illegal merely because large, but the question is whether it is in fact monopolistic in character. Sec. 62. CONTRACTS LIMITING LIABILITY. Com- mon carriers and public service corporations can by contract with the patron limit their liability for loss occurring from any cause except their own negligence, unless a statute for- bids such limitation ; employers cannot limit their liability for injury by negligence; but persons otherwise acting in a pri- vate capacity can contract against their own negligence. (a) Common carriers and other public service corporations. A common carrier of goods at common law is liable for loss arising from any cause, negligence or not, ex- cept act of God or Public Enemy, but the Courts have held that this liability may be limited by special con- tract, except that the carrier cannot limit liability aris- ing from the negligence of its employees. The Federal Government has by legislation restored the full common law rule as to interstate shipments, by declaring such agreements void. Carriers of passengers may limit lia- bility, except for act of negligence, but cannot limit as to acts of negligence. The rule applies to public service corporations gener- 97. Distilling & Cattle Feeding Co. v. People, 156 111. 448. AMERICAN COMMERCIAL LAW. 139 ally that they can limit liability except in case of loss by negligence. (b) Employers and employees. Employers cannot limit liability for injuries arising from their own negligence. Example 52. Plaintiff, a cook on the outfit cars of a railroad company, in his contract of employment, re- leased the company from liability in case of future in- jury. Held, in a suit for damages for personal injury, such provision was invalid and no bar to the suit. 98 (c) Other cases. It is competent as a general rule for one contracting with another to limit his liability for negligence. Example 53. A railroad company having a warehouse leased it to C with a provision in the lease that the rail- road should not be liable for loss by fire originated from its engines. A fire occurred and C sued the company, claiming that the provision was invalid to cover a case of negligence. Held, valid and a good defense even against the company's negligence, as the company was not acting in its capacity of common carrier in leasing the warehouse." Sec. 63. USURIOUS CONTRACTS. The law of most jurisdictions prescribes the rate of interest which a creditor 98. Kansas R. Co. v. Peavey, 29 Kan. 122. 99. Checkley v. I. C. R. Co., 257 111. 491. 140 THE LAW OF CONTRACTS. can charge the debtor for the use of money, and attaches a penalty or risk for charging a greater rate. Interest is compensation for the use of money owing to another. It is allowed in some cases where not agreed upon. For instance, judgments bear interest. But gen- erally interest bearing debts are those which are agreed upon. The law now regards it as entirely proper that one who loans another money should have compensa- tion from the other. 100 Inasmuch, however, as those who are borrowers are frequently the easy victims of op- pressive provisions the enforcement of which might throw them or certain of them upon the community it has become a commonly accepted policy of the law to limit the rate of interest which it is proper to charge. Above that is "usury." Charging usurious rates of in- terest is not criminal in the sense that it is punishable in any criminal proceeding. The penalty prescribed is a civil penalty, as for instance, loss of all interest. It is generally held that the defense of usury is one that a party must make for himself when sued upon the loan, and that if he pays the interest he cannot recover it back again upon the ground that it was usurious. 101 The penalties prescribed in case of usury differ in different states. In some it is loss of the excess interest, in some loss of all interest, in some loss of a portion of the prin- cipal. Corporations by some laws are excepted from the op- eration of the usury statute. Any amount agreed to be paid by them is enforceable. Certain classes of lenders are allowed a greater rate 100. By the early English law, "Christians" were not allowed to charge interest, and all interest, whether lawful (by those not Christian) or unlawful was called "usury." 101. In re Fishel, 192 Fed. 412. AMERICAN COMMERCIAL LAW. 141 of interest because of the nature of their business, as for instance, pawn brokers and lenders who loan in small amounts as a business. To lend at such rates such lenders must comply with the law permitting that class of business, as, for instance, the pawn broker statute. Any device is usurious if it amounts to a greater charge than is permissible under the statute, no matter by what name called. Thus a "commission" on one's own money, a charge for services, if merely evasive, make the contract usurious if all the charges aggregate more than the rate allowed by law. 102 Sec. 64. WAGER CONTRACTS. A wager contract is a contract that on the outcome of a risk created or assumed by the contract, one party shall be winner, the other loser. It is illegal. There are many forms of wager agreements. The most obvious is the ordinary gambling agreement, as upon the outcome of a game of cards, or a horse race, or a presidential election or the like. These are unen- forceable, although by the early common law they were enforced by the courts. 103 Wager insurance is an illustration. Insurance is not valid except one have an insurable interest in the thing insured, that is, a loss to guard against by reason of his interest in a thing independent of the insurance contract. One cannot have insurance upon a life or upon prop- erty in which he has no interest to protect. One may, however, take out insurance on his own life and make his beneficiary whomsoever he will. Wagering on the rise and fall of the market is an- other form of wager agreement. To contract for the 102. In re Fishel, 192 Fed. 412. 103. Bernard v. Taylor, 23 Ore. 416. 142 THE LAW OF CONTRACTS. purchase or sale in the future of a commodity at a price now stated is not gambling if an actual delivery is in- tended. But if there is an intention to settle by the payment of differences, this is illegal. 104 An option con- tract, that is to say, a contract that an offer either to buy, or to sell, shall remain open for a certain length of time for acceptance, is wagering, where its purpose is merely to gamble against the future rise or fall of prices. 105 Thus, if I offer wheat at $1.00 a bushel, and agree for a consideration paid me, that the offer shall remain open ten days, this is a gambling contract if our mutual intention is merely to gamble on future prices, and in some states by statute any option contract in com- modities is a gambling contract. By statute in some states, the right to recover money lost by gambling is given. Otherwise it does not exist. Sec. 65. CONTRACTS TENDING TO CORRUPT THE PUBLIC SERVICE. Any agreement which tends to corrupt any branch of the public service is illegal and void, without re- gard to its actual outcome. A contract tending to corrupt the public service is void. Contracts tending to cause the judiciary, the legis- lature or any officer of the Government to show favorit- ism, or to disregard duty in any manner, are unenforci- ble. Thus, agreements by which one undertakes to "lobby" before the legislature have been repeatedly con- demned, 106 as has any contract which contemplates per- sonal influence to solicit m official action. Contracts with officers whereby they are to obtain greater reward 104. Pope v. Hanke, 155 111. 617. 105. Bates v. Wood, 225 111. 120. 106. Mills v. Mills, 40 N. Y. 543. 107. Critchfield v. Paving Co., 174 111. 466. AMERICAN COMMERCIAL LAW. 143 than the law allows, are void. 108 Various sorts of cases are almost numberless. The actual result in such cases is immaterial. A lob- bying agreement may be ineffectual to accomplish its purpose or may accomplish the enactment of a good law. An officer who is promised greater reward may do only what he would or should have done anyway. This is not important. The tendency of the contract to corrupt the public service is what makes it vicious. Sec. 66. AGREEMENTS IN RESTRAINT OF MAR- RIAGE. By the common law agreements in restraint of mar- riage were void. Agreements in restraint of marriage are void. "Mar- riage lies at the foundation, not only of individual hap- piness, but also of the prosperity, if not the very exist- ence of the social state ; and the law therefore frowns upon and removes out of the way, every rash and un- reasonable restraint upon it, whether by way of penalty or inducement." 109 (2) Contract illegal because of wanner of formation. Sec. 67. SUNDAY AGREEMENT. Agreements made on Sunday are illegal under some statutes, unless made to serve some necessity or unless in furtherance of charity. By common law, contracts made on Sunday were not illegal. An early statute made them so, 110 unless such contracts were in aid of works of necessity or charity. Many states have similar statutes. But in all states Sun- 108. Hogan v. Stophlet, 179 111. 150. 109. Sterling v. Sinnickson, 5 N. J. L. 885. no. See Richmond v. Moore, 107 111. 429. 144 THE LAW OF CONTRACTS. day contracts are not forbidden. So in some states, con- tracts, whenever made, that contemplate performance on Sunday, are void. The policy of the state, making Sunday contracts void, seems at least questionable and has resulted in many un- just decisions. Sec. 68. CONTRACTS MADE WITHOUT REQUIRED LICENSE. If the law requires one to have a license before he can carry on a certain occupation, and such license is in- tended as a regulation measure a contract made without the license is invalid, but failing to pay license fees required for purely revenue purposes does not invalidate a contract. If a license must be obtained by one before he may practice a certain occupation or profession, and such license is for the purpose of regulating the calling and protecting the public, any contract made by one who has no such license is invalid, as, for instance, a contract for legal services with one not admitted to practice U1 (fees not recoverable) ; or with a real estate broker who has not paid his license (fees not recoverable). 112 C. Intent to Put to Illegal Use Avails of Legal Contract. Sec. 69. KNOWLEDGE BY ONE OF OTHER'S IN- TENT TO COMMIT CRIME. Where the contract is in- nocent upon its face, and the intention of one party is not illegal, the guilty intention of the other will not invalidate the agreement as to the first party; and though that guilty intention is known to such first party, yet if he have no share therein and do nothing in aid thereof, the contract is enforce- in. Brown v. Phelps, 211 Mass. 376, 97 N. E. 762. 112. Buckley v. Humason, 50 Minn. 195. AMERICAN COMMERCIAL LAW. 145' able by him, unless the intention is of a highly immoral or heinous character. Suppose that a contract is fair upon its face and ca- pable of performance for a legal purpose, will the guilty intention of one party to take an illegal advantage of it make the agreement illegal? If that intention is secret, manifestly the party harboring it cannot avail himself of it to prevent enforcement by the other. But suppose the other party knows of such intention. It seems well es- tablished that if his share in the intention is by way of mere knowledge, that will not vitiate the agreement as to him, it being kept in mind that the agreement is one which on its face is capable of a legal object. An ex- ception to this rule is that where the illegality contem- plated is of a highly immoral or heinous character, the mere knowledge will vitiate the agreement on the theory that one contracting party having knowledge of such contemplated illegality becomes by his consent to the contract, particeps criminis. Within these rules it has been held that mere knowl- edge that the buyer expects to resell the goods bought under the contract without a required license can not be set up in defense to a suit for the purchase price, the seller doing nothing to aid or encourage the viola- tion of law, and the goods not being sold for the express purpose of enabling him to such violation. 113 But if he should sell poison knowing the intention was to accom- plish a murder, he would be barred. 114 If one know- ing that another intends to sell liquor contrary to law, aids him in the execution of that intention by false 113. Graves v. Johnson, 179 Mass. 53. 114. Hanauer v. Doane, 12 Wall. (U. S.) 342 (treason). Bays 10 146 THE LAW OF CONTRACTS. wrapping, fictitious inventories, etc., he becomes a party to the illegality and cannot enforce the agreement. 115 D. Judicial Remedies in Illegal Agreements. Sec. 70. NO REMEDY BY WAY OF ENFORCEMENT. A court will not enforce an illegal agreement. From the considerations noted throughout this chap- ter, it is apparent that if an agreement is positively illegal, or against public policy, courts will not enforce it. If it is illegal in its nature, the maxim applies "Ex turpi contracts non oritur actio." 11G As will be seen in the sections following, some relief may be afforded in certain cases by parties to illegal con- tracts, but the relief is by way of withdrawal, not en- forcement. Sec. 71. NO REMEDY BY WAY OF RESCISSION. An illegal or unenforceable contract which has been executed, will not be rescinded by the courts. If a person has lost money or parted with any con- sideration in the performance of an illegal agreement, he will not be aided by the courts in the recovery of what he has parted with. As is frequently said, "The Court will leave him where it finds him." As the maxim has it, "allegans suam turpitudinem non est audiendus." Example 54. H paid C $300.00 for counterfeit money. C did not produce the money. H sues to get his money back. Held, the Court will not help him. 117 115. Kohn y. Melcher, 43 Fed. 641. 116. Goodrich v. Tenney, 144 111. 422. 117. Chapman v. Haley, 80 S. W. (Ky.) 190. AMERICAN COMMERCIAL LAW. 147 To this rule there are some exceptions, as shown below. Sec. 72. PARTIES NOT IN EQUAL GUILT. If the plaintiff is not in equal guilt with the defendant, he may re- cover what he has parted with. An exception is made to the rule that no relief will be granted where the parties are not "in pari delicto," such relief being always by way of avoidance and not en- forcement. These cases, although called cases of "un- equal guilt," usually involve the element of undue in- fluence, fraud, oppression or superior advantage of some sort, and there is not merely a comparison of degrees of guilt, that being quite impossible. 118 Example 55. Wolf was indicted for murder and was out on bail. Baehr loaned him money with which to flee from justice, and took a mortgage on Wolf's land. Wolf was innocent of the crime with which he was charged, but under Baehr's insinuations and arguments, his fears preyed on him and he fled from justice. Baehr's intentions were that Wolf should disappear and he would ultimately have clear title to Wolf's land. Wolf returned and seeks foreclosure from the mortgage. Baehr de- fends that Wolf mortgaged the land to obtain money to flee from justice. But the Court held that there was a species of duress here which made the parties to be unequally in guilt and Wolf could have relief. 119 Sec. 73. DEFENDANT'S CONTRACT WHOLLY EX- ECUTORY: Doctrine of locus poenitentiae. Where the defendant's part of the contract is totally unperformed by him, and plaintiff has paid money or parted with property to 1 1 8. Duval v. Wellman, 124 N. Y. 156. 119. Baehr v. Wolf, 59 111. 470. 148 THE LAW OF CONTRACTS. the defendant under an illegal contract, some courts allow a recovery. Another exception as to a right to rescind in case of an illegal contract is one not so clearly defined, not recognized by all courts and which seems as an excep- tion to conflict with the rule rather than to be an excep- tion to it, and may be stated generally that where the plaintiff has paid money or parted with property to the defendant, and the defendant has as yet done nothing, or at most very little in the performance of the contract, the plaintiff being in a place of repentance (locus poenl- tenticp}, may recover what he has parted with. Thus, one who has paid a wager to a stakeholder, has been allowed to recover it where, by acting, he prevents a horse race from being run. 120 But this doctrine is not accepted everywhere, and its distinction as an exception if! not clearly distinguished from the general rule that one who has become a party to an illegal contract is en- titled to no aid from the courts, even by way of relief. Sec. 74. WHERE STATUTE ALLOWS RECOVERY. Even if the contract is executed the statute in some cases al- lows money paid or property parted with to be recovered. In some cases the legislature deems it wise to make exceptions to the law and allow a party to be put back in his original position. Thus, in some states one can recover money lost at gaming. The common law, ap- plying the general rule, would leave both parties in the position in which they have placed themselves, that is, would give its aid to neither to relieve them of their illegal act. But the legislature in some states has deemed 120. Johnston v. Russell, 37 Cal. 670. AMERICAN COMMERCIAL LAW. 149 it best to alter this. 121 So in case of money paid to a lottery in some states; and in some states usury paid may be recovered. (d) Contracts partly legal and partly illegal. Sec. 75. WHERE CONTRACT PARTLY LEGAL, PARTLY ILLEGAL. If one inseparable promise is based on several considerations, some illegal, the promise is never- theless unenforceable in toto; but if there are several prom- ises, each referable to a separate consideration, only those promises will fall which are supported by illegal considera- tions. If an entire promise is based on one legal, one illegal consideration, it is impossible to say what part of the promise is supported by the legal consideration and there- fore the illegality will go to the whole contract. 122 Thus, if A makes a promise to pay $100 for a slot machine and a counter, it is impossible to say which part of the $100 is for the machine and which for the counter. The court cannot divide the promise for the parties and make a contract for them. But suppose at one bargaining A orders a slot machine for $50 and a counter for $50; this is one contract, yet its promises and considerations are separable. The good will be upheld. The illegal will fall. 121. Rice v. Winslow, 182 Mass. 273. 122. Bixby v. Moor, 51 New Hampshire Reports, 402 (suit for wages for services rendered in caring for a billiard hall operated legally and a saloon operated illegally, under one indivisible contract. Held, there could be no recovery for any of the services). CHAPTER 7. FORM AND EVIDENCE OF CONTRACT. Sec. 76. GENERAL STATEMENT. We have considered the ingredients that must enter in the formation of contracts, without which a contract cannot exist; confining ourselves to a consideration of those elements essential to all contracts, and disregard- ing elements which may be additionally required in the formation of particular types of contracts, and until this time also ignoring the fact that in the contract under seal, or only true type of formal contract, consideration, though usually present, is not an essential element, the seal replacing it as completing the quota of essential ele- ments. Such contract under seal will be considered at this point as one of the subheadings of this chapter. Let us now consider the form which the contract may take in its formation ; and also what sort of evidence the law may require for its proof. A. The Formal Contract or Contract Under Seal. Sec. 77. DEFINITION OF SEALED INSTRUMENT. A contract is under seal when the impression or mark is af- fixed which constitutes in law the seal. This by the common law was an impression on wax affixed to the instrument. It may now consist in a scrawl. A contract under seal is called a formal contract or specialty. In order for us to have a general understanding of contract law it becomes necessary for us to consider the 150 AMERICAN COMMERCIAL LAW. 151 contract under seal, to inquire what contracts must be under seal, and to notice the effect of putting any con- tract under seal. Perhaps the reader in signing some document has noticed the word "Seal" at the end of the line on which he has signed, and has wondered just what was the exact purpose and effect of that word. Let us note first, that the great majority of contracts into which men enter day by day are not under seal, except when they concern real estate or consist in penal bonds, al- though any other contract may be under seal. We may say further that it seems to be the tendency of legis- latures and courts to minimize the importance of the seal, although it is still in the majority of the states of much importance. But even where it still maintains its an- cient meaning or any part thereof its importance to the layman may be greatly lessened by these three facts: First, in executing instruments which must be under seal (as deeds, mortgages, etc.), either printed forms are used upon which the seal is printed, or the instrument is executed under the advice of an attorney at law who sees to it that the seal is attached. Second, the vast majority of contracts entered into for commercial purposes are not under seal, and it is, therefore, the law of unsealed contracts which is of chief concern to the layman. Third, though we shall find that a promise is binding when under seal though it lacks consideration and not binding when not under seal if so lacking, yet it is a rare instance when a contract under seal does not have some consideration, and its importance for that purpose becomes greatly minimized. Yet, when all is said, it is of importance for the lay- man to know something of this form which has been of vast importance in the history of contract law, and which 152 THE LAW OF CONTRACTS. still in many states today determines the fate of impor- tant litigation. A seal by the old common law was an impressed wax or wafer affixed to the instrument to indicate an assent thereto and a deliberate intention to be bound. The in- strument with which the impression was made was also called a seal. To say that a contract was under seal meant that an impressionable substance had been at- tached to it and impressed with the obligor's seal or mark. This was taken to indicate that the party sealing the in- strument thereby asserted in a solemn and deliberate way that he intended to be bound according to the covenants therein contained. Usually a recital was made in the contract that it was under seal, thus, "Given under my hand and seal," or "Witness my hand and seal," but this was not essential. By modern legislation it is no longer necessary to use an impressed wax or wafer to put an instrument under seal. Ordinarily one simply writes after his signature the word "(SEAL)" or "L. S." (Locus Sigilli, place of the seal). Sec. 78. EFFECT OF SEAL IN EARLY LAW. By the common law a seal makes a promise binding though without consideration. By the common law, as we have seen, consideration was necessary, as it is now, to make effectual any promise which was not under seal, but if it was under seal it was not necessary. It was considered that when a party deliberately entered into a promise by affixing his seal thereto, there was no reason why he should not be bound thereupon, even though such promise did not contemplate that anything should be given or promised in return. 123 123. Walker v. Walker, 13 Ired. (N. C.) 335. AMERICAN COMMERCIAL LAW. 153 Accordingly we may say that the common law di- vided contracts into two great classes, those which, whether oral, implied or written, were not under seal, and those which were under seal. The first were known as simple contracts : the second, as formal contracts, con- tracts under seal or specialties. It was the presump- tion of the law, which once may have accorded with the fact, that promises which were under seal were made with great solemnity and deliberation, whereas promises not under seal (and therefore, in the old days, probably not even signed or written) were apt to be made lightly with insufficient deliberation, and therefore it was said that in such a case the promise should not be considered as contractual unless it contemplated that something should be promised or given in reliance on it and such thing was in fact promised or given as contemplated. It is no doubt true that at one time putting a seal to a contract indicated greater deliberation, but it does not do so now. When the seal was first used, the ability by the average man to write was an uncommon, and indeed, a despised thing. To make his signature, as illiterate men do in these days by a cross, each man had his seal with its highly distinctive impression. He needed only to use it in those non-commercial days, upon rare and important occasions, and consequently might well be presumed to do so only upon full deliberation, and with a solemnity of circumstance which made his prom- ise binding. This is an old habit fallen into disuse. That the seal still has importance is explained only by a reference to its history. Sec. 79. INSTRUMENTS REQUIRING SEAL AT COMMON LAW. By the common law a seal is essential to make binding all promises intended to operate without con- 154 THE LAW OF CONTRACTS. sideration and is required upon deeds, mortgages, bonds and powers of attorney regardless of the consideration. A deed conveying the absolute title of real estate to another, or a defeasible title by way of trust or mort- gage, must be under seal in many states. The very definition of a bond signifies that it is an instrument under seal; a power of attorney, that is, a formal con- ferring of agency upon another is always under seal, and where an agent is appointed to execute an instru- ment under seal, his authority must also be under seal. A seal placed on any contract makes it a formal con- tract or specialty although the seal is not necessary. Sec. 80. MODERN LEGISLATION IN RESPECT TO SEALED INSTRUMENTS. Modern legislation tends to minimize the distinction between sealed and unsealed instru- ments, yet in many States the seal still retains much of its ancient dignity. We have seen that a promise under seal was given a weight not accorded other promises and this was be- cause the use of the seal indicated, or was presumed to indicate, deliberation on the part of the promisor. We have said that it no longer does so. One who signs his name to a contract is doing in another way the very thing that was in olden times done when the seal was affixed. Legislation has permitted the use of a printed or written scrawl in the place of the impression on wax, and this in itself has taken from men's minds the solemnity of the act of sealing. It cannot with truth be said that there is any greater deliberation in one's mind from the fact that he forms a scrawl after his name, or writes his name before a printed scrawl. Be- ginning with this legislation which permits the use of AMERICAN COMMERCIAL LAW. 155 the scrawl, some of the legislatures have adopted laws tending to minimize, or in some cases altogether abolish, the use and effect of the sealed instrument. Such legis- lation we may classify as follows : (a) Legislation in respect to the form of bringing suit; (b) Legislation in respect to the form of seal. This has been brought about in most states. The seal may be by scrawl with use of the words ''Seal" or "L. S." contained therein. Such scrawl may be written or printed; 124 (c) Legislation allowing want or failure of consid- eration to be shown in a court of law. Under the com- mon law a common law court could not open up a sealed instrument for that purpose. (d) Legislation abolishing all distinction between sealed and unsealed instruments or providing that a seal shall be unnecessary on any contract. Such legislation places all contracts on the plane of the simple contracts. It is in force in most of the states. 125 B. Contracts Required by Law to Be in Writing. Sec. 81. CERTAIN KINDS OF CONTRACTS MUST BE IN WRITING, IN ORDER TO BE EFFECTUAL. Such are conveyances of real estate, negotiable instruments, 124. Laws to this effect are in force in most of the states. 125. The seal is either abolished in the following states or else amounts only to a presumptive evidence of consideration which may be rebutted to defeat the contract : Alabama, Arizona, California, Idaho, Iowa, Kansas, Michigan, Minnesota, Missouri, Mississippi, Montana, Nebraska, New Mexico, Tennessee, Texas, Wyoming. In many states there is still preserved a marked dis- tinction between sealed and unsealed instruments. The seal is necessary on certain documents and whenever used has more or less of its ancient meaning. 156 THE LAW OF CONTRACTS. promises to pay debts barred by statute of limitations, as- signment of patents, etc. Some contracts cannot exist as such unless in writing because of some specific provision of the law so requir- ing it. A negotiable instrument must be in writing. Acceptances of bills of exchange must be in writing. A deed must be in writing. A bond is necessarily a written instrument. An assignment of a patent must be written. Under some statutes, promises relied upon to pre- vent the running of the statute of limitations, must be in writing. C. Contracts Not Enforceable Unless in Writing. (a) Nature and object of Statute of Frauds. Sec. 82. THE STATUTE OF FRAUDS. By the English Statute of Frauds, and similar statutes patterned thereafter in this country, certain contracts are not legally enforceable unless the evidence to prove them is a writing signed by the party sought to be charged, or in case of contracts of sale or personal property, unless there is either a writing or a certain part performance. The British Parliament in 1676 passed a statute known as the "Statute of Frauds and Perjuries," or more usu- ally referred to simply as "The Statute of Frauds." This is perhaps the most famous and far-reaching statute not of a political nature in all English jurisprudence. It has been called the "adopted child of the common law." The statute was fairly lengthy, concerning itself with other subjects than those of contract, but the fourth section of the statute related to various classes of con- AMERICAN COMMERCIAL LAW. 157 tracts therein enumerated, and the seventeenth section to contracts of sale of personal property. The requirement of the statute is that certain contracts cannot be enforced unless in writing and that sales of personal property cannot be enforced unless there is a writing, or a certain part performance. It was called the Statute of Frauds and Perjuries because the legis- lative motive in enacting it was to make more difficult perjured claims and perjured defenses by requiring a certain kind of proof. But if, so far as contracts are concerned, it had been called some name suggesting a certain kind of evidence, it would be less likely to con- fuse the student's mind. The "statute of frauds" is, because of its title, likely to be thought of as a statute dealing with frauds gen- erally, and this title certainly conveys to the uninitiated no suggestion of writing. The title explains the reason for the enactment of the statute arising out of the be- lief that suitors, by perjured testimony, either affirming the existence of contracts that did not exist, or deny- ing the existence of those that did exist, were accom- plishing fraud, and that such miscarriage of justice could be largely prevented by requiring that certain classes of contracts could not be proved unless the party seeking to enforce such a contract could produce a writing or writ- ten memorandum signed by the other party. It was not considered wise to carry this provision to all contracts, but only to certain classes thereof which, because of their peculiar nature or importance, were likely to encourage false swearing; although, it is true that some judges have pointed out that the statute also serves the purpose of preventing the proof of cases by the mistaken mem- ory of honest men. This statute has undoubtedly performed the office of preventing much fraud and perjury. But it has also 158 THE LAW OF CONTRACTS. resulted in great injustice. It prevents one who has a good case from proving it if he has neglected to obtain the evidence required by the statute, even though he may have all sorts of other evidence, and even though the other party will not deny the contract, but simply insists on this technical proof of it. And many judges have said that it has caused more fraud and more '''ti- gation than it ever prevented. And yet it has a firm place in our law, and very likely its advantages greatly outweigh the hardships. It has been adopted, in whole or in part, in all of our American States. There are two sections of this statute relating to con- tracts, the fourth and the seventeenth. The effect of the fourth section is to render certain contracts unen- forceable unless their existence can be proved by a writ- ten memorandum signed by the party sought to be charged. The effect of the seventeenth section is to make unexecuted contracts for the sale of personal property for a certain price or upwards unenforceable unless their existence can be proved by a written memorandum, signed by the party to be charged, or unless there has been a part performance of the contract. This section has not been in force in some of the American States, but now it has been substantially embodied in the Uni- form Sales Act which is being generally adopted. Of course these sections, when re-enacted in this coun- try, do not necessarily retain those numbers. Sec. 83. TEXT OF THE STATUTE OF FRAUDS. The original English Statute of Frauds provided as follows: "That no action shall be brought (i) whereby to charge any executor or administrator upon any special promise to answer damages out of his own estate; (2) or whereby to charge the defendant upon any special promise to answer for the debt, AMERICAN COMMERCIAL LAW. 159 default, or miscarriage of another person; (3) or to charge any person upon any agreement made upon consideration of marriage ; (4) or upon any contract for the sale of lands, tenements or here- ditaments, or any interest in or concerning them ; (5) or upon any agreement that is not to be per- formed in the space of one year from the making thereof ; unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith, or some other per- son thereunto by him lawfully authorized." (4th Section.) "That no contract for the sale of any goods, wares, and merchandise, for the price of ten pounds sterling or upwards, shall be allowed to be good, except the buyer shall accept part of the goods so sold, and actually receive the same, or give some- thing in earnest to bind the bargain, or in part payment, or that some note or memorandum in writ- ing of the said bargain be made and signed by the parties to be charged by such contract, or their agents thereunto lawfully authorized." (i/th Sec- tion. ) Sec. 84. THE STATUTE RELATES TO THE EN- FORCEMENT, NOT THE VALIDITY OF CONTRACTS. The Statute of Frauds does not have the effect of preventing the formation of contracts included within it without com- plying with its provisions but merely furnishes a requisite in the manner of proof, if the adversary relies upon and pleads the Statute of Frauds. It is well established that the English statute of frauds and its patterns in this country do not require writing as an element in the formation of the contract. 160 THE LAW OF CONTRACTS. It merely requires that when a suit is instituted upon an alleged contract within the statute of frauds, the ad- versary party may plead the statute as a defense and thus require the plaintiff to produce some written evi- dence which sets forth the contract, and signed by the party to be charged thereon. Example 56. A agrees to sell goods to B under an oral agreement. B decides not to take the goods and writes a letter to A telling him so and sufficiently de- scribing the contract to satisfy the statute of frauds. He signs the letter. A sues B. B pleads statute of frauds. A can comply with the statute, and prove the contract, by producing B's letter. 126 The justice of this is apparent. If a man makes a contract he ought to perform it. The statute was not to help him, but to prevent fraud and perjury. Therefore, if the writing signed by him is produced, it would be the merest of technicalities, and a perversion of the stat- ute to say he could not be held because the contract was not made in writing. Because of this view of the statute, it is generally held: (1) The statute is not a defense unless affirmatively pleaded. (2) It does not apply to executed contracts. (3) The writing may have been made at any time, even after suit begun. (b) The cases within the statute. Sec. 85. PROMISES OF EXECUTORS AND ADMIN- ISTRATORS. A promise of an executor or administrator to 126. Bird v. Munroe, 66 Me. 337. AMERICAN COMMERCIAL LAW. 161 charge himself personally with the payment of the debts of the decedent's estate cannot be enforced unless there is writ- ten evidence of such promise signed by the party sought to be charged. There is, of course, no duty upon an executor or ad- ministrator to pay the debts of the decedent's estate out of his own personal estate. If, however, he takes it upon himself to be personally bound for such debts, the law requires the proof of any such engagement to be in writ- ing and signed. Not very much litigation has been oc- casioned in reference to this provision. Sec. 86. PROMISES TO ANSWER FOR THE DEBT, DEFAULT, OR MISCARRIAGE OF ANOTHER PER- SON. A promise of any person to answer for the debt, de- fault, or miscarriage of another person cannot be enforced unless there is written evidence of such promise, signed by the person sought to be charged. This provision of the statute contemplates a debt or liability from A to B, and C's promise to the creditor, B, to pay if A does not. C is a guarantor, and his promise may arise either at the inception of the debt, or there- after. It must, of course, be supported by a considera- tion to be enforcible whether in writing or not, but it is not necessary that the guarantor get any benefit or ad- vantage for making the offer, for the consideration may consist in the detriment to the creditor in extending the credit upon the strength of the guaranty, or if the credit has already been extended may consist in granting fur- ther definite time upon it or any other right or thing parted with by the creditor in return for such guaranty. This provision of the statute contemplates a main or original debt by A which he ought to pay and another's Bays IT 162 Tut; LAW OF CONTRACTS. promise to pay it if the debtor does not. It is held not to apply (a) To any case in which the alleged guarantor is in fact the main debtor. (b) To any case in which the promise to pay is not made to the creditor but to the debtor. Example 57. A desiring to get credit from B is re- quested to furnish a sponsor. C thereupon promises B that he will pay if A does not. If this promise is not in writing and signed by C, C when sued has a complete defense in the statute of frauds. 127 Example 58. If in the above case C had said to B, "Let A have goods and charge to my account" or "look to me for payment," C would have made the debt his own and C could be compelled to pay whether his prom- ise was in writing or oral. 128 Sec. 87. PROMISES IN CONSIDERATION OF MAR- RIAGE. A promise in consideration of marriage cannot be enforced unless there is written evidence thereof, signed by the party sought to be charged. This provision refers to ante-nuptial agreements to con- vey property in consideration of the marriage. It does not refer to mutual promises to marry, which are bind- ing, though oral. An oral promise to convey real estate would be unenforceable both by this provision and the one relating to real estate. Sec. 88. CONTRACTS FOR THE SALE OF LANDS OR ANY INTEREST IN OR CONCERNING THEM 127. Jones v. Cooper, I Cowp. 227. 128. Marr v. B. C. R. & N. R. Co., 121 la. 117. AMERICAN COMMERCIAL LAW. 163 (EXCEPT SHORT TERMS LEASES). These contracts cannot be enforced unless there is written evidence of such contracts signed by the party sought to be charged. This provision applies to contracts which create an interest or estate in anything which is to be classed as real estate or distinguished from personal property, ex- cept short term leases, as for one year, which are now generally excluded by the American statutes. The most obvious application is to contracts to buy or sell a piece of real estate, as a farm, a city lot, etc., but it also ex- tends to any contract to convey or create an interest in anything which may be classed as real estate. Thus it would apply to any contract to mine ore, 129 to create an easement, to sell an old house to be removed, 130 etc. Note, however, that it is immaterial if the contract re- fers to something which is now real estate, if before the sale or creation of the interest is to arise, it must be converted by the seller into personal property. Thus, a right to mine ore in the land of another would be un- enforceable unless in writing. But if A contracts to sell B 1,000 tons of coal, this is a contract to sell personal property, though it may happen that when the contract is made the coal is unmined and is therefore real estate. Such a contract to sell coal might, however, be unen- forceable by reason of the section in reference to sales of personal property. Yet that section might not apply, for sales of personal property are good without writing, if a payment has been made or a part of the goods deliv- ered and accepted. So in some states the provision in reference to sales of personal property is not in force. Crops which are planted and mature annually are re- 129. Entwhistle v. Henke, 211 Illinois Reports, 273. 130. Meyers v. Schemp, 67 Id. 469. 164 THE LAW OF CONTRACTS. garded as personal property in this regard, and an oral sale of them is enforceable so far as this provision of the statute is concerned. 131 Thus, if A orally agrees to sell B all his standing corn, this is enforceable whether A or B is to cut the corn and take it away. Sec. 89. CONTRACTS THAT CANNOT BE PER- FORMED WITHIN A YEAR FROM THE MAKING THEREOF. These contracts cannot be enforced unless there is written evidence of them signed by the party sought to be charged. This provision relates only to those contracts which by their express terms or by their inherent nature cannot be performed within a year from the time of their mak- ing. It is decided that if the contract may be performed within the year, though the probability be remote, this provision does not apply and the contract is enforceable though oral. In such a case it is immaterial that the performance as a matter of fact does take longer than a year. 132 An illustration will make this plain. Thus suppose that A, for a certain sum of money to be paid to him by B, by oral contract agrees to support B the re- mainder of B's life. B is sixty years of age and in fair health. This contract may be enforced, though not in writing, for B may die within the first year. The fact that B does actually live twenty years longer does not make any difference. On the other hand, A employs B to work for him fifteen months. There must be written evidence of this contract, and if either A or B breaks the contract he cannot be charged with its breach. Sec. 90. CONTRACTS FOR THE SALE OF GOODS, WARES AND MERCHANDISE FOR A CERTAIN 131. Bull v. Griswold, 19 Ibid. 631. 132. MacElree v. Wolfersberger, 59 Kan. 105. AMERICAN COMMERCIAL LAW. 165 PRICE OR UPWARDS. These contracts in many jurisdic- tions cannot be proved unless there is written evidence of them signed by the party sought to be charged, or unless there is at least part delivery and acceptance, or part pay- ment. It will be noticed at once that this provision of the statute differs from those which have been mentioned above, in two main particulars : first, that it does not ap- ply unless the price reaches a certain amount ; and second, it is enforceable though not in writing if there has been a delivery and acceptance of the goods, or part thereof, or payment in whole or part. This provision is not in force in a number of the American States, but in the majority of them it is. 133 The original English statute of frauds related to the sale of goods, wares, and merchandise for the price of ten pounds sterling or upwards. In this country, the limitation as to price varies, although the commonest provision is fifty dollars. For an elaboration of the law as to this subject, see The Law of Sales of Personal Property, in this series. (c) What amounts to compliance with statute. Sec. 91. THE MEMORANDUM AND THE SIGNA- TURE. The memorandum and signature may be made at any time. The memorandum need not be formal but must sufficiently identify the parties, describe the subject matter and set forth the terms, but the consideration may usually be proved by parol evidence. The signature may be any name 133. See Sales in this series. i66 THE LAW OF CONTRACTS. intended as a signature either in the body of the writing or written thereunder and made by the party or his agent. We have already seen how the writing and signature need not be made at the time of the formation of the contract, but at any time thereafter. The entire contract must appear from the writing, except the consideration which in many states may be orally proved. Thus the writing must identify the sub- ject matter, the parties and state the terms ; but this may all appear from the roughest sort of a memorandum, as a receipt, and the writing may be in the form of print, typewriting, or lead pencil memorandum. 134 The signature is the use by a party or his agent of a name or mark to express his acceptance of the contract. It may be his true name, or any assumed name, or any mark intended as a signature. It need not be at the bottom of the writing, but anywhere therein. Example 59. John Smith engages in business as "The Novelty Store, Unincorporated." He employs Walter Jones as an agent. Walter Jones, as agent, makes a contract with Harry Wilson which comes within the statute of frauds, reading as follows : "The Novelty Store, Unincorporated, hereby promises," etc., and is not otherwise signed. This is a sufficient signature to bind John Smith, assuming the agent had authority, real or apparent, to make this particular contract for his prin- cipal. 135 The signature of the party sought to be charged is sufficient. That the other party has not signed is unim- portant, if in fact he made the contract. Thus in the 134. Clason v. Bailey, 14 Johns (N. Y.) 484. 135. United Hardware Furn. Co. v. Blue, 59 Fla. 419. AMERICAN COMMERCIAL LAW. 167 above example suppose Harry Wilson sues and is able to produce the above memorandum. He can thereby supply signed, written evidence that Smith made the contract. The purpose of the statute is accomplished. Memorandum and Signature May Be by Agent. The statute expressly recognizes this, but undoubtedly that would be the implication at any rate. The agent of one party may be chosen by the other party as his agent for the purpose of making the memo- randum and the signature. This is recognized as the rule in two classes of cases : First: Where the agent of the seller is an auctioneer, such auctioneer, although for all substantial purposes the agent of the seller, is also the agent of the buyer for the purpose of complying with the statute. 136 Second: Where the agent of either buyer or seller is a broker, that is, one who makes it his business to bring buyers and sellers together, he is the agent of the one who employs him, but for the limited purpose of com- plying with the statute of frauds, he is also the agent of the other party. 137 Sec. 92. COMPLIANCE BY DELIVERY AND AC- CEPTANCE IN SALES OF PERSONAL PROPERTY. Evidence of a contract of sale of personal property which is not in writing and signed may consist in a delivery and ac- ceptance of such property or a part thereof. The 1 7th section of the statute of frauds and the sales act does not require signed written memorandum if there is part delivery and acceptance of the property alleged to have been sold. In such a case the statute is no defense although there is no writing. 136. Love v. Harris, 156 N. C. 88, 36 L. R. A. N. S. 927. 137. Clason v. Bailey, supra. i68 THE LAW OF CONTRACTS. The Delivery. The delivery does not necessarily re- quire a removal, but any surrender of authority over the property in favor of the other, as the delivery of a key or a taking charge and assuming dominion by the buyer pursuant to the alleged contract. 138 The Acceptance. Acceptance signifies more than mere receipt. It signifies a receipt accompanied by an inten- tion to retain. Acceptance may be by carrier for some purposes, as to accomplish transition of title, but receipt by a carrier is not acceptance from this standpoint. 139 Sec. 93. COMPLIANCE BY PAYMENT OR PART PAYMENT IN CASE OF SALES OF PERSONAL PROP- ERTY. Under the 17th section of the Statute of Frauds a contract of sale is enforcible though there is no writing or delivery where the buyer has given something in earnest to bind the bargain or in part payment. Another way of satisfying the statute of frauds re- lating to sales of personal property (the seventeenth sec- tion), is in payment in whole or part of the purchase price by the buyer and its receipt by the seller. 140 If this is proved this is corroborative evidence of the fact that a contract has been had between the parties although the rest of it must be proved by witnesses. The entire amount need not be paid ; it is sufficient if there be something in earnest to bind the bargain. Sec. 94. CONTRACTS FOR "WORK AND LABOR" NOT WITHIN THE STATUTE. If when the contract was made it was contemplated that the seller should make up for the buyer the goods which were the subject matter of 138. Shindler v. Houston, i N. Y. 261. 139. United Hardware Co. v. Blue, 59 Fla. 419. 140. Wier v. Hudnutz, 115 Ind. 525. AMERICAN COMMERCIAL LAW. 169 the sale, some courts held that this was not a contract of sale within the Statute of Frauds; but other courts held that it was a sale notwithstanding this circumstance and some held that the statute did not apply provided the goods were to be made up to the special order of the buyer and were not otherwise kept in stock. If A orders a wagon from B which B is to make up from his own material, is this a sale? It undoubtedly is, and as much so as though the wagon is already made up and taken away by A at the time of the bargain, and the law of sales must be called upon to govern such a transaction. Now the I7th section of the statute of frauds said nothing as to the exclusion of such a trans- action from its operation, yet some courts regarding the hardship of the operation of the statute in such cases, especially if the goods were to be made up specially for the buyer, excluded it by construction through the sim- ple device of calling such a contract one of work and labor rather than one of sale. Three rules developed: 141 (i) the rule of those courts which followed the statute literally that such a contract was one of sale and not enforcible if no writing, part payment or part delivery and receipt; (2) the rule that if the goods were to be made up by the seller the statute did not apply; (3) the rule that it did not apply if the goods were to be made up by the seller provided they were made up on the buyer's special order and were not fit for the gen- eral market. This question has now been set at rest in this country to a very general extent by the adoption of the Uniform Sales Act. See next section. Sec. 95. THE STATUTE OF FRAUDS AND THE UNI- FORM SALES ACT. The 17th section of the Statute of 141. Goddard v. Binney, 115 Mass. 450. 170 THE LAW OF CONTRACTS. Frauds has been incorporated in the Uniform Sales Act, which provides specifically that the statute shall apply to all cases whether the goods are to be made up or not unless being ordered to be made up they are not fit for sale to others in the ordinary course of the vendor's trade. The statute of frauds relating to sales of personal property had been adopted hi most of our American States and has been reaffirmed by its inclusion in the Uni- form Sales Act; the question presented by the last sec- tion has been settled by a definite provision in that act that the statute must be complied with by signed written memorandum, or by part delivery and acceptance or by part payment even if the goods are yet to be made unless they are made up for the special benefit of the buyer, that is, are not stock goods, and cannot be disposed of on the general market. Example 60. A hotel company orders a lot of dishes to be made up for it by the M. Co., with the monogram of the buyer thereon. There is no written memorandum, no part payment, and no receipt of the goods by the buyer. The statute is not a legal defense. D. The Parol Evidence Rule. Sec. 96. THE PAROL EVIDENCE RULE DEFINED. The parol evidence rule is, that if a contract is reduced to writing, such writing is the evidence of the contract and therefore not subject to contradiction, addition or variance by oral or extrinsic testimony. Parties reduce a contract to writing either because such is the requirement of the law, or because they desire it to be in that form. It not infrequently happens that a party to a contract will claim that prior to the execution of his contract or AMERICAN COMMERCIAL LAW. 171 at the time thereof, there were other matters agreed upon which were not set forth in the writing which he now seeks to enforce. For instance, suppose Smith sells a jewelry store to Brown and it is agreed that Brown shall not use Smith's name and shall remove the signs upon the store, and it is so stated in the bill of sale, but, at the time, Brown makes the point that he does not wish to go to the extra expense of new signs right away, and Smith states that while he is unwilling to give Brown the right to use his signs, he will do the right thing and let Brown use the signs for a month. The next day Smith demands that Brown pull down the signs and stop using the name. The parol evidence rule would forbid the proof by Brown that any such an oral agreement was made, for it con- tradicts the writing that was made between the parties as the expression of their contract. Notice that the parol evidence rule is a rule of exclusion of evidence. If a court considers that evidence which is proffered would violate the parol evidence rule, it will, upon objection by the other side, refuse to admit such evidence in the case. Now, such a rule undoubtedly works injustice in specific instances, but it serves, nevertheless in other in- stances to prevent the injustice of the proof of collateral agreements that were never made, and preserves the in- tegrity of written evidence, which, but for such rule, would not serve the purpose that the parties and the law intend it shall serve. Example 61. A by contract in writing agrees to fur- nish B a certain quantity of cotton upon terms stated. B refuses to receive cotton sent by A upon the ground that A agreed to deliver cotton grown by A upon his own land. A brings suit and B offers this evidence. A ob- jects. The Court refuses to admit it upon the ground 172 THE LAW OF CONTRACTS. that it would add to and vary the terms of the written contract. 142 Sec. 97. PAROL EVIDENCE RULE PERMITS CON- TRACT PARTLY IN WRITING AND PARTLY ORAL. The parol evidence rule does not prevent a contract from be- ing partly oral and partly in writing if such appears to have been the intention of the parties and if the law does not re- quire the entire contract in question to be in writing. We have said that the parol evidence rule forbids the alteration of a written contract by any additions thereto by oral proof. But consistently with that we may still have a contract a part of which only was intended to be put in writing, the rest being oral. In such a case the parol evidence rule applies to the part that was put in writing and such part cannot be added to by the intro- duction of oral testimony, although the other part that the parties intended to be but oral may be proved in connection with the written part. We assume here, of course, that the law does not require the entire con- tract to be in writing. How do we know whether it was intended to put an entire contract in writing or not? If the defendant says that he wants to prove some ad- ditional utterances that were agreed upon at the time qualifying what was said in the writing, why does this not make a case of a contract partly in writing, partly oral? We must look to the contract and the circum- stances to answer that. If it appears therefrom as a reasonable conclusion that the writing was meant to be the permanent memorial and evidence of their agree- ment, or of some particular part thereof, then the con- 142. Forsyth Mfg. Co. v. Castlen, 112 Ga. 109. AMERICAN COMMERCIAL LAW. 173 tract, or that part thereof, cannot be added to or con- tradicted by proof of other things agreed upon at the same time that would change the situation between the parties. In a contract orally made a note may be given. The note, as a note, cannot be changed by parol evi- dence, but the rest of the agreement can be proved. 143 The maker cannot show that it was agreed that the rate of interest should be different from that stated in the note, or that he should have further time than that therein provided. And it is usually not difficult to tell whether the writing is complete so as to permit no fur- ther proof. Sec. 98. PAROL EVIDENCE RULE PERMITS PROOF OF CUSTOMS. Customs that must have been in- tended by the parties to govern their contract are a part of it and can be proved to explain the terms of a written con- tract. A custom or usage of such general nature that the parties must have contracted in reference to it can be proved to explain the written terms used by them. The parol evidence rule does not forbid such proof because the parties are not by such proof seeking to add to or vary the contract but merely to show in what sense the terms were used. 144 Sec. 99. EVIDENCE NOT FORBIDDEN BY PAROL EVIDENCE RULE. A party, notwithstanding the parol evidence rule, may show (1) a subsequent alteration of a written contract by oral agreement; (2) fraud, duress, undue 143- Id. 144. Walls v. Bailey, 49 N. Y. 464. 174 THE LAW OF CONTRACTS. influence; (3) mistake preventing contract; (4) clerical error in reducing to writing; (5) illegality. The sole object of the parol evidence rule is to pre- serve the evidence of the contract which the law required or the parties must be taken to have intended to be the evidence thereof. The rule is a sensible one and is ap- plied in a common sense way. In the following situa- tions oral evidence may be introduced in reference to a written contract for the purposes indicated : (a) Subsequent alteration of written contract by oral agreement. Parties to a written agreement may afterwards change it by oral agreement. (By the common law a contract under seal could not be altered except by agreement un- der seal, but this was not because of the parol evidence rule.) (b) Oral proof of circumstances rendering contract voidable. Fraud, duress, undue influence may be shown to avoid a written contract. Example 62. A by fraudulent representations per- suades B to enter into a written contract to buy a farm. B may show the fraud for the purpose of withdrawing from the contract because of the fraud. (c) Mistake preventing contract. Referring to the former pages in which this subject was discussed, we may now note, further that such seem- AMERICAN COMMERCIAL LAW. 175 ing contracts, non-existent because of mistake, may be so shown to be by oral evidence notwithstanding they may have been in writing. (d) Clerical error in reducing to writing. Example 63. A applies to the X Insurance Company for insurance upon his house against the contingency of fire. The agent for the X Company looks over the house and makes a rate upon it, and thereupon A takes out a policy. The house is No. 10 Main Street, but the policy reads 100 Main Street. Upon a proper showing A can recover upon this policy in case of fire. 145 (e) Illegality. A contract legal superficially may be shown to be really intended by the parties thereto to have an illegal purpose and thus defeated. 146 (f) That a contract was delivered on condition. A party to a contract may show by parol evidence that though it was signed and delivered it was subject to an agreement that it should not take effect except upon a condition that did not occur and therefore, th?.t the con- tract, for example, a note, did not become effective. E. Oral and Implied Contracts. Sec. 100. ORAL CONTRACTS. Any contract may be oral which the law does not require to be in writing. The general rule is that any contract may be oral (or implied) if some statute does not require it to be in 145. German F. Ins. Co. v. Gueck, 130 111. 345, 23 N. E. 112. 146. Muskogee Land Co. v. Mullins, 165 Fed. 179. 176 THE LAW OF CONTRACTS. writing. 147 An oral contract is of equal dignity with any simple written contract, but the evidence of course, is not so satisfactory or enduring. Sec. 101. CONTRACTS IMPLIED IN FACT. A con- tract implied in fact is a contract the evidence of which con- sists in the circumstances which show forth a contractual intention. Actions may bespeak a contract. Such a contract we speak of as implied. Usually, however, an entire con- tract is not implied, but merely some part thereof. When will circumstances indicate the existence of a contract? Whenever we may say that the relationship which the parties bear toward each other is more rea- sonably explained on the theory of contract than any other, a contract will be implied. In other words, an implied contract is a true contract evidenced by the cir- cumstances as existing between the parties. Example 64. A orders coal from his dealer saying nothing about prices. B delivers the coal. The infer- ence here is that A intended to pay and B to receive pay for the coal. If B sues for the price he could recover upon A's implied promise to pay the price that B was then getting for his coal from his customers the mar- ket price. Here, though B's promise is implied, it is just as real as though he uttered the words. To over- come this inference of a promise, he could show, if such were the fact, that B promised to make him a present of the coal. As we have heretofore noticed, the law will not sup- ply or infer terms of a contract merely because they are 147. McKennon v. Winn, i Okla. 327. AMERICAN COMMERCIAL LAW. 177 lacking. An agreement to sell a horse, no price being mentioned, would simply be an incomplete contract, as such price could not be reasonably inferred, there be- ing no market price which we could assume the buyer intended to pay. If the circumstances are more readily explainable upon some other theory than that of contract, no contract will be implied. Example 65. A stays at home and helps his father upon the farm, while his two other sons go out to earn their living away from home. The father dies. There being no will A regards it as unfair that there should be an equal division and puts in his claim against the estate for his labor. The courts have taken the position that A's filial devotion explains his conduct rather than the theory of contracjt, and therefore deny his claim. A could show, however, if such were the fact that there was in fact, a contract between himself and his father, but he would have to show more than the facts stated, as for instance, that the father kept an account of the amounts becoming due the son, or that the son kept one, with the father's knowledge and consent. 148 F. Contracts Implied in Law or Quasi-Contracts. Sec. 102. DEFINITION OF QUASI CONTRACT. A quasi contract may be defined as a legal obligation arising out of the receipt of a benefit for which there has been no actual promise to pay the retention of which without com- pensation would be unjust. The law therefore raises the obligation to pay for it. A quasi contract is not a contract at all, and may in fact exist in cases in which there is not only no re- 148. Hertzog v. Hertzog, 29 Pa. St. 465. Bays 12 178 THE LAW OF CONTRACTS. semblance to a contract, but under circumstances that completely rebut such an idea, for instance, theft cases. Why is it then that we use the word quasi contract (like contract) ? We have seen that there is civil liability where one breaks an obligation arising out of agreement (the law of contracts) ; and civil liability where one breaks an obligation imposed upon him by the general law (the law of torts), and this, offhand, might seem to cover the entire field of civil liability ; and it is quite thinkable that in the development of the law of torts, that which we now call quasi contract might have been included; and, indeed, we will see that under some circumstances one may sue in tort or quasi contract at his election. In the history of the English common law there de- veloped the theory of the "form of action" in bringing suit, whereby any suitor had to find a form of action established by precedent to fit his case, and it was a rigid adherence to this theory which was partially re- sponsible for the development of courts of equity. Two kinds of forms of action to enforce personal liability developed, the actions ex delicto (tort actions) and the actions ex contractu (contract actions) and there were a number of each. Now, if one had received a benefit that he ought to pay for, a refusal to pay for which would result in his unjust enrichment at another's expense, the court readily saw that the injured person should have his remedy yet there was no formal action to fit his case. So, the courts permitted his suit upon the theory that out of the receipt of the benefit, the law would imply a contract to pay for it, and thus permitted an action ex contractu to be brought and so came to be the so-called class of contracts known as quasi contracts, or contracts implied in law as distinguished from con- AMERICAN COMMERCIAL LAW. 179 tracts implied in fact, which we have considered in the last section and which are true contracts. The theory was extended to embrace cases in which there was a tortious taking of property cases in which a tort action (trover) could be brought, or the plain- tiff could "waive the tort and sue in contract." The following examples will illustrate the theory of quasi contract note that the contractual intent is want- ing, yet the plaintiff sues on a quasi contract or contract implied in law. These cases may be divided into the following classes : (1) Cases in which money is paid or other property parted with under a mistake of fact Example 66. A pays money to B, under the belief that B is C. A can recover this money from B, although there may be no fraud on B's part. In the same way if A through error of calculation overpays his debt, he may recover the over payment. In these cases, the recipient may be acting in perfect honesty so that he cannot be charged with a tort, and there is no actual promise to repay. The recovery is on quasi contractual basis. 145 ' (2) Benefit conferred under contract broken by plaintiff. If a contract has been broken by plaintiff, he cannot sue thereon. But suppose he has conferred benefits thereunder; in some jurisdictions he is allowed to sue on quasi contractual basis. See subject discussed in chapters on Discharge of Contracts, post. (3) Property parted with under compulsion and protest. Example 67. A telephone company charges a rate which B believes to be excessive and unwarranted under 149. Devine v. Edwards, 101 111. 138. 180 THE LAW OF CONTRACTS. the company's franchise. But B cannot get telephone service without paying the rate demanded. He pays un- der protest. He may recover upon showing that the charge was illegal. 150 (4) Benefit conferred through "dutiful intervention." A being in a strange locality is killed. It becomes necessary for someone to go to expense. B, an under- taker, does so. He may recover from the estate. 151 150. Chicago R. Co. v. Chicago Coal Co., 79 111. 121. 151. Patterson v. Patterson, 59 N. Y. 574. PART II. THE INTERPRETATION OF CONTRACTS. CHAPTER 8. GENERAL RULES OF INTERPRETATION. Sec. 103. THE GOVERNING PRINCIPLE IN CON- STRUCTION OF CONTRACTS. The purpose of construe* tion of contracts is to discover the intention of the parties. It is not a court's business, nor has it power, to im- pose contracts on parties before it. It will endeavor to ascertain what obligations the parties imposed upon themselves. To accomplish this it seeks to arrive at the parties' intentions as expressed in their acts and words. To that end it calls to its aid certain rules of construc- tion which are suggested by experience and by reason to be reliable manifestations of the real intentions of the contracting parties. In instances, those tests may fail, and an obligation may be imposed which was never intended by the party, as where he has ignorantly or carelessly used expressions from which his true intent does not appear. Yet every one must know that others have only his outward expressions whereby to read his inward meaning, and it will not be afterwards permitted one to say that his true intention was contrary to his seeming one as the other party was entitled to read it. It is not every intention, of course, which the law will enforce. This has been noticed in respect to all illegal agreements, and in certain instances, where the contract 181 182 THE LAW OF CONTRACTS. is not illegal yet some provisions in it are against pub- lic policy. These provisions will be ignored and not en- forced. Sec. 104. GENERAL RULES OF CONSTRUCTION. The chief rules whereby the courts interpret the intentions of the parties are enumerated below. (1) While to discover the true intention of the parties is the chief aim of the court, that intention is to be gathered from the words and conduct of the parties in making the con- tract and a secret intention not so expressed is of no avail. The only way whereby the intention of the parties may be read is from the language employed, or in cases of implied terms, the conduct of the parties. This lan- guage or conduct is, then, the only source to which one can go to discover the intention. Where these words are unambiguous and plain, the courts sometimes say that there is then nothing to construe, meaning thereby that as the parties have plainly spoken, the only thing remain- ing to be done is to enforce the contract, as expressed ; and it may be said, generally, that the rules following have no application where from the unambiguity of the terms no question can arise conceniing their meaning. The secret intention of a party, where it differs from his seeming intention as expressed by him, is immaterial and he cannot afterwards assert what his secret mean- ing was. Of course, this is the most reasonable of rules and in fact the only feasible one to apply. (2) Words will be construed in their ordinary meaning, unless it can be shown they are mutually understood by the parties to have an especial sense. If the words are shown to have been used in a narrow technical sense or in some especial sense under the cir- AMERICAN COMMERCIAL LAW. 183 cumstances, that is the meaning they will be given; but otherwise they will be construed in their common mean- ing. (3) Each party will be presumed to have used the words in the sense in which under the circumstances he should have known that the other party was entitled to understand them. This is perhaps only saying in another way that one cannot afterwards assert a secret intention. If he knows or should know that under the circumstances the other party is affixing a certain meaning to the words em- ployed, he cannot afterwards assert that he used them in any other meaning. (4) All parts of the contract will be construed together and the general intent thereby asserted will govern the inter- pretation of particular words and phrases. The contract often will disclose from its entire word- ing an evident intent which it is necessary to read in order to construe parts of the contract which are am- biguously worded. (5) That construction will be adopted when possible which will uphold a contract rather than defeat it. Where two constructions are possible, one of which will defeat a contract, the other uphold it, the latter construction will be adopted. (6) Every part of a contract will be given effect where possible. 184 THE LAW OF CONTRACTS. (7) The words employed will be construed most strongly against the party using them. If words are equally applicable to both parties, of course, this rule cannot apply. Often, however, one party draws the contract and chooses the words, and if such words have a double meaning fairness requires a construction in favor of the other party. (8) Written words will prevail over printed where in con- flict. The sense of this rule is apparent. Parties show their real intention by wrfting in words, even though by mis- take or oversight they do not erase the print. (9) Punctuation will be disregarded where it interferes with the obvious sense. (10) When the meaning is ambiguous the construction placed upon the contract by the parties is admissible to show its meaning. (11) Where a custom or usage is shown to be generally adopted and known, the words will be considered as having been used in the sense such custom or usage attaches to them. If a custom or usage is shown to be of such general and well-known nature that the parties must be con- sidered in the absence of contrary proof to have acted in reference to it, such custom or usage will govern the meaning of the terms used. CHAPTER 9. CONSTRUCTION IN RESPECT TO TIME OF PERFORMANCE. Sec. 105. IN A COURT OF LAW, TIME IS OF THE ESSENCE. In a court of law time is deemed to be of the essence of a contract, and, unless time is waived, perform- ance must be within the time stated, or, if no time is stated, then within a reasonable time. In a contract, the time within which performance is to be made, may be either expressly stated or not. If no time is stated, the time is deemed to be a reasonable time. In a Court of law it is held that this stated time or reasonable time (whichever the case) is of the es- sence of the contract. This means merely that a per- son to a contract to exonerate himself of his obligation of performance thereunder, either in order to enable him to sue for his compensation, or defend against a charge of non-performance, must show that he performed or tendered performance within the allotted time; unless he can show that the other party waived performance within that time. It is not infrequent that a party to a contract does waive performance and accepts or shows himself as willing to accept a belated performance. Example 68. A buys goods to be delivered to his place on Monday. The goods arrive on Tuesday. A need not accept. 185 1 86 THE LAW OF CONTRACTS. Sec. 106. TIME OF PERFORMANCE IN A COURT OF EQUITY. In a court of equity time is not the essence unless expressly made so, or unless it necessarily results from the nature and circumstances of the contract. In a court of equity a different rule prevails. This would seem to indicate that a person might "be either a performer or a breaker of a contract according to the door, whether that of law or equity, by which he en- tered the courthouse but, the distinction is in reality a fundamental one. The ordinary mercantile contract is one for which damages are regarded as an adequate rem- edy and for that remedy one must go into a court of law. To come into equity, the case must involve the doctrines or demand the remedies of equity, such as a foreclosure of a contract to buy real property because of non-payment of installments, foreclosure of mort- gages, specific performance of contracts to sell real estate and the like, and in equitable cases, the rule is that time is not the essence, unless specifically made so, or unless there is some element in the contract that justice re- quires that it shall be held so. And, even where it is so provided, there are maxims of equity which may tend to offset it, to the effect that he who seeks equity must do equity, equity abhors forfeitures, and so on. CHAPTER 10. INTERPRETATION OF PROVISIONS AS TO PENALTIES OR LIQUIDATED DAMAGES. Sec. 107. IN EXPLANATION. Usually in contracts, no provision ic made as to rights or remedies in event of breach, but not infrequently the possibility of breach is contemplated, and provisions made regarding it. The law supplies remedies in the event of breach will the court permit the parties to make any stipulation changing the remedies that would otherwise exist? In the first place we must keep cer- tain principles in mind. Breach of a contract is a civil, not criminal, wrong, and the law does not punish one for breaking a contract, but merely provides remedies for the compensation or protection of the parties injured by such breach. In awarding damages, it seeks only to award compensation whereby the breach may be amended, and the law will not permit these fundamental principles to be subverted by the parties by their stipu- lations in the contract. Let us assume that we have a case in which it is pro- vided that in the event of breach by one of the parties he shall pay the other the sum of $500.00, or that he shall forfeit $500 or that he puts up $500 as security for the performance of the contract. Now we have the courts saying that if the parties intend a provision of this sort to be one for the payment of damages, they will so enforce it, and call it a provision whereby the parties have in the contract itself liquidated the dam- 187 1 88 THE LAW OF CONTRACTS. ages in the event of its breach; but if the parties do not so intend it the courts will not so enforce it and will call it a penalty. This language seems to put it within the power of the contracting parties to make the same sort of a provision either enforcible or unenforcible ac- cording as they express their intention in connection therewith. But this is not the true explanation, and the failure even by the courts themselves to appreciate the true meaning has led to confusion and erroneous results. The true rule is this : that where there is a provision for the payment of money in the event of a breach of a contract, and the parties have by language used by them made possible the construction that such provision is intended to liquidate the damages and it furthermore appears that they have made the provision as a real attempt to estimate the damages in some rea- sonable proportion to what they actually will be, then such a provision will be enforced, but if, no matter whether they call the provision liquidated damages or not, or even declare it to be their intention that such sum shall be considered as liquidated damages, they name a sum with apparent arbitrariness or which vio- lates all rules of damages and despite their language is really a penalty in its nature, then their true intention is to provide for a penalty, and as penalties do not fol- low breach of contract, the courts will not enforce such provision. The provision of a contract for liquidated damages is in many cases eminently wise and proper, as there are many cases in which without such a provision an injured party sustaining real and perhaps great dam- ages finds them either immeasurable or at least very hard to measure by the very nature of his case. If the provision is by way of liquidated damages, it determines the damages and therefore prohibits inquiry AMERICAN COMMERCIAL LAW. 189 into the true damages whether greater or less. Its pur- pose has been to save that inquiry and the courts will so enforce it. Sec. 108. DAMAGES DIFFICULT TO ASCERTAIN AND AMOUNT REASONABLE. If the damages will be difficult to ascertain and the amount is reasonable, a provision in a contract stated to be by way of liquidated damages, will be so construed. If the damages are difficult to ascertain and the sum is stated to be payable as damages, and is not unreason- able in amount, it will be so enforced. Example 6^. W agreed to complete a grand stand for a race course by a certain day, to cost $133,000.00, and to pay $100.00 for every day's delay as liquidated dam- ages. Held, that the plaintiff could recover that amount for every day's delay, and proof of actual damages not requisite, the sum being apparently reasonable from the nature and extent of the work. 152 Example 70. C agreed to remove a house a distance of three feet at a cost of about $100.00, and in the event of failure, to pay $500.00 "as liquidated and ascertained damages." In a suit against him for not removing the house, Held, that this sum was unreasonable and would be considered a penalty and therefore without force, and actual damages would have to be proved. 153 Sec. 109. LARGER SUM THAN DEBT PAYABLE IN EVENT OF DEFAULT. If the parties prescribe that upon 152. Wallis Iron Works v. Monmouth Park Ass'n, 55 N. J. L. 132. 153. Condon v. Kemper, 13 L. R. A. (Kan.) 671. 190 THE LAW OF CONTRACTS. the failure to pay a debt a larger sum shall thereupon accrue, this is unenforceable as being a penalty. If $100.00 is to be due July ist, and if not paid on that day, then $125.00, this is a penalty no matter how the parties describe it. This is to be carefully dis- tinguished from a case of discount, as where $125.00 is clue on July ist, but if paid before that day, a ten per cent discount will be allowed. This is a common cus- tom of merchants under the discount system. The dis- tinction is that in the latter case $125.00 is the debt, while in the other, $100.00 is the debt, and a penalty is added for its non-payment. 154 Sec. 110. CERTAIN SUM PAYABLE FOR BREACH OF ANY OF SEVERAL COVENANTS OF VARYING IMPORTANCE. If a sura is stated to be payable for breach of any promise in a contract, whether relatively more or less important, the provision is a penalty. Example 71. A leased a mine from B and agreed to indemnify B against all damages for injury to neighbor- ing lands, to use the water in certain ways, to pay a cer- tain royalty, to fill up excavations, to use a certain road and to keep gates shut and in repair, and for breach of any of these to pay B a certain amount. Held, a pen- alty. 155 Sec. 111. FORFEITURE OF AMOUNTS PAID. If sums are paid by way of deposit, or in part payment, and a provision is made that these are to be retained, in case of 154- Goodyear v. Selz, 157 111. 186. 155- Keck v. Bieber, 148 Pa. St. 645. AMERICAN COMMERCIAL LAW. 191 default, they constitute liquidated damages unless unrea- sonable. Frequently where deposits are made, as on contracts to buy real estate, or on installment contracts, it is pro- vided that the sum or sums paid may be retained as liquidated damages. These, if not unreasonable, are up- held ; if unreasonable they will be treated as penalties. 156 156. Advance Amusement Co. v. Franke, 268 111. 579. PART III. OPERATION OF CONTRACTS. CHAPTER ii. OPERATION AS TO PARTIES Sec. 112. GENERAL RULE. A contract operates to con- fer upon the parties, and only upon the parties, rights and obligations according to its tenor. We have discussed the formation of the contract, and its interpretation. Now we shall consider its operation. We may state the general rule as to its operation in a few words. A contract operates to confer upon the parties to it, and only upon them, rights and obligations as provided in the contract. No other person can be bound by the contract or assert rights upon it. To this general rule there are notable exceptions. They are no- ticed in the following chapters. How the contract operates as far as its terms are con- cerned, we necessarily consider in the subjects of forma- tion of- contract, construction of contract, and discharge of contract. Hence, no separate consideration is neces- sary here. 192 CHAPTER 12. BENEFICIARIES TO CONTRACTS. Sec. 113. GENERAL STATEMENT. One who is not a party to a contract, but who benefits thereby, cannot sue upon it at all in some jurisdictions, but in the majority may sue provided he conies within rules that are variously stated in different cases. The rights of one who is a beneficiary of a contract, but no party thereto, has occasioned considerable diffi- culty and different decisions. The theory of contract is that it is purely an individual matter governed by agree- ment between the parties. But when it benefits others, frequently an injustice would result if such beneficiaries could not enforce it. Sec. 114. INCIDENTAL BENEFICIARY CANNOT SUE. One who is merely an incidental beneficiary cannot sue no matter how great the incidental benefit may be. If thejbenefit is merely incidental, no matter how great, the beneficiary has no right to enforce the performance of the contract. It is not .uncommon for strangers to take a decided benefit from the performance of some contract made by others. But, if the parties chose to rescind the contract, or if one refuses to go ahead, and the other will not force him, one who would have bene- fited thereby can do nothing. 157 157. Pennsylvania Steel Co. v. New York City R. Co., 198 Fed. 721. 193 Bays 13 194 THE LAW OF CONTRACTS. Sec. 115. BENEFICIARY MAY SUE WHEN. If the contract is intended primarily for the beneficiary's benefit, he may sue. The doctrine of the courts that a beneficiary may sue has been variously stated and variously applied. No general rule may be laid down which would be accurate and comprehensive of all the cases. But the doctrine, more or less stringently applied, is in force in most juris- dictions. It is applied where the contract is made pri- marily for another's benefit, and especially where a con- tract is made by which assets pass upon which a third person has an equitable right, as a sale of a business and a promise by the buyer to pay the existing debts. A creditor may sue (in most jurisdictions), on such a contract. Example 72. Holly loaned defendant $300.00, which was the sum that Holly owed plaintiff. Defendant, as a part of the contract, agreed with Holly to repay the $300.00 to plaintiff. Plaintiff sued defendant and it was objected that plaintiff had no contract with defendant. But plaintiff was allowed a recovery as beneficiary. 158 Example 73. A sells his business to B, who as a part of the consideration assumes the payment of outstanding debts. Creditors may sue on this agreement. 159 158. Lawrence v. Fox, 20 N. Y. 268. 159. Snell v. Ives, 85 111. 279. CHAPTER 13. ASSIGNMENT OF CONTRACTS. Sec. 116. GENERAL STATEMENT. The transfer of something of an incorporeal nature is accomplished by assignment. Assignment may sig- nify (i) a sale; (2) a pledge to secure a loan; (3) a gift; (4) a transfer for some special purpose. In the law of contracts we must ask to what extent one may assign his rights and obligations to another. Obviously this introduces the question whether the ad- versary party to the contract consents or doesn't con- sent. If there is a contract between A and B and B with A's consent assigns to C, the assignment is ef- fectual to transfer to C whatever the assignment pur- ports to cover. But if A's consent is lacking, to what extent may B assign? This is the problem of the cases. In the following topics upon the subject of what may be assigned let us therefore assume that the consent of the adversary party (A) has not been procured. We know that B's agreement with A has resulted in mutual obligations, or in other words, that A owes to B, and B owes to A, certain obligations and that what B attempts to assign to C must necessarily be what A owes to B or B owes to A, that is, his right against A or his obligation to A. Can B, without A's consent assign his rights and ob- ligations or either of them? Now we must remember that a contract is an agree- ment between parties who have chopen each other for 195 196 THE LAW OF CONTRACTS. reasons of their own. That one may choose with whom he will contract is a basic principle in contract law. Hence it would seem, to begin with, that there could be no assignment by either party to the contract with- out the consent of the other. But it is another policy of the law that he who has an asset of any kind should be able to traffic in it if he thereby does not unduly dis- turb the right of any other person. And it is apparent that one may have a contractual right against another the delivery of which he may direct without unduly dis- turbing the contractual relationship between the con- tracting parties; and out of these conflicting policies has resulted the law that one may assign his rights under a contract without the consent of the other party to the contract when such transfer does not involve the per- sonality of the assignor and assignee, as we shall here- after notice. Sec. 117. POWER TO ASSIGN MERE CONTRAC- TUAL RIGHTS. A contracting party may assign his rights under the contract when such assignment does not involve the credit, skill or other personality of the assignor. His rights to another's personal service he can never assign. If one has a right under a contract to receive money or goods upon conditions that do not involve his credit, skill or other item of personality, he may assign such a right. Example 74. A assigns to L his right to receive his salary from E. E must honor this assignment when he receives notice thereof from L. In the illustration the real contract, one of service between the parties is not affected. A right to another's services, a person can never as- AMERICAN COMMERCIAL LAW. 197 sign. Thus in the above case E could not assign to an- other his rights to A's services. Sec. 118. POWER TO ASSIGN CONTRACTUAL OB- LIGATIONS. Generally speaking, there is no power to as- sign contractual obligations. One's obligations under a contract he can not assign because he could thus make the other contracting party look to one for the rendition of obligations with whom he did not contract and perhaps, indeed did not care to contract. Example 75- A owes B a sum of money. A cannot assign this obligation to C without B's consent. It is true that C by contract with A may assume the pay- ment of the debt to B, and, as we have seen, B may sue on this contract; but B need not accept C's obligation in place of A's if he does not want to. Sec. 119. POWER TO ASSIGN CONTRACTUAL RIGHTS WHEN COUPLED WITH PERSONAL CON- FIDENCE AND LIABILITY. Contractual rights cannot be assigned if they are coupled with liabilities or involve the credit, skill or personal confidence of the assignor. One cannot assign his rights under a contract if such rights are connected with liability or other personal ele- ment. "You have the right you anticipate from the character, credit and substance of the party with whom you contract." Humble v. Hunter, 12 Q. B. 310. Example 76. Dunton Lumber Co. sold to K. Co. the entire output of white pine lumber for 1901, except such as it should need for its retail trade in Rumford Falls. The K. Co. were to pay within 10 days from receiving invoice. The K. Co. attempted to assign to Demarest, 198 THE LAW OF CONTRACTS. but the Dunton Co. would not recognize him, and he brought suit. The court held the contract not to be as- signable. 160 Sec. 120. CONTRACTUAL RIGHTS TO BE ACQUIRED IN FUTURE NOT ASSIGNABLE. One may assign any right under an existing contract, but cannot assign rights under a contract not yet made. One cannot assign to another what he has not got himself, because assignment supposes present transfer of title. But it is sufficient within this rule that the con- tract is actually existing, although it might be termi- nated by either party at any moment. A is employed by B. He borrows money from L, and as security assigns to L his salary from B, also any salary he may make from any other employer. A's em- ployment with B is from day to day and B could let him go at any time without liability to A. The assignment of wages to be earned under the contract with B is good, but the assignment as to other employers is ineffec- tual. 161 Sec. 121. EFFECT OF ASSIGNMENT AS TO AS- SIGNOR. The assignor of an obligation still remains re- sponsible to the other party for the due performance of the contract. Assignment of rights divests the assignor of such title as he had. If one assigns obligations he still is responsible for the performance of the contract, even though the con- sent of the other party has been secured; but this must be understood as not referring to a case of novation or 160. Demarest v. Dunton Lumber Co., 161 Fed. 264. 161. Mulhall v. Quinn, 67 Mass. 105; Mallin v. Wenham, 209 111. 252. AMERICAN COMMERCIAL LAW. 199 where the other party has, instead of permitting an as- signment, been a party to a novation. Thus, if one leases a building and afterwards, with or without the assent of the landlord, assigns his lease to another, and that other fails to pay the rent, the original lessee can be held. 162 After assignment of a right the assignor loses his right to receive the benefits under the contract. The assignee for that purpose has a right to step into his place. Sec. 122. THE ASSIGNEE AS THE SUCCESSOR TO THE TITLE OF THE ASSIGNOR. The assignee takes the title and right of the assignor, and is subject to all the equities and defenses between the original parties. The theory of contract being that it is a personal re- lationship between two or more persons who have chosen each other, assignment of rights thereunder, without the other party's consent, is permitted, as we have seen, upon the theory that the contractual arrangement is not there- by disturbed. It follows from this, that such assignment cannot be permitted to increase the obligations of the other party thereunder. Therefore, the assignee will take the right as it actually exists, not as it may seem to be; and will take it subject to all adjustments and defenses to which the assignor would have been subject had there been no assignment. Example 77. A has a contract of service with B, by which B pays him a monthly salary. A assigns his sal- ary to C in security for a loan. If this salary has already been paid, though not due, or if A does not earn his salary, or if A owes B money as a set off, these defenses 162. Grommes v. St. Paul Trust Co., 147 HI. 634. 2oo THE LAW OF CONTRACTS. may be had by B against C as readily as against A, pro- vided B had done nothing by which C in taking the as- signment has been misled as to the true facts. 163 Thus, failure of consideration, lack of consideration, fraud, duress, undue influence or any other defense be- tween the parties, may be made against an assignee. If the assignment is by way of negotiation of a ne- gotiable instrument, this reasoning does not apply, as negotiable paper was invented in part to escape this situation. Sec. 123. EFFECT OF ASSIGNMENT AS TO OTHER PARTY (DEBTOR). Where a contract is assignable, the debtor must pay heed to the assignment and recognize the assignee when he has received notice of the assignment, but no rights are acquired against him until notice is given. Assignment may be with the consent and knowledge of the other party to the contract, or it may be done quite independently of him. The usual practice in as- signment of wages as security for a loan is an example of this. If a contract is assignable and is assigned, the debtor must recognize the assignment when it is brought to his notice. He need not, however, ever assume that the party has assigned his contract and may treat with him on the theory that there has been no assignment. Thus an assignable instrument differs again from a ne- gotiable one. The maker of a negotiable promissory note has no right to assume that a note has not been negotiated and must therefore demand, in order to protect himself, the production of the instrument. But a promisor of a non-negotiable, though assignable, right, need not assume 163. Westfall v. Jones, 23 Barb. (N. Y.) 9. AMERICAN COMMERCIAL LAW. 201 its assignment and can treat with his promisee in per- fect safety until the assignee notifies him. 164 Sec. 124. WHAT CONSTITUTES ASSIGNMENT, DRAFTS, CHECKS, ORDERS, ETC. The fund or right assigned must be designated or identified. An order by one party upon another to pay a third a certain designated fund or debt owing will operate as an assignment of the fund. But a draft or a check is not an assignment for it is drawn on the credit of the drawer and not upon the credit of any fund. If B has a fund belonging to A, and A draws an or- der on B directing B to pay this fund to C, this will operate as an assignment of the fund. There can be no assignment of a right to a fund, account, etc., unless it is identified. Manifestly this must be so. The as- signee must have a right to demand some certain thing and the other party to the contract must know what to deliver or pay over. A bill of exchange is an order by A on B to pay C, or order, a certain amount. Suppose B has in his pos- session funds belonging to A. Is the bill of exchange an assignment? It is well settled it is not, because the bill is drawn on A's general credit, and B assumes no liability until he accepts the bill. The bill also creates a liability both on A and on B when B accepts that the face of the instrument will be paid, though the fund might fail. Even if the bill of exchange refers to a fund out of which B may reimburse himself when he pays C, the bill is not an assignment. 165 An assignment must direct the payment of the fund. If an order is drawn on the general credit of the drawer it is not an assign- 164. Sears v. Trustees, 28 111. 183. 165. See Negotiable Paper in this series. 2O2 THE LAW OF CONTRACTS. ment. If it is an assignment it is not a bill of exchange, because it does not fulfil the definition of a bill of ex- change. The same reasoning applies to checks which are a species of a bill of exchange. Sec. 125. ASSIGNMENT BY OPERATION OF LAW. On the death or bankruptcy of a person, certain of his rights and liabilities pass to his representative. In general, all rights and obligations pass which are not purely personal. In a sale of real estate, many rights and obligations pass which were created by former deed. The assignment of contracts by operation of law takes place in case of death or bankruptcy of a contracting party. Such rights or liabilities as are not purely per- sonal will go to the representative, who is called in case of death, the executor (if appointed by will), or the administrator (if appointed by the court), and who is called in case of bankruptcy, the trustee. Rights or lia- bilities purely personal would not pass. Thus, if. A agrees to work for B for a year, but dies during the year, the liability to B is discharged, but the right to salary earned during the period of actual employment would pass to the executor or administrator. For the title which is acquired by a trustee in bankruptcy, see subject of Bankruptcy. CHAPTER 14. INTERFERENCE WITH CONTRACTUAL RELATION- SHIPS BY THIRD PARTIES. Sec. 126. DUTY NOT TO INTERFERE WITH CON- TRACT RIGHTS. A third person has a duty not to inter- fere to induce another to break his contract, unless done in good faith, in the exercise of fair competition. If he does so wrongfully interfere, he may be sued in tort by the party to the contract whom he has thus wronged. While the law upon this subject is not uniform in all its phases in all jurisdictions, the subject may be stated generally as follows: That a contract between parties imposes a duty upon strangers thereto, toward each party not to induce the other party to break off his contractual relationships, unless he does it in good faith and by way of fair competition. Example 78. Horn was employed by A. S. & Co., as foreman ; he was injured and made a claim against A. S. & Co., for damages. A. S. & Co. carried liability in- surance in the L. G. Co., covering this injury. The agent for the L. G. Co. threatened to procure H's discharge unless he would settle for a sum offered. He refused it and the Insurance Company did procure his discharge. He brought suit against the L. G. Co. for interfering with his contract with A. S. & Co. Held, he had a case in tort on this ground, as there was no legal excuse in this case. The Court put emphasis on the fact that this was not a case of competition. 186 166. London Guarantee Co. v. Horn, 206 111. 493- 203 2C-4 THE LAW OF CONTRACTS. If the breach is obtained in the exercise of fair com- petition, it is lawful, as where a dealer offers better serv- ice or better prices, and thus succeeds in getting trade from a competitor. But the competition must be real, not simulated com- petition established to injure one, 167 and there must neither be promises of indemnity 168 nor false reports about the rival. 169 Sec. 127. CONTRACT FOR INDEFINITE PERIOD. By the better view it is immaterial whether the contract is for a fixed period or not if its discontinuance is caused by the unlawful interference. In the Horn case stated above, the employe was em- ployed under no definite contract of employment. He could have been discharged at any time. But he would not have been discharged except for the interference of the Insurance Company. And, therefore, his case was not defeated by that character of his contract. To so hold would be to introduce a technicality which would defeat justice. Sec. 128. PREVENTION OF FUTURE CONTRACTS. If a person is reasonably certain to make a contract with an- other, and a third person without valid excuse interferes to prevent it, he may be held in damages. If one may interfere with an existing contract, he may certainly, under the same circumstances, prevent 167. Tuttle v. Buck, 107 Minn. 145. 168. Amer. Law Book Co. v. Edw. Thompson Co., 84 N. Y. Supp. 225. 169. Evanson v. Spaulding, 150 Fed. 517; Sperry v. Weber, 161 Fed. 219. AMERICAN COMMERCIAL LAW. 205 one, as where a person successfully gets a contract which his competitor would have procured. But if the inter- ference is without legal justification, a suit may be main- tained. 170 170. Lewis v. Bloede, 202 Fed. 7. PART IV. DISCHARGE OF CONTRACTS. CHAPTER 15. DISCHARGE BY PERFORMANCE, TENDER AND BREACH. Sec. 129. MEANING OF PHRASE "DISCHARGE OF CONTRACTS." A contract is discharged when the obliga- tions thereunder are in some way extinguished, so that no liability on the contract furthermore exists. Having considered the formation of contracts, and its operation, we may now consider how it shall be dis- charged, that is to say, how its obligation shall be ex- tinguished. Assuming, then, that a contract has been entered into, and binds the parties, let us consider how it may come about that a party thereto may claim that his obligations thereunder are gone. This discharge may arise in a number of ways. Naturally we think first of discharge by performance, for the performance was the purpose of the contract. But there are a number of other means. We may state them here and then consider them separately. Discharge of contract may arise (a) by performance; (b) by tender of performance; (c) by breach; (d) by impossibility of performance; (e) by alteration of a written instrument; (f) by agreement; (g) by operation of law, as by bankruptcy. Sec. 130. OF THE PERFORMANCE WHICH WILL DISCHARGE CONTRACT. Generally speaking, only lit- 206 AMERICAN COMMERCIAL LAW. 207 eral compliance with the terms of a contract will operate to discharge it. Yet in some contracts, where details are nu- merous and complex, and there is substantial compliance in good faith, this will be a discharge. As a general rule it may be stated that a contract must be strictly performed according to its terms, and such performance certainly will always operate as a discharge, thus constituting a good cause of action for the party performing if he brings suit, or a good defense if he is sued. For where one engages with another that he will supply certain goods or perform certain services, he can- not claim that he has performed until those very goods have been supplied, at the time and place and in the manner stipulated, or that those services have been ren- dered as agreed upon. Yet the modern decisions allow one in many cases to aver a substantial performance made by him in good faith, that is to say, in an attempt to perform literally, in order to bring suit upon the con- tract, or defend against a charge of breaking his con- tract, allowing an amount from the contract price to compensate the other party for the slight defect. Thus, in a building contract, the building contractor may sue to recover the contract price if he has in all things sub- stantially though not literally complied. 171 But a sum will be deducted from such contract price to the extent necessary to make the building entirely conform to the plans. This rule is considered more just, as it allows one to sue for the price which is due according to his contract and permits the other to have a reduction on account of the departure. Under this rule there cannot be any material departure and the departure must not have been purposeful. 171. Fitzgerald v. La Porte, 64 Ark. 34. 2o8 THE LAW OF CONTRACTS. Sec. 131. OF THE PERFORMANCE OF CONTRACTS WHICH BY THEIR TERMS ARE TO BE TO THE SAT- ISFACTION OF THE OTHER PARTY. Occasionally one in his zeal to make a bargain, or because he has so great faith in his skill, undertakes to perform his contract to the other's "satisfaction." Sup- pose then that the other says that he is not satisfied; is this final? The terms of the contract so indicate. Yet most courts make a distinction. Where the contract is to furnish something that chiefly appeals to one's fancy or personal taste and is entered into for the purpose of pleasing that personal taste and fancy, then one can say finally without respect to the merits of the performance that he is not satisfied. This is true where one orders a suit of clothes, a portrait, a bust, or other work of art. 172 Bear in mind, however, that even in such a case there must have been an agreement to perform to one's satisfaction. Otherwise, even in such cases, one would have no right to be dissatisfied where, judged as a rea- sonable man, he ought to be satisfied. Where one claims he is not satisfied, he cannot at the same time accept and retain the goods. But in cases where the element of personal taste and fancy does not enter, he cannot assert breach where the performance is such that a reasonable man ought to be satisfied. If a reasonable man ought to be satisfied, as determined by the jury, the court will say that this par- ticular man is satisfied. This is true of all contracts whose performance involves mechanical execution, such as grading a dock, putting in a furnace, etc. 173 172. Brown v. Foster, 113 Mass. 136. 173. Duplex Safety Boiler Co. v. Garden, 101 N. Y. 387. AMERICAN COMMERCIAL LAW. 209 Sec. 132. OF THE PERFORMANCE THAT WILL NOT DISCHARGE AND THEREFORE CONSTITUTES BREACH. A performance is not even substantial and in good faith, or, if there is no performance, this constitutes breach, unless 1st, there is impossibility of performance in those cases where that will discharge, or unless 2nd, there is acceptance of the incomplete performance in lieu of full performance, or, unless 3rd, there is some other mode of discharge which excuses performance. If the performance is not even substantial in the man- ner that has been discussed, then the party alleging per- formance must either admit breach, or else rely on some fact that discharges contract besides performance, or else he must show, that although the performance was de- fective, nevertheless it had been received and accepted as full performance. Sec. 133. EFFECT OF ACCEPTANCE OF PERFORM- ANCE WHICH DOES NOT FULFILL REQUIREMENTS OF TERMS. If defective or part performance is accepted, with knowledge of the breach, such acceptance, when volun- tary, usually operates to waive the breach, especially if the breach consists merely in not doing something provided for the other's benefit, but not preventing substantial perform- ance. If the circumstances show no intention to waive dam- ages in the acceptance of a part or delayed performance, then such damages may be recovered; but if acceptance is forced upon one, he may aver breach as an entire defense if sued on the contract. Some courts, however, allow a rea- sonable compensation even in that case. Where there is a breach which one might insist upon but does not do so, and accepts performance notwith- standing the breach, this usually operates as a waiver Bays 14 2io THE LAW OF CONTRACTS. of the breach. Thus, suppose that one has a suit of clothes made which does not conform to the order, yet he nevertheless accepts it; this precludes him from in- sisting that the contract was broken. Or suppose that an employer continues in his employment a clerk who does his work in such an incompetent or negligent man- ner that he could have been discharged therefor; this is a waiver of the breach and the clerk could collect the salary agreed upon. Or suppose that one having a house built is entitled to an architect's certificate before he ac- cepts, yet accepts without such certificate, he cannot aver that there has been any breach. 174 If at the time one accepts he does not know of the breach, he will not be considered as having waived it. Thus, if the employer was absent during the rendition of his clerk's incompetent and negligent service, and the breach was material, he might have a good defense to a suit for the salary agreed upon. Or suppose he accepts goods which are not as warranted, yet this defect is not at the time of the acceptance discoverable upon ordinary inspection, as, for instance, where canned goods contain a deleterious substance that soon destroys them, or a piece of machinery will not do the work agreed upon, there is no waiver. Sometimes the circumstances practically force one to accept, as where a building not even in substantial com- pliance with the contract is put on one's land. In such case one may insist upon the breach unless the circum- stances show that he waived it. 175 Where there is a waiver of the breach, there may or may not also be a waiver of the right to insist upon dam- ages. If one accepts under protest and in order to save 174. Smith v. Aiker, 108 N. Y. 87. 175. Eldridge v. Rowe, 7 111. 71. AMERICAN COMMERCIAL LAW. 211 himself or the other party from greater damages, he does not necessarily waive his right to have his dam- ages, although it might be said that he has waived the breach in the sense that he did accept what was offered. Thus, if one orders ice from a distance and a poorer quality than that ordered is received, he may in order to stop further waste or loss accept the ice, but have his damages. So where performance is delayed, one may still accept but have damages for the delay unless the circumstances show that he waived prompt performance. The same may be said of partial performance. Where one has no option but to accept, as in the case of the improvement of one's land, or the acceptance of services from one who afterwards breaks his contract, if there has been a performance whose benefit without compensation would amount to an unjust enrichment at another's expense, the courts often allow a reimburse- ment entirely independent of the terms of the contract. In such a case, one could not plead and assert his ex- press contract, but out of the justice of the matter, and on a quasi-contractual basis, compensation is allowed, if, from the facts, justice demands it. However, there is a division of authority on this point. Thus, in an Illi- nois case where one was employed for a certain time and unjustifiably quit before that time, the court said he could have nothing. 176 Sec. 134. PERFORMANCE, OR TENDER OF PER- FORMANCE, REQUIRED OF ONE PARTY BEFORE HE CAN REQUIRE PERFORMANCE BY THE OTHER. To substantiate an averment of breach one party must show that he has done all that the contract required him to do be- fore he could require performance by the other, or that he 176. Eldridge v. Rowe, 7 111. 71. 212 THE LAW OF CONTRACTS. has made a tender where the performances were to have been concurrent. Where one party is alleging breach by another, it is to be inquired whether he has himself progressed far enough in the performance of a contract to charge the other. Thus, if one was bound by his contract of sale to deliver goods to a certain place, he could not charge the other with breach, so long as he had not delivered them at that place. In a great majority of cases one does not have to fully perform his contract before he can charge the other with non-performance. How far he must go depends on his undertaking by the terms of his agreement. Then if he does not go that far he has no right to charge the other party, but on the contrary has himself committed a breach. But where one was not to perform in whole or in part except as the other also performed, he need only tender performance. If one agrees to sell goods for cash, he need not deliver those goods in order to charge the other party; he need only tender them at the proper time and place. Tender of performance need not be kept good, except where it consists in payment of a debt. Thus, one who is to sell goods need only make tender when the time comes, and then his obligation is gone; but it is other- wise with the payment of money ; a tender thereof does not discharge a debt, although it may stop the running of interest and accrual of damages. Sec. 135. BREACH OP ONE PART OF A SEVER- ABLE CONTRACT NOT A BREACH OF THE CON- TRACT. A severable contract is really a number of inde- pendent contracts embraced in one agreement. A breach of one of the parts thereof is not a breach of the other parts thereof because each is independent of the other. But if a AMERICAN COMMERCIAL LAW. 213 contract is entire, a breach of any part of it is a breach of all of it. It is often difficult to tell whether contracts are sever- able or entire. If A has contract No. I, and contract No. 2, with B, his breach of No. i will not be a breach of No. 2. B cannot refuse to go on with No. 2 because No. i was broken. Each is independent of the other. Now sup- pose that contract No. i and contract No. 2 were both made at one time and in the same transaction and, in- deed, both in the same paper. Then would the result be changed? It would depend on the intention of the parties, whether they were making one entire contract, or really several contracts in one agreement. This is often a very hard matter to say. The usual contract is of course entire. The question arises most frequently in installment contracts. Suppose one hundred tons of coal are to be delivered each month for twelve months; is this really twelve several contracts, or one entire? If A fails to deliver the first installment, can B refuse to receive the other deliveries? It is well settled that the mere fact that a contract is performable in installments does not prevent it from being an entire contract. But aside from this, the courts differ as to rules to apply and as to the application of rules of them. 177 Whether a contract is entire or severable rests on the evident interdependence of the parts. If A agrees to build B three houses at a stated price for each house, and the three undertakings are independent, each of the others, there would be a severable contract. But if A were to agree to paint the walls of one house for a cer- tain price and the floor for another price and the ceiling for yet another, this would seem to be an entire contract, and a breach of any one of the undertakings would dis- 177. See subject "Sales" in this series. 214 THE LAW OF CONTRACTS. charge the contract. So the contract in respect to the three houses could be made entire. This subject is very confusing and cannot be fully explained here. Sec. 136. TO WHAT ONE OF SEVERAL CONTRACTS PERFORMANCE RELATES APPLICATION OF PAY- MENTS. Where one makes a performance equally appli- cable to one of several contracts he has a right to direct its application, but where he does not direct it the other party has a right to apply the performance to whichever contract he desires. The rule now under discussion relates chiefly to a payment made by one to another to whom he owes sev- eral debts. Suppose A owes B $500 and the debt is un- secured. He also owes B $500, secured by chattel mort- gage. A pays B $100. Naturally B would much pre- fer to apply this to the unsecured debt. But if A in making the payment made no direction, B may apply it as he pleases. But A may direct the application. Sec. 137. BREACH OF CONTRACT BY RENUNCIA- TION PRIOR TO TIME OF PERFORMANCE. If one announces definitely before time of performance that he will not perform, or voluntarily does an act which makes it im- possible for him to perform, the other party may treat the contract as broken and sue at once. But this applies only to bilateral contracts. If one does not act upon this anticipatory breach, he keeps the contract open for the benefit of both parties, and the other party may change his mind and perform the contract. One may break his contract by anticipation. He may do this by definitely announcing that he will not perform when the time comes, or by doing something which puts AMERICAN COMMERCIAL LAW. 215 it out of his power to perform. This gives the other party the right to sue at once. 178 But if this anticipatory breach is not acted upon, the party who declared his in- tention to break the agreement may change his mind and perform it. Or if anything occurs to discharge him of his performance, he can depend on that ground notwith- standing prior to that time he has said that he would not perform, when the other party did not prior to such cause of discharge accept and act upon the breach. The reasoning under this section does not apply to a unilateral contract. Thus, an announcement that one would not pay a note when due would give no immediate right of suit upon it. 178. Hochster v. De La Tour, 2 El. & Bl. 678 (Contract of employment to begin June i, 1852. May n, 1852, defendant wrote he could not perform and suit was brought at once. Plaintiff was allowed damages). Kadish v. Young, 108 Illinois Reports, 170. CHAPTER 16. DISCHARGE OF CONTRACTS BY OTHER MEANS THAN PERFORMANCE OR BREACH. Sec. 138. DISCHARGE BY IMPOSSIBILITY OF PER- FORMANCE. If an event transpires rendering perform- ance impossible this will discharge the contract where it may be said to have been the mutual intent of the parties that the contractual obligation was not to endure if such event did transpire. Impossibility of performance will not always discharge a contract. Very often one is held liable upon his con- tracts when it had become utterly impossible for him to perform. Yet, whenever the impossibility springs from the occurrence of an event which we must from the na- ture of the case look upon as having been in the minds of the parties as an event which should put an end to the contract, such event will discharge. Thus it comes down to a question of intention. We may say as a gen- eral rule that where the contract is to operate on a par- ticular subject-matter and that subject-matter is de- stroyed, the contract becomes impossible of performance in a way that will discharge any further liability upon it. Thus, if one were to deliver coal of a certain quan- tity out of his mine, the exhaustion of the mine would excuse him. 179 So where the contract calls for personal services, obviously the continued existence and fit condi- tion of health of the party is contemplated. Thus, A 179. Walker v. Tucker, 70 111. 527. 216 AMERICAN COMMERCIAL LAW. 217 agrees to work for B for one year, and one month there- after A dies ; B cannot sue A's estate for breach of con- tract. But in cases where there cannot be said to be this mutual intention there is no discharge, though there is as a matter of fact impossibility. Thus, if one's em- ployees strike or he cannot obtain necessary workmen, or secure the necessary funds, or material, these are mat- ters which will not discharge, unless it was so stipulated in the contract. And mere hardship is never impossi- bility. 180 Sec. 139. DISCHARGE BY ALTERATION OF WRIT- TEN INSTRUMENT. Where one of the parties to a con- tract expressed in a written instrument purposely alters it in a material part, this will discharge the other party of his lia- bility upon it. Where an instrument is intentionally altered in any material part without the consent of the other party, this operates to relieve the other party of his liability upon the instrument. A material alteration is any altera- tion which changes any material or substantial part of the contract and changes its effect. The rule is the same whether the alteration was in- nocent or fraudulent, so far as the effect on the instru- ment is concerned. Yet it is held in many cases that if there was an alteration by one without any fraudulent intention he may sue the other for benefits received where there would have been a right to sue independ- ently of the written instrument, in spite of the altera- tion, for instance, where there is a debt. Where an instrument is altered by some third party this cannot destroy the rights of the parties. 1 80. Id. 218 THE LAW OF CONTRACTS. Sec. 140. DISCHARGE BY NOVATION. Discharge by novation is discharge of a party to a contract by agreement of all the parties whereby some other party supersedes him, or discharge of a provision in a contract by an agreement eliminating it or superseding it by another. There are two sorts of novation: novation of parties, and novation of terms. The word "novation" signifies a change. It is generally used to describe those cases in which a person to a contract is by agreement super- seded by another who assumes his place therein ; or those cases in which a term in a contract becomes discharged by its elimination in favor of another one. Novation of parties signifies the agreement of all concerned that one may be substituted for another. It differs from assignment materially. Assignment may be in many cases with or without the consent of the other party to the contract, and whether with or without con- sent it does not discharge the assignor of his liability for the payment of indebtedness if the assignee does not pay it. But novation assumes an agreement by all parties to the contract that another may be substituted for him and that he be let out entirely from then on. Sec. 141. DISCHARGE BY MERGER. By merger is meant the cessation of one contract by its inclusion in a subsequent one, whether to the same effect or to another, which was meant to supersede it. If one is sued upon a contract or sues upon it him- self, he may claim, or the other side may claim, that while such a contract once existed, it was merged into another made later, and meant to supersede it. This is a species of discharge by agreement. AMERICAN COMMERCIAL LAW. 219 Sec. 142. DISCHARGE BY AGREEMENT. The par- ties may at any time before or during the performance of the contract discharge it by agreement. What parties have agreed to do, they may of course thereafter agree not to do. If they mutually abandon the contract by agreeing to giving up their undertaking, or put a new one in its place, this will discharge the abandoned agreement. It has no longer any force. A written contract may be discharged by an oral agree- ment ; but by the old common law and even now in some states, a contract under seal could only be altered by agreement under seal, 181 although if the alteration were carried out as agreed upon the courts would not disturb it. The safest plan is to put any new agreement chang- ing an old agreement under seal also under seal. 182 Sec. 143. DISCHARGE IN BANKRUPTCY. Indebted- ness arising out of contracts may be discharged in bank- ruptcy whether due or not. The National Bankruptcy law provides that one may by conforming to its provisions and by surrendering his assets for the benefit of his creditors, discharge his in- debtedness which arises out of his contracts. Thus lia- bility on a note would be discharged whether the note were mature or not. One's executory contracts, as an agreement to per- form services, etc., are not dischargeable in bankruptcy. A new promise, made after the bankruptcy, to pay the debt, will revive it. In some states this new promise must be in writing. See Bankruptcy in this series. 181. Alschuler v. Schiff, 164 111. 298. 182. Id. 22o THE LAW OF CONTRACTS. Sec. 144. DISCHARGE BY STATUTE OF LIMITA- TIONS. The various states have statutes providing that a debt cannot be sued upon after a certain length of time from its maturity. The period varies in different states. And in the same state is usually longer for written than for oral contracts. Making a new promise, or a part payment or a payment of interest revives the debt and the statute be- gins to run again as of that date. The statute of limitations may be considered at this point, although perhaps in strict theory it does not be- long here. For the statute of limitations does not really operate to discharge a contract or indebtedness arising out of the contract or the breach thereof. It only creates a bar, so that the defendant can say, "What you claim in reference to the existence of a contract may be true, but you have waited too long to maintain your suit." The policy of this statute is to prevent the putting for- ward of stale claims as to which the evidence may have become lost by lapse of time. The law considers that if a man has a claim he ought to assert it in some reason- able time. If a payment is made after a statute runs, or after it has begun to run, this stops the running and it will not be a bar until the full period after that payment. This refers to payment of the principal or interest. So a new promise operates in the same way to revive the debt. But usually such new promise is not valid unless in writing. If the statute is not pleaded in defense, the promise is enforceable. CHAPTER 17. REMEDIES OF THE PARTIES. A. Action for Damages. Sec. 145. IN GENERAL. The most usual relief which one has against another for breach of contract is an action for damages in a court of law. And wherever there is a breach of contract, the other party not being in default himself, may maintain his action for damages. Where a breach of contract occurs, the usual remedy and in most cases the only remedy, is by way of an ac- tion in the court for damages. And this action always arises in every case where there has been a breach by one party, not waived by the other party, and the other party is not in default himself. Sec. 146. KINDS OF DAMAGES IN CONTRACT CASES. Damages in contract cases may be referred to as nominal or actual. Nominal damages are given upon breach where no actual damages are proved. Actual damages are such damages as are actually sustained on account of the breach. Where there is a breach of contract no actual dam- ages may result. This is many times the case. A ver- dict for nominal damages would then be allowed and this would carry with it a right to have the costs of suit. Actual damages are such as really occur. 221 222 THE LAW OF CONTRACTS. Sec. 147. RULE FOR COMPUTING DAMAGES IN CONTRACT CASES. Those actual damages may be al- lowed which both parties at the time of the contract must be supposed to have contemplated as likely to result from breach. Remote, contingent and uncertain damages cannot be proved. The actual damages sustained by one may not be al- lowed by the court. One may only have those damages which under the circumstances at the making of the contract must have been considered as likely to result if breach occurred. Thus, if one is under contract to erect a building, the purpose of the building, the use to which the builder knew the owner was to put it, whether it was to be used permanently or only tempo- rarily, as for a fair, would all go to affect the result. The delay in the erection of some buildings causes no damage; the delay in the erection of others causes very much. In the same way the breach of contracts of sales of personal property or for services, would result differ- ently. Whatever both parties must be considered as hav- ing contemplated as damages will be allowed. 183 This prevents the proof of remote damages. Damages must also be reasonably certain. One can- not merely speculate on what his damages would have been. He must have some reasonably certain proof. B. Bill for Specific Performance. Sec. 148. GENERAL RULE. A bill for the specific per- formance will lie where (1) the court considers that dam- ages would not be an adequate compensation, and (2) where 183. Hadley v. Baxendale, 9 Exch. 341. AMERICAN COMMERCIAL LAW. 223 the performance asked for is of such nature that it could be enforced by the court. The Court of Equity takes jurisdiction to enforce the specific performance of contract where it regards dam- ages as the inadequate compensation, providing the per- formance sought could be enforced. A Court of Equity will not enforce the performance of a contract to work for another for a year, because it could not carry out its decree. It could not "stand over" the man and com- pel him to render the services. And even if it should try to do so it would be really sentencing the defendant to slavery. The kind of contracts whose performance a court will enforce are those contracts whose perform- ance calls for the execution of a deed, a mortgage, a lease, etc. But if damages are considered adequate, it will not enforce performance. We may consider various classes of contracts. Sec. 149. CONTRACTS FOR THE SALE OF REAL ESTATE, OR AN INTEREST THEREIN. A court will enforce a fair contract for the sale of real estate or for a lease or mortgage at the instance of either party, for it con- siders damages inadequate compensation for the loss of a particular piece of land. If A contracts to sell B a certain parcel of land, B can secure a decree for specific performance, that is to say, the court will compel A to execute a deed; provided the contract on B's part was fair. This is on the theory that if B is confined to damages, his relief would be inade- quate as there is no other piece of land like this one con- tracted for which B could buy with his damages. 184 184. Cud v. Rutter, I P. Wms. S7O. 224 THE LAW OF CONTRACTS. As the law gives the remedy to a buyer, so it gives to a seller. Either can have specific performance. Where this remedy exists there would also be a right to sue for damages at one's election. Sec. 150. CONTRACTS FOR THE SALE OF PER- SONAL PROPERTY. A court will not usually enforce at the instance of either party a contract to sell personal prop- erty, for it considers damages an adequate remedy; but where the property has a peculiar or rare value, specific perform- ance will be decreed. If A sells B 1,000 bushels of wheat, B's damages for A's default will be an adequate remedy in the eyes of the law. The world is full of wheat, from which A's wheat cannot be identified, and therefore B may make himself whole. Or, if B's purpose was the profit he could have made, the judgment will be based upon that fact. If personal property has a very peculiar or rare value the court will decree a specific performance of a contract to sell it. Thus a contract to sell a painting of historic value would be enforced ; or corporate stock not to be had on the market, and which would have a peculiar value to the buyer. 185 Of course, if in a contract of sale of personal property, title has passed, the buyer could secure it by a writ of replevin. That would not be a specific enforcement of the contract, but only allowing the buyer to have what was his own under the contract that had already been per- formed to the extent of conferring title. 185. P. & F. Corbin v. Tracy, 34 Conn. 325. AMERICAN COMMERCIAL LAW. 225 Sec. 151. CONTRACTS FOR PERSONAL SERVICES. Contracts for personal services will never be specifically enforced. Whether damages are adequate or not, the result is the same in this class of agreements. The court has no ef- fective way to compel a man to perform personal services. It could not stand constant guard over him, seeing him perform. So the policy of the law would not permit it. The remedy for breach of contract for personal services is by way of action for damages. C. Bill for Injunction. Sec. 152. WHEN THE COURT WILL ENJOIN BREACH OF CONTRACT. A court of equity will enjoin a threatened breach of contract when such breach consists in doing something the party has covenanted not to do, and there is no adequate remedy for such breach by way of damages. If a party to a contract has agreed as a part of such contract to refrain from entering into competition, or performing services, or making certain use of land, the Court will enjoin the breach, provided the breach would result in injury which damages could provide no com- pensation for. 180 Thus, if one agrees not to use his land for certain purposes and is about to break his covenant in that regard, a Court of Equity will protect the other party by affording relief by way of injunction. So if one in selling out a business agrees to restrain his competi- tion in a manner considered reasonable the court will enjoin him from breaking his contract. In such cases 186. Phila. Ball Club v. La Joie, 202 Pa. State 210. Bays 15 226 THE LAW OF CONTRACTS. damages would be so hard to estimate that a court will not confine a party to his action for damages. A covenant not to work for any one else than the other party to the contract will sometimes be protected by injunction. But in such cases it must appear that the party whose services are contracted for, was of such skill or reputation that he could not be replaced and therefore damages would be inadequate. For example, A, an actor of great skill and reputation, appears to B's theater nightly for eight weeks, and agrees not to appear elsewhere during that period. The court will not grant a decree of specific performance, as we have seen, and B has no way he can compel A to appear at his theater. He is left to his action for damages. But he can secure an injunction against A appearing in any one's else theater, and this, perhaps, will have the incidental result of compelling A to perform at B's theater. APPENDIX. QUESTIONS AND PROBLEMS. APPENDIX. QUESTIONS AND PROBLEMS IN GENERAL SURVEY. CHAPTER 1. 1. What are the two great branches of political law? What is municipal law? 2. What is international law? What two forms does it take? 3. What are the branches of municipal law, as herein enu- merated ? CHAPTER 2. 4. Define constitutional law ; what is a constitutional govern- ment? 5. What is meant by the phrase "unconstitutional law"? 6. What were the Articles of Confederation? 7. When was the United States Constitution adopted? Give date and purpose of the various amendments. 8. What was decided in McCulloch v. Maryland? 9. What is the function of a state constitution? 10. Define administrative law. 11. A carelessly throws a brick from a high building into a public street below. It lights near B, who is thereby frightened. Has A committed a crime? Has he committed a tort? 12. Define a crime. Name some crimes. 13. Define a tort. Is an act which is a tort necessarily a crime? Name some torts. 14. What is "adjective" law? CHAPTER 3. 15. What is written law? 16. Define a code. 229 230 QUESTIONS AND PROBLEMS. 17. What are the "Uniform laws' 1 ? Name some of them. 18. Define the common law. 19. What are the judicial reports? 20. State the rule of "stare decisis," and show the part it plays in the development of our law. CHAPTER 4. 21. What are courts? 22. State the distinction between courts of "law" and courts of "equity." 23. State the function of a court of review. 24. What is "service" ; an "appearance" ; a "declaration" ; a "plea" ; a "bill of complaint" ? 25. In a trial of a cause, who tries the facts? the law? Is this the rule in chancery courts? CHAPTER 5. 26. What are the chief boards or commissions of the federal government? 27. What is the purpose of the Interstate Commerce Com- mission? 28. Describe the Federal Trade Commission. 29. What are employers' liability commissions? QUESTIONS AND PROBLEMS ON CONTRACTS. CHAPTER 1. 1. Define contract; is every agreement a contract? Why? What ideas enter into contract? 2. What are the essential elements in contract? 3. Define (a) formal contracts; (b) simple contracts; is a written contract not under seal a simple contract? Define unilateral contract ; bilateral contract. CHAPTER 2. 4. What is meant by "party" to contract? 5. What is the general rule as to capacity to contract? QUESTIONS AND PROBLEMS. 231 6. Who are "minors"? 7. A, sixteen years of age, makes a contract with B for the purchase of an automobile. B fails to perform. A sues B. B's de- fense is that A is a minor. Will it prevail? 8. Is a minor liable for his necessaries? On wnat theory? 9. A, a minor, contracted for a course of stenography. Assum- ing (1) that she took the course, could she be made to pay the tui- tion fee? (2) That she paid for the course in advance, but did not take it, could she recover the fee? (Mauldin v. S. S. & B. U., 60 So. (Ga.) 358.) 10. "The jury found that at the request of the defendant, then an infant, the plaintiff paid for him a board bill which he had pre- viously contracted while attending school." Can plaintiff recover? (Kilgore v. Rich, 83 M 305, 12 L. R. A. 859.) 11. A is an infant. He asks B to loan him $100, which B does. Afterwards A spends the money for necessaries and consumes them. B sues A and A pleads his minority as a bar. Is it a good defense? (Kilgore v. Rich, supra; 194 111. Ap. 509.) 12. Are the following articles necessary for a minor : (a) a horse (Rainwater v. Durham, 10 Am. Dec. 637; Hart v. Prater, 1 Jur. 623) ; (b) a watch (Peters v. Fleming, 6 M. & W. 42) ; (c) jewelry (Ryder v. Wombell, L. R. 3 Exch. 90; Leflls v. Sugg, 15 Ark. 137) ; (d) a college education (Middlebury Col. v. Chandler, 16 Vt 683) ; (e) bridal outfit (Jordan v. Coffleld, 70 N. C. 110) ; (f) cigars and tobacco (Bryant v. Richardson, L. R. 3 Exch. 93) ; (g) club dues in social club for millionaire's son ; (h) automobile for millionaire's son ; (i) attorney's fees for female minor to prosecute breach of promise suit (Munson v. Washband, 31 Conn. 303) ; (j) bicycle for boy at work, used to go and come from place of occupation ; (k) automobile for minor for use as "jitney bus" to earn his liv- ing (Lein v. Centaur Motor Co., 194 111. Ap. 509). 13. A is living at home, his father providing him with board, lodging and clothing. He needs an overcoat for the winter, and with- out consulting his father buys one from M, a merchant, on credit. On his way home he leaves the coat in a car and never recovers it. The son, being sued, pleads infancy. Is it a good defense? Could the father Lave been held in this case? 232 QUESTIONS AND PROBLEMS. 14. F sues to recover purchase price of automobile bought by him from O while he was a minor. After becoming of age he used the car several months. Can he recover? (Fried v. Overland Motor Co., 202 111. Ap. 203.) 15. A, a minor, entered into a contract to purchase real estate on installments. After becoming of age he pays two monthly install- ments. Can he rescind? (Rulin v. Strandberg, 212 111. Ap. 327.) 16. What capacity to contract did a married woman have at common law? What is the rule now? 17. Plaintiff sold and deeded his land to defendant ; now, shortly afterwards, brings suit to rescind the transaction, tendering back the purchase price and alleging that at the time of the bargain, he was so drunk as to be wholly incapable of transacting business and of knowing the nature of the instruments signed by him. He alleges no fraud, procurement or unfair advantage by the other party. Should he have rescission? (Coody v. Coody, 39 Okla. 719, 136 Pac. 754, L. R. A. 1915 E. 465; Martin v. Harsh, 231 111. 384, 83 N. E. 164, 13, L. R. A. N. S. 1000.) CHAPTER 3. 18. What is maanrt fey phrase "meeting of the minds"? Define offeror, offeree. 19. A advertised an offer in the newspapers offering a certain sum of money to any one who would furnish him certain information. B not knowing of A's proposition, furnishes A the information. Can he recover the reward? 20. Plaintiff brings suit against the X corporation for $500, and shows that the Directors passed a resolution voting to pay a reward of $500 to any one who would furnish certain information ; that he, being a janitor of the building where the meeting was held over- heard the vote, and afterwards and within 24 hours supplied the in- formation to the President of the Company. Is this statement suffi- cient to make a case? Why? (Sears v. Kings County El. Co., 9 L. R. A. (Mass.) 117.) 21. An auction is advertised. At the hour and place B attends, expending the sum of $100 in order to be present. The auctioneer at the hour and place announces that no auction will be held, as nego- tiations are in progress for a private sale. B objects and demands that the auction be held. The auctioneer refuses. B sues the principal for $100. Can he recover? 22. A mail order house sends out catalogues. B, a recipient, mails in an order based upon the catalogue. The house refuses to fill the order. Has B got a case against the house? Why? QUESTIONS AND PROBLEMS. 233 23. The X Company writes to its customers a circular letter as follows : "The increased cost of raw materials compels us to advance the price of M. L. Oil to 45c per gallon, effective December 1st, f. o. b. nearest shipping point. This price we cannot guarantee for any definite period unless the consumer anticipates his wants and protects himself by a contract which we will accept before December 1st at the price of 45c per gallon, subject to a discount of 2% ten days for cash." M, to whom this letter is sent, orders 10 barrels on the same day he receives the letter. The X Company write him they cannot honor his order (giving no reasons). M maintains that he has a contract. What do you think? 24. Give illustrations of offers that may be contained in cir- cular letters ; in catalogues. 25. A writes B a letter offering to sell B five carloads of lum- ber according to terms stated giving B five days to accept. B re- plies within the five days agreeing to take the lumber on the terms proposed, but adding that it must be "surface two sides and center matched." A, still within the five days responds that it cannot furnish lumber of this description. B, still within the five days, then writes that he will accept the offer contained in the first letter from A to B. Is there a contract? Why? (Shaw v. Ingram Day Lumber Co., 152 Ky. 329, 153 S. W. 431, L. R. A. 1915 D. 145.) 26. A has 1,000 bushels of grain in a granary. He offers B 500 bushels of grain of the same description. The granary is destroyed by fire before B accepts. A claims that this relieves him from ful- filling his contract. Is the contention correct? 27. Can one revoke an offer which he has promised to keep open? Why? 28. How long will an offer remain open if not withdrawn? 29. When may an offer be accepted by an act? 30. A mailed an offer to B, with a request for a reply by wire; he sent an offer to C, asking for a reply by return mail. He mailed an offer to D and E, saying nothing as to mode of communication. B re- plied by mail ; C replied by wire ; D replied by wire, and E replied by mail, each one purporting to accept the respective offers. Were the contracts made in any of the above cases? If so, when? In your answer assume (1) that A actually received in due course the sev- eral answers; and (2) that the replies did not actually reach A owing to the negligence of the postoffice or telegraph company. 31. A telegraphed an offer to B, requesting acceptance by wire. B telegraphed hla acceptance at once. One hour later B telegraphed 234 QUESTIONS AND PROBLEMS. A to ignore his first telegraph, and A got this second telegraph before the first one. A refuses to agree to B's request. Is there a contract? CHAPTER 4. 32. A signed a paper without reading it upon B's assurance that it was an insurance paper. It was in fact a guaranty of credit. A is sued by B upon the paper and the jury find (1) That A did not know the nature of the paper he was signing; (2) that his misconcep- tion was caused by B's fraudulent statements; (3) that A was neg- ligent in not reading the paper. Has A a defense? (Carlisle & Cum- berland Banking Co. v. Bragg, (1911) 1 K. B. 469.) 33. P while riding a bicycle was injured by a collision with D's automobile. He was assured by his own physician and the physician for P that his injuries were slight and consisted of a few superficial injuries. With that belief in the minds of both parties he executed the following release : "For and in consideration of $75 to me in hand paid by D, the receipt whereof is hereby acknowledged, I hereby remise, release and forever discharge the said D of and from all manner of actions, suits, damages, claims and demands whatsoever, in law or equity, against the said D arising out of an automobile collision occurring Sept. 1, 1912, I ever had or now have or hereafter can or may have for, upon or by reason of any matter, cause or thing whatsoever, from the beginning of the world to the date of these presents." (Signed by P.) As a matter of fact P's hip was broken in the accident. He brings suit to set aside the release. Can he prevail? (Mclsaac v. McMurray, L. R. A 1916 B. 769 N. II.) 34. A and B were stockholders in a bank. According to the books of the bank it had an unimpaired capital and a surplus and the book value of its shares was $136. As a matter of fact, its cap- ital stock had been impaired by the dishonesty of its employees and its stock was actually worth $60 per share, although nobody knew this except the dishonest employees. A sold 10 shares to B for $1,360. B now seeks to set aside the transaction on the ground of a mutual mistake. What is your opinion? (Costello v. Sykes, 172 N. W. 907, 5 A. L. R. 250 (Minn.).) 35. A, in an attempt to sell a second-hand automobile to B, stated that its tires were good for 10,000 miles. They very shortly wore out. Is A liable to B for fraud? (Woods v. Nicholas, 92 Kan. 258, 140 Pac. 862.) 36. A, selling land located in Alabama, called upon B in De- troit, and stated that the land he had to sell was good agricultural land, high and dry, without mire, swamp or boggy portions. B pur- QUESTIONS AND PROBLEMS. 235 chased the land. He found the contrary to be true and sues \. A contends that his staements were dealer's talk. How should the court decide? (Haener v. McKenzie, 188 Mich. 27, 154 N. W. 59.) 37. Defendant connected a sewer from his building to a pit in the rear. He then covered the pit with clay and built a residence over it, the pit being full of sewage up to about a foot below the level of the cellar, and sold the residence to plaintiff, telling him nothing about the pit or sewer pipe, and plaintiff could not get tenants to remain in the house owing to the odor. Plaintiff sues for damages. Recover? (Weikel v. Sterns, 142 Ky. 513, 134 S. W. 908, 34 L. R. A. N. S. 1035.) 38. When may silence amount to fraud ? 39. Define dure'ss. What is duress per minas? duress by Im- prisonment? duress of person? duress of property? What was the ancient test of duress? What is the test now? 40. A was accused of embezzlement from B. B threatened A with criminal prosecution unless he would make restitution. A hav- ing no money took B to A's sister C, who being made acquainted by A and B with the threat, executed her note for 1,000 in consideration that B would not prosecute. She now defends on the grounds of duress. Discuss. (Kronmeyer v. Buck, 258 111. 586.) 41. In the same case A deeds his property to B under the same threat in order to make up the balance of B's claim. Assuming (1) that A really is in default to B and (2) that A is not in default to B, would you regard as to either assumption a suit by A to set aside the deed as well or ill-founded? (Kronmeyer v. Buck, supra.) 42. Suppose in the same case A is guilty, and instead of giving a deed gives his note and that a suit is brought to enforce it. Has he a defense? 43. What is undue influence? When will it be presumed? When presumed what must the other party do to remove the presumption? CHAPTER 5. 44. Define consideration. Can there be a contract without it? 45. On Oct. 27, 1898, the plaintiff snnt the defendant this letter : "Dear Sir : We offer to deliver to your works, during six months from Nov. 1, 1898, the following materials at the prices stated : Bar iron, $1.20 flat delivered by car, $1.25 by wagon. (Here fol- low other items and prices.) Yours truly, R. C. HOWES, Sec'y. THE K. C. BOLT & NUT COMPANY, By R. C. HOWES, Sec'y." 236 QUESTIONS AND PROBLEMS. Defendant answered this letter stating that he "accepted the offer" and ordering two cars. Can either party be held to this proposition? (Cold Blast Transp. Co. v. K. C. Bolt & Nut Co., 114 Fed. 77, 57 L. R. A. 696.) 46. Plaintiff, manufacturer of a certain cigar, offered to sell in future to defendant, a cigar dealer, as many of such brand as he might desire for his wants, and to continue to do so during the life of the brand, as long as defendant cared to sell them. Defendant ac- cepted this proposition. Is there a contract? (A. Santaella & Co. v. Otto F. Lange Co., 155 Fed. 719.) 47. The Minnesota Lumber Co. agreed to buy and the White- breast Coal Co. to sell to the former "its requirements of anthracite coal" for season between August 5, 1896, and January 1, 1897 (terms, prices, description of coal and other material terms given). Is there a contract? (Minnesota Lumber Co. v. Whitebreast Coal Co., 160 111. 85.) 48. "The plaintiff states that she paid out money for the educa- tion at college of her son J. A. Gooch, without any contract or un- derstanding that he would repay her. Years afterwards in considera- tion of money which she had so paid, he voluntarily gave her this note. That is really the consideration. Is that binding to make the note enforceable?" What is your answer? Why? (Gooch v. Allen, 37 L. R. A. N. S. 930 (W. Va.).) 49. Plaintiff alleges that her husband was cruel to her and was so addicted to intoxicating liquors that she left him, that defendant, her step-son, requested her to return to her husband, promising her that if she did so and lived with her husband the rest of his life or her life, be would support her for the rest of her life ; that in considera- tion thereof, she accepted and returned but that defendant repudiates the agreement. Defendant claims that his promise is unenforceable because of no benefit to him and because of its uncertainty, and be- cause the wife only performed her duty. Is he right? Discuss all defenses. (Mack v. Mack, 67 Nebr. 819, 31 L. R. A. N. S. 441; Parker v. Russell, 133 Mass. 74.) 50. A was discharged in bankruptcy. He afterwards wrote a letter to a creditor saying : "You will be paid every dollar of it." The creditor sues. A pleads the discharge. Is it a good defense? (Herrington v. Davitt, 220 N. Y. 162, 115 N. B. 476, 1 A. L. R. 1700.) 51. A reward is offered for the capture of an accused person. The sheriff of the county captures him. Is he entitled to the reward? 52. A contracts to assign a patent to a certain corporation for a consideration which is paid him. He fails and refuses to assign the patent. The directors offer him $1,000 more to make the assignment. QUESTIONS AND PROBLEMS. 237 He does so assign and now sues for the $1,000. Has the corporation any defense? 53. PI. sold and delivered to defendant goods to amount of $80.03. Defendant undertook to return a part of the goods sold of the value of $50.02. PL disputed the right to do so, and refused to receive the goods from the teamster. While matters were in this con- dition the defendant sent plaintiff a check for $30.01, which was admittedly due, stating that it was in full settlement of the account. Plaintiff cashed the check, notified defendant it had done so, and brought suit for the balance claimed by it. Defendant claims there has been a settlement. How should court hold? (Whittaker Chain Tread Co. V. Standard Auto Supply Co., 216 Mass. 204, 103 N. E. 695, 51 L. R. A. N. S. 315. Contra: Chicago, M. R. Co. v. Clark, 178 U. S. 353. See notes, 51 L. R. A. N. S. 315, and 11 L. R. A. N. S. 1022.) 54. A's automobile strikes B. A claims the accident to have been unavoidable. B threatens suit. A offers $500 in settlement. B accepts. B afterwards repudiates the settlement, refuses to take the $500 and sues for $1,000. A offers no evidence except the settle- ment. Is it a good defense? 55. What is a composition with creditors? Is it binding? 56. A threatens suit against B for price of -a ring sold by A to B. C tells A that he will pay him the price of the ring if A will forbear suit against B. A sues C on this promise. 3as he got a good case? CHAPTER 6. 57. The W. S. & T. Wks. was engaged in making and selling harvesting machines. It sold everything pertaining to the business to H. Mfg. Co., agreeing "not again to go into the manufacture of harvesting machines" anywhere in the United States. The seller had a national and international good will in its business. It now begins the manufacture of such machines contrary to this agreement. The buyer seeks to restrain it. Will the court issue an injunction? 58. What is a monopoly? 59. J went into the employ of P, the owner of an Express Com- pany, and signed the following agreement : "I do hereby agree in consideration of my employment by the express company, that I will assume all risks of accident or injury which I shall meet with or sustain in the course of such employment whether occasioned by the negligence of said company or any of its members, officers, agents or employees." J subsequently became in- 238 QUESTIONS AND PROBLEMS. jured by reason of P's negligence and brings suit. Is the above agreement a good defense? (Johnston v. Fargo, 184 N. Y. 379, 7 L. R. A. N. S. 537.) 60. The I. C. R. Co. leased to C, a grain elevator, the lease stipulating that "the risks of all loss, injury and damage by fire, however caused, and whether or not caused by the negligence of the lessor, its agents or servants, are hereby assumed by the lessee." Fire caused destruction of the premises, originating as C alleges from the negligence of the R. Co.'s servants. C brings suit. Is the pro- vision a defense? (Checkley v. I. C. R. Co., 257 111. 491, 44 L. R. A. N. S. 1127.) 61. Define usury. Is it a crime to charge usury? Can usury paid be recovered? What is the penalty of charging usury? 62. A borrows money from B at usurious rates. A repays in- terest from time to time until he has repaid more than the principal. B sues. A pleads usury. B claims that he is only suing for the prin- cipal which he is entitled to under the statute, conceding the usury, that the payments have all been of interest, and that as usury paid cannot be recovered, he is entitled to the principal. How should the court hold? 63. A desires to borrow $1,000 from B for one year. B gives him $930, and takes his note for $1,000 payable in one year. The note also provides that if the $1,000 is not paid when it is due it shall bear interest after maturity at the rate of seven per cent. One year after the note becomes due, B brings suit. A claims that the note is usurious. What is the sum B can collect on this note under the laws of Illinois which makes a charge of over seven per cent usury ? (See for citation of cases Sanford v. Lundquist, 18 L. R. A. N. S. (Nebr.) 633.) 64. M, a farmer, placed an order for 2,000 barrels of pork for September delivery, with C, a broker. A statute of the State forbade pretended purchases of pork where receipt and delivery is not intended. M paid $400 in margins and the pork was sold out at a profit. C re- fuses to account. M brings suit. Assuming that the court finds that no receipts or deliveries were intended, can M have relief? (Carey V. Myers, 92 Kan. 493, L. R. A. 1916 B. 1056.) 65. The consul general of Turkey made a contract with a man- ufacturer of firearms, by which the consul general for a certain com- mission agreed to effect through his influence with the representatives of the government, sales of the arms manufactured by the concern with which he contracted. Is the contract valid? (Oscanyan v. Winchester Repeating Arms Co., 103 U. S. 261.) 66. Is a contract made on Sunday valid? QUESTIONS AND PROBLEMS. 239 6T. A pawnbroker does business without a license. B leaves a diamond with him and obtains $100 as a loan thereon. Must B pay the principal and interest or either in order to obtain back ring? (Levinson v. Boas, 150 Cal. 185, 12 L. R. A. N. S. 575.) 68. A statute of the State of Kansas prohibited pool selling and book making in that state. Kansas City, Kas., passed an unconstitu- tional ordinance licensing such forbidden business to any person paying $5,000 a year. L paid $5,000 and received a license. He outfitted a place at considerable expense and opened it for business. On the sec- ond day after opening up, the city authorities closed him up. He sues to recover the $5,000. Can he recover? (Levy v. Kansas City, 168 Fed. 524, 22 L. R. A. N. S. 862.) 69. A sells goods to B knowing that B intends their use in an immoral and illegal business. Can A maintain a suit for the price? (Loose v. Larsen, 161 Pac. (Nev.) 514, L. R. A. 1917 B. 1166.) 70. Plaintiff sold to defendant a quantity of candies and silver- ware, putting the candy in packages labelled prize candy packages, in some of which there were tickets, with the name of an article of 'sil- verware on them. The defendant's intent was to sell for more than the packages were themselves worth, the buyer to take his chance on getting a prize, and plaintiff knew this. Such a sale was contrary to the lottery law. Plaintiff sues for the price. Defense, illegality. How should the court hold? (Hull v. Ruggles, 56 N. Y. 424.) 71. Where one has lost money in gambling, may he recover it? On what theory? CHAPTER 7. 72. Define "seal." Is consideration necessary in a sealed con- tract? What legislation has there been as to private seals? 73. What was the rule as to the abrogation or modification of a contract under seal by an agreement not under seal? 74. When was the English Statute of Frauds enacted? What two sections related to contracts? What was the purpose of the statute of frauds? 75. N, operating his automobile, ran over D, and took her in an unconscious' condition to L. V. Hospital, at whose oral request she was cared for. Bills were sent to N. He refused to pay and suit is started against him. He pleads the statute of frauds. Is it a good defense? (Lake View Hospital v. Nicholson, 202 111. Ap. 205.) 76. An executor promises to pay a legacy which legatee could not otherwise get on account of insufficiency of the personal estate, if legatee will not contest the will, the executor having an interest 240 QUESTIONS AND PROBLEMS. in having the will stand. In a suit to enforce the promise the executor pleads statute of frauds. Is the defense good? (Mackin v. Dwyer, 205 Mass. 472, 91 N. E. 893.) 77. A owning a shale pit and a brick yard, orally agrees with B to deliver his entire output of brick for one year to B. A afterwards refuses to perform and being sued claims that the statute of frauds is a good defense. Discuss the defense under the fourth and under the seventeenth section. 78. A orally guaranteed the condition of a roof for five years. B sues A on this guaranty. Statute of frauds is plead. Is it a good defense? (Philip Carey Mfg. Co. v. So. Construction Co., 2 Ala. Ap. 292, 5(5 So. 746.) 79. In what ways may the seventeenth section of the statute of frauds be satisfied? Does it differ from the fourth section in that regard ? 80. Must both parties sign the memorandum? May an agent sign? Must the agent's authority be in writing? Is an assumed name a good signature? Must the signature be subscribed? 81. A orders a set of teeth from a dentist. He refuses to take the teeth and defends on the ground there is no compliance with the statute of frauds. Is the defense good? 82. "The defendant admits in his answer the execution of the subscription contract, and that he had not paid the amount of his subscription for the reason that he had an oral contract with the promoter whereby the promoter would re-sell his subscription for the amount for which he had subscribed and that his liability would thereby cease." Is this a good defense? (Huster v. Newkirk Cream- ery & Ice Co., 141 Pac. 790 (Okla.).) 83. A applies for fire insurance upon the house and outbuild- ings upon his farm. The insurance agent comes out and looks the place over and decides to write the insurance. By mistake he mis- described the land. A fire later occurs and A desires to bring suit. Can the courts give him any relief? (French v. State Farmers Hail Insurance Co., 29 N. Dak. 42G; L. R. A. 1915 D. 766.) 84. A ships goods with the M. R. R. Co. A bill of lading is issued describing goods, termination, rates, etc. A desires to show that another termination than that stated was orally agreed upon, and that twice as many goods were received as stated in the contract. Assuming that the evidence is pertinent to the issues, should he be allowed to do either? 85. A entered into B's employ and undertook, for contingent fees, to detect larceny and embezzlement among the other employees. The contract on its face does not show this. The court in deciding such QUESTIONS AND PROBLEMS. 241 agreement to be illegal, is met with the objection that this proof would vary the terms of a written contract. Can this be shown? (42 L. R. A. N. S. 847.) 86. Give an illustration of a contract "implied in fact" ; a con- tract "implied in law." Explain the difference. CHAPTER 8. 87. What is the object of a rule of construction? 88. Enumerate the various rules of construction given in the text. CHAPTER 9. 89. What is the meaning of the phrase "time is of the essence' 1 of a contract? 90. Is time the essence of a contract in a court of equity? CHAPTER 10. 91. On September 10, 1909, the Parker-Washington Company * * * entered into a contract by which it agreed to construct for the city of Chicago the foundations of a boiler room, auxiliary build- ings and chimney of a pumping station at One Hundredth Street and Stewart Avenue, in the city of Chicago, and to complete the same by December 22, 1909. The work was not completed until March 5, 1910, seventy-three days after the date fixed for its completion. The contract contained the following provision : "It is distinctly under- stood and agreed by the parties hereto that the work to be performed hereunder shall be completed within the time hereinabove fixed for its completion. Inasmuch as failure to complete the same within the time herein fixed will work an injury to the city of Chicago, and as damages arising from such failure cannot be calculated with any degree of certainty, it is hereby agreed that if such work is not fully completed within the time fixed herein there shall be deducted from the contract price and retained by said city, as its ascertained and liquidated damages, the sum of fifty dollars ($50) for each and every day passing after the date fixed for the completion, until said work is fully completed as specified." When the work was completed the de- fendant in error retained the stipulated sum of $50 a day for the seventy-three days as liquidated damages and the remainder of the contract price was paid. The plaintiff in error brought suit in the municipal court of Chicago for the sum as so retained and also for a balance due on another contract. Was the city justified in withholding Bays 16 242 QUESTIONS AND PROBLEMS. this sum of $50 per day? (The Parker- Washington Co. v. Chicago, 267 111. 136.) 92. Suit to recover $2,500 deposited pursuant to terms of a lease of a theatre building from March 11, 1912, to February 26, 1917, at a rental of $350 per month. Default in payment of rent for part of November and all of December, 1912, and suit brought by the lessor for possession after giving five days' notice of termination by lessor for non-payment of rent, and judgment for possession in favor of land- lord ; also judgment against landlord for the $2,500 less amount of rent due him for the months mentioned. Appeal. "Section 11 of the lease * * * provided that said sum was 'to be held by party of the first part as security for the faithful performance by the party of the second part of the covenants and agreements * * * which said sum * * * shall be applied by said party of the first part as rental reserved for the said premises for each of the last 7 1/7 months of the term. * * * "By section 12 it was further cove- nanted and agreed that in the event that the indenture of lease to which this rider is attached shall be terminated by reason of a breach by party of the second part * * * then * * * the party of the first part may, at his option, retain as and for full liquidated damages the said sum of $2,500 * * * and thereafter the party of the second part shall have no further right, claim or interest in and to the said $2,500 or any part thereof." Shall the upper court sus- tain the judgment of the lower court? (Advance Amusement Co. v. Franke, 268 111. 579.) 93. A made a contract with B to convey several distinct tracts of land ; on failure to convey any tract, damages to be $10,000. Should the court enforce this provision? (Watts v. Sheppard, 2 Ala. 425.) CHAPTER 11. 94. State the general rule as to the operation of contracts. CHAPTER 12. 95. Summarize briefly the law, as given in the text, of the right of a beneficiary to sue on a contract. CHAPTER 13. 96. Define assignment. 97. B agreed to supply K, a cake manufacturer, all the eggs required in K's business for one year, K agreeing not to buy else- where during that period. Statements of account were to be ren- dered every fourteen days, B to draw for the amount at two months QUESTIONS AND PROBLEMS. 243 from date of delivery. K thereafter purchased another company, and K then transferred the old and new business to a new company called George Kemp, Limited, of whose 20,000 shares he held all but seven. When B heard of this amalgamation he refused to supply the eggs to the new company and claimed that his contract was at an end. K sues, claiming breach. Can K recover? (Kemp v. Baerselman (1906), 2 K. B. (Eng.) 604, 2 British Ruling Cases 436.) 98. A, an employee of B, is accustomed to receive his salary from B at the end of every month. On the first of July he asks B to advance him his July salary, which B does. On July 30 A goes to the office of C, a money lender, and borrows a sum of money from him, assigning his July salary (which is not known to C to be paid) as security therefor. On August first A is rightfully discharged by B. On August 31st, A, not having worked during tne month, goes to D, another money lender, and purports to assign his August salary, which he represents to be earned and unpaid. C and D having given notice, and being refused payment, begin suit against B. Can either recover ? 99. A employed by B assigned his right to money due from B. In a suit by the assignee B set up that A, before the assignment, was liable for a failure to fulfill his contract to sell at the highest market price. C, the assignee, knew nothing of this defense at the time he accepted the assignment, and he paid A the full face value of the money due from B. Is the defense good against C? (Mackenzie v. Plodgkin, 126 Cal. 591.) 100. Is a check an assignment of the fund in the bank? CHAPTER 14. 101. A, a laundry owner, would not join a laundry association. The members thereof procured those dealing with her to break off their contracts. She sues the members. Has she any case? (Doremus v. Hennessy, 176 111. 608.) 102. A works for M on a salary of $5,000 a year under a five year contract. N, a competitor, offers him $6,000 a year and A quits M to accept N's offer. Has M any case against N? CHAPTER 15. 103. Meaning of phrase "discharge of contract"? 104. A employed B to write a legal article for an encyclopedia, at a stipulated price, subject to A's satisfaction therewith when written. B wrote a good article, but A rejected it on the ground he was not satisfied. B sues for damages. What result? (Walker v. Ed- ward Thompson Co., 56 N. Y. S. 326.) 244 QUESTIONS AND PROBLEMS. 105. When is tender of performance sufficient? 106. State the rule of substantial performance. CHAPTER 16. 107. W agreed with H to find a purchaser within a year for a certain tract of land at $30 per acre. He is now sued on that agree- ment. He defends that it was impossible to find such purchaser. Is the defense good? (Harless v. Wiley, 91 Kan. L. R. A. 1915 C.) 108. A was B's stepfather. The stepson agreed to support tbe stepfather for the rest of his life and keep up his life insurance dues if A would name B his beneficiary in the contract. The stepfather lived in 'B's home for five years, and B kept up the dues. A's physical condition became such that it became a great hardship upon B, and a disagreeable task for B to care for him. A was thereupon sent to the poorhouse, where shortly after he died. After leaving B's home, A changed his beneficiary to M. B claims that A's condition dis- charged him from the contract, and that he is entitled to reasonable compensation for A's board and reimbursement for the dues ; or, if that is denied, then that conceding he broke the contract, he is entitled to the same thing as for benefits rendered on an implied agreement. Are either these contentions sound? (Ptacek v. Pisa, 231 111. 522, 14 L. R. A. N. S. 537.) 109. A contract was made that A should manage a number of parcels of improved real estate belonging to B for the term of five years, collecting the rents, making repairs and paying over the net balance remaining in his hands the 15th of each month. For these services he received a commission upon the amounts collected and the use of an office. The contract contained tbe provision "that the covenants in this contract shall succeed to and be binding upon the respective heirs, executors, administrators and assigns of the parties hereto." B died. His heirs and his administrator give notice to A that his services are no longer wanted. A sues for breach of con- tract. Can he recover? (Homan v. Redick, L. R. A. 1915 C. N. (Nebr.) 601.) 110. Define novation ; merger. 111. What is the statute of limitations? CHAPTER 17. 112. State the rule of damages in contract cases. 113. Will the remedy of specific performance be given in every case? State the rules and give illustrations. 114. When will a court enjoin the breach of a contract? INDEX TO CONTRACTS. (References are to sections. Numbers preceded by letter A indicate that the section is in General Survey.) Acceptance, see, also, "Offer and Acceptance." of benefits, as waiving breach, 133. Adequacy of consideration, 50. Administrator, when contract of must be in writing, 85. Agent, when authority must be sealed, 79. Aliens, power to contract, 15. Assignment of contracts, in general, 116. power to assign rights, 117, 119. power to assign obligations, 118. to be made in future, 120. effect of, as to assignor, 121. effect of as to debtor, 122, 123. what constitutes, 124. by operation of law, 125. B. Bankruptcy as discharge, 143. Beneficiaries may sue when, 113-115. Branches of Municipal Law, A4. Breach of contract, 132, 135. 245 246 INDEX. C. Capacity of parties to contract, in general, 5. of minors, who are minors, 6. to contract for necessaries, 8. to contract in other respects, 7. ratification, 10. of married women, 12. of insane persons, 13. of drunken persons, 14. of aliens, 15. of corporations, 16. Common Law, 17. Composition with creditors, 56. Compromise of claim, 56. Consideration, an essential element, 49. defined, 49. adequacy of, 50. may consist in promise, 51. past act as, 52. obligation imposed by law as, 53. promise to perform contract as, 54. part payment of debt as, 55. settlement of dispute as, 56. forbearance as, 57. compromise as, 56. to support composition, 55. to support subscription, 58. Constitutional Law, defined, AS. federal, A6. state, A7. Construction of contract, general rules of, 103, 104. in respect to time, 105, 106. in respect to damages, 107. Contract under seal, see "Seal." Courts, A21-24. Criminal law defined, A9. INDEX. 247 D. Damages, liquidated, 107-111. rules of, 145-147. Discharge of contracts, meaning of, 129. by performance, 130, 131, 136. by breach, 132, 135. by tender, 133, 134. by impossibility, 138. by alteration, 139. by novation, 140. by merger, 141. by agreement, 142. by bankruptcy, 143. by limitations, 144. Duress, denned, 145. avoidance on account of, 48. ratification of, 49. Equity, court of, A22. Executed contracts, 3. Executory contracts, 3. Executors, contracts of, 85. E. F. Formal contracts, defined, 1, 77-80. Fraud in inception, defined, 34. Fraud in inducement, effect of, on contract, 36. statements of fact as, 37. opinions and predictions as, 38. concealment as, 39. silence as, 40-43. summary as what constitutes, 44. avoidance on account of, 48. ratification of, 49. 248 INDEX. Frauds, Statute of, described, 82. text of, 83. nature of, 84. cases within, promises of executors, 85. promises of guarantors, 86. promises in consideration of marriage, 87. contracts for sale of interest in land, 88. contracts not to be performed within year, 89. sales of personal property, 90. memorandum and signature, 91. G. Gambling contracts, 64. Guaranties, must be in writing, 86. I. Illegality of contracts, in restraint of trade, 60. for monopolies, 61. limiting liability, 62. of usury, 63. of wagers, 64. tending to currupt public service, 65. in restraint of marriage, 66. made on Sunday, 67. without licenses, 68. as affected by intent of one, 69. remedies in, 70-73. partly legal, partly illegal, 74. Implied contracts, 101, 102. International Law defined, A2. L. Lands, sale of must be in writing, 88. Law defined, Al. Limitations, statute of, 144. M. Mail, contracts by, 31. Married women, power of, to contract, 7. INDEX. 249 Minors, who are, 6. power of, to contract, 7. liability of, for necessaries, 8. what are necessaries, 9. disaffirmance of. contracts by, 10. ratification of, by, 10. liability of, for torts, 11. Mistake, effect of, on contract, 35. Monopolies, illegal, 61. o. Offer and acceptance, necessary to contract, 17. communication of, necessary, 18, 19, 31. distinguished from preliminary announcements, 20. indefinite when, 21. incomplete when, 22. duration of offer, 23-27. rejection of offer, 24. termination by destruction of subject matter, 25. same by death or insanity of parties, 26. revocation of offer, 27. contract to keep offer open, 28. what constitutes acceptance, 29, 30. Opinions as fraud, 38. Oral contracts, 100. Oral evidence, 96-99. P. Parties to contracts, see "Minors"; "Married Women"; "Aliens"; etc. Parol evidence rule, 96-99. Performance, construction as to time of, 105, 106. what constitutes, 130-136. specific decreed when, 148. Quasi contracts, 102. 250 INDEX. i R. Ratification of contracts, voidable for various reasons, 49. by minors, 10. Remedy for breach, by action for damages, 145-147. by bill for performance, 148. by bill for injunction, 149. Rescission of contracts, See "Fraud," "Mistake," "Duress," "Misrepresentation,' "Undue Influence," "Ratification of Contracts." Restraint of marriage, illegal, 66. Restraint of trade, when illegal, 60. S. Sales, of real property, 88. of personal property, 90-95. Seal, definition of, 77. effect of, 78. when required, 79. legislation upon, 80. Settlement, of debt by part payment, 59. of disputed account, 60. Signature, required by statute of frauds, 18. by agent, 19. Silence, contracts may arise from, 32. as constituting fraud, 40-43. Simple contracts, defined, 2. Statute of frauds, see "Frauds, Statute of." Statute of limitations, 144. Sunday contracts, illegal when, 67. Subscriptions, 58. T. Telegraph, contracts by, 31. INDEX. 251 Tort, defined, A10. of minors, 11. Trade, contracts in restraint of, 60. U. Undue influence, defined, 46. presumed when, 46. disaffirmance and ratification, 47. 48. Unilateral contracts, defined, 2. Usury, effect of charging, 63. W. Wager agreements, 6. Written contracts, see, also, "Statute of Frauds," classified, 2. not variable by oral evidence, 96-99. Written law, defined, A14. AMERICAN COMMERCIAL LAW SERIES Second Edition LAW OF AGENCY WITH QUESTIONS AND ANSWERS BY ALFRED W. BAYS, B.S., LL.B. Professor of Law, Northwestern University School of Commerce, and Member of Chicago Bar CHICAGO CALLAGHAN AND COMPANY 1921 COPYRIGHT, 1921 BY CALLAGHAN & COMPANY TABLE OF CONTENTS. PART I. NATURE AND FORMATION OF AGENCY. CHAPTER 1. DEFINITIONS. Sec. 1. Nature of agency. Sec. 2. The responsibility of the principal or master. Sec. 3. The principal and agent as one person. Sec. 4. Kinds of agencies. CHAPTER 2. CAPACITY OF PARTIES AND POWER OF DELEGATION. Sec. 5. In general. A. Power to Be Principal or Agent as Dependent Upon Capacity to Contract. Sec. 6. General rule as power to be principal. Sec. 7. Minors as principals. Sec. 8. Corporations as principals. Sec. 9. Power to act as agent. ii 12 TABLE OF CONTENTS. B. Power to Be Principal or Agent as Dependent Upon Nature of Act Involved. Sec. 10. Appointment of agent for illegal purpose. Sec. 11. Acts not delegable because general public policy forbids. Sec. 12. Personal duties imposed by contract not delegable. CHAPTER 3. THE APPOINTMENT OF THE AGENT. A. Authorization by Act of Party. Sec. 13. In general. Sec. 14. Formalities required in appointment of agent. Sec. 15. Elements essential in appointment of agent. B. Authority Conferred by Law. Sec. 16. In general. Sec. 17. Authority of wife to bind husband. Sec. 18. Authority of child to bind parent. Sec. 19. Statutory liability for family expenses. CHAPTER 4. AUTHORIZATION BY RATIFICATION. A. Definitions and Essentials. Sec. 20. Meaning of ratification. Sec. 21. Essentials of ratification. TABLE OF CONTENTS. 13 B. What Constitutes Ratification. Sec. 22. Express ratification. Sec. 23. Silence as ratification. Sec. 24. Ratification by receiving benefits. Sec. 25. Ratification by bringing suit. C. Results of Ratification. Sec. 26. Ratification cures original defect. Sec. 27. Ratification irrevocable. PART II. THE DUTIES AND LIABILITIES ARISING OUT OF AGENCY. CHAPTER 5. THE DUTIES AND LIABILITIES OF THE PRINCIPAL TO THE AGENT. Sec. 28. Agent's right to compensation. Sec. 29. When compensation considered earned. Sec. 30. Agent's right to damages where principal wrongfully revokes. Sec. 31. Agent's right to compensation where guilty of breach of contract. Sec. 32. Agent's right of compensation where he abandons service without his own fault. CHAPTER 6. THE DUTIES AND LIABILITIES OF THE AGENT TO THE PRINCIPAL. A. The Agent's Obligation of Good Faith. Sec. 33. Duty of agent to use good faith. General rule. Sec. 34. Agent cannot secretly represent both parties. 14 TABLE OF CONTENTS. Sec. 35. Agent cannot buy from, or sell to, self. Sec. 36. Agent cannot take secret profits and benefits. B. Duty to Obey Instructions, to Use Care and Skill, etc. Sec. 37. Duty of agent to obey instructions. Sec. 38. Duty of agent to use care and skill. Sec. 39. Agent's duty of personal performance. Sec. 40. Whether agent is selected to perform or to obtain agent to perform. Sec. 41. Same subject applied to collections by banks. C. Liability of Agent to Principal for Default of Third Person. Sec. 42. General rule. Sec. 43. Del credere agencies. CHAPTER 7. THE DUTIES AND LIABILITIES IN CONTRACT OF A DISCLOSED PRINCIPAL (THE AGENT'S AUTHORITY). Sec. 44. General rule. Sec. 45. Unauthorized assertions by agent of his au- thority. Sec. 46. Implied and apparent authority distinguished. Sec. 47. Implied and apparent authority in general and special agencies. Sec. 48. Construction of special appointments. Sec. 49. Implied and apparent power of agent to bor- row money. Sec. 50. Implied and apparent power of agent to bind principal upon commercial paper. Sec. 51. Implied and apparent power of agent to sell personal property. Sec. 52. Implied and apparent power of agent who has indicia of title to sell goods. TABLE OF CONTENTS. 15 Sec. 53. Implied and apparent power of selling agent to receive payment. Sec. 54. Implied and apparent authority of selling agent to extend credit on sales. Sec. 55. Implied and apparent power of buying agent to buy on credit. Sec. 56. Implied and apparent power to warrant. Sec. 57. Admissions of agent. Sec. 58. Authority of agent to receive notice. CHAPTER 8. UNDISCLOSED PRINCIPALS. Sec. 59. General rule. Sec. 60. First exception to rule. Sec. 61. Second exception to rule. Sec. 62. Third exception to rule. Sec. 63. Fourth exception to rule. Sec. 64. Where alleged undisclosed principal had not conferred authority. Sec. 65. Undisclosed principal's right to hold third person. CHAPTER 9. PRINCIPAL'S LIABILITY FOR TORTS OF AGENT. Sec. 66. Authorized torts Sec. 67. Ratified torts. Sec. 68. Liability for torts within scope of authority. Sec. 69. What torts within scope of authority. CHAPTER 10. THE DUTIES AND LIABILITIES OF THE AGENT TO THE THIRD PERSON. Sec. 70. General statement. 16 TABLE OF CONTENTS. A. Liability of Agent in Contract. (a) The agent warrants his authority. Sec. 71. Warranty of authority by agent. (b) Agent may bind himself on contract. Sec. 72. General statement. Sec. 73. Principal undisclosed. Sec. 74. When agent bound on sealed instruments by form of his execution. Sec. 75. When agent bound on negotiable paper by form of his execution. Sec. 76. When agent bound on other contracc oy rorm of his execution. Sec. 77. Agent bound where no responsible principal. B. Liability of Agent in Tort. Sec. 78. Agent responsible for his torts. PART III. PROFESSIONAL AGENTS. CHAPTER 11. A. Factors. Sec. 79. Definition of factor. Sec. 80. Duties of factor. Sec. 81. Implied authority of factor. Sec. 82. Same as to third persons. Sec. 83. Factor's lien. B. Brokers. Sec. 84. Definition. Sec. 85. Kinds of brokers. Sec. 86. Authority of broker. TABLE OF CONTENTS. 17 C. Auctioneers. Sec. 87. Auctioneers defined. Sec. 88. Auctioneer's authority. Sec. 89. When sale by auction takes place. Sec. 90. "By bidding." PART IV. TERMINATION OF RELATIONSHIP. CHAPTER 12. TERMINATION BY ACT OF PARTIES. Sec. 91. By terms of original agreement. Sec. 92. By accomplishment of object. Sec. 93. Revocation by act of principal. Sec. 94. Irrevocable agencies. Sec. 95. When principal has right to revoke. Sec. 96. Termination by agent. Sec. 97. Notice of revocation to agent. Sec. 98. Notice to third persons. CHAPTER 13. REVOCATION BY OPERATION OF LAW. Sec. 99. By death of principal Sec. 100. By death of agent. Sec. 101. By insanity of party. Sec. 102. By bankruptcy. Sec. 103. By war. Bays 2 LAW OF AGENCY. PART I. NATURE AND FORMATION OF AGENCY. CHAPTER 1. DEFINITIONS. Sec. 1. NATURE OF AGENCY. If one appoints another to do an act for him as the act of the appointing party, such appointing party is known as the principal or master and the other party the agent or servant agent if the work he is ap- pointed to do is that of contractual negotiation with others; servant, if the work he is appointed to do does not involve con- tractual negotiation. When a person procures another to do something for him, we have the following possibilities: First; The person procured to do the work may undertake results in the accomplishment of which he acts as independently of the one procuring him as such party does of him they are independent contractors. Second: The person procuring the work to be done may by his arrangement with the other establish a more or less general control over the work to be done ift the T9 2O LAW OF AGENCY. nature of a proprietary interest in the services rendered, so that such work, though done by another, is really, as to the responsibility therefor, the work of the appoint- ing party. In such case (1) The work appointed to be done may be to nego- tiate contractually with others and then we call the appointing party the principal and the appointee the agent ; (2) The work appointed to be done may be of a different character, being perhaps (but not necessarily) work done in the performance of the principal's con- tracts with others, but not creating those contracts. In such case we call the appointing party the master, and the appointee, the servant. It is seen at once that inasmuch as the work of the agent is to negotiate contractually with others, the rights of the principal against, and his obligations towards, such others arising out of the contracts made by the agent make up a big subject which is necessarily lacking in the relationship of master and servant. In the two relationships we have these principle considerations: In Agency 1. The rights and duties between the principal and agent in contract in tort. 2. The rights and duties between the principal and third person arising out of contracts made by the agent pursuant to his authority; 3. The obligations of the principal to third persons for the torts of his agent; 4. The rights and obligations between the agent and third persons. AMERICAN COMMERCIAL LAW. 21 In Master and Servant 1. The rights and obligations in contract and tort (and also under workmen's compensation acts) between master and servant. 2. The obligations of the principal to third persons for the torts of his servant. Thus we see that the scope of the work of the servant and the scope of the work of the agent takes us into a field which both traverse, and in a separate field of vast importance traversed only by the agent the field that involves the authority of the agent to make contracts for his principal. Fundamentally the relationship in either case is that of service. And the reason that we distinguish is that in their incidents and consequences they go far apart. The fundamental sameness of the relationships is seen in the fact that one may at one moment be agent, and in the next moment while on the same work, be servant. Employed to purchase goods, one becomes a servant to haul them home; employed as a store clerk, his miscel- laneous duties are now those of agent, now those of servant. 1 The examples below will illustrate this section. Example 1. A owns a garage and repair shop. He contracts with B, a customer, to overhaul B's car. C works for A and assists in working on B's car. B sends his chauffeur for the car and directs him to buy a new tire from A on B's credit. A has what is called an authorized agency for these tires, but as a matter of fact he buys the tires from the manufacturer under a contract by which for a period the manufacturer agrees to supply what A orders. In this illustration A and B are independent contractors. C is A's servant. The 1. Kingan v. Silvers, 13 Ind. Ap. 80; 37 N. E. 413. 22 LAW OF AGENCY. chauffeur is B's agent to get the car from A, and to purchase the tire, and B s servant to drive the car home. A is not an agent of the tire manufacturer, though so called, being merely a purchaser from him for purposes of retail. If A received such tires from the manufacturer to resell upon a commission, A would be the kind of agent known as a factor (see post herein) . Example 2. Echols was charged with having em- bezzled, as, an agent or servant, money belonging to his employer, Echols was a tailor, and had undertaken to make a suit of clothes for his customer who had paid him money in advance. He did not make the clothes or return the money. The charge must fail. The money when paid to Echols became his. He was liable civilly to the customer for breach of contract, but not criminally liable for embezzlement. If the customer had given Echols $10.00 with which to buy cloth for him, and he had misappropriated it, he would then be taking the customer's money. 2 Example 3. A manufactures sewing machines. He sells some machines to B, who resells to customers. He gives C a contract, whereby C sells sewing machines for A from house to house. B is not A's agent. C is, and A is liable for his acts within the scope of the employ- ment. 3 Sec. 2. THE RESPONSIBILITY OF THE PRINCIPAL OR MASTER. The underlying idea in the law of agency is that the principal (or master) is responsible for that which the agent (or servant) does in the line of his employment. ~ "Qui facit per alium qui facit per se," runs the Latin maxim. "Respondeat superior'' is another one. That 2. Echols v. State, 158 Ala. 48. 3. Singer Mfg. Co. v. Rahn, 132 U. S. 518. AMERICAN COMMERCIAL LAW. 23 which the agent or servant does within the scope of his agency renders the principal or master responsible therefor. It is his act, done by him, through another. The principal is therefore liable for the contracts made by the agent which the principal has authorized, and for the torts of the agent or servant, though he has not authorized them, and has in fact forbidden them, when they are a part of the act done. Sec. 3. THE PRINCIPAL AND AGENT AS ONE PER- SON. The principal and agent and master and servant are in law deemed to be one person for the purposes of the agency. Carrying the idea of the last section a little further, we may think of principal and agent or master and ser- vant as one person in the fiction of the law. "They are famed to be all one person." 4 The principal is pre- sumed to be present in the person of his agent doing the act, so that in the phraseology of the law we may say "Now comes John Smith, in his own person, and comes Henry Jones by his attorney or agent." In such a case John Smith and Henry Jones are both legally present. Thus in a stockholders' meeting some are present in person, some by proxy, but all are there who come either way. For this reason that act which the agent does for his principal, the principal is chargeable with as soon as it is done, and before any communica- tion thereof to the principal. The collection made in New York for a Chicago principal is collection by the principal, though the principal never in fact receives it. If the agent has authority to do the act, or the act (being a tort) is done as a part of the act which the agent has authority to do, the act of the agent is the act of the principal because their identities are merged. 4. Dempsey v. Chambers, 154 Mass. 330. 24 LAW OF AGENCY. Sec. 4. KINDS OF AGENCIES. At this point we will merely note the following distinc- tions, making more particular discussion hereafter. (a) General and Special Agents. Courts speak of agents as being either general or special; a general agent being one to whom a line of action is committed, as to manage a store; a special agent, one who has authority to do a certain act as to collect a note. This distinction has been criticized, but practically, it serves a useful purpose. See, later, the authority of the agent. (b) Agents del credere and not del credere. A del credere agent undertakes the exceptional responsibility of answering to the principal for the responsibility of all accounts established through his agency. The subject is developed hereafter. (c) Classification as to skill or profession. There are various classes of agents whom we may properly term professional agents as brokers, factors, auctioneers and attorneys at law. See a further dis- cussion hereafter. CHAPTER 2. CAPACITY OF PARTIES AND POWER OF DELEGATION. Sec. 5. IN GENERAL. The power of a person to act as principal or to act as agent involves the general subject of the legal competency of classes of persons. The power of any person to be principal or agent as to certain classes of acts is another subject entirely, but the two may fitly be discussed together at this point. A. Power to Be Principal or Agent as Dependent Upon Capacity to Contract. Sec. 6. GENERAL RULE AS TO POWER TO BE PRINCIPAL. The general rule is that whatever one has capacity to do himself he has capacity to appoint another to do for him. If one has legal capacity and legal right to do a thing himself (though he may lack the requisite skill or knowledge) he may do that thing through another. If he may contract himself, he may employ an agent to make the contract for him. 5 If he has no legal capacity to bind himself upon a contract, he cannot acquire that capacity by employ- ing an agent. Sec. 7. MINORS AS PRINCIPALS. A minor's contract, except contracts to pay for necessaries actually supplied, is 5. Greenwood v. Spring, 54 Barb. (N. Y.) 375. 25 26 LAW OF AGENCY. voidable whether made by him or through an agent, but ac- cording to some authorities a minor's appointment of an agent is void, and everything done by virtue thereof is void. With the exception of his liability to pay for necessaries supplied to him, a minor's contracts are voidable, not void, that is, he may withdraw from them if he wishes, although the other party is bound unless the minor avoids the contract. It would seem logical that the power of the minor to contract through an agent, and the appointment of the agent itself would be subject to the same observations. 6 And such is the rule in some jurisdictions. But in other jurisdictions the de- cisions are that the appointment of an agent is utterly void, and therefore everything done by virtue thereof is void. 7 Sec. 8. CORPORATIONS AS PRINCIPALS. A corpo- ration can act only through agents and has the power to ap- point agents and servants for the purpose of doing anything within its express or implied charter powers. Corporations being intangible creations of the law, can act only through agents. The power of a corpora- tion to do an act is determined by its charter. Hence any agency created for the performance of an act beyond the corporate power would not be binding upon it, although if the act were actually done, so that the corporation had derived a benefit therefrom, under some authorities the act would be binding, and under others not binding, except that the corporation would be liable upon a quasi contractual basis for the reasonable value of the benefits. 8 6. Coursole v. Weyerhouser, 69 Minn. 328; 72 N. W. 697. 7. Cole v. Pennoyer, 14. 111. 158; McDonald v. Spring Valley, 285 111. 52. 8. See, generally, the law of corporations, in this series. AMERICAN COMMERCIAL LAW. 27 Sec. 9. POWER TO ACT AS AGENT. Any person, though without power to contract in his own right may act as an agent for another. A person must be capable of acting in his own right (sui juris} to be principal, for the simple reason that what he has no power to do personally he cannot acquire power to do by doing it through another. But what one may not do for himself because he lacks capacity he may do for another who has the capacity.^ He may not, of course, bind himself upon a contract of agency if he lacks capacity to contract, but he may, if he chooses, actually perform the function of an agent. Thus, minors may act as agents and the contracts made by them in the name of the principals and pursuant to authority are binding upon such principals. The reason is that the agent does not bind himself but acts as a mere intermediary through which the minds of the con- tracting parties meet, whereupon the agent has per- formed his office. Example 4. P sends his office boy to buy supplies on P's credit from T. The boy orders the supplies according to his authority. This makes a contract between P and T as binding as though they had con- tracted personally. B. Power to Be Principal or Agent as Dependent Upon Nature of Act Involved. Sec. 10. APPOINTMENT OF AGENT FOR ILLEGAL PURPOSES. An appointment of an agent for an illegal pur- pose is void. If the agent is appointed for an illegal purpose, the appointment is void. Obviously any agency is illegal 9. Lyons v. Kent, 45 Ala. 656. 28 LAW OF AGENCY. which is for the purpose of a commission of a crime. 10 In such a case whatever the pretense, all are principals. So an attempted agency to procure the commission of a tort would make all liable as joint tort feasors. Any agency whose tendency is to induce the agent to break faith, or to corrupt the public service, is void, although no actual harm results. It is the tendency which makes it void. Thus, for illustration, agents ap- pointed for lobbying purposes, 11 marriage brokage con- tracts, 12 are illegal and void. Sec. 11. ACTS NOT DELEGABLE BECAUSE GEN- ERAL PUBLIC POLICY FORBIDS. Some acts are by public policy made inherently personal and therefore cannot be delegated. (a) Official duties for whose performance the person has been chosen for his personal qualifications. Any duty for the performance of which a particular person has been chosen manifestly cannot be delegated. Thus the discretionary and judicial duties of public offi- cers, cannot be delegated, 13 though merely ministerial acts may be performed by others. Thus, directors of cor- porations, or trustees, cannot pass on to others the powers which they have personally been chosen to exercise. Directors cannot attend meetings by proxy; though stockholders may. 14 10. Pearce v. Foote, 113 111. 228. 11. Mills v. Mills, 40 N. Y. 543. 12. Hellen v. Anderson, 83 111. Ap. 506. 13. Birdsall v. Clark, 73 N. Y. 73. 14. See subject corporations in this series. AMERICAN COMMERCIAL LAW. 29 (b) Duties whose delegation would involve evasion of personal obligations imposed by law, encourage cor- ruption, etc. The power of the citizen to vote at public elections is an example of acts not delegable for the reason stated. Sec. 12. PERSONAL DUTIES IMPOSED BY CON- TRACT NOT DELEGABLE. Duties of personal service for whom one has been selected by contract cannot be dele- gated. As a person may choose with whom he will contract, and the relationship of contracting parties is in all respects a highly personal one, obviously a party to a contract cannot delegate his personal obligations there- under without the consent of the other contracting party. This subject is discussed hereafter. CHAPTER 3. THE APPOINTMENT OF THE AGENT. A. Authorization by Act of Party. Sec. 13. IN GENERAL. Except as considered in Part B of this chapter (covering cases not of true agency) an agent's authority must be traceable to something the princi- pal has said or done whereby he has actually conferred, or whereby to third persons he seems to have conferred, the au- thority in question, with the qualification that he may con- fer the authority by ratification after the agent has acted as well as by prior authority. An appointment of an agent is a matter of agreement between principal and agent. 15 The principal need not confer any more authority than he wishes. The extent of the authority which in any given case is conferred, whether actual, implied, or apparent, is considered at length hereafter. Sec. 14. FORMALITIES REQUIRED IN APPOINT- MENT OF AGENT. In the appointment no particular for- malities are required except that the power to execute an in- strument under seal must be under seal; and except as may be locally required by statute for particular classes of agen- cies. The general rule is that an agent may be appointed by any form of appointment; no particular formalities 15. Central Trust Co. v. Bridges, 57 Fed. 753. 30 AMERICAN COMMERCIAL LAW. 31 are required. Appointment to execute a contract in writing may be oral or in writing. Contracts under seal when executed by an agent require authority under seal, as it is said that the authority must be of equal dignity with the deed. 16 But if the law does not require the contract to be under seal or the seal is not required by the principal the gratuitous addition of the seal by the agent can be ignored and the contract treated as a simple, binding contract if the agent otherwise pursued his authority. 17 In those jurisdictions in which the significance of the private seal has been abolished, 'the reasoning above has, of course, no application. By the original statute of frauds, considered at length in the volume on Contracts in this series, certain classes of contracts can not be proved in court against the objection that there is no written memorandum signed by the party sought to be charged, or by his agent there- unto lawfully authorized. But the statute does not say that the authority of an agent must itself be in writing, even in those classes of cases covered by the statute. Hence it has always been considered that under the statute of frauds, an agent of the defendant may make the requisite memorandum and sign the name of his. principal, although his authority is oral. This is still the law, except that in some states it has been further provided that in case of a contract to sell real estate, the principal is not bound upon the contract the agent may make, even if he pursue his actual authority, if that authority is not in writing. Sec. 15. ELEMENTS ESSENTIAL IN APPOINTMENT OF AGENT. To establish the relationship by contract, all 16. Watson v. Sherman, 84 111. 263. 17. Worral v. Munn, 5 N. Y. 229, 55 Am. Dec. 330. 32 LAW OF AGENCY. the elements essential to formation of contract must exist, but agency may also result from a gratuitous appointment. Agency may arise out of contract, and this is the usual case. In that case there must be all the ele- ments which are essential to the formation of any contract, namely, competent parties to contract, offer and acceptance, legality of object, and either a con- sideration or a seal. We need not here dwell to any extent on a consideration of these elements, as that belongs rather to a treatment of contracts in general. 18 The relationship, however, need not be contractual. It may be purely gratuitous. In such a case, the third party with whom the agent makes the contract is not concerned with the contractual rights between principal and agent. All that concerns him is the authority with which the agent is clothed, and if that sufficiently ap- pears, that is all that is necessary. It cannot concern him what the principal pays the agent, or whether anything. B. Authority Conferred by Law. Sec. 16. IN GENERAL. In some cases, as considered below, one person may bind another without the consent of the other, and even against his protest. But this is a liability imposed by law and is not true agency. See following sections. Sec. 17. AUTHORITY OF WIFE TO BIND HUS- BAND. A wife is given by law the authority to bind her 1 husband for necessaries, where she is not, in her own fault, living apart from him, and the husband is not actually sup- plying her. 18. See contracts in this series. AMERICAN COMMERCIAL LAW. 33 A husband is bound to supply his wife with necessaries and if he does not provide her, she has authority to bind him in the purchase of such necessaries. And this authority he cannot revoke, unless she is living apart from him on account of her own fault. If she is actu- ally supplied, then, of course, she cannot bind the husband. Accordingly a merchant who supplies a wife goods on the credit of her husband, must take the risk that she is not already being supplied with her needs, un- less he relies on an implied authority of the wife to bind the husband, growing out of the special circumstances. For there may be quite an extensive authority on the part of the wife to bind the husband, quite apart fijom this authority conferred by law, growing out of each case, as where the husband as a practice permits the wife to trade in his name, and that is her custom. That authority he may at any time revoke. But the authority to bind him for her necessaries which he is not supplying cannot be revoked. If he absents himself from her, the authority to bind him still continues. What constitutes a necessary depends on circum- stances. The station in life is to be considered. Yet a thing is not a necessary except it have reference to actual needs, as food, clothes, fuel, lodging, medicine, etc. Sec. 18. AUTHORITY OF CHILD TO BIND PARENT. The law confers no authority upon the child to bind the par- ent. But authority to bind the parent may be implied from the circumstances. The law does not confer authority on the child to bind the parent, though under the circumstances of any particular case that authority might be readily inferred. 19 19. Hunt v. Thompson, 3 Scam. (111.) 179; 36 Am. Dec. 538. Bays 3 34 LAW OF AGENCY. In fact from very slight circumstances the courts will find an authority for the child to bind the parent for his necessaries. Sec. 19. STATUTORY LIABILITY FOR FAMILY EX- PENSES. In some states a statutory liability is provided that either husband or wife may be held for family expenses. In some states, the statute has provided substantially to the effect that any purchases of articles for household or family use are binding upon either wife or husband. CHAPTER 4. AUTHORIZATION BY RATIFICATION. A. Definition and Essentials. Sec. 20. MEANING OF RATIFICATION. If one acts as an agent and yet without authority, the party for whom he purported to act may hold the third person, and is himself liable to such third person, by an election to stand by and affirm what the agent has done in his behalf. One cannot be held by the act of another unless he has really or apparently authorized that other to repre- sent him in the matter in question. One who acts as an agent may have no authority, or, having some authority, may not have the particular authority requisite to the case at hand. In such a case the prin- cipal is not bound unless he cares to ratify what has been done in his behalf. If he does ratify, he becomes bound as though the agent had had previous authority, and the third person becomes bound to him. The lack of authority has been supplied. This is no injustice upon the third person as it merely brings matters t6 the state in which he supposed they were or wanted them to be when he assented to the supposed agreement. But in almost every case in which ratification is claimed, it is claimed by the third person against an alleged principal who pleads lack of authority. Ratification rests upon the broad general principle that as a matter of practical justice, one who has assented to the act of his supposed agent will not be allowed to 35 36 LAW OF AGENCY. afterwards disclaim it upon the technicality that at the time the agent acted there was lack of authority which would have justified repudiation by the principal had he chosen to disclaim. Ratification is thus seen to be nothing technical; the rules governing the subject are given below. Sec. 21. ESSENTIALS TO RATIFICATION. To con- stitute ratification there must be the following facts: (1) The agent must have acted as agent; (2) The act must be one that could have been authorized; (3) The ratifier must have been in existence when the contract was made ; (4) The ratifier must be fully informed as to the facts; (5) Ratification must be of the entire act; (6) Must be before the other party's with- drawal, and (7) Must be in the form required of previous au- thorization. The essentials enumerated above are briefly considered below : (1) The agent must have acted as agent. Example 5. A, acting as principal and having no authority from P to represent him, buys on his own credit, corn from T. P afterwards arranges with A to take the corn, and T, learning of the arrangement and of the fact that P has actually obtained the corn, sues P. In this case T has no contract with P and seeks to hold P on the theory of ratification. But T extended the credit to A. There was no agency or appearance of agency and P's liability is to A, not to T. 21 (In the above example if A had really been P's agent, although concealing the fact, P could be held on the theory that although the agency was concealed, still P was in fact the real party in interest, and as he takes 21. Keighly v. Durand, L. R. 1900 A. C. 240. AMERICAN COMMERCIAL LAW. 37 the benefits ought to be held to the burdens. See sub- ject Undisclosed Agency, post.) (2) Act ratified must be one that could have been author- ized. What one cannot authorize in the first instance, he cannot ratify. Thus, illegal agencies cannot be ratified. In the same way one cannot become liable upon a tort merely by assenting to it afterwards, even though it may have been done in his behalf by one who called himself, but was not, agent. 22 Nevertheless, if a lawful act is done by one as agent, and incidentally thereto he commits a tort, the principal will be liable for the tort if he adopts the act, for the act must be adopted as an entirety, with its shortcomings as well as with its advantages. Example 6. A, without authority, sells and delivers coal to B, ostensibly as P's agent. In unloading the coal he breaks a window. P ratifies the sale and de- livery by accepting the price. He is liable for the tort. 23 (3) Ratifier must be in existence when contract is made. One cannot be an agent of another who doesn't exist. Therefore it is said that it is essential to ratification that the principal be in existence. But in cases of cor- porations yet to be formed, it is said they may become liable upon the contracts of promoters and incorporators by adoption. (4) Ratifier must be fully informed. That one may be held by ratification he must be fully informed of all the material facts. 24 22. Dempsey v. Chambers, 154 Mass. 330. 23. Dempsey v. Chambers, 154 Mass. 330. 24. Combs v. Scott, 94 Mass. 493. 38 LAW OF AGENCY. Information, however, may be special or general. One cannot remain in wilful ignorance of details in order not to be bound the while he knows there are facts of which he chooses to remain in ignorance, re- ceiving the benefits. Example 7 . A makes a lease in P's name. P enters upon and enjoys the premises. Being sued for the rent he claims that A had no authority and that during the time it is sought to hold him he did not know the terms of the lease. He is bound. 25 (5) Ratification must be of entire act. The principal cannot divide the act into parts, ratify- ing those that suit him and disclaiming the balance. 26 This is very apparent if we remember that ratification merely supplies prior lack of authority and therefore must operate as prior authority would have done had it existed. I.t follows that if he ratifies part he ratifies all. Thus, if the act involves a tort, we have seen that the ratifica- tion of the act is a ratification of the tort. (6) Ratification must be before withdrawal by the other party. The principal not being bound because the agent lacked authority unless he chooses to ratify, it follows that the third party may also disclaim if he does so before the authority is ratified. 27 Otherwise we would have the anomaly of the third person being bound, and the alleged principal not bound. 25. Ermantraut y. Robinson, 52 Minn. 333. 26. See Ratification by Receiving Benefits. 27. There is difference of opinion on this subject, but the weight of authority is as stated. See Mechem, Agency, 2nd Ed. Sec. 522. AMERICAN COMMERCIAL LAW. 39 (7) Ratification must be in the form required of previous authorization. If the authority lacks sufficient form, the lack is there whether the authority be conferred yesterday or to- morrow. Thus, if the execution of a sealed instrument by an agent requires a sealed authority, a ratification must be under seal. 28 The statute of frauds in some states requires the authority to sell real estate to be in writing. Held, that whether the authority is conferred antecedently or by ratification, it must be in writing. 29 But it is also held, that where a mere formality is required (as in the two illustrations given) a principal might by conduct in receiving benefits be estopped to insist upon the formality. 30 B. What Constitutes Ratifications. Sec. 22. EXPRESS RATIFICATION. Express ratifica- tion consists in supplying the lack of authority by writing or orally. Ratification may be expressly made. The principal might ratify by express statement in order to supply the original defect, or because he did not care to insist on the lack of authority. Ratification, however, is in most cases a fact to be discerned from the circumstances. We will now inquire what conduct constitutes ratification. Sec. 23. SILENCE AS RATIFICATION. Silence may be ratification. The general rule is that a principal must dis- claim within a reasonable time after fully informed of all the facts. That silence or rerusal to disclaim, may constitute ratification is conceded by all of the authorities. Some 28. Reese v. Medlock, 27 Tex. 120. 29. Hawkins v. McGroarty, 110 Mo. 546. 30. Reese v. Medlock, supra. 40 LAW OF AGENCY. draw a distinction between cases in which an agent merely exceeds his authority and those in which the supposed agent has no authority, holding that in the former case, he must affirmatively disclaim, while in the latter silence in itself will not in law constitute ratifica- tion, although it may be evidence thereof. 31 But other cases disparage this distinction as being without merit. 32 Practically, the only safe rule for a principal to follow who would not be bound on something volunteered in his behalf is to disclaim at the earliest opportunity. Sec. 24. RATIFICATION BY RECEIVING BENEFITS. One who with knowledge of the facts accepts the benefits of an act done in his behalf will be held to have ratified the act as a whole. He cannot enjoy the benefits without assuming the burdens. The most common instance of ratification is that afforded where the principal receives and enjoys the benefit of the act. If the acceptance is accidental or un- der a mistake of fact the principal will not be bound, but he cannot knowingly accept the benefits of the contract and not be bound upon the whole contract as made. Example 8. A in P's behalf makes a lease of P's property to T. P receives the rent a considerable period of time, but then deciding that the lease is not good enough, seeks to set it aside on the ground A had insufficient authority. Held, that P had ratified the act by receipt of the rents. 33 If the principal is in ignorance of the facts, as we have heretofore considered, there is no ratification. The question arises whether a retention of the benefits 31. Ward v. Williams, 26 111. 447. 32. Union Gold Mining Co. v. Rocky Mt. Nat. Bk., 2 Col. 248. 33. Hyatt v. Clark, 118 N. Y. 569. AMERICAN COMMERCIAL LAW. 41 after he has discovered facts which he did not know at the time of the receipt of the benefits will constitute ratification. And it is held that such retention is rati- fication if the principal can return them without injury, but if he cannot, such retention will not be a ratification. Example 9. P authorized A to obtain from T a release of T's interest in certain land. The agent ob- tained the release, but agreed, without authority, that P should assume a debt of T. P afterwards sold the land, not knowing of the assumption of the debt. Held, that there was not ratification in the failure to disaffirm. 34 Sec. 25. RATIFICATION BY BRINGING SUIT. Rati- fication of an agent's act may consist in suit brought by the principal upon the contract. Suit may constitute ratification if the suit is based upon the contract made by the agent. Example 10. P authorizes A to sell goods as a travel- ing salesman, and furnishes him a sample. A sells the sample to T, and receives the money with which he absconds. P sues T for the price of the sample. Held, that while A had no authority to sell the sample, P's suit upon the contract made by A was a ratification of A's authority to sell; if A had authority to sell and deliver possession, he had authority to receive the price. Hence P cannot recover. What P should have done was to repudiate A's authority to sell and demand the sample, or sue in tort for its value. In that case T's payment to P would be no defense. 35 Sec. 26. RATIFICATION CURES ORIGINAL DE- FECT. Ratification relates back and takes the place of origi- nal authority. Having established the fact of ratification the 34. Martin v. Hickman, 64 Ark. 217. 35. Bailey v. Pardridge et al., 134 111. 188; 27 N. E. 89. 42 LAW OF AGENCY. same results follow that exist where prior authority is con- ferred. Ratification relates back and supplies what was lack- ing. All the results then follow that would have followed had there been original authority; the principal becomes bound upon the contract; the agent is not bound; the agent has the right against his principal and the principal against the agent that would have otherwise existed. We have already noticed how a ratification of a part of an act is a ratification of the entire act. Sec. 27. RATIFICATION IRREVOCABLE. Ratification once made cannot be withdrawn. One cannot with knowledge of the facts ratify and then change his mind. Upon his ratification a contract arises and exists between the parties, and he cannot afterwards undo that contract. He is bound upon it. One can no more revoke a contract effective through ratification than he can revoke any other contract after it is made, PART II. THE DUTIES AND LIABILITIES ARISING OUT OF AGENCY. CHAPTER 5. THE DUTIES AND LIABILITIES OF THE PRINCIPAL TO THE AGENT. Sec. 28. AGENT'S RIGHT TO COMPENSATION. The agent's right to compensation depends on his contract, and may be either conditional upon results or absolute. His right may be implied from the facts. An agent may demand his compensation when he has earned it according to his contract. He may work con- tingently, as for a commission, or his right may be absolute. In the law of contract we learn that a contract will be implied from circumstances in which (there being nothing express to the contrary) the only reasonable explanation is a contractual basis, as where a stranger works for another; but if another explanation is more reasonable, as where a son works for his father, there is no contract, unless an agreement be shown. 36 36. Hodge v. Hodge, 91 Pac. (Wash.) 764, 11 L. R. A. (N. S.) 873. 43 44 LAW OF AGENCY. Sec. 29. WHEN COMPENSATION CONSIDERED EARNED. An agent earns his compensation when he ac- complishes what he undertook. When the agent has earned his compensation depends on his contract and his performance thereof. This question arises frequently in real estate cases, which may be classified as follows: (a) Cases in which the real estate broker was author- ized to find a purchaser upon certain terms, and finds one upon those terms who is ready, willing and able to buy. There he has accomplished all he set out to do, and the seller cannot deny his right by refusing to consummate the sale, or by dismissing the broker and consummating it himself, or through another broker. 37 (b) Cases in which the broker is requested merely to find a purchaser, terms not being stated. Frequently an owner will merely list his property for sale, expecting to negotiate later. In such a case the broker is entitled to no fee until a contract is made, or a sale is made. 38 If a sale is made in such a case, or even a contract which the buyer or seller will riot carry out, the broker is entitled to his commission. Sec. 30. AGENT'S RIGHT TO DAMAGES WHERE PRINCIPAL WRONGFULLY REVOKES. If the principal wrongfully revokes the agency, the agent may, as in the case of any breach of contract, have his action to recover the dam- ages he may have sustained. If a contract is broken there arises at once an action for damages. If an agent is wrongfully discharged, he may not as yet have earned his compensation, yet he 37. Fox v. Ryan, 240 111. 391. 38. Fox v. Ryan, supra. AMERICAN COMMERCIAL LAW. 45 may have what his damages are found to be. There is of course, a right to discharge, if the agent has himself been guilty of a breach of the contract, and in that case the agent could not claim damages or compensation. It must also be borne in mind that there are many agencies which are for no stated period, but merely at will, and in such a case a revocation of the agent's authority might be made at any time, and no right of damages would arise; yet, as we noted in the section above, if the agent had done, or substantially done, what he set out to do before the revocation he would have earned his compensation. So there may be a revocable agency, in which one is to receive a reasonable or an expressly stated, compensation for services actu- ally performed. Assuming, however, that the authority is wrongfully revoked, and that the compensation agreed upon has not been earned before the revocation, the agent is left to his action for damages. This is quite a different matter from his right when he has earned his compensa- tion. For instance, if I employ a man for a year, he may sue me for the year's salary if he works for the year, but if I discharge him on the first day of the year, then he has earned no salary, yet he may have his damages, and this might be small or large, or none at all, according to the actual circumstances. It is said that an agent wrongfully discharged has three remedies he may choose among: (1) He may sue for the value of the services already rendered ; (2) He may sue at any time after breach and have his damages which he has sustained up to that time; (3) He may wait until the term has elapsed and sue for all the damages actually sustained by him. Then suppose P has employed A for one year. A 46 LAW OF AGENCY. has worked one month when he is wrongfully discharged by P. He may thereupon sue for the reasonable value of one month's services; or any time after the month and before the year has elapsed he may sue for his damages sustained by him up to the time of trial; or he may wait until the year has entirely elapsed and have all the damages which the breach caused him. He could not sue for his earnings (salary or wages) alleged to accrue after he was discharged. Thus at the end of the second month, he could not sue for the second month's salary, although it would under the contract then have fallen due, for he has not been in P's service. But he can only sue for his damages, which might be much less than his salary or wages because he might have employment elsewhere. And having once sued for his damages he could not sue again. Thus if he sues at the end of the second month, he could not sue at the end of the third for damages accruing during the third. For there is but one breach of the contract and he can have only one suit for that breach. 39 In a suit for damages, such damages are allowed as have accrued up to the time of the trial. It is the agent's duty upon discharge to use reasonable efforts to secure other employment along the same lines, and if he refuses to accept employment offered him or which he might well have secured, his damages are reduced by what he thus might have earned during the period. What has been said has no reference to an agent's right to sue for his salary as it falls due when he is not discharged. Thus he might bring suit at the end of every month for his month's salary when he continued in the service. Sec. 31. AGENT'S RIGHT TO COMPENSATION WHERE HE HIMSELF IS GUILTY OF BREACH OF 39. Doherty v. Shipper & Block, 250 111. 128. AMERICAN COMMERCIAL LAW. 47 CONTRACT. If a contract of agency is separable into inde- pendent parts, the agent may recover for the performance of any part, but his breach of any part of an entire and indivisible contract bars him from any recovery whatever, except that in some states, he is allowed to recover a reasonable compensa- tion for beneficial services actually rendered as on a quasi contract. If a contract is really many contracts in one, a breach of one of these is no breach of the others. It has been held that if one is employed by the month, with salary payable at the end of the month, for an indefinite period, he may recover any month's salary notwithstanding his subsequent breach, 40 but in that case the principal could set off his damages, if any, caused by the subsequent breach. On the other hand, if an agent is employed for a year, with salary payable monthly, this is usually held an entire contract and if the agent breaks the contract before the expiration of the year he will be held to have broken all parts of the contract and have no right to recover. Some decisions 41 have allowed an agent in the case of such a breach to recover as on an implied contract for the actual worth of the services rendered to the principal or master. This seems the more just rule, though in strict theory the rule that one who breaks a contract shall have no right thereon is more logical, and that is the rule in many states. 42 Sec. 32. AGENT'S RIGHT OF COMPENSATION WHEN HE ABANDONS SERVICE WITHOUT HIS OWN FAULT. Where the agent through sickness or other 40. Robertson v. Jenner, 15 L. T. (N. S.) 514. 41. Britton v. Turner, 6 N. H. 481 Mechem, Agency, 2nd Ed. Sec. 1578. 42. Stark v. Parker, 2 Pick. (Mass.) 267. 48 LAW OF AGENCY. cause, not from his own fault, quits the service, he may have reasonable compensation. If an agent or servant has under a contract of employ- ment performed a part of the services, and then is com- pelled to abandon the employment through sickness, or through any other cause that operates to prevent him from continuing, he may sue to have his reasonable compensation for the services actually performed. 43 43. Fenton v, Clark, 11 Vt. 557. CHAPTER 6. THE DUTIES AND LIABILITIES OF THE AGENT TO THE PRINCIPAL. A. The Agent's Obligation of Good Faith. Sec. 33. DUTY OF THE AGENT TO USE GOOD FAITH. General rule. The agent must display and exercise the utmost good faith toward his principal. One employs another as agent out of personal regards. The relationship is a highly personal one. The prin- cipal and agent are, it is true, at arm's length in dealing with each other concerning the terms of the agency, but once the relationship has been entered into, the agent then becomes the representative of the principal, the man who stands in his stead, who, so to speak, takes upon himself the identity of the principal, who is the principal in respect to that act. It follows therefore that the agent must establish the principal's interests as his own, and that he must not place himself in any position which will tempt him from acting in the very way that the principal would have acted were the principal actually present as he is by a fiction presumed to be present. It is therefore one of the most funda- mental and frequently reiterated rules in the law of agency that a principal is entitled to the highest good faith and utmost zeal of his agent, and that the agent will not only be prevented from taking secret advantages, but will not be allowed to even place himself in the way of temptation, though in the particular case no harm Bays 4 40, 50 LAW OF AGENCY. thereby resulted to the principal. In the following sections we will note some applications of this rule. Sec. 34. AGENT CANNOT SECRETLY REPRESENT BOTH PARTIES. An agent cannot without consent of both parties be the agent of both of them and receive double com- pensation. In such a case he loses his right to all compensa- tion, and if either party is privy to his double dealing, the other party may avoid the agreement. An agent of one person cannot be the agent of the other with whom he is sent to deal. To permit this would lead him into temptation to betray one of his principals. 44 If both parties know of the double agency and consent thereto, there then can be no objection, but otherwise the agent loses all right of compensation by either party, and if either party knows of the double agency and knows that the other party does not know of it, the contract is voidable at the instance of the innocent party. 45 This rule is based on the fact that a principal is entitled to the utmost fidelity of his agent, and therefore is entitled to have the agent keep himself from the temptation to betray his interests. It is entirely im- material whether or not the agent did betray his trust, or did anything unfair. Indeed he may have acted in all good faith and without any disadvantage to his 44. Gann v. Zettler, 60 S. E. Reporter (Georgia) 283, in which the court said: "It is recorded of him 'who spake as never man spake,' that, 'seeing the multitudes he went up into a mountain, and when he was set, his disciples came unto him; and he opened his mouth and taught them, saying: * * * 'No man can serve two masters, for either he will hate one and love the other, or else he will hold to the one and despise the other.' So, also, is our law." 45. Rice v. Wood, 113 Mass. 133. AMERICAN COMMERCIAL LAW. 51 principal. This is of no moment. 46 The only safe rule to apply is the rule that the agent cannot place himself in the way of temptation. If he does so, further inquiry need not be made; the rule will simply be applied that what he has done shall redound to the benefit of his master, and he loses his right to compensation, or, if that has been paid, it can be recovered. Sec. 35. AGENT CANNOT BUY FROM OR SELL TO SELF. An agent employed to buy or sell cannot secretly buy from or sell to himself. If one sells his own property it is human nature that he should desire to sell at the highest price he can get, and if he buys property, he would buy it as cheaply as possible. If I employ an agent to sell property belong- ing to me, I employ him to use his efforts in my behalf to get the highest price he can, and if I employ him to buy for me, I do so under the implied understanding that he will purchase on the most favorable terms to me that he can get. Clearly, then, if he buys from or sells to himself he is opposing his interests to mine. If I know he is doing this, then I am on my guard and can protect myself, but otherwise he betrays or is tempted to betray my trust in him. Therefore, buying from or selling to himself is forbidden, and the principal may upon discovering the facts have the transaction re- scinded. And what may not be done directly may not be done indirectly, that is, the agent acquires no further rights by acting through another and in that other's name. Example 11. A appointed B to sell his real estate. B reported he had sold to F. Afterwards B by assign- ment succeeded to F's title, and A discovered that F 46. People v. Township Board, 11 Mich. 222. 52 LAW OF AGENCY. was acting secretly at the time of the sale as a colorable purchaser merely and that B was the real purchaser. A sued to set aside the sale, and the court set it aside as having been made by the agent in breach of his trust. 47 Sec. 36. AN AGENT CANNOT TAKE SECRET PROF- ITS AND BENEFITS. An agent cannot use his agency to obtain secret profits and benefits. Upon the same principles, an agent will not be per- mitted to use his agency for the purpose of making secret profits and taking secret benefits, and such profits and benefits will accrue to the principal. Thus if he uses the principal's money for purposes of specula- tion, and thereby makes a profit, the principal will be entitled thereto, or if he purchases or acquires for him- self property which the principal has an interest in acquiring, it will be considered that he acquired it for the benefit of the principal, if the principal desires to take it. Example 12. An agent of a lessee of a theatre, acting upon the knowledge and in the advantage secured by his agency, secured to himself a renewal of his principal's lease, and it was held that it would be considered that the agent acquired it for the benefit of his principal. 48 So profits made in the scope of agency will be con- sidered as made for the benefit of the principal. If an agent is employed to sell for one price and succeeds in selling for a higher one, the excess belongs to the prin- cipal. B. Duty to obey instructions, use care and skill, etc. Sec. 37. DUTY OF AGENT TO OBEY INSTRUC- TIONS. An agent must obey instructions and is personally 47. Blank v. Aronson, 187 Fed. 241. 48. Davis v. Hamlin, 108 111. 39. AMERICAN COMMERCIAL LAW. 53 responsible for losses resulting from disobedience and may be discharged for disobedience. While it is of course true that a principal by giving instructions to his agent cannot thereby enlarge the agent's duties beyond those he has expressly or impliedly promised to give, the agent must not disobey reasonable and material instructions given by the principal as to modus operandi. Example 13. An agent is instructed to ship by one route. He ships by another. Loss ensues by "Act of God." The agent must answer. 49 It is true that in emergencies where the agent cannot communicate with the principal for advice, he may not only disobey instructions, but is under a duty to do so, where the emergency requires, as where a principal be- lieving a certain bank to be sound has directed deposits to be made therein, and the agent before making a deposit discovers it to be on the eve of failure. Here he must know that the principal is acting under a misap- prehension. 50 Sec. 38. DUTY OF AGENT TO USE CARE AND SKILL, If an agent is negligent in the pursuit of his duties, he will be responsible for loss if loss occur. What constitutes negligence depends on the circumstances. An agent must act with reasonable diligence and skill. If he is negligent in doing the work intrusted to him he is responsible for the losses thereby occasioned. Thus, if an attorney at law undertakes to collect a claim, and does not act with reasonable promptness and loss thereby results, he may be held responsible for the consequences. 49. Johnson v. N. Y. Cent. Transp. Co., 33 N. Y. 610. 50. Mechem, Agency, 2nd Ed. Sec. 1262. 54 LAW OF AGENCY. What constitutes reasonable diligence depends upon the circumstances. One who does not profess to be an expert or skilled at all in the line in which he is employed cannot be held to the high standard of skill and care that is to be expected from one who makes skill in such work a profession. If I employ one whom I know to be a common laborer, to do, say, plumbing work, in my residence, I cannot hold him responsible where I might hold a professional plumber. 50, agents employed to sell on credit must use reason- able care to select solvent buyers; and wherever discre- tion is required the agent must act with prudence and caution. If an agent acts gratuitously, he may or may not be required to use the skill which would be required in a paid servant, according to circumstances. If one pro- fesses to have skill in some work, and bestows that work without any reward, the lack of reward is of no moment. Thus a physician giving his services free in a matter in which he professed to have particular skill, must not be any more negligent than if he expects to receive a reward. But if one does an act merely as a favor, professing no peculiar skill therein, he will be held only to the exercise of good faith. The following example is from a case in which the duty of care and prudence was applied. Example 14. P employs A to invest money for him. P is an attorney at law. He puts it in an unsafe second mortgage whereby A sustains loss. A is responsible. 51 Sec. 39. AGENT'S DUTY OF PERSONAL PERFORM- ANCE. An agent cannot delegate to others the duties imposed upon him, except those of a purely ministerial character where 51. Whitney v. Martin, 88 N. Y. 535. AMERICAN COMMERCIAL LAW. 55 by reasonable implication such ministerial acts are not expected of him personally. "Delegata potestas non potest delegari" (A power delegated cannot again be delegated.) That which the agent is appointed to do he cannot appoint another to do for him unless he has been given that right in the appointment. The agent has been selected for personal reasons and must perform the work himself. This does not prevent an agent from employing clerks or sub- agents to help him where that is the reasonable inference from his appointment, the agent remaining liable for their defaults. Ordinarily any ministerial or merely clerical duty can be performed by the agent's clerks or subagents, 52 but their defaults are the defaults of the agent. Purely ministerial acts, even, cannot be dele- gated if the purpose of appointing the agent (or servant) is to perform them, as where one is employed to do manual labor. Sec. 40. WHETHER AGENT IS SELECTED TO PER- FORM OR TO OBTAIN AGENT TO PERFORM. If agent is selected to accomplish a certain object, he cannot delegate his responsibility, but if he is merely selected to ob- tain another agent to accomplish such object, his duty is per- formed when he has used reasonable care to select such an agent, and he is not answerable for that agent's defaults. As seen in the last section, an agent's discretionary duties are not delegable, and when within the con- templation of the authority he has clerks or subagents to help him, he is responsible for their acts, as such acts are his acts. But the object for which he is employed may be to obtain an agent for the principal, and in that 52. Eldredge v. Holway, 18 111. 445. 56 LAW OK AGENCY. case obviously his use is fulfilled when he has obtained such an agent, and that agent is then the agent of the principal. But the fact that it is known that he will employ others to help him does not make the act any less his. Example 15. P employs A, a collection agency, to collect accounts, in the collection of which he knows that A will employ lawyers located at the point of residence of the debtor. A is liable for a default by an attorney employed by him. 53 Sec. 41. SAME SUBJECT APPLIED TO COLLEC- TIONS BY BANKS. If a bank receives commercial paper for collection, in which it is known it will employ correspon- dents some authorities hold that the correspondent bank is the agent of the holder of the paper, and some that it is a subagent of the first bank for whose defaults such first bank is liable. P employs A, a bank in Chicago, to collect a note payable in New York City. P knows and expects that A will send- the note to a New York correspondent. If this New York correspondent is negligent in presenting the note for payment, whereby loss ensues, is the Chicago bank liable, or must the principal have his recourse against the New York bank, and if that fails, be without remedy? It is simply a question whether the New York bank is to be regarded as an agent of the Chicago bank or an agent of P secured for P by the Chicago bank. The courts are at variance on this question. In Colorado, Georgia, Kansas, Michigan, Minnesota, Mon- tana, New Jersey, New York, Ohio, and some other states, and in the United States Supreme Court, the rule prevails that the correspondent bank is the agent of the bank employing it and that the latter is responsible 53. Weyerhauser v. Dunn, 100 N. Y. 150. AMERICAN COMMERCIAL LAW. 57 to the client for the negligence of the former. In Alabama, California, Connecticut, Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Mississippi, Missouri, Nebraska, Pennsylvania, and Tennessee, the rule is otherwise. In such a case the owner of the paper must look to the correspondent bank, provided the employing bank used *due care in selecting the agent. If that agent becomes insolvent, the client is without remedy for its negligence in pre- senting the paper. This is the rule most broadly adopted. 54 There may be a special agreement in any event that the bank shall not be liable for the negligence of the subagent. C. Liability of Agent to Principal for Defaults of the Third Person. Sec. 42. GENERAL RULE. The general rule is that an agent has no responsibility for defaults of the third person upon the contract executed by the agent. An agent is merely an intermediary. He forms the contract for the principal, but is not himself a party thereto. His office is to represent the principal in the contractual relationships, and that done, his office is fulfilled. He does not undertake with his principal that the person with whom he contracts for his principal will perform the contract. If he is appointed to sell goods for John Smith to William Jones on credit, he is not answerable if William Jones does not pay the debt. This principle is, of course, ordinarily understood and acted upon in the commercial world, and hardly needs comment. Its statement, however, serves as an intro- 54. First National Bank v. Sprague, 14 L. R. A. 498 (Nebr.), discussing the rule pro and con and reviewing the authorities. 58 LAW OF AGENCY. duction to the situation discussed in the following section in which the agent affirmatively assumes such a liability. Sec. 43. DEL CREDERE AGENCIES. A del credere agent is one who undertakes (usually for a special considera- tion) to pay the principal the accounts arising out of the agency if the customer fails to do so. It is deemed a direct obligation, and the agent is immediately liable upon the expiration of the period of credit, and is not an obligation covered by the statute of frauds. A del credere agent undertakes that he will be respon- sible to the principal for the price of goods sold by him. This is an unusual undertaking and not one that is incidental to the relationship and therefore must be positively entered into, though inferrable if facts war- rant. 55 The agent is liable upon this undertaking at the end of the period of credit. It is not necessary that the principal first resort to the debtor. 56 It has also been decided that the obligation of the agent is a direct, primary obligation, and not "a promise to answer for the debts of another" within the meaning of the statute of frauds, therefore is enforceable although there is only oral evidence to prove it. 57 55. Shaw v. Woodcock, 7 B. & C. 73. 56. Balderson v. National Rubber Co., 18 R. I. 388. 57. Wolff v. Koppel, 2 Denio (N. Y.) 688. CHAPTER 7. THE DUTIES AND LIABILITIES IN CONTRACT OF A DISCLOSED PRINCIPAL TO THIRD PERSONS (THE AUTHORITY OF THE AGENT). Sec. 44. GENERAL RULE. A principal in whose name a contract is made pursuant to authority, is liable to the third person. We may find three situations in which a principal who is disclosed at the time of the contract and in whose name the contract is made is liable thereon. 1. Where the principal actually authorized the agent to make the contract. 2. Where there is no actual authority, yet from the situation in which the principal places the agent, the third person may presume there is authority. The agent is then said to have apparent authority. 3. Where there is neither actual nor apparent authority, yet the act is done in the name of the prin- cipal and the principal afterwards ratifies the act. This situation we have already considered. Sec. 45. UNAUTHORIZED ASSERTIONS BY AGENT OF HIS AUTHORITY. A principal is not bound by the unauthori2ed assertions of authority made by the agent. It is very clear that no one can hold another as prin- cipal merely because a certain person has represented himself to be an agent. If that were the case no man could know what obligations another might fasten upon 59 60 LAW OF AGENCY. him. Just as no man's property can be taken from him by forgery or theft, so no contract may be fastened upon him by another's unauthorized representation of him. All authority to act as agent must be traceable back to some word spoken or some act done by the principal, upon which the third person is entitled to rely as a representation not only that the agent is an agent, but also that as such agent he has authority to bind the principal upon this very contract. The agent may in such a case exceed his real authority; he may disobey secret instructions, he may do things that the principal never contemplated that he should do, and the principal may be held ; yet in such a case there must still be some- thing said or done by the principal upon which a third person may reasonably base a belief that the agent had the power in question "It is to be remembered that persons dealing with an assumed agent are bound at their peril to ascertain not only the fact of the agency, but the extent of the agent's authority." 58 Sec. 46. EXPRESS, IMPLIED AND APPARENT AU- THORITY. Express authority is that set forth literally. Implied authority is authority actually conferred by implica- tion. Apparent authority is the authority which the agent seems to have* from other circumstances whether he actually has it or not and includes implied authority. Authority of an agent to bind his principal, may be thus arranged : 1. Actual authority. (a) Express. (b) Implied. 2. Apparent authority. 58. Merchant's National Bank of Peoria v. Nichols, 223 111. 41. AMERICAN COMMERCIAL LAW. 61 The law of the agent's apparent authority is frequently treated as synonymous with his implied authority; but there is a distinction. It is true an agent has appar- ent authority to do a certain thing because he has implied authority to do it, but in that sense apparent authority would also cover express authority. But the term apparent authority would seem to be more cor- rectly employed to denote an appearance of authority as to third persons independent of the question whether there is authority as between the parties themselves. It is a usual rule of construction applied to all grants of power that the grant carries with it by implication all that is necessary, convenient and reasonable to carry out the purpose of the grant. In general agencies, this is necessarily quite large. In special agencies, it is narrow. As appointment of an agent to operate a general store, carries with it by implication all that is necessary and usual to that end, although not enumer- ated. But apparent authority may exist where there is neither express nor implied authority. One behind a counter apparently as a clerk might be there in fact as a detective with instructions to make no sales. Yet he would have apparent authority to make sales, and do whatever one in that position usually has power to do. Secret instructions derogatory to the seeming authority are not binding on third persons. Thus I might give an agent a power of attorney to borrow money for me and instruct him not to use it until he heard further from me, but if he did use it I would be bound. Sec. 47. IMPLIED AND APPARENT AUTHORITY IN GENERAL AND SPECIAL AGENCIES. In a general agency there is necessarily much more implied and therefore apparent agency than in a special agency. The courts have very frequently referred to agencies as being general or special for the purpose of determining 62 LAW OF AGENCY. the question of implied or apparent authority. The distinction has been criticized upon the ground that the real question is merely what implications can properly be made from the facts in each case, but as a matter of fact in a rough way the distinction carries a real meaning. A person employed to manage a mill would be called a general agent. Necessarily there is in his appointment much left to be implied, while an agent appointed to collect a note has practically no authority save that which has been expressly conferred upon him. But suppose he is employed to collect notes generally. Is he a special agent or a general one? His authority would be confined to the collection of notes. He could no more extend time of payment on one than if he had been appointed to collect only that one. After all the question is what reasonably may we infer from the appointment conferred upon him, and the use of the distinction into general and special agencies must not confuse us on this point. Sec. 48. CONSTRUCTION OF SPECIAL APPOINT- MENTS. Special powers of attorney or appointments will not be extended by implication to include any act not necessary or reasonable to carry into effect the purpose of the grant. On the general principle that a person need not give another any power to represent him, and if he does give him power, need not give him more than he desires, an appointment of an agent is not to be extended beyond reasonable implication. Of course it is true that an ambiguously worded authority will be most strongly construed against the maker, but nothing will be read into the power that is not fairly there." 9 59. Reese v. Mcdlock, 27 Tex. 120. AMERICAN COMMERCIAL LAW. 63 A few examples illustrate this rule. Example 16. P gave A a power of attorney to collect his debts, calling A his "general agent" to transact his business. A assigned the debts to B who brought suit against one of P's debtors. The debtor questioned B's right to bring the suit. Held, that A's authority was confined to the collection of debts and that he had no authority to assign a claim to B even though he was called a general agent. His authority will depend entirely upon that which was actually given him. 60 Example 17. P gave A a power of attorney to make, indorse, draw and accept commercial paper in A's behalf. T served on A a notice of dishonor of commercial paper. Held that A had no implied authority to receive such notice to bind P. 61 Sec. 49. IMPLIED (OR APPARENT) POWER OF AGENT TO BORROW MONEY. An agent has no implied or apparent power to borrow money unless it is practically indispensable to enable him to carry out the express power. It will readily be seen that the power of an agent to borrow money is one by which he can readily work hurt to his principal; and while the principal may confer it, and very frequently does, it is not a power that will be readily inferred. To be implied "it must be practically indispensable to the execution of the duties really delegated in order to justify its inference." 62 It is noteworthy that in a search of the cases the courts have very rarely held the power to be implied. It is prac- tically necessary to the protection of a lender that he have the principal's word for it that the agent has power to borrow money. 60. Wood v. McCain, 7 Ala. 800. 61. Wilcox v. Routh, 9 Smedes & Marsh (Miss.) 476. 62. Consol. Nat. Bk. v. P. C. S. S. Co., 95 Cal. 1. 64 LAW OF AGENCY. Example 18. N appointed H a general manager giving him charge of one of its eleven agencies, with power to sell, to employ assistants, to collect accounts, to pay bills and to rent a building. He borrowed money from the bank in which he kept his agency account. Not repay- ingfthe loan, the principal was sued. Held, that from the facts shown no power to borrow money in his principal's behalf would be inferred. The fact that defendant carried on the sale of its products through the medium of agencies distributed over the country would be no ground for a conclusion that the various agents for making sales of machinery and collecting the proceeds were clothed with authority to borrow money. 63 The fact that an agent has actual power to go into debt for the purchase of supplies, renting premises, etc., gives him no implied or apparent power to borrow money for those purposes. For such borrowed money may be diverted from its rightful purpose. Surely I can give an agent an authority to buy goods from A without giving him power to borrow money with which to pay for such goods. Sec. 50. IMPLIED (OR APPARENT) POWER OF AGENTS TO BIND PRINCIPAL UPON COMMERCIAL PAPER. The implied power to make or indorse negotiable instruments is strictly confined to those cases in which it is necessary in order to enable the agent to carry out the main power conferred upon him. The power to bind a principal upon commercial paper is, like the power to borrow money, a dangerous power. It will not lightly be inferred. It will however, be upheld where reasonably necessary to the execution of the powers conceded. 63. Merchant's Nat. Bk. v. Nichols, 223 111. 41. AMERICAN COMMERCIAL LAW. 65 The power to collect a debt, even if it be collectable in cash, gives the agent no authority to endorse a check given in payment of it and a bank will be held liable for cashing the check for the agent; for the bank has no right to increase the principal's risk of loss by converting such paper into cash. 64 The power to collect gives the agent no authority to take paper payable to himself, even though he could have collected in cash. 65 Sec. 51. IMPLIED (OR APPARENT) POWER OF AGENT TO SELL PERSONAL PROPERTY. An agent has no apparent power to sell personal property from the mere fact of the principal's giving him possession. An agent, or for that matter, any bailee, to whom personal property has been entrusted has thereby no apparent authority to sell the same, even though he be a dealer in that line of goods. 66 So, it has been held that a travelling salesman en- trusted with a sample case has no apparent right to sell it. 67 And see the subject developed in Sales in this series to the effect that clothing another with mere possession of goods without more, does not establish the true owner to assert his title against a purchaser. Sec. 52. IMPLIED (OR APPARENT) POWER OF AGENT WHO HAS INDICIA OF TITLE TO SELL GOODS. One who clothes another with the indicia of title 64. Jackson Paper Bag Co. v. Com. Nat. Bk., 199 111. 151. 65. Baldwin v. Tucker, 112 Ky. 282, 57 L. R. A. 451., 65 S. W. 841 (Contra: Galbraith v. Weber, 107 Pac. 1050 (Wash.), a case which seems unsound). 66. Levi v. Booth, 58 Md. 305, 42 Am. Rep. 332. 67. Kohn v. Washer, 64 Tex. 131, 53 Am. Rep. 745. Bays 5 66 LAW OF AGENCY. is estopped to set up his ownership against an innocent pur- chaser for value of the property represented by such indicia. Upon the principle of estoppel one who not only confers upon another the possession of goods, but clothes him with indicia of title, that is, warehouse receipts, bills of lading or other documentary insignia in the agent's name with the principal's consent, confers an apparent ownership which prevents the true owner from asserting his title against one who has dealt with the agent as owner provided he relied on the appearance of title, was innocent of the truth, and gave value. 68 The above situation can hardly be called one of agency in any phase. It is a doctrine of estoppel to assert ownership. Sec. 53. IMPLIED (OR APPARENT) POWER OF AGENT TO SELL TO RECEIVE PAYMENT. An agent who has power to sell does not have implied or apparent power to receive the price unless (1) he has and delivers pos- session of the property sold, or (2) is otherwise placed in a position from which a person would reasonably presume he had such power. It has been said that there is no apparent power in an agent to receive the price of an article sold by him unless he delivers the thing as he sells it, or is "behind the counter," that is, occupies a position with the principal's assent from which it is reasonable to presume that he is placed there to receive the price. If he is "behind the counter" he has apparent authority to receive payment wherever it reasonably appears he is there for that purpose whether he or some other agent took part in the original transaction. 68. Calais Steamboat Co. v. Scudder, 2 Bl. (U. S.) 372, Pickering v. Busk, 15 East. 38. AMERICAN COMMERCIAL LAW. 67 Example 19. L is an importer of earthenware. A is his salesman. A sells goods to S a hotel keeper. After- wards A goes to S's place of business and collects, and does not account for the money. L sues S, and held that he can recover. 69 Example 20. G, a dealer in safes, employed B to travel and take orders for safes. B took an order from K which was transmitted to G. Afterwards B collected from K and did not account to G. G sued K. Held, he could recover. 70 Sec. 54. IMPLIED (OR APPARENT) AUTHORITY OF SELLING AGENT TO EXTEND CREDIT ON SALES. An agent to sell has no implied or apparent authority to sell on credit unless it is a custom of the trade or under the facts it is reasonable to presume he has such power. An agent does not have implied or apparent authority to sell on credit unless the facts are as above stated. 71 Sec. 55. IMPLIED (OR APPARENT) POWER OF BUYING AGENT TO BUY ON CREDIT. An agent with power to buy has impliedly power to buy on credit unless he is furnished cash, and has apparent power even when furnished with cash if there is a custom of the trade to buy on credit, or if the circumstances justify a belief in such power. The power to sell on credit is not fraught with much danger to third persons, as the third person has not paid the price and at most can be made only to account for the goods or the price; but the power of an agent to buy on credit is more dangerous. In such case the third person may have parted with his goods to an 69. Law v. Stokes, 3 Vroom (N. Y.) 249-. 70. Greenwood v. Keaton, 9 111. Ap. 183. 71. Norton v. Nevills, 174 Mass. 243, 54 N. E. 537. 68 LAW OF AGENCY. agent who had cash to pay for them who absconds with both goods and cash, leaving the third person with no claim against the principal unless he can maintain a position that the agent had power to buy on credit. If an agent is furnished with the cash he has no implied power to buy on credit, at least generally speaking. 72 But does he have apparent power? It has been held that if he is a general agent he has such power. 73 The true rule would seem to be that if the extent of his agency and all the circumstances fairly indicate that he has such authority the third person may rely upon such appearance of authority. Sec. 56. IMPLIED (OR APPARENT) POWER TO WARRANT. An agent having authority to sell has implied or apparent power to make only those warranties usually made in the usage of the trade. Whether an agent having authority to sell personal property has the power to warrant the same when that power has not been expressly conferred, has caused a difference of opinion among the authorities. It is per- haps more generally held that there is an implied and therefore an apparent authority of the agent to bind the principal upon warranties of articles sold by the agent under the authority of the principal where such war- ranties are customary in the trade. 74 In this connection it must be remembered that a seller of an article impliedly warrants as to its mer- chantability, fitness for purpose purchased, etc., under the general law of sales according to the rules which we develop in connection with that subject, regardless of 72. Komorowski v. Krumdick, 56 Wise. 23. 73. Pac. Biscuit Co. v. Dugger, 40 Oreg. 362, 67 Pac. 32. (General agent was instructed not to use credit.) 74. Johns v. Jaycox, 67 Wash. 403. AMERICAN COMMERCIAL LAW. 69 the fact whether the sale is by the principal or his agent. A study of the cases will reveal that the courts have not always kept this fact in mind. The authority of the agent cannot be in question and ought not to be con- sidered where were the same sale made by the principal there would be an implied warranty of quality. The question now under consideration is the power of the agent to expressly warrant in cases in which the same warranty would not be implied. If it would be implied the fact that the agent puts it in words ought to be im- material and add nothing to the case one way or another. Sec. 57. ADMISSIONS OF AGENT. The admissions of the agent are binding on the principal when made in reference to and as a part of the act which he is authorized to do. If the agent makes admissions in reference to the act which he is authorized to do, as a part of the transaction, the principal is bound by such admissions and they may be used against him. It is essential that the admission be made as a part of the act which he is authorized to do, and from this it follows that admissions made after the act is over, so that they do not form a part of the act are not binding upon the principal. So they are not binding if made before the act is begun; they are not a part of it and therefore are not admissible. It does not follow from this that there may not be some little separation between the doing of the act and the making of the admission, so long as it is made as really a part of it. Each case must be decided on its own peculiar grounds and the court must consider whether the ad- missions are a part of the thing done the res gestae or are an afterthought, or independent of the act. The reason of the rule is that a principal ought not to be bound by assertions made at any time and possibly out of wrong motives, and when the truth may be consciously or unconsciously departed from, as a result of delibera- 7O LAW OF AGENCY. tion; but if they are spontaneously uttered by the agent at or about the time the act is done and as a part of it, they possess the likelihood of truth. 75 The agent may, of course, testify at the trial for or against the principal. We are considering above the right of other witnesses to testify to the prior admissions of the agent as binding upon his principal. Sec. 58. AUTHORITY OF AGENT TO RECEIVE NOTICE. Notice given to an agent while acting as such is notice to the principal and the knowledge of the agent which he possesses at the time of the transaction will be imputed to the principal, (1) unless it is his duty not to disclose it, or (2) unless he is known to be acting adversely to the principal. A principal is constructively present when the agent acts for him and in the act the agent and the principal are identified together. Whatever notice the agent receives in respect to the transaction which he is carry- ing on is notice to the principal, and whatever knowledge the agent has in respect to that transaction is presumed to be the knowledge of the principal. If the knowledge which the agent has is knowledge that he is not at liberty to disclose to his principal, it will not be imputed to the principal. Thus disclosures confidentially made by one client to an attorney at law cannot rightfully be disclosed to another client, and therefore will not be imputed to that client, though they affect the matter of the agency. So if an agent is known to be acting adversely to his principal, it is not to be presumed that notice given to him or knowledge in any way acquired by him will be imparted to the principal, and therefore the principal is not bound thereby. 76 75. Shafer v. Laycock, 168 Pa. 497. 76. Cowan v. Curran, 216 111. 598. CHAPTER 8. UNDISCLOSED PRINCIPALS. Sec. 59. GENERAL RULE. If the principal is undis- closed at the time of the transaction, but subsequently discov- ered, the third person may elect to hold such principal because he is the real party in interest. We have heretofore noticed that an agent may keep his principal undisclosed, and bind himself upon the contract. He may do this because he acts under in- structions to that effect, or because he is careless in the manner in which he performs his agency, or because for some reason he chooses to bind himself. In such a case, he becomes, as we have seen, personally liable to the third person. But the third person, upon discover- ing the identity of the principal, may, subject to the exceptions hereafter stated choose to hold the principal. This arises out of the consideration that the principal is the real party in interest and identified in the trans- action with his agent, and that as he is the real party, it ought to be the third person's right to hold him as such. 77 Thus we may suppose that A is about to buy goods of C for P. He chooses however, to act in his own name and either to keep the fact concealed that there is another person who is principal, or if he discloses the fact that there is a principal, then to keep that principal's identity concealed. He therefore makes a contract 77. Violett v. Powell's Adm'rs, 10 B. Monr. 347. 71 72 LAW OF AGENCY. with C, whereby for certain goods which C delivers him, he promises to pay C a certain amount of money. This is, say a written contract executed in A's name as though he were the real principal. C can hold A on this contract, whether he knows that A is only an agent or not. 78 And if at the time, he does know that A is only an agent and knows the identity of A's principal, he cannot afterwards hold P, because in that case he may be said to have deliberately chosen to make his contract with A and not with P. If, however, at the time he does not know that A is merely an agent, or if he does know he is an agent but does not know the principal's identity, then he may upon discovering the identity of the principal, either continue to hold A or elect to hold P. This rule, however, is subject to some exceptions which we will notice. Sec. 60. FIRST EXCEPTION TO RULE. Third person cannot hold principal on election to hold agent. If the third person after discovering the principal's identity elects to hold the agent, he cannot afterwards hold the principal. The third person must elect to hold the principal within a reasonable time, but his election need not be verbal. It may be inferred from his conduct. The third person has contracted with the agent as a principal. He may hold the agent as the contracting party, because the agent has seen fit to keep the prin- cipal concealed, and to bind himself. Upon discovery of the identity of the principal the third person may hold him as such. But he must make his election, and hav- ing made it must stand by it. 79 A failure within a rea- 78. Kayton v. Barnett, 16 N. Y. 625. 79. Kingsley v. Davis, 104 Mass. 178. AMERICAN COMMERCIAL LAW. 73 sonable time to indicate by word or act that he chooses to hold the principal will be taken as an election to hold the agent and he cannot afterwards say he will hold the principal. A third person, however, cannot be said to have made his election so long as he is unadvised as to the facts. Thus, billing the agent as the real debtor, taking notes from him, etc., would be immaterial to show an election before the facts has become known to the third person. If, however, he continues in these or other ways to treat the agent as the real debtor after discovery of the facts, that will constitute an election. Sec. 61. SECOND EXCEPTION TO RULE. Third per- son's right to hold principal subject to state of account be- tween principal and agent. If the state of accounts between the principal and agent, as where the principal has paid money over to the agent to pay to the third party, renders it inequi- table to allow the third person to hold the principal, he cannot hold such principal and must be satisfied with his recourse against the agent. Giving the third person the right to hold the un- disclosed principal when discovered, is giving him a right to rely upon a source which he did not rely upon when the contract was made. It would be really no hardship upon him to deny him the right altogether for it would not be depriving him of anything which he had relied upon. Therefore the rule is not extended where it would operate as a hardship upon the principal. Thus if the principal believing that the agent has settled with the third person, or in order that he may settle with the third person, pays the agent money, so that if he had to pay the third party it would amount to pay- ing the account again if the agent were not responsible, then the third person cannot hold the principal, but 74 LAW OF AGENCY. must look to the person to whom he looked when the contract was made. It is consequently declared that the rule is subject to the state of accounts between the principal and agent. 8 P The payment or settlement must, however, have been made in good faith, and it must have been made before the third person elected to hold the principal. Sec. 62. THIRD EXCEPTION TO RULE. Rule does not apply to sealed instruments. Only those in whose name a sealed instrument is executed can be held liable thereon. We have already seen that one cannot be held on a sealed instrument if he is not named therein, or indeed unless it may be said to be executed by him in person or by agent. Consequently the rule we are now con- sidering does not apply if the contract is under seal. 81 In some jurisdictions the seal has lost some of its ancient force and in some has been altogether abolished. In such states the rule would apply as well to a sealed instrument as to any other. Sec. 63. FOURTH EXCEPTION TO RULE. Rule does not apply to negotiable instruments. Only those in whose name a negotiable instrument is executed can be held liable thereon. We have noted, also, that one cannot be held liable on a negotiable instrument unless it is made in his name. Consequently the rule we are now considering has no application to negotiable instruments. Sec. 64. WHERE ALLEGED UNDISCLOSED PRIN- CIPAL HAD NOT CONFERRED AUTHORITY. Third 80. The law on this subject is not so well settled as is desir- able. See Mechem, Agency, 2nd Ed. Sec. 1749. 81. Huntington v. Knox, 7 Cush. (Mass.) 374. AMERICAN COMMERCIAL LAW. 75 person cannot hold undisclosed principal except in cases of actual authority previously conferred. An undisclosed princi- pal cannot ratify. He can be held by the third person only in case he gave actual authority to the agent prior to the time the agent acted, to do the very act that the agent did. It is discussed in another connection, that a third person may hold a disclosed principal where the agent lacked real authority, but had apparent authority to do the act by reason of the situation in which the principal placed him. We have also noticed that where there is no authority, either actual or apparent, a disclosed principal may cure the defect and become bound by ratification. None of this reasoning applies to the case of an undisclosed principal. The third person can hold him only in cases where the agent pursued the actual authority given him. There is no room for the doctrine of apparent authority, for there can be no apparent authority where there was not known to be any author- ity, or any particular authority. And it is also settled that the third person cannot claim that the undisclosed principal ratified the act. An undisclosed principal cannot ratify. Sec. 65. UNDISCLOSED PRINCIPAL'S RIGHT TO HOLD THIRD PERSON. If the principal is undisclosed, the principal may at his election hold the third person on the contract, except, (1) where the state of accounts between third person and agent would make it unjust, or (2) where the contract is under seal, or (3) is expressed in the form of nego- tiable paper, or (4) also where the rights sought to be asserted by the principal are rights to personal service, or the perform- ance of personal obligations. We have seen how an undisclosed principal can be sued when discovered by the other party. There is 76 LAW OF AGENCY. the corresponding right of the principal to step into nis agent's shoes, disclose himself and assert his rights under the contract. This rule is subject to exceptions. First. If the third person has already paid the agent he will not be compelled to repay the principal, but the principal must look for settlement from the agent. Second. The reasoning concerning instruments under seal set forth in section 64 is applicable here. Third. The same may be said where the contract is in the form of a negotiable instrument. Fourth. The third person can only assert rignts wnich do not involve the performance of services personal in nature, or involving the personal skill or credit of the undisclosed principal. Thus if C deals with A, as a principal, whereas A is in fact an agent, P, the principal can only step in where that would not affect C's rights any more than if A had made an assignment to P of rights under his contract. But A cannot assign nor can an undisclosed principal assert rights to personal services, nor obligations personal in nature. If C had dealt with A he has a right not to have another party to the contract thrust upon him. One may choose with whom he will contract. 82 Yet as to rights growing out of such contract which are not personal in nature, as a right to receive money, just as they may be assigned, so they may be asserted by an undisclosed principal. 82. Cowan v. Curran, 216 111. 598. CHAPTER 9. PRINCIPAL'S LIABILITY FOR TORTS OF AGENTS. Sec. 66. AUTHORIZED TORTS. If the principal au- thorizes the tort, he is liable. If before the commission of a tort by an agent the principal authorizes or counsels its commission he is liable as a tort feasor. Sec. 67. RATIFIED TORTS. A principal is liable for a tort which was committed as part of an act which the principal now ratifies. See this subject discussed elsewhere. 83 Sec. 68. LIABILITY FOR TORTS WITHIN SCOPE OF AUTHORITY. The principal is liable for the torts of the agent which are committed within the s,cope of the au- thority. When an agent does an act for the principal, the principal is theoretically present doing it. If while engaged in the performance thereof the agent commits a tort which may be said to be a part of it, the prin- cipal will be held as though he had himself committed the tort or counselled its commission. The tort, how- ever, must be a tort which really forms a part of the act which the principal authorized; it must be done in the course of the employment and within the scope of the authority given him. 83. See Section 21. 77 7& LAW OF AGENCY. The fact that a principal will be held for the torts of the agent is based upon sound policy. It results in making a principal careful in choosing his agents, and it prevents secret arrangements between the principal and agent that the agent shall commit a tort apparently unassented to by the principal. But the real basis for the rule is probably that the principal and agent are in law, one. 84 Sec. 69. WHAT TORTS WITHIN THE SCOPE OF THE AUTHORITY. A tort is within the scope of the au- thority so as to render the principal liable to third persons therefor when it occurs while the agent is engaged in his work, as a part thereof. The principal is liable for an agent's torts when they are within the scope of the authority. This implies two things. First, that the tort occur during the time of the employment, and second, that it be a part of the act done in the principal's behalf and not independently thereof. Let us consider each of these tests. (1) Principal (or master) not liable for agent's (or serv- ant's) tort unless it occurs during the performance of the employment. It is very clear that I am not liable for another person's tort merely because he is one who works for me. He may assault a person after hours, and far, perhaps, from the scene of his work. I am not answerable. He must be at work when the tort is committed, but some interesting questions arise in this connection. Example 21. In an early English case, one Joel was crossing a street and was knocked down by a cart and 84. Dempsey v. Chambers, 154 Mass. 330. AMERICAN COMMERCIAL LAW. 79 horse belonging to Morrison. Joel sued Morrison and there was conflicting evidence whether the servant was on an errand of his own or about his master's business. And the court said that the master was liable even if the servant was going out of his way at the time and against his master's business, if he was still about that business, but if he had the cart out for a "frolic of his own" the master would not be liable. 85 Translating the above example into a picture of today, with the term "joyriding" for "frolic of his own," we have a situation fraught with much greater danger, but which needs the same distinction. The cases are numerous. Example 22. One Fairman was driving a car belong- ing to Windsor Motor Car Co., by which he was em- ployed. He was, however, at the time, driving upon a pleasure trip of his own. Plaintiffs intestate was killed by Fairman's alleged negligence. The court said, "If he was not acting at the time within the scope of his employment, but was on a purely pleasure trip of his own, the company cannot be held liable. 86 In another case 87 the evidence was that the delivery boy driving the automobile by which plaintiff was injured had made his last delivery and was going in a longer route than was necessary to the garage, permit- ting guests to ride with him, was not conclusive evidence that the master was or was not liable and the question was for the jury to determine whether he was about his master's business, or upon a trip of his own and a verdict for plaintiff against the master was sustained. 85. Joel v. Morrison, 6 C. & P. 501. 86. Stern v. Intern, Rwy. Co., 153 N. Y. 520; see, also, Cunningham v. Castle, 111 N. Y. Suppl. 1056. 87. Maloy v. Rosenbaum Co., 260 Pa. 466, 103 All. 882. So LAW OF AGENCY. (2) The tort must be a part of the act done in the further- ance of the principal's business. Even if the tort is committed concededly while the employee is at work, it may not be attributable to the principal. This question requires the consideration of the nature of the work which the employee is authorized to do, and the nature of the tort committed by him. Perhaps we can make one exception to this, that is, the case of negligence. A negligent performance of his duties by the employee will render the principal liable to the party damaged by the causal operation of such negligence, no matter what the nature of the work. 88 In this connection, however, very difficult questions arise as to what is the duty of the employee, for if he performs some act negligently which he had no duty to perform the master is not liable. Fraud. If the employee is an agent to deal with third persons, the principal is liable for the agent's frauds by which he performs his authority. 89 But whether the principal must answer, depends on whether the fraud has a part of authorized acts. Assault and Battery. False arrest. Whether the principal is liable depends entirely on the agent or em- ployee's duty. If put to guard the property as a watch- man or detective, or if generally he has a duty of pro- tection, the employer is liable for a wrongful arrest or assault and battery. 90 Thus a wrongful arrest by a detective would make his employer liable, 1 but the same arrest by a window washer, would not make him liable. Defamation. Defamation by an agent may or may 88. See cases cited in the notes just above. 89. Lloyd v. Grace, (1912) A. C. 716 (Eng.). 90. Staples v. Schmidt, 18 R. I. 224. AMERICAN COMMERCIAL LAW. 81 not render an employer liable. If connected with a sale or attempted sale by a general manager, 91 the employer will be liable. Newspapers are liable for defamatory statements of their editors, published therein. 91. Pa. Iron Works v. Henry Voght Machine Co., 29 Ky. L. R. 861, % S. W. 551, 8 L. R. A. (N. S.) 1023. Bays 6 CHAPTER 10. THE DUTIES AND LIABILITIES OF THE AGENT TO THE THIRD PERSON. Sec. 70. GENERAL STATEMENT. Where the agent regularly pursues his authority and acts as an agent and not as principal, and is guilty of no wrong, he is not liable to the third person with whom he acts for the principal. We have already considered that an agent is an intermediary, a mere representative, employed to make or in some way affect contractual ties between his principal and third persons. That done, he drops out; no liability attaches to him. This is a matter of com- mon knowledge; the agent who writes insurance does not become liable on the policy; the real estate agent who sells the land of another, assumes no responsibility upon the contract; the agent who procures a loan for his principal is not liable if the principal does not repay. The agent is not surety for the principal. An agent may bind the principal when the principal holds out, expressly or impliedly, that the agent has authority. This authority the agent may not actually have; it is enough that the principal places the agent in such a position that a third person may assume him to have such authority. There is a holding out by the principal, and it is on that holding out that the third person relies in dealing with the agent. But we may have another set of circumstances. There may be a holding out by the agent, and none by the principal, 82 AMERICAN COMMERCIAL LAW. 83 upon which the third persons relies. The agent may come to me and say, "I am P's agent for this purpose," and I may rely on that alone. In that case I cannot hold P if A was not authorized by P, and furthermore I cannot hold A, the agent, on the contract, because I did not purport to make that contract with him, but with P, through him. Yet A has represented to me that he was P's agent, and acting upon that representation I have done things whereby I am damaged unless I can hold somebody. Therefore the law gives me the right to hold A, upon a warranty by him that he has authority. We will consider this liability and also the other cases of the agent's liability to third persons. A. Liability of Agent in Contract. (a) The agent warrants his authority. Sec. 71. WARRANTY OF AUTHORITY BY AGENT. If an agent expressly claims to have authority or by his acts indicates that he has authority, he warrants his authority; but if the third person knows the facts as well as the agent, there is no warranty. An agent may expressly state that he has authority. He may do this because he thinks he has authority or because he intends to deceive. In either case he is liable to the person who thus deals with him, and who on account of lack of authority, apparent or real, could not hold the principal, and therefore suffers damages. Thus suppose that A states to C that he has been sent by P, to purchase C's cattle. C thereupon delivers his cattle to A, to deliver to P. The cattle die on the way through no fault of A. In this case if A had had actual or apparent authority, he could not beheld, as the con- tract would be between C and P, with A as a mere 84 LAW OF AGENCY. representative of P. P would be responsible as delivery to his agent would be delivery to him. But if A lacks authority C is not without remedy. He can hold A upon his statement that he has authority, on the strength of which he parted with the cattle. If, however, in this case, C was in possession of all the facts, and in common with A, misconstrued them, he could not hold A. Thus if A had said: "I have here a letter which P has sent me, in respect to the purchase of cattle, and I think from it that I have authority to buy cattle," and C, upon reading the letter, had assented to that view, yet the legal effect of the letter was not to give A authority to buy cattle, but merely, say, to make inquiries concerning their purchase, here there would be no warranty by A of his authority, for there would be no reliance upon A's assertions that he had authority. It is not necessary that the agent expressly state that he has authority. An implication to that effect may arise from the facts, and this would, perhaps, be the more usual case. Indeed, the agent by acting as agent and by purporting to bind another person as principal, holds himself out as having the authority to so act and thereby warrants himself to have authority. Example 23. The P bank by A, as Vice President, guaranteed a commercial account. The bank being sued on the guaranty defended that it had no power as a bank to make such an engagement, not being proper banking business. The court sustained the defense. The plaintiff then sued the Vice President upon the ground that he warranted his authority. But the court held that inasmuch as the third person was chargeable as a matter of law with the power of a bank and there- fore must be taken to have known that the Vice President AMERICAN COMMERCIAL LAW. 85 had no powers to bind the bank upon this guaranty, there was no warranty of authority. 92 (b) A gent having authority to bind principal may instead bind himself. Sec. 72. GENERAL STATEMENT. One who is an agent and has full power to bind his principal may nevertheless bind himself. There is nothing to prevent an agent from binding himself upon a contract made by him. He may do this for a variety of reasons. He may be careless in the execution of his authority. He may not disclose the principal, preferring for some reason to let only his own identity appear. Or it may be that his principal has not sufficient credit with the person dealt with and therefore the agent binds himself. Sec. 73. PRINCIPAL UNDISCLOSED. If the principal is undisclosed by the agent the agent is liable. If the agent does not disclose his principal, the agent is liable. In some such cases the third person upon dis- covering the principal may elect to hold him, because he is the real party in interest, as we note in another connection; but he may, if he choose, in all cases, hold the agent for it is with the agent that he has dealt as principal. Example 24. W sold flour to R. R sues for breach of warranty of merchantability of the flour. W defends that he was an agent. On the deal W did not disclose the name of his principal, although he was known to be 92. Thilmany v. Iowa Paper Bag Co. and William Daggett, 108 la. 357. 86 LAW OF AGENCY. a broker. The transaction was oral. Held, that W was liable. 93 Sec. 74. WHEN AGENT BOUND ON SEALED IN- STRUMENTS BY THE FORM OF HIS EXECUTION. It is a long established rule that only those who are named or described in and sign a sealed instrument are bound thereon. If the agent signs his own name only, though he describe him- self as agent, he will be bound and the principal will not be bound. By the law of sealed instruments, only those can be sued thereon who are parties thereto. An agent may, by careless execution of a sealed instrument, bind him- self when he intended only to bind his principal. We may indicate here the proper form one should use and that will be about the extent to which in this discussion we can go. The books are full of discussions of particu- lar sets of facts and courts are at some variance upon similar cases. But there are well established forms of execution which everyone should have in mind when he executes such paper. First let us note that it is everywhere agreed that if one merely describe himself as agent, that in itself is not sufficient to bind his principal. Thus if he signs "John Brown, Agent," or "William Smith, President," or "Harry Jones, Trustee," etc., these descriptive words are merely words of description and in no way qualify the liability of the party signing. 94 And it is also every- where agreed that if one go further and say "John Brown, Agent of Thomas Anderson," the deed is the deed of John Brown. So one can go into a multitude of form. The proper and safest mode of description 93. Wheeler v. Reed, 36 111. 81. 94. Casco Nat. Bk. v. Clark, 139 N. Y. 307. AMERICAN COMMERCIAL LAW. 87 and signature is as follows: to recite in the body of the instrument "Thomas Anderson, by John Brown, his agent," or the "Harris Manufacturing Company, by William Smith, its President," etc.; and to sign as follows: "Thomas Anderson (seal), by John Brown, Agent," or "Harris Manufacturing Company (seal), by William Smith, President." These forms have been held good to bind the principal, but they are not such good usage "A. B., for C. D.," "for C. D., A. B." It is not absolutely essential that the agent's name should appear. Yet it is highly desirable, in order that the evidence may be the more surely preserved and other reasons of convenience. It is therefore common and the better usage for the agent to set forth that the execution is by him as agent. Even in those states where statutes have abolished the seal, the above form of signature is the only safe one to use. Sec. 75. WHEN AGENT BOUND ON NEGOTIABLE PAPER BY THE FORM OF HIS EXECUTION. Only those described in and who sign negotiable paper are bound thereupon. What has been said in respect to sealed instruments is also true of negotiable paper. If an agent signs negotiable paper in which only his own name appears, he is personally liable upon it. The forms indicated in the preceding section are subject to the same considera- tions here, except that a negotiable instrument should not be sealed. The courts have been very technical in this respect, frequently making an agent liable, where quite ap- parent from the facts that the agent never intended to bind himself. The uniform negotiable instruments 88 LAW OF AGENCY. shows a departure from this rigid rule, 95 but the only safe rule is to follow the form approved in practice and courts of law. Example 25. A and B made a note which read "We promise to pay," etc., and signed it, "A, President," "B, Treasurer." The name of the corporation did not appear in the body of the note, but it was upon the corporation's letter head. Held: to be the note of A and B, the words President and Treasurer, being mere words of description. 96 Sec. 76. WHEN AGENT BOUND ON OTHER CON- TRACTS BY THE FORM OF HIS EXECUTION. An agent is bound if he in terms charges himself on any contract, but if from all the language used, it appears that he did not intend to charge himself, but a principal therein named, he will not be personally liable. An agent should be careful in the case of any con- tract, sealed or unsealed, negotiable or not, to make it appear that his principal and not himself is bound. Yet simple contracts are often hastily made and am- biguously worded and it may be hard to state what the intention was. It is clear that if the agent uses only his own name, though he may use the word agent, he only will be bound and he cannot show that he intended to bind some one else in order to free himself (although as we have seen the other party may hold the real principal or the agent at his election where the principal is undisclosed). But if the name of the principal appears in the body of the instrument or in the signa- ture and from the entire contract it may be gathered as a reasonable inference that the agent intended to bind 95. See Law of Nego. Instru. in this series. 96. Id. AMERICAN COMMERCIAL LAW. 89 the principal, then the agent can plead that he is not personally bound. No fast rule can be laid down in these cases except that where the agent uses approved forms as heretofore indicated, there can be no question that he is not held, and the further rule that if he does not name the principal at all, though he describes him- self as agent, and even though it appear that the prin- cipal was known at the time to the other party, the other party may hold him personally. 97 Sec. 77. AGENT BOUND WHERE NO DEFINITE OR RESPONSIBLE PRINCIPAL. If a person represents a large, unorganized or irresponsible body, it will be pre- sumed, unless the contrary appears, that the representative was given the credit. If a committee representing a large public gathering as a political party, an unincorporated club, etc., deals with others for supplies, it is reasonable under the cir- cumstances to presume that it is the committee to whom the credit is given, and such committee will usually be personally responsible. Wherever there are situations of that sort in which the credit appears to be given the agent and he must have known it was so given, he will be responsible. 98 B. Liability of Agent in Tort. Sec. 78. AGENT RESPONSIBLE FOR HIS TORTS. An agent is responsible to third persons for torts committed by him, whether the principal is liable or not for them. An agent is responsible for his torts committed by him whereby third persons are injured. In such a case the principal may be also responsible, as we have seen. 97. Tyron v. Clinch, 186 Pac. (CaL Ap.) 1042. 98. Clarke v. O'Rourke, 111 Mich. 108. 9O LAW OF AGENCY. Thus, for his fraud, his negligence, his conversion of another's goods, and generally for his misfeasance or nonfeasance of any sort, the agent is liable. The third person injured by such tort need not elect whom he will sue. He may sue the agent for a tort committed by him whether such tort is such as will render the principal liable or not. If within the scope of the employment, the principal is liable; but the agent is liable also, for he has committed it though he did it for another." 99. Tippecanoe Loan & T. Co. v. Jester, 180 Ind. 357. \ PART III. PROFESSIONAL AGENTS. CHAPTER 11. PROFESSIONAL AGENTS. A. Factors. Sec. 79. DEFINITION OF FACTOR. A factor, or com- mission merchant is an agent, who receives goods from the owners thereof to sell for a commission. Where he sells upon a guaranty of payment of debts arising in the course of the agency he is called a del credere factor. He has the posses- sion of the goods that he sells, and usually sells them in his own name. A factor, or a commission merchant, is one who for the various owners who choose to employ him, takes possession of their goods and sells them upon a com- pensation known as commission. 100 He differs from a broker in that he has the possession of the goods and has broader powers. A broker brings buyer and seller together, does not have possession of the goods, and usually does not act in his own name. We have defined, heretofore, a del credere agent. The factor, more than other agents, sells upon a del credere commission. The term "factor" is also frequently used to describe 100. Turner v. Crumpton, 21 N. Dak. 294. 91 92 LAW OF AGENCY. agents who are in possession of goods to be sold, though not in that business generally, but in its more correct sense, it describes the professional agent. Sec. 80. DUTIES OF FACTORS. A factor is held to the exercise of reasonable care in the custody and sale of the goods and must follow instructions. (a) Duty in respect to care of goods. A factor must use that degree of care for the safety of the goods which a reasonable man would use in the care of another's goods. Example 26. A commission merchant to whom cotton was consigned allowed it to be stored in a non-fireproof warehouse to which it had been sent by mistake instead of a fireproof warehouse owned by him and to which he could have removed it. The warehouse burned down and the cotton was consumed. Held, the factor was responsible for the loss. 101 (b) Duty to insure. The factor need not insure the goods unless (1) he is so instructed, or (2) there is a custom in that mart to do so. 102 (c) Duty to obey instructions. The factor must obey his principal's instructions. Example 27. A factor is instructed to "sell on arrival." He delays doing so and loss ensues owing to a drop in prices. Held, the factor is liable for the But he is entitled to disobey such instructions if the protection of the principal requires it where it is to be assumed that the principal is acting under a mistake as to conditions. 101. Vincent v, Rather, 31 Tex. 77, 99 Am. Dec. 517. 102. Sturtevant Co. v. Dugan, 106 Md. 587; Schoenfeld v. Fleischer, 73 111. 404. 103. Evans v. Root, 7 N. Y. 186, 57 Am. Dec. 512. AMERICAN COMMERCIAL LAW. 93 (d) Duty to sell for best obtainable price. A factor must use reasonable care to get the fair or market price for the goods sold by him in the absence of contrary instructions. 104 For duty in respect to extending credit, see next section. (e) Duty of good faith generally. The factor is under the same duty as any other agent to use the highest good faith as exemplified in the duties not to represent two adversary masters, not to sell to himself, etc., as has been generally discussed elsewhere. Sec. 81. IMPLIED AUTHORITY OF FACTOR IN CASES BETWEEN HIMSELF AND PRINCIPAL. The factor's implied authority is discussed under the several head- ings below. The inferences that a factor may fairly make from his appointment depend upon the nature of his relationship and customary practices. (a) Implied authority to barter or exchange. A factor has no implied authority to barter the goods for other goods or for anything other than cash or proper credit. 105 (b) Implied authority to sell on credit. A factor may sell on credit unless instructed to the contrary, 106 but has no authority to extend credit beyond the usual term, and cannot grant an extension of the original credit. 107 And in extending credit must use due diligence to ascer- tain the solvency of the party to whom he sells. 108 If there is a usage to sell only for cash, he must not sell on credit unless so directed. 109 104. Bigelow v. Walker, 24 Vt. 149, 58 Am. Dec. 156. 105. Potter v. Dennison, 10 111. 390. 106. Brown v. Funck, 89 Kas. 601. 107. Killy v. Logan, 2 Mart. (N. S.) 196. 108. Brown v. Funck, supra, 109. Harbert v. Neill, 49 Tex. 143. 94 LAW OF AGENCY. (c) Implied authority to deal in his own name. A factor may act in his own name and need not disclose the name of his principal. This is one of the character- istics of a factor whereby he is distinguished from a broker. Sec. 82. APPARENT AUTHORITY OR TITLE OF FACTORS AS TO THIRD PERSONS. The rights of third persons arising out of the apparent ownership by the factor or his apparent authority are considered below. (a) Title of purchaser or lienor who relies on factor's apparent ownership. A factor has possession of the goods and therefore may accomplish their sale as goods belonging to him, contrary to the advices of the princi- pal, or may borrow money upon them. Has the pur- chaser or lienor a superior right to the unknown owner? It is a general principle of the law of personal property that he who deals with respect thereto does so at his own peril in that one with a superior title may claim them. The Uniform Sales Act provides that o'nly the true owner may convey title. True, he may be estopped by his conduct from asserting his title, but it is every- where considered that merely placing the possession of property with another does not estop him. If he sends them to a factor with a general power of sale, or if the factor complies with a limited power of sale, the pur- chaser of course gets title, as the actual authority has been followed. But if the authority has been ignored, the general rule permits the true owner to disregard the sale, unless some exception based upon factorage exists. The sounder rule seems to be that no distinction exists in the absence of legislation to that effect. 110 If, however, there is in addition to the possession of 110. Kaufman v. Beasly, 54 Tex. 563. AMERICAN COMMERCIAL LAW. 95 the goods, a clothing of the factor with documentary indicia of ownership (or permitting him to so clothe himself), as with bills of lading, warehouse receipts and the like, the principal is estopped to deny the factor's title as against innocent purchasers for value, no matter how widely the factor may have departed from his instructions. (See Sales in this series.) Legislation (factor's acts and the like) has in some jurisdictions been directed toward giving pledgees and purchasers the right to rely on mere possession by a factor where such factor acts in his own name, and the true state of the title or of the authority is unknown. (b) Apparent authority of factor to warrant. A factor has apparent power to make the usual warranties. 111 (c) Apparent authority of factor to give credit, to receive the price, to receive commercial paper in payment, etc. The factor may sell on usual terms of credit, receive the purchaser's commercial paper as evidence of the liability, and may receive payment where he sells in his own name, or sells for cash. Sec. 83. FACTOR'S LIEN. A factor has a general lien on the goods which are not sold and on the price and securi- ties of such as are, for his just charges and expenses. For his advances and expenditures a factor has a lien by the common law and under the statutes. He may sell enough goods to satisfy this lien. He loses his lien by voluntarily parting with the goods. The lien does not exist unless he has possession of the goods. 112 111. See Sec. 56, supra. 112. Straholm v. Union Stock Yards Co., 43 111. 424. 96 LAW OF AGENCY. B. Brokers.il 3 Sec. 84. DEFINITION. A broker is one whose business is to bring parties together to contract, or in their name to contract for them, in some line of business. A broker makes it his business to bring parties to- gether to contract, or to make contracts for them. Thus a real estate broker makes it his business to find buyers for sellers and sellers for buyers of real estate. He may in one case simply bring the parties together leaving them to make their own contract, or in another case he may have the larger authority to bind one of them by a contract executed by himself as an agent. A broker, unlike a factor, does not usually have pos- session of the goods. His authority is not so broad, and his contracts are generally made in the name of his principal. Sec. 85. KINDS OF BROKERS. A broker usually chooses some one line of trade in which to carry on his business, and he is described in reference to that trade. There are many sorts of brokers. The common sorts are here briefly discussed. (1) Real Estate Brokers. A real estate broker brings buyers and sellers of real estate together or makes contracts for them. This is a very numerous class, and their general activities are commonly understood. A real estate broker has no authority to contract for the purchase or sale of real estate or to buy or sell real estate, except as this authority is specially conferred. Often he does not execute the contract himself. He writes up a contract and has the owner sign it and then takes it to the buyer for his signature, or vice versa. 113. For compensation of broker see Sec. 27, supra. AMERICAN COMMERCIAL LAW. 97 So when a deed is given, the broker's name may not at all appear. Yet in many cases, a power of attorney is conferred on the broker to sign contracts and execute deeds. Real estate brokers often collect rents, procure insur- ance, and otherwise concern themselves with the manage- ment of real estate. (2) Insurance Brokers. An insurance broker is one who makes it his business to secure insurance, for those who employ him, from various companies. He differs from an insurance agent who works for and represents a certain, or perhaps several, insurance companies, while the broker is the agent of the insured rather than of the insurer. He does not have as broad authority as a general insurance agent, who may bind the company. A policy is secured by him from the company, rather than executed by him for the company. Consequently there is not usually any act which he can do in signing policies, waiving or inserting provisions therein which can bind the company, although a general insurance agent would have such powers. (3) Merchandise Brokers. A merchandise broker is one who represents buyers and sellers of merchandise without having possession of it. He usually deals in some one line and is described and known in reference to that line, as for instance, a cotton broker, a sugar broker, a tea and coffee broker, a grain broker. He does not have the authority of a factor from whom he essentially differs in not having the possession of the goods. (4) Stock Brokers. A stock broker buys and sells stock of corporations for customers. He often differs from the other kinds of brokers and comes to have more the character of a factor. He often has possession of the stock, and buys and sells in his own name. A Bays 7 98 LAW OF AGENCY. common practice is for him to sell stock on margin. In that case the buyer becomes the owner of the stock, which is bought by money loaned by him to the customer and the customer's own money in proportions usually of about 90 per cent and 10 per cent. The amount put up by the customer is said to be put up on margin. Sec. 86. THE AUTHORITY OF THE BROKER. The broker usually acts in each instance upon a special authority and has very little implied authority to bind his principal. A broker does not have possession of the subject matter of the contract as in the case of a factor. His authority is specially conferred and therefore limited. For instance, if one deals with a real estate broker he cannot usually assume that the broker's authority is extensive. He must look to the actual authority that has been expressly conferred. Thus C cannot assume that A, a real estate broker, has any authority to sell B's land. He may take A's word for it, but he is not really protected except upon B's word to that effect, which he should have in writing. Many times indeed a broker has no actual authority but simply brings parties together, whereupon they arrive at their own terms. Where a broker has actual authority, it is usually to be construed in the light of customs and usages which are of universal use in that locality and trade. If one goes by means of his broker into a market or exchange he usually must be taken to have instructed the broker to proceed in respect to the well known customs and rules that prevail there, and he will be bound by these. This is perhaps more true of stock brokers than of other kinds, because it is their business which is so largely governed by customs, usages and rules. A broker usually has no authority to receive pay- ment, or to extend credit, as the factor may. In any AMERICAN COMMERCIAL LAW. 99 particular case, however, this authority might appear either expressly or from the circumstances. C. Auctioneers. Sec. 87. AUCTIONEER DEFINED. An auctioneer is an agent who makes it his business to represent owners o property in selling the same to the highest and best bidder among those who attend the sale. Property is said to be auctioned when it is offered to the one who shall by his bid make himself the most desirable purchaser. Usually this would simply mean that he should bid more than anyone else. But if the sale was upon credit, it might also mean that he should qualify as one of fair credit. Customarily, therefore, it is announced that sales will be to the "highest and best bidder." An auctioneer pursues a public calling. He makes it his business to represent any one who will employ him to sell the line of goods he handles, or perhaps any sort of property, whatever. Auctions are usually public. An auctioneer is often denned as one who sells at public sale. Yet he might sell at private sale where there were two or more of a selected group who desired to buy. In such a case he would seem still to be pursuing the calling of an auc- tioneer. But his business as a whole is a public one. For this reason it is often required that he secure a license before he shall be entitled to act as auctioneer. An auctioneer is agent of the seller, except in the matter of making book entries, etc., in which case he is agent for both. That is, he is the seller's agent and he is not the buyer's agent except for clerical purposes. This might be important from the standpoint of the statute of frauds requiring a signed memorandum in ioo LAW OF AGENCY. writing in order to make a sale enforceable, which is in force in many states. The entry of the sale in the books with the buyer's and seller's name would be a memoran- dum made and signed by the buyer and seller because made by their agent. Sec. 88. THE AUCTIONEER'S AUTHORITY. An auctioneer has no authority to sell except upon the terms given by the owner. He cannot warrant except with actual authority. The terms upon which the sale at auction is to be made are openly stated by the owner or by the auc- tioneer with the owner's sanction. The auctioneer cannot transcend his authority thus given. An auctioneer has no authority to warrant unless the owner actually gives him such authority. Sec. 89. WHEN THE SALE BY AUCTION TAKES PLACE. A sale by auction is complete when the auctioneer signifies his acceptance of the bid. Unless a sale is "without reserve" (and even then in some jurisdictions), he may refuse any bid and withdraw the article from sale. If an auction is not advertised to be without reserve, an auctioneer may withdraw the property from the sale at any time; for there is no contract made until the auctioneer accepts the bid. A, as auctioneer puts up a horse for sale, B offers $50, C, $55, and D, $60, for it; but until A signifies his acceptance to the bid no con- tract is complete; no sale or contract of sale has been made. Consequently, neither B, C, nor D, may com- plain in such a case. However, the owner of the prop- erty might have just cause for holding A liable for re- fusing a bid he might have accepted and thereby losing the sale. But in some states (and the Uniform Sales AMERICAN COMMERCIAL LAW. 101 Act so provides) if an auction is advertised to be "with- out reserve," the article cannot be drawn from sale after an offer has been made which comes within the terms of sale. Sec. 90. "BY BIDDING." This consists in secret bidding by the owner or his agent in order to puff the price. It is illegal and a sale so induced is voidable. But an owner may openly bid for this only amounts to withdrawing the former bid, unless the sale was without reserve in those states where auctions without reserve prevent withdrawal. Secret "by bidding" is fraudulent. If one discovers that his bid was induced because of a bid made appar- ently by a would-be buyer, but in reality by the owner or his agents, he may have the sale set aside. But an owner can always bid openly unless restrained by the announcement that the sale is without reserve, as dis- cussed in the last section. PART IV. TERMINATION OF RELATIONSHIP. , CHAPTER 12. TERMINATION BY ACT OF PARTIES. Sec. 91. BY TERMS OF ORIGINAL AGREEMENT. Where the authority is stated to be for a limited period, the passing of the term terminates the agency. If one is employed as agent for a certain time, the passing of that time terminates his authority. The parties may of course stipulate for a continuance and this might be shown by circumstances. Sec. 92. BY ACCOMPLISHMENT OF OBJECT. If the object of the agency is accomplished, the agency ceases. If one is employed to do a certain act, as to sell a piece of real estate, his authority then ceases when the act is done. Sec. 93. REVOCATION BY ACT OF PRINCIPAL. Unless an agency is coupled with an interest in the agent it may be revoked at any time by the principal, though he may have no right to revoke. Agencies may be divided into those which are revoc- able and those which are irrevocable. In considering whether an agency is revocable, we do not consider the 1 02 AMERICAN COMMERCIAL LAW. 103 right of revocation ; we consider only the power, which is quite without respect to the right to revoke. I may revoke an agency whether I have any right to do so or not, just the same as I may discharge an employee, regard- less of my right to do so. In such a case I may have to pay damages, but I cannot be compelled against my will to keep any certain person in my employ. But all agencies are not revocable. If the agent has an interest in the agency so that the agency must continue in order to protect that interest, the principal cannot revoke it. What constitutes an irrevocable agency is further considered in the following section. Sec. 94. IRREVOCABLE AGENCIES. If an agency is coupled with an interest it cannot be revoked by the principal. It is coupled with an interest only when the agent has some interest or estate in the subject matter of the agency. An agency is irrevocable when the agent has an estate or interest in the subject matter of the agency. His interest in the agency itself, no matter how exten- sive it may be, is not sufficient to prevent even its wrongful termination. 114 In that event the agent is in the same position as any other party to a contract which the other party has broken and may sue for his damages. But if besides that interest, he has an interest in the thing itself, his agency can no more be revoked than any property can be taken from a man without his consent. Thus if the agency must continue in order to reimburse the agent for expenditures made by him, or loans made by him to the principal or others, then in case the agency has been granted for the purpose of securing the lender, the agency is irrevocable. Thus if A should loan P $1,000, and a security for the loan should 114. Chambers v. Seay, 73 Ala. 372. iO4 LAW OF AGENCY. be given by P the authority to collect certain debts, P could not deprive A of this security by revoking the agency. But if P should employ A to sell land on com- mission, he could revoke the authority at any time, even though thereby depriving A of his fees, for A could have his damages and this right is as great a protection to him as though the agency had continued. If an agency is stated to be "irrevocable," it may nevertheless be revoked, unless coupled with an in- terest. 115 But of course if there is no right to revoke it, its revocation will give rise to an action for damages. Sec. 95. WHEN PRINCIPAL HAS RIGHT TO RE- VOKE. A principal has the right as well as the power to revoke whenever the agency is for an indefinite period or with- out consideration, or where the agent has on his part broken his contract, or where it is in terms revocable. If the agency is for an indefinite period it may be brought to a close at any time by either principal or agent; so even if a time is definitely stated, still if there is no consideration for its continuance it could be re- voked at any time. Thus if the agent did not promise and so could not be held to do anything during such term, but had in substance or in terms agreed to act as he might see fit or desired, there would not be any con- tract for any definite period though the authority might so state. Sometimes an authority is given upon con- dition that it may be terminated at any time, or upon the happening of a certain contingency, or upon a certain notice to be given. Example 28. A manufacturer of motor cars granted to H exclusive right to sell cars in a specified .territory, but was not for any definite term and provided that the 115. Todd v. Superior Court, 184 Pac. (Cal.) 684. AMERICAN COMMERCIAL LAW. 105 manufacturer could terminate whenever he believed H was not diligent in selling cars. Held, such agency was terminable at will. 116 If an agent turns out to have less competency than the principal was justified in supposing he had, the principal may revoke the agency. Professional agents especially hold themselves out as having a certain degree of skill, and if they are wanting in that respect they need not be retained. If the agent breaks his contract in any material way the principal may thereupon terminate the agency, or waiving the breach he may continue the agent in the agency. After he has once waived the breach, he could not afterwards rely on it as an excuse for terminating the agency. Where an agent is employed for a specified period, but it is provided that the principal may discharge him if the agent's services become unsatisfactory, it is gen- erally held that the dissatisfaction expressed must be genuine and in good faith, not a mere excuse for dis- charge. (Atlanta Stove Works v. Hamilton, 83 Miss. 704). Sec. 96. TERMINATION BY AGENT. An agent has the power, whether or not he have the right, to terminate the agency at any time. His right to terminate depends upon the same reasoning that governs the principal's right to terminate. An agent has always the power to terminate the agency. But he may not have the right. That depends upon his contract and upon his principal's breach thereof. Agencies at will, or for an indefinite period, or for a definite period but without consideration, could be terminated by the agent at any time, just as they can by the principal. 116. Huffman v. Page-Detroit Co., 262 F. 116. io6 LAW OF AGENCY. Sec. 97. NOTICE OF REVOCATION TO AGENT. The principal must notify the agent when he revokes and usu- ally the revocation consists in such notice. An agent is entitled to notice when his authority is revoked. Usually the notice itself would constitute the revocation. Sec. 98. NOTICE TO THIRD PERSONS. Where the agency is general, revocation does not usually operate as to third persons except upon notice to them, but no notice is usu- ally necessary in special agencies, except where negotiations are actually being entered into thereunder. Third persons who would under the circumstances be justified in dealing with an agent under the belief that his agency continued to exist are entitled to notice. Notice might be given them by the circumstances, as where an agent has been put out of possession of the office and others are in his place. Notice would seldom be required except in general agencies. CHAPTER 13. REVOCATION BY OPERATION OF LAW. Sec. 99. BY DEATH OF PRINCIPAL. The death of the principal terminates the agency, except when the agency is coupled with an interest. This is true though the death is unknown when the contract was attempted to be made. Agency, as we have seen, is a personal relation and is entered into subject to the continued existence of the principal and agent. If the principal dies, the agency is thereby terminated. The estate or the heirs cannot claim a continuance of the agent's services. If, however, the agency is coupled with an interest, as we have seen, it is irrevocable. There death of the principal does not terminate it for the same reasons that protect the agent in an attempted revocation by the principal. Sec. 100. BY DEATH OF AGENT. The death of the agent terminates the agency except where the agency is coupled with an interest. If the agent dies, the agency is terminated. The personal representative or the heirs cannot step in his place. If the agency is coupled with an interest, it may be carried out by the personal representatives for the benefit of the estate. 107 io8 LAW OF AGENCY. Sec. 101. BY INSANITY OF ONE OF THE PARTIES. Insanity of either principal or agent terminates the agency, except when coupled with an interest. The insanity of one of the parties removes his qualifi- cations to act as principal or agent, except when coupled with an interest. Sec. 102. BY BANKRUPTCY. Bankruptcy will not in itself necessarily terminate an agency. If it so operates upon the subject matter thereof that it removes the purpose of the agency, the agency will be terminated. Bankruptcy usually does not affect one's merely executory contracts. It does not necessarily affect the relation of principal and agent, especially if the bank- ruptcy be that of the agent. Sec. 103. BY WAR. War between the country of the principal and of the agent operates to dissolve the agency in so far as communication between principal and agent is essen- tial. Where the countries of the principal and agent are engaged in war, the effect of the war, in the absence of any special legislation, depends upon the nature of the agency. An agency in which the duty of the agent is to look after an alien principal's property is not dis- solved by the war, but there can be no communication or transmission of funds. 117 117. See note L. R. A. 1917 C, p. 667. APPENDIX A. FORMS. APPENDIX A. FORMS. (It is not believed desirable to furnish forms in a book of this character, except forms commonly in use, and for purpose of illustration. A form of power of attorney is supplied below.) 1. Power of Attorney. KNOW ALL MEN BY THESE PRESENTS, That I, James X. Showalter of the City of Chicago, County of Cook, in the State of Illinois, have made, constituted and appointed, and By These Presents do make, constitute and appoint Frank O. Hazard, of the City of Peoria, County of Peoria and State of Illinois, my true and lawful Attorney for me and in my name, place and stead, to grant, bargain, sell, release, convey, transfer, exchange, mortgage and lease any and all lands, tenements, heredita- ments, real and personal property, which I may own or hereafter acquire, possess or be to any extent entitled to or interested in, upon such terms and conditions and under such covenants as he shall see fit and for such consideration as he shall deem advis- able ; and for me and in my name to sign, seal, execute, acknowl- edge and deliver all such deeds, leases, bills of sale, and assign- ments, indentures, agreements, mortgages and deeds of trusts or any other instrument necessary or desirable to accomplish any of the purposes for which this power of attorney is given, giving and granting unto Frank O. Hazard, my said Attorney, full power and authority to do and perform all and every act and thing whatsoever, requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as I might or could do if personally present at the doing thereof, with full power of substitution and revocation, hereby ratifying and confirming all that my said Attorney or his substitute shall law- fully do or cause to be done by virtue hereof. Ill H2 FORMS. In Testimony Whereof, I have hereunto set my hand and seal this 6th day of January, 1921. Signed, Sealed and De- livered in Presence of JAMES R. SMITH, WILLIAM ODELL. JAMES X. SHOWALTER (Seal) COUNTY OF COOK. 1 STATE OF ILLINOIS, ) I, Herbert Jones, a Notary Public, in and for, and residing in the said County in the State aforesaid, Do Hereby Certify, that James X. Showalter, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed, sealed and delivered the said Instrument as his free and voluntary act, for the uses and purposes therein set forth. Given under my hand and notarial seal, the 6th day of January, A. D. 1921. (Notarial Seal) HERBERT JONES. Notary Public. (Note: The above is a very general power of attorney giving authority to dispose of or contract in reference to the lands of the principal. A power of attorney might only cover the very thing expected to be done, as to sell certain land, described in the power of attorney, at certain price:; or upon certain terms therein named. A power of attorney giving authority to sell or dispose of real estate is, in case of its use, recorded in the same manner as deeds are recorded. But powers of attorney which are used as the evidence of one's authority to do things which are not matters of record, are themselves, of course, not recorded.) APPENDIX B. QUESTIONS AND PROBLEMS. APPENDIX B. QUESTIONS AND PROBLEMS. CHAPTER ONE. 1. Define the terms "agent" and "servant" ; show in what way an agent is the same as a servant and in what respects the two differ, and how an agent or servant differs from an independent contractor. 2. A contracts with B, a building contractor, for the erection of a garage on A's land, with the understanding that B shall furnish all necessary material and labor. B employs, among others, C, a painter, and tells him to get all the required paint. C does so and charges the paint to A. Can the seller of the paint hold A on the theory of agency? Is B A's agent for any purpose? 3. What is the meaning of the maxims "qui facit per alium, qui facit per se" and "respondent superior".' 4. A hotel Co. owning a number of cabs upon which its name is painted enters into contracts called "leases" with drivers whereby the cab drivers shall pay a stipulated consideration per day for the use of the cabs. The cab drivers agree to render service to the hotel guests, and are entitled to keep all fares collected by them. M while riding a bicycle was run down and injured by one of the cabs and the accident also causes injury to a passenger, who is being driven to the hotel. M and the passenger sue the Hotel Co. Can either recover? (McColligan R. Co., 214 Pa. 229, 6 L. R. A. N. S. 544 and note.) CHAPTER TWO. 5. A employs M. a minor, aged ten years, to buy some goods for him of B upon A's credit. The boy buys the goods and A is charged with the cost. On the way back M engages in play and forgets the goods, leaving them beside the road, where they are stolen. In a suit by B against A for the price of the goods A defends that M had no capacity to act for him. How should the case be decided? Why? 6. May a minor appoint an agent? Ii6 QUESTIONS AND PROBLEMS. 7. What is the rule as to the appointment of an agent for pur- poses that are illegal or opposed to public policy? CHAPTER THREE. 8. P appoints A his agent with power to make a deed to P's real estate, Blackacre, and to enter into a contract for the sale of Whiteacre. A's authority is in writing but not under seal. Under the law a deed to real estate requires a seal, but a contract to make a deed does not require a seal. A puts a seal on both instruments. P seeking to get out of both acts charges that A had no sufficient authority to represent him. Will the deed or the contract stand? 9. Under the statute of frauds requiring contracts to be proved by written memorandum, may an agent who is duly authorized to make a contract covered by the statute of frauds, make a sufficient memorandum to bind his principal where the principal s"ays nothing about it? 10. What is the authority of a wife to bind her husband? 11. What is the authority of a child to bind his parent? CHAPTER FOUR. 12. Define ratification. 13. A of the firm of A and B, bought goods in his own name and for his own personal purposes, as the seller knew. Not having the expected use for such goods he sold them to the firm. The seller learn- ing of this sues A and B for the price and B claims that he cannot be held. The seller claims that B ratified A's act. Is B liable? (Fraser v. Sweet, 13 Manitoba L. Rep. 147, 2 Brit. Rul. Cas. 254.) 14. Does a principal ratify the agent's act by accepting the benefits thereof where he does not know all of the facts, but could ascertain them by diligent inquiry? Do you make any distinctions here? 15. A college authorizes its President to borrow money. In order to accomplish the loan he pledges collateral belonging to the cor- poration. The corporation knowing what he has done accepts the money, but brings suit to recover the pledged property as having been pledged without authority. Will it prevail? Why? 16. An agent makes a contract in the name of his principal, by whom he represents he is authorized. The third person discovers the agent has no authority and seeks to withdraw, but the principal replies that he authorizes the act. Can the withdrawal be made? 17. Is silence (no benefits being received) in itself ratification? QUESTIONS AND PROBLEMS. 117 CHAPTER FIVE. 18. A authorizes B, a real estate broker, to sell his property on certain specified terms. B procures C, but A refuses to deal with C. On what conditions, if any, can B compel A to pay him a commission? 19. A authorizes B, a real estate broker, to sell his property on certain specified terms. B procures C, with whom A makes a con- tract of sale. C is, however, financially irresponsible and fails to per- form his contract. Is B entitled to his commissions? 20. A advises B, a broker, that he wants to sell his home and directs B to procure him a buyer. No terms are, however, proposed, as A wants to bargain with the prospective buyers. B procures C, who offers A a good price, and A refuses to sell to him. C is ready, willing and able to buy at a good market price. Is B entitled to his commission? 21. Suppose in the case last cited A had accepted C and made terms with him and entered into a contract. Would B be entitled to his commission? 22. P employs A for one year. At the end of six months P discharges A, without proper cause, owing A one month's salary. A sues for the salary due and recovers. Afterwards he sues for breach of contract. Can he recover? 23. An agent is employed for a year at $100.00 per month, paya- ble monthly. He quits in the middle of 9 month. Is he entitled to recover for his services during previous months, and during the half month ? CHAPTER SIX. 24. W employed J to sell W's property for $3,000, reserving the right to sell himself if he found a purchaser. W entered into negotia- tions with one H for the sale of the property for $3,300, but H learned that the property was offered for $3,000 by .1, whereupon he dropped his negotiations with W and dealt with J. J by a roundabout method sold to H. W now sues for $100 commission retained by J on the ground of breach of faith. Can W recover? (James v. Williams (Nebr.), 20 L. R. A. 207.) 25. A employed B to purchase property for her for $5,000. B negotiated with the owner and found he could purchase for $4,500. B thereupon bought it himself. A learning of this brings suit, ten- dering $4,500. B claims that he is entitled to $5,000 or at least $4,500 and interest thereon during the time of the investment. What are bis rights? (Boswell v. Cunningham (Fla. ). 21 L. R. A. 54.) 26. A consigned butter to B, a commission merchant, for sale n8 QUESTIONS AND PROBLEMS. by B. B insured the butter. A fire occurred, doing some damage, and the arbitrators allowed B a sum for damages and allowed B to sell the butter for what he could get. B sold the butter and rendered an account to A, charging A with commissions and insurance premium, and not mentioning the fire. A learning of the fire sues to get back the commission and to be allowed the insurance money. Can be prevail? (Fish v. Seeberger, 154 111. 30.) 27. M desiring to buy land, and knowing that A was acting as agent for P, entered into an arrangement with A to buy the land, ostensibly for M, but in reality for the joint benefit of M and A. P, the owner, after the deal had been consummated, learned of the arrangement and now sues to set the sale aside. Can he recover? (Glover v. Layton, 145 111. 92.) 28. D was manager of a theatre for H. H had a ten year lease. Before the lease expired D secretly applied to the owner of the building for a renewal of the lease at an increased rental. IT claims the benefit of this lease. Is he entitled to it? (Davis v. Hamlin, 108 111. 39; Essex Trust Co. v. Enright, 214 Mass. 507, 47 L. R. A. N. S. 567.) 29. P Instructed A to purchase certain bonds for which he was remitting money. Before the money readied A, the bonds had a great and unexpected rise in price. A delayed purchasing until he could receive further instructions from P and the bonds went still higher. Is A liable for not buying the bonds upon his receipt of the money? State the principles involved. (Bernard v. Maury, 20 Gra v t. (Va.) 434.) 30. What is the meaning of the phrase "Delegata potcstas non potest delegari"f 81. What acts can an agent properly delegate? 32. What is the rule as to liability of banks for collections made through correspondent banks? 33. If an agent makes a contract for his principal and the third person defaults is the agent liable for such default? 34. What is a del credere agency? Does the statute of frauds apply thereto? Must the principal first have recourse against the customer before he can hold a del credere agent? CHAPTER SEVEN. 35. T deals with A, who acts nominally as P's agent. As a general statement what must T show to hold P on the contract made by A In P's name? QUESTIONS AND PROBLEMS. 119 36. What is express authority? implied authority? apparent authority? 37. A general manager of a piano company publishes an offer of a reward to persons solving a certain rebus. The company defends in a suit by M for the reward that its board of directors had voted that no such rewards be offered and the manager had been so notified. Is the. company liable? 38. An agent was employed to establish an agency for a sale of trucks in a town, and traded a sample truck belonging to the em- ployer for an automobile with the persons whom he was establishing as agents for the sale of trucks for his employer. The employer at- tempts to repudiate the transaction. Is he bound by his agent's act? (Davidson v. Parks, 108 Atl. (N. H.) 288.) 39. An agent had authority to collect interest on his principal's debts. With no other express authority than this he collected a debt itself and absconded. The debtor claims that the agent had authority to collect the debt and that the principal is bound thereby. How should the court decide? (Thornhill v. Massucci, 216 S. W. (Mo. Ap.) 819.) 40. P conferred upon A power to manage P's real estate, and execute deeds and mortgages and the necessary promissory notes, and pay taxes, "and generally to act in the premises as fully as I might act personally." A borrowed money from M in P's name, for the purpose of paying taxes. He used the money for himself. M sues P on the notes given by A in P's name. Can M recover? (William v. Dugan, 217 Mass, 256, L. R. A. 1916 C. 110.) 41. A was an agent to solicit advertising and to collect accounts in checks or cash due for advertising ; he collected certain checks pay- able to his principal, and had them cashed at the T bank. A ab- sconding with the proceeds, P sues the T Bank. Can he recover? (Dispatch Printing Co. v. Nat. Bank of Com., 109 Minn. 440.) 42. An agent had a writing from his principal reciting that the agent was "hereby authorized to transact any and all business for the company." Having a check in his possession payable to the company, he indorsed the company's name to the check and procured the money from the defendant bank. Assuming that there are no circumstances showing any authority of the agent except the above writing, is the bank protected in paying this money to the agent? (Coleman v. Seattle Nat. Bk., 186 Pac. (Wash.) 275.) 43. P had a horse to sell and gave it into A's possession with authority to go out and sell to any purchaser he might find, but for not less than $3.000. A sold to T for $1,000. P repudiates the transaction. Is the bargain good? 120 QUESTIONS AND PROBLEMS. 44. A being employed to collect notes for P, took hay in pay- ment, believing that the best way to get the most for his principal. Can C repudiate the deal? (Rush v. Rush, 170 111. 623.) 45. An agent is authorized to sell lumber. He makes a war- ranty as to the quality of the lumber. On a sale for the price, de- fense is made that the warranty was broken. The principal had no actual knowledge of the warranty. Is he bound thereon? (Eichler v. Kahnweiler, 178 N. Y. S. 257.) 46. A had authority to receive orders for goods sold by P. M of the firm M and N, customers of P, gave A notice of his with- drawal from that firm. N thereafter bought goods from P in the old firm name. A did not inform P of the notice given him. P seeks to hold M and N. Can he hold M? (Cox v. Pearce, 112 N. Y. 637, 8 L. R. A. 563.) 47. In a personal injury case, caused by breaking of chains, plaintiff offers to testify as evidence against the defendant that de- fendant's foreman an hour after the accident stated to plaintiff "that he (the foreman) had been after the company a year to furnish him with new chains and they would not do it." Defendant objects. Is the evidence competent? (Usry v. Augusta Southern Rwy. Co., 102 S. E. (Ga.) 184.) Would the foreman be a competent witness on the stand against defendant ? CHAPTER EIGHT. 48. If an agent acts ostensibly as principal, but in reality rep- resents a principal who later becomes known, can the third person hold the undisclosed principal? 49. In such a case, must the third person hold the undisclosed principal rather than the agent? 50. A makes a contract with T. Ostensibly he acts in his own behalf but really he is P's agent. P remits proceeds to A to pay T. Later T discovers P's existence and identity. A does not pay T. T sues P. Can T recover in this suit? 51. Can an undisclosed principal be held on negotiable paper signed by the agent in his own name? 52. State the right of the undisclosed principal to hold the third person. CHAPTER NINE. 53. Defendant's teamster finished his day's work and having driven to the stable to put the horses away, changed his mind and drove off again on an errand of his own, and in doing so by his negligent driving injured plaintiff. Is defendant liable for this tort of the teamster? (Mitchell v. Crasweller, 13 C. B. (Eng.) 237.) QUESTIONS AND PROBLEMS. 121 54. Defendant's teamster coming from town with a load of fer- tilizer for defendant's farm went a round-about way to stop at a; shoe shop on an errand of his own. While doing so, plaintiff was in- jured by the teamster's negligent driving. Is the defendant liable? (Ritchie v. Waller, 63 Conn. 155, 27 L. R. A. 161.) 55. The M. R. Co. employed A, as a ticket agent. H purchased a ticket and paid therefor a coin, which the agent immediately after taking, pronounced as counterfeit and detained her for arrest. Was the company liable? (Pamori v. M. R. Co., 133 N. Y. 261.) 56. A left home with the intentions of going to R's store to trade. Before she entered the store and while she was standing looking into a show window, a detective employed by the company caused her arrest, accusing her of shoplifting. Is R liable? (Vrchotka v. Roths- child, 100 111. Ap. 268.) 57. A is agent of the P. Insurance Co. with authority to suspend, check up, and settle with, the local agents of the Company. B, one of such local agents, was deemed to be in default. A attempted in various ways to settle up and finally had him indicted of embezzle- ment, a crime for which he was found not guilty. Assuming that A acted without reasonable grounds, is P liable? (Russell v. Palatine Ins. Co. (Miss.).) 58. A salesman of P. Co. in attempting to make a sale, slanders a rival concern. Is P. Co. liable to that concern for the slander? CHAPTER TEN. 59. A as Vice President of a bank guarantees in the name of the bank an account between B and C. Can the bank be held? Can A be held? Why? 60. A is acting as agent for an unknown principal. T knows that A is a mere agent but does not know A's principal. A as such undisclosed agent makes a contract with T. T asks to hold A per- sonally. A defends that T knew he was a mere agent. Is the defense good? (Siler v. Perkins, 126 Tenn. 380, 47 L. R. A. N. S. 2432.) 61. Following note given : "Chicago, July 6, 1886. On Aug. 1, 1886, we promise to pay to order of S. & C. Co. One Thousand Dollars. (sd) M. M., Pres., W. P. & Co. A. F. D., Sec'y." M. M. and A. F. D. are personally sued. They defend that they are not personally liable. What is your opinion? (McNeil v. S. & C. Co., 144 111. 239. Note 21, L. R. A. N. S. 1045.) 62. What is the rule as to liability of agent for his own torts committed in performing the agency? 122 QUESTIONS AND PROBLEMS. 63. A was agent of an apartment building with full authority to keep it in repair and hire the employees!. B, a tenant of the building, was injured through A's negligence in allowing the door of the ele- vator shaft to be out of repair, so that it would stand open when the elevator was not at the floor. B sues A. Defense that A is a mere agent of a disclosed principal. Is defense good? (Tippecanoe Loan & T. Co. v. Jester, 180 Ind. 357.) CHAPTER ELEVEN. 64. Define a factor. 65. When should a factor insure goods received under his agency? 66. Has a factor any implied or apparent power to barter goods? 67. May he sell on credit? May he extend credit originally given ? 68. Can a factor who has possession of goods give a good title by a sale which is contrary to instructions where such sale is to a person who does not know that the factor is not owner? 69. What is the factor's lien? 70. Define a broker? What various kinds? Define each kind. 71. What, generally speaking, is the authority of the broker? 72. Define auctioneer. 73. When does sale by auction take place? 74. What is by-bidding? CHAPTER TWELVE. 75. In what various ways may an agency terminate? 76. Distinguish between right to terminate and power to termi- nate. 77. A borrowed from B $1,000, and as part of the same transac- tion appointed B his agent to collect debts due A, as security for the loan. A dies before the loan is paid. Is B's authority to collect thereby revoked? 78. A has an agency for one year to sell automobiles for M. It is an extremely valuable agency, and its loss will cause A great damage. M attempts to revoke. A insists M has no power to do so. Can M revoke? CHAPTER THIRTEEN. 79. What effect has death of principal on agent or agency? Insanity ? 80. How does bankruptcy affect agency? 81. State effect of war upon agency. INDEX. (References are to sections) A. Admissions of agent, 57. Agency, denned, 1. Apparent Authority, (including "Implied Authority"). in general and special agencies, 47. in special appointments, 48. to borrow money, 49. to sign and indorse commercial paper, SO. to sell personal property, 51, 52. to receive payment, 53. to extend credit, 54. to buy on credit, 55. to warrant, 56. to make admissions, 57. to receive notice, 58. of brokers, 87. of factors, 81, 82. Appointment of agents, see also "Authority," for illegal purposes, 10. form of, 14. Auctioneer, denned, 87. authority of, 88. sales by, 89, 90. Authority, see also "Ratification," delegation of, 11, 12. formalities of, 14. elements in conferring, 15. of wife to bind husband, 17. general rule, 44. statements of, by agent, 45. express and implied, 46. 123 124 INDEX. apparent (and implied). see "Apparent Authority." termination of, 91-103. B. Bankruptcy, effect of, 102. Banks, collections by, 41. Brokers, denned, 85. kinds of, 86. authority of, 87. Capacity to be agent, 9. compensation of agent. right to, 28. when earned, 29-32. Capacity to be principal, general rule, 6. of minors, 7. of corporations, 8. Care required of agents, 38. Corporations, power of, to be principals, 8. D. Death, effect of, on agency, 99, 100. Del credere agencies, denned, 43. Delegation of duty, 39-41. Duty of agent, to use good faith, 33. not to represent both parties, 34. not to buy or sell to self, 35. not to take secret benefits, 36. to obey instructions, 37. to use care and skill, 38. to perform personally, 39-41. INDEX. 125 F. Factor, defined, 79. duties of, 80. authority of, 81, 82. lien of, 83. Form of appointment, 14. Frauds, statute of, agent's authority under, 14. Illegal agencies, 10. Independent contractor, defined, 1. Infants, see "Minors." Instructions, duty of agent to observe, 37. Irrevocable agencies, 94. K. Kinds of agencies, denned, 4. Liability of agent, to principal, 42. on del credere agencies, 43. to third persons, 70. upon warranty, 71. when principal undisclosed, 73. upon form of contract, 74-76. where no responsible principal, 77. for torts, 78. Liability of Principal, see "Authority of Agent"; "Torts of Agent"; "Compen- sation of Agent." M. Master and Servant, relationship of, 1. 126 INDEX. Minors, capacity of, to be principals, 7. capacity of, to be agents, 9. power of, to bind parent, 18. N. Notice, to agent, 58. of revocation, 97. P. Power, see "Capacity"; "Authority"; "Delegation of Authority." Professional agents, see "Factor"; "Broker"; "Auctioneer." R. Ratification, meaning of, 20. essentials to, 21. what constitutes, 22-27. Respondeat superior, defined, 2. Revocation of agency, by act of principal, 93. when no power of, 94. when right to, 95. S. Salary of agent, see "Compensation of Agent." Skill required of agent, 38. T. Termination of authority, by act of parties, 91-98. by operation of law, 99-103. U. Undisclosed agency, general rule, 59, 65. exceptions, 60-64. INDEX. 127 W. War, effect of, on agency, 103. Warranty, by agent, of his own authority, 71. power to bind principal upon, 56. Wife's authority, 17. LAW Y OF LOS ANGELES UC SOUTHERN REGIONAL LIBRARY FACILITY A 000687233 7