THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW GIFT OF Harold E. Ives APPLIED BUSINESS LAW BY COLEMAN HALL BUSH, LL.M., OF THE CALIFORNIA BAR NEW YORK HENRY HOLT AND COMPANY 1920 COPYBIOHT, 1920 BY HENRY HOLT AND COMPANY PREFACE Business laws are rules that govern business transac- tions. These rules must be so clearly presented that the learner will be able to apply them in his ordinary daily affairs. The method here used has the merit of being logical and at the same tune interesting and practical. First, the principles; second, their relation to the formation of ?* contracts; third, their application to actual cases as de- ~ cided by the highest courts. The learner should yoke and rivet every principle he studies to the actual facts of his own experience, other- 5 wise he cannot meet the test of application, for APPLICA- TION is the final test. COLEMAN HALL BUSH. Polytechnic High School, Riverside, California, January 27, 1919. PURPOSE We learn to do by doing that is an axiom. We learn to write business papers by writing such papers as are based on the facts of our own experience. Ability to do this comes from intelligent practice under wise guidance. One may get practice, to some extent, by serving an apprenticeship in a business office; but this course is open to few, it gives inadequate experience except in a narrow routine, and it is ENTIRELY TOO SLOW to be justified by results. Hence, the purpose of this book is to eliminate the long term of apprenticeship, to give a wide range of experience to all who seek it, by presenting material, both law and facts, for application in constructive work. If the guid- ance given is faithfully followed, progress is bound to re- sult. COLEMAN HALL BUSH. Polytechnic High School, Riverside, California, January 27, 1919. CONTENTS PART I FUNDAMENTAL PRINCIPLES CHAPTER PAGE I. ESSENTIALS OF CONTRACTS 1-26 Formation of contracts, etc. II. AGENCY 27-34 Authority and duties of agent. III. SERVICE 35-39 Duties of employer, employee. IV. DEPOSITS, LOANS, AND HIRING OF THINGS 40-50 Warehousemen, landlord and tenant. V. CARRIAGE 51-60 Common carrier, bills of lading. VI. SALES OF GOODS 61-67 Statute of Frauds, warranty. VII. PARTNERSHIP 68-76 Partnership property, liability. VIII. INSURANCE 77-88 Fire, marine, and life insurance. IX. NEGOTIABLE PAPER 89-102 Essentials of negotiable paper .... X. REAL PROPERTY 103-109 Title to real property, mortgages. XL BUSINESS CORPORATIONS 110-116 Powers of dissolution. vii viii CONTENTS GROUP PAGE I. SIMPLE CONTRACTS ' 119-156 Essentials of contracts. Parts of written contracts. Exercises, analyses, constructive work in writing contracts. II. ARTICLES OP AGREEMENT 157-174 Articles of co-partnership. Articles of association. Articles of incorporation. III. NEGOTIABLE CONTRACTS 175-201 Essentials and non-essentials. Notes and acceptances. Bills of exchange, checks, drafts. IV. CONTRACTS CONCERNING LAND 202-221 Deeds of conveyance. Mortgage and trust deeds. Leases of real property. V. MISCELLANEOUS FORMS 222-235 Agent's authority, general. Power of attorney, proxy. Bill of sale, special notices. INDEX.. ..239-244 PART I FUNDAMENTAL PRINCIPLES CHAPTER I ESSENTIALS OF CONTRACTS 1. Introductory. Business law in some way touches every human interest that has to do with material things, or relates to any service or credit concerning material things. It most intimately relates to matters of property, of credit, or of service, and to the persons involved in business transactions. For this reason a knowledge of business law is not only valuable but it is absolutely es- sential to a clear understanding of one's rights and obli- gations in business. Business is the relation of persons to property values as affected by contracts; it embraces not only trading, buying and selling, but every form of activity or calling by means of which persons make a living, according to the rules of law. Law is a rule of action, or of conduct; business laws are rules of business conduct, as applied to business transactions. Business transactions are contracts for the purchase or sale of property, service, or credits. They are the units of busi- ness, of business law, of accounting and of commerce. 2. Obligations. An obligation is a duty imposed by law by which a person is bound to do, or not to do, a cer- tain thing. Obligations arise either (1) by contract of the parties, or (2) by operation of the law. The chief ob- ligation arising by operation of law is that every person is bound, without contract, to keep from injuring the person 3 4 APPLIED BUSINESS LAW or property of another, or from infringing upon any of his rights (see sec. 84, post). EXAMPLES: (1) A receives goods from and uses them in his business, promising to pay an agreed price for them. A's obligation to pay arises by contract, or mutual agreement of the parties. (2) X takes goods belonging to O, without the owner's knowl- edge or consent, and uses them in his business. The law im- poses an obligation on X to pay O the reasonable value of the goods, and it may also impose some form of punishment for the wrongful taking of the property of another. In this event, the wrongful taking would be a crime and governed by the rules of criminal law. 3. Contracts. Contracts as here understood are agree- ments relating to matters of business; that is, each con- tract is an agreement to do or not to do a certain act, or series of acts' Contracts are classified as (a) valid, (b) voidable, or (c) void. A valid contract is one that is lawful and bind- ing upon the parties to the agreement. A voidable con- tract is one that is lawful but the obligation imposed by it may be avoided by one of the parties if he wishes to avoid it. A void contract is one without legal force or effect (sec. 5, post). EXAMPLES: (1) X and Y are adults competent to make con- tracts. X offers to sell his trotting horse, Rhus-tox, to Y for $12,000, delivery and payment to be made ten days later at Y's place. Y accepts this offer, the agreement being in writing, signed by the parties. This is a valid contract, binding both parties. (2) A is an adult and M is a minor. A offers to sell his horse, Luxor, to M for $3000, delivery and payment to be made ten ESSENTIALS OF CONTRACTS 5 days later at A's place. M accepts the offer, the agreement being in writing, signed by the parties. This is a voidable con- tract. It is binding on A, but it may be avoided by the minor, M, if he wishes to avoid it, but the right to avoid is personal to the minor. (3) M is a minor having land situated in an adjoining state. He gives X a written authority under seal to act as his agent to sell and convey title to the land to N. X sells the land to N and executes a deed for it. Such contracts and conveyances are held to be absolutely void, and not merely voidable. 4. Essentials of contract. The essential elements of a valid contract are: (1) Competent parties, (2) their agreement, (3) free from fraud, mistake, or duress, (4) based upon sufficient cause, price, or consideration, (5) to accomplish a lawful purpose, and (6) in some cases the agreement to be in writing (sees. 5, 204, et seq.). 5. Formation of contracts. The first essential in the formation of contracts is to have competent parties, that is, persons who have lawful capacity to make binding con- tracts. All persons are capable of making valid contracts except minors, persons of unsound mind, persons deprived of civil rights, and alien enemies. (a) Minors are persons under twenty-one years of age, except in those states which provide by statute that females are adults at eighteen. The contracts of minors are voidable, ex- cept contracts to pay the reasonable value of things necessary for the support of the minor, or for the support of his family. Necessaries are those things which are reasonably needed by the minor and which are reasonably suited to a person of his station in life, or to the needs of his family. Contracts for neces- saries must be made when the minor is not under the care of a parent or of a guardian able to provide for him. A minor cannot give a written power or authority for an 6 APPLIED BUSINESS LAW agent to act for him, ner can he, under the age of eighteen, make a contract relating to real property or to personal property not in his immediate possession. A minor may avoid his contracts, other than those for nec- essaries, if made while he is under the age of eighteen, and his avoidance may be either before he becomes of age or within a reasonable time afterward. As a rule, where the contract was made when the minor was over eighteen years of age, he must restore the consideration, or price, before he can disaffirm. (b) Persons non compos mentis or entirely without under- standing have no power to make contracts of any kind, but they are liable for the reasonable value of necessaries furnished for their support, or the support of those dependent upon them. Idiots, lunatics, and grossly intoxicated persons come within this class. (c) Alien enemies are the subjects of foreign powers with which our country is at war. Contracts between citizens of our country and alien enemies are, as a rule, absolutely void, on the ground of public policy, since to permit such contracts would be to place considerations of private gain above the duties of patriotism. Valid contracts entered into before war was declared may be carried out after peace is restored, if mutually agreeable, and if a breach has occurred before the beginning of hostilities, the remedy revives upon the return of peace. The second essential in the formation of a valid con- tract is the agreement of the parties to the contract. Agreement is the mutual consent of the parties to be bound by a contract. They must agree to the same thing and in the same sense, and the consent must be free, mutual, and communicated by each to the other. Con- sent which is not free renders the contract voidable at the will of the party who acted under compulsion. The third essential is that the agreement must be free from fraud, mistake, or duress, since it is held that con- ESSENTIALS OF CONTRACTS 7 sent is not real when it is obtained through mistake, fraud, duress, or undue influence. (a) Mistakes are of fact and of law. Mistakes of fact pertain to matters of fact material to the contract. Mistakes as to the existence or identity of the subject-matter of the con- tract, or the identity of the party dealt with, will generally render the contract voidable. Mistakes of law pertain to mat- ters of law which relate to the contract. As a rule, mistakes of law do not excuse one from liability on his contracts. (b) Fraud pertains to past or present matters of fact material to a contract and which are falsely represented so that one party to the contract is imposed upon. The elements of fraud are: A false representation, or concealment amounting to a false representation in its effect; guilty knowledge, or such gross carelessness in statement as to amount to a guilty knowl- edge of its falsity; intention to mislead the other party; and actually misleading him, to his injury or damage. The effect of fraud is to render the contract voidable at the will of the injured party. (c) Duress is an unlawful constraint imposed on a person which causes him to do some act against his will. Duress renders a contract voidable. (d) Undue influence consists in taking an unfair advan- tage of another's weakness of mind, or of his necessity or dis- tress, or of his confidence. In every such case the contract is voidable at the election of the injured party. Offer and acceptance. Agreement, in which the consent of the parties to the contract is free, mutual, and communicated by each to the other, must arise in some form of offer and acceptance. These are governed by the following rules: First, the parties must mean to make a contract and to undertake its obligations. 8 APPLIED BUSINESS LAW EXAMPLE: A holds a fake auction at a social gathering. He offers a watch belonging to K, which is worth about $10, for sale to the highest bidder. H makes a bid of $300 which is immediately accepted by the auctioneer, A, and H draws a check for the amount and receives the watch. K, upon receipt of the check, seeks to enforce payment for the amount. Held, by the court, that since the entire transaction was in- tended and understood as a joke by all the parties to it and that no legal obligation was intended, none was imposed (sec. 203, post). Second, one party must make an offer which is to be accepted, or make a request which is to be acted upon by the other. EXAMPLE: J, without any request from the owner, assumes to remove a stack of grain from a field and thus to save it from destruction by fire. Afterward he sues the owner, B, to recover for his service. It was held there was no contract between the parties and therefore there could be no recovery for the service' rendered. Third, the offer or request must be communicated, i. e., the party who seeks to accept the offer or to act upon the request must have knowledge of the same before he can accept or act and bind the other party. EXAMPLE: A crime had been committed in a certain com- munity. Public officials offered a reward for information that would lead to the arrest and conviction of the guilty party. Unknown to the officials, X had given such information a few days before the reward was offered. When he learned of the reward he brought suit to recover the amount. It was held there could be no recovery since there could be no consent to that of which the party had never heard. ESSENTIALS OF CONTRACTS d Fourth, the offer or request must be clear and the ac- ceptance of the offer, or the act in reliance upon the re- quest, must be without condition or qualification, and must accord with the exact terms of the offer, or request. EXAMPLE: X promised his niece that if she would live in his home and act as his housekeeper he would give her "one hun- dred acres of land." The offer did not designate any particular land or indicate its location or value. In a suit it was held there could be no recovery since the promise was void because of uncertainty. Fifth, the act in reliance upon the request, or the ac- ceptance, must be rendered or communicated in accord- ance with the terms of the request or of the offer. An offer made by mail impliedly authorizes an acceptance by the same agency, unless some other means is expressly designated, and the acceptance becomes binding the moment it is mailed. EXAMPLE: X posted a letter accepting an offer to insure his house and inclosed a check to pay the premium. Before the letter of acceptance was received by the company the house burned. In an action to recover the amount of the policy it was held that the company was liable, and that the contract was completed when the letter of acceptance was mailed. Sixth, an offer or request may be changed or recalled at any time before it is accepted or acted upon, but the change or revocation must be communicated to the other party to be effective, unless it is caused by the death of the offerer or the expiration of the time limit for accepting the offer. EXAMPLE: A offered to sell a large quantity of petroleum to 10 APPLIED BUSINESS LAW B at an agreed price. The offer was in writing and provided that it should be open for sixty days, unless sooner accepted. The writing was not under seal and no consideration was paid for keeping the offer open. The price of oil went up and at the end of fifty-seven days A withdrew the offer. On the fifty-ninth day B sent a written acceptance of the offer, but he knew of the revocation before doing this. Under the circumstances could A withdraw his offer before the expiration of the time limited in the offer? It was held that he could, but the notice of revocation to be effective must actually come home to the attention of the other party. The fourth essential in the formation of a contract is the presence of a sufficient consideration. Consideration is something of value received by one party or given up by the other as a price or inducement for the promise or obligation in a contract. The consideration must be legal, otherwise the contract will be void. Contracts under seal do not require the presence of con- sideration for the seal is said to import a consideration. In those states which have abolished all distinction between sealed and unsealed instruments, the fact that a contract is in writing carries a presumption that consideration was given, though this presumption may be overcome by evidence to the contrary. In the case of negotiable instruments the presumption is that consideration was given for them, but this may be overcome by evidence that no consideration was given. The burden of show- ing a want of consideration in the case of written contracts lies with the party seeking to avoid it. The fifth essential in the formation of a contract is that it must be for some lawful object. The object of a contract is the thing or things agreed to be done or not ESSENTIALS OF CONTRACTS 11 to be done by the parties to the contract. The object must be lawful and possible when the contract is made. If a contract has but a single object and such object is unlawful, whether in whole or in part, or if it be wholly impossible of performance, or if it be so vaguely expressed as to be wholly unascertainable, the entire contract is void; but if the contract has several distinct objects of which one at least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest. In general, a contract is unlawful and void which is: (1) Con- trary to the express provisions of the law; (2) contrary to the general policy of the law; or (3) otherwise contrary to good morals. Contracts to exempt one from liability for fraud or willful injury to the person or property of another, or for viola- tion of law, are against public policy and void. Contracts which prevent one from engaging in a lawful profession, trade, or business of any kind are usually void, except where one sells the goodwill of a business he may agree not to carry on a similar or competing business within a certain locality and for a speci- fied time. In addition to the five elements already considered and which are required in the formation of every valid con- tract, there is a sixth element required only in particular cases, namely, that the contract be in writing or in a particular form. Most contracts may be oral, that is, by word of mouth; a few are expressly required by law to be in writing (see sec. 46, post). The Statute of Frauds, so called because it was intended to prevent fraud and perjury in proving contracts before courts, provides in general that the following contracts are invalid 12 unless they, or some- note or memorandum of them, are in writ- ing and signed or subscribed by the party to be held liable, or by his agent: (1) Contracts which by their terms are not to be performed within a year from the time they are made. (2) Contracts to answer for the debt, default, or failure of another. (3) Contracts in consideration of marriage other than mutual promises to marry. (4) Promises of an executor or administrator to pay out of his own pocket any amount or amounts due from the estate he is administering. (5) Contracts for the sale of lands or any interest in land, except leases for less than a year; if made by an agent, his au- thority must be in writing or the contracts will be illegal. (6) Leases for a longer term than one year. (7) Contracts employing agents or brokers to buy or sell lands or any interest in lands for compensation or commis- sion. (8) Promises which by their terms are not to be performed within the lifetime of the promisor. (9) Contracts to sell personal property for a price of not less than fifty dollars, unless: (a) The buyer accepts and receives a part of the goods or property bought, or (b) Pays at the time some part of the purchase money (see sec. 46, post). Reducing a contract to writing, whether the law requires it to be in writing or not, has the effect of superseding all prior negotiations and agreements concerning the same matter, and the written contract takes effect when it is delivered to the party in whose favor it is made, or to his agent. 1 1 The above contains the chief provisions of the original Statute of Frauds enacted by the English Parliament in 1676 as re-enacted in most of the several states, and the more important additional provisions found in the statutes of the different states, ESSENTIALS OF CONTRACTS 13 6. Subject-matter of contract. The subject-matter of a contract is the matter to which the agreement relates. It is distinct from the agreement or the object of the contract which is the thing that is to be done, or not to be done, by the party receiving the consideration. EXAMPLE: O wishes to have logs sawed into lumber, and he makes a contract with X for this purpose. Before the work is done the logs are destroyed by fire. The subject-matter of the contract is destroyed, and the contract for the sawing is dis- charged. The service, sawing, was not the subject-matter but the pur- pose or object of the contract. It was not destroyed but simply dispensed with. The same is true of the payment of the con- sideration for the service; it was not destroyed but merely dispensed with, because the subject-matter of the contract was destroyed. The subject-matter of contracts may be classified under three general heads: (1) Property, (2) credits, and (3) services. Property is anything of value capable of being owned or possessed; it is also the right of ownership or title which gives one the sole and exclusive right to possess and enjoy a thing. Property is divided into two general classes, real and personal. Real property includes lands and all things that are perma- nently affixed to land. Personal property includes all things movable and transient, which may be taken from place to place. Credits may be the subject-matter of contracts, as the ability to borrow money, or to purchase goods or to procure any present benefit or enjoyment of a thing upon a promise that payment will be made at a future time. Services which one may render as the subject-matter of a contract are of three classes: 14 APPLIED BUSINESS LAW . (1) As a servant or employee doing manual labor or operative acts under the immediate direction of the master, involving the relation of master and servant. (2) As an agent making contracts for or representing a prin- cipal in the discharge of particular duties, involving the relation of principal and agent. (3) As an independent contractor, doing acts free from the control of the other party, save that the acts must accord with the terms of the contract, thus involving the relation of inde- pendent contractors. It is essential to the validity of a contract, not only that the parties to it shall exist and be capable of being identified, but that the subject-matter be described and identified by the terms of the contract with certainty and exactness. 7. Operation of contract. Only parties to a contract, as a rule, are bound by its obligations or are entitled to its benefits. One cannot have obligations thrust upon him without his consent; neither can he impose obliga- tions upon others without their consent. Mutual assent is of the essence of every express contract, though it may be dispensed with in obligations imposed by law, which are in the nature of implied contracts. At common law a contract between A and B for the benefit of X would confer no rights on X as against either A or B; but the general rule now is that a contract made expressly for the benefit of a third person may be enforced by him at any time before the parties to the contract rescind it. A third party who willfully interferes with the operation of a contract or induces one of the parties to break it will be liable to the other party in damages for his wrongful act. But this, liability grows out of tort and not out of any contract imposed upon the third party. It is one of the general obligations im- ESSENTIALS OF CONTRACTS 15 posed by positive law that every person is bound, without con- tract, to keep from injuring the person or property of another, or infringing upon any of his rights (sec. 2, ante). After a contract has been made, the rights in it relating to property may be assigned or transferred to a third party so that he may enforce these obligations in a suit against the prom- isor. But contracts relating to personal service or which involve a relation of special confidence cannot be assigned (sec. 34, post). The burdens or liabilities of a contract can not be transferred to another except with the consent of the party entitled to its benefit, but the property rights arising out of contracts may be transferred to another whether the contract be negotiable or not. A non-negotiable written contract for the payment of money or for property may be transferred by indorsement, in like manner as a negotiable instrument; such indorsement car- ries all the rights of the assignor under the instrument to the assignee, but these rights are subject to all the claims and de- fenses existing in favor of the maker at the time of the indorse- ment. A different rule applies to negotiable instruments; they are transferred free from all prior claims and equities, except infancy, forgery, and other absolute -defenses, being "couriers without luggage" (see sec. 77, post). 8. Discharge of contract. Obligations arising under contracts may be discharged in a variety of ways, as by a rescission or annulling of the contract, or it may be by a full performance of the agreement, or by substituting a new agreement, or by express provisions contained in the contract providing for its discharge, or it may be by impossibility of performing the terms of the contract. In certain cases the discharge may be by operation of the law. In others, it may be by breaking the contract, thus giving the injured party a right of action for (Jam- ages, 16 (1) To rescind a contract is to cancel or annul it. A party to a contract may rescind it: (a) If his consent was given by mistake or obtained by fraud, duress, or undue influence exer- cised by or with the connivance of the party to receive the benefit; (b) if the consideration for his obligation fails through the fault of the party to receive the benefit; (c) if the considera- tion becomes entirely void from any cause; (d) if the consider- ation fails in a material respect before it is rendered to him; or (e) he may rescind by the consent of all the other parties to the contract. (2) Performance of all the obligations arising under a contract by the party whose duty it is to perform, or by another for him and with his assent, if accepted by the party who has a right to require performance, discharges the contract abso- lutely. In theory, at least, contracts are made with a view to their performance, and, in general, this is the ordinary method of their discharge. (a) Performance to be effective must be in the manner con- templated by the parties and at the required time and place. Where a debtor owes different debts to the same creditor and does an act or makes a payment equally applicable to two or more of such debts, he has a right to say which debt he is paying. If the debtor does not say to which debt the payment shall be applied, the creditor may apply it as he sees fit. If neither party designates what application is to be made of the amount paid, it must be applied to the discharge of debts in the follow- ing order: (i) Interest due at the time of payment, (ii) Principal due at the time of payment, (iii) Obligations earliest in date of maturity, (iv) Obligations not secured by a lien or surety, (v) Obligations secured by lien or collateral, (vi) And always to debts legally enforceable rather than to ones not enforceable. (b) If a creditor at any time directs the debtor to perform his obligation in a particular manner, the contract is discharged ESSENTIALS OF CONTRACTS 17 by performance in that manner, though the creditor does not receive the benefit of the performance. (c) Performance of an obligation by one of several persons jointly liable on a contract discharges all, but the party who discharged it may require a proportionate contribution from all the parties joined with him, (d) Part performance of an indivisible contract discharges a corresponding part of it, if the benefit of such part perform- ance is voluntarily retained by the creditor but not otherwise. In general, neither party is required to accept anything short of a full and complete performance of an entire contract, or pay for anything less. (e) Tender is an offer to perform a legal duty. Tender of performance made in good faith, at the right place, at a proper time, and in the required manner will discharge any form of obligation except one for the payment of money. An offer of part performance is of no effect. Tender of performance does not discharge an obligation for the payment of money, but it will, if properly made, relieve the debtor of liability for all interest and costs that may arise after tender. In order that an offer of payment may be effec- tive, it must be: (i) Unconditional, (ii) for the exact amount of the debt, (iii) in legal tender money, (iv) made at the proper time and place and to the proper person, and (v) it must be kept good, that is, as a continuing offer. Tender of payment must be made at the place agreed upon in the contract, or if no place is agreed upon, then at the option of the debtor: (i) At any place named by the creditor, or (ii) at the creditor's residence or place of business, or (iii) wherever the creditor can be found, or (iv) if this cannot be done, then at any place within the state. Where the agreement fixes the time for payment, the tender of payment must be made within reasonable business hours on that date, but if no date is fixed by the terms of the contract, then tender of payment must be within a reasonable time and before the debtor has refused performance upon a reasonable demand for payment. The tender of payment must be fre? 18 APPLIED BUSINESS LAW from any condition which the creditor is not bound to perform, but the debtor has a right to demand a written receipt for any money or property delivered in discharge of an obligation. (3) Discharge by agreement Since the power to create obligations is no greater than the power to discharge them, it follows that the obligations arising under contracts may be discharged by mutual agreement of the parties. Where neither party has performed his obligation or any part of it, the parties may mutually release each other. If there has been performance or part performance by one party, the release of the other must be under seal or have some new con- sideration to support it. In those states which have abolished all distinction between sealed and unsealed instruments, it will be sufficient if the release is in writing. Novation. Discharge by mutual agreement may take the form of novation, that is, the substitution of a new obligation for an existing one. Novation is in fact a new contract and is subject to all the rules governing contracts in general. It arises, (i) by the substitution of a new obligation between the same parties, with intent to extinguish the old obligation; (ii) by the substitution of a new debtor in place of the old one, with intent to release the latter; or (iii) by substitution of a new creditor in place of the old one, with intent to transfer the rights of the latter to the former. A general release does not extend to claims which the creditor does not know of or suspect to exist in his favor at the time of making the release, or which if known by him would have materially affected his settlement with the debtor. A release of one of two or more joint debtors does not release the others unless they are mere guarantors, nor does it affect their right to require contribution from him. (4) A contract may be discharged by express provisions contained hi the agreement providing for its discharge, as by the lapse of a specified time, or by the happening of a specified event. The agreement may provide that by giving a required notice either party may withdraw from the contract and thug discharge it, ESSENTIALS OP CONTRACTS Id Insurance contracts frequently impose conditions which if not complied with will discharge them, as that dwellings shall be occupied in the case of fire insurance, or that a ship shall not deviate from its regular course in the case of marine in- surance. Conditional sales provide for a discharge of the contract upon a failure to comply with the required conditions. Options for the purchase or exchange of property are discharged by mere expiration of the time limited, unless the offer contained in the option be accepted before the time expires. (5) Impossibility of performing the obligations of a con- tract is sufficient ground for its discharge since the law never requires impossibilities. A condition in a contract which is impossible of performance or unlawful is void and, to that ex- tent, discharges the contract. Impossibility of performance may arise (i) from a destruction of the subject-matter of the contract, without fault of either party, or (ii) by operation of the law, or (iii) from the death or disability of one of the parties in contracts for personal service. In all such cases the obligations of the contracts are discharged. (6) Discharge by operation of law arises when contract obligations are extinguished by the effect of the law rather than by the intention of the parties. Such a discharge may arise by the death of one of the parties in contracts which in- volve a relation of special confidence and trust, or where the obligation is for personal service, but the death of a party will not discharge a contract which involves the payment of money or mere property rights. Alteration of a written instrument, intentional and un- authorized, will discharge the party otherwise liable on the contract. But a written contract may be altered by the mutual agreement of the parties if the alteration is in writing. Merger of contracts of inferior type into those of a su- perior type arise in three principal ways: (a) Where parties have oral agreements, these may be merged in a written contract and to that extent discharged, (b) Where the parties have a written contract with various provisions and 20 APPLIED BUSINESS LAW the written contract is changed in form to a contract under seal, or to the form of a deed, and any one or more of the pro- visions in the simple contract are omitted from the sealed in- strument, they are said to be merged in the sealed instrument and thereby discharged, (c) Where one sues and recovers judgment on a contract, whether oral, written, or under seal, the contract is merged hi the judgment since the judgment is of higher dignity than the contract, even though the contract be under seal as a bond or deed. Discharge in bankruptcy arises where a party has become insolvent and is judicially declared bankrupt; he is thereby discharged from liability on his ordinary contracts. Mere in- solvency does not operate to discharge one from liability on his contracts. The matter must be adjusted by a proceeding in a court of bankruptcy. (7) Discharge by breach arises where one fails to perform his obligations or attempts to perform them in an improper manner. While the breach usually relieves the innocent party from all liability on the contract, the other at once becomes answerable to him in damages. Breach may arise: (a) By non-performance, that is, by a simple failure to perform the obligations imposed by the contract, except where the party is excused from performance or legally justified in refusing to perform. In mercantile trans- actions, as sales, where time is of the essence of the contract, failure to perform or tender performance at the required tune may be treated as a final breach and as releasing the innocent party from all liability on the contract. (b) By repudiation, or a refusal to perform the obligations of a contract. This form of breach may take place before per- formance is due, or it may be a refusal to accept a benefit or bear a burden imposed by the agreement. In any event it is a breach giving rise to an immediate right of action for dam- (c) By a breach of condition or the breaking of an essential term of a contract which thereby discharges it. A breach of warranty gives rise to a right of action for damages where ESSENTIALS OF CONTRACTS 21 title has passed to a buyer, but does not necessarily discharge the contract. In most states, however, the buyer may either rescind the sale, return the goods and recover the price paid, or he may keep the goods and sue for the breach of warranty. 9. Remedies for breach of contract. As a general rule compensation is the relief or remedy provided by law for the violation of contract rights, and the means of securing their performance. Preventive and specific relief may be given in special cases where the contract is of such a peculiar nature that money damages would not afford an adequate remedy. Every person who suffers loss or harm in person or property from the unlawful act or omission of another may recover from the person in fault a compensation therefor in money, which is called damages. The measure of damages for breach of contract is the amount which will compensate the injured party for all losses caused by the breach. The damages must be certain and clearly ascertainable or they cannot be re- covered. Remedies for breach of contract are either legal or equita- ble. The legal remedies are those afforded by the courts of law, and are, in general, actions for damages. The theory of the law is that all contract obligations and property rights may be reduced to a money value and that all wrongs or injuries affecting these may be paid for in money damages. Courts of equity afford other and different remedies in those special cases where money damages do not afford ade- quate relief. These remedies are: (a) To enforce obligations arising under contracts by writs of specific performance, where a party is made tc do the particular thing which he in his contract prom- ised to do; by writs for correcting or reforming instruments^ 22 APPLIED BUSINESS LAW as where there was mutual mistake in the formation of a written contract, it may be changed to express the exact intention of the parties; by writs of re-execution which compel a party to execute a new instrument or document where the original has been lost or destroyed, (b) To prevent a continuing breach of contract, or injury to one's rights, as where a writ of injunc- tion is issued to restrain a party from the commission of some particular act. (c) To protect and regulate property rights, by regulating trusts, as where an estate is left in trust for a particular purpose; by the foreclosure of mortgages and deeds of trust; by the appointment and control of receivers, in cases of insolvency or dissolution of corporations. 10. Methods of discharging right of action. The methods of adjusting losses arising out of breach of con- tracts are: (1) Those which may be applied by the parties themselves, (2) those which may be rendered by others acting for the parties, and (3) by the limitation of time. Accord and satisfaction by the parties is a common method of discharging a right of action arising from the breach of a contract. Accord is an agreement to accept in satisfaction of a claim something different from or less than that to which the person consenting to accept is entitled. Satisfaction is the actual acceptance of the agreed thing or amount in the place of damages, and it is this satisfaction that extinguishes the right of action. In contracts for the payment of money, the acceptance of a part payment is not an accord and satisfaction, unless the claim or its amount is in dispute or there is a new consideration added, or there is a release of the balance in writing or under seal. But where a debtor makes a composition with his cred- itors by which he is released upon the payment of part of the amount due each, all the parties are bound, and this will dis- charge all rights of action as against the debtor. Arbitration and award, by another acting for the parties, ESSENTIALS OE CONTRACTS 33 is a valid method of discharging a right of action arising through a breach of contract. An agreement to have a disinterested third party, or parties, settle a disputed question is termed a submission. The hearing that follows the submission to the arbitrators and the method by which they arrive at their judgment is the arbitration, while the judgment or decision of the arbitrators is the award. A valid award is binding on the parties. It must be free from fraud or partiality, accord with the terms of the submission, and cover all the points in dispute. Statutes of limitations fix certain time limits within which actions of various kinds must be brought, otherwise the remedy is barred, or outlawed, by the statute. The statute begins to run from the time the cause of action arises, and in the case of simple contracts the limitations vary from two to eight years in the different states, and from five to twenty years in the case of contracts under seal. The soldiers' and sailors' relief act, or moratorium act as it is commonly known, extends to all cases which in any way affect the rights or liabilities of soldiers and sailors in the Gov- ernment service, even though others are also jointly liable on the same obligations. All such rights of actions are suspended during the period of the present war by Act of Congress, Oc- tober, 1917. QUESTIONS FOR REVIEW 1. What interests are touched by the rules of business? What is business? Define law. 2. What are obligations? How do they arise? Mention some forms of obligations. 3. Define contract. Give classes of contracts. 4. Give the essentials of a valid contract. What are essentials? (see sec. 1, ante). 5. Discuss the rights and liabilities of minors. What are necessaries? Define agreement. How is agreement affected by mistake; duress; fraud; undue influence? 24 APPLIED BUSINESS LAW Explain offer and acceptance. Give the principal rules governing these. Define consideration. When neces- sary? What is meant by "the object of a contract?" Mention some forms of unlawful contracts. Must con- tracts be in writing? When? Why? 6. Explain the subject-matter of contracts. Give illustration. Discuss: Property, credits, and service. 7. Who are bound by the obligations of contracts? Explain assignment, of rights, of liabilities. 8. Give different methods of discharging contracts. What is rescission? When may one rescind? What is perform- ance? Tender of performance? Part performance? Tender of money? Effect of? Define novation. Discuss effect of alteration. 9. What are the remedies for breach of contract? Distinguish between legal and equitable remedies. 10. How may rights of action be discharged? Explain accord and satisfaction; arbitration and award; the purpose of the statute of limitations; of the soldiers' and sailors' relief act. TEST PROBLEMS FOR REVIEW 1. May A and B make a contract that X is to do some particular thing? Test: How many of the essentials of a valid con- tract are present? What one or ones are missing? 2. A owes B $100, and B owes C $100. Unknown to C, A and B agree that A is to pay C $100 in discharge of B's obliga- tion to C. Later, on learning of this, C sues to recover from A. With what result? 3. A and B make an agreement that A shall leave Whiteacre to B in consideration that B shall pay to C $100 a month as long as C shall live. A carries out his part of the agree- ment but B refuses to pay C, who was not a party to the contract. May C recover from B? Give reasons. . 4. A offers B $200 for his Belgian draft horse. B answers, "Agreed; I accept your offer." In fact B had two such ESSENTIALS OF CONTRACTS 25 horses, and A meant one while B meant the other. Is there a contract? 5. D out of charitable motives supplies necessary articles to F's mother who is old and poor. Afterwards, F promises to pay D for the service but fails to do so. D brings an action to recover the amount. With what result? 6. The X company contracts to supply A with ice. Later on the X company sells out to the Z company which supplies A with ice for a long time. When A learns of the change, he refuses to receive ice of the Z company or pay them for the ice already supplied. What are the rights of the parties? Read: Boston Ice Company v. Potter, 123 Mass, at page 28. 7. O offers P $50 if he will paint his barn. P says nothing but later on paints the barn. May he recover? Was there a contract? 8. Suppose when P came to paint the barn, had seen him and said, "I do not want the barn painted, now. I have changed my mind." What would be O's liability to P? Is there a contract between the parties? 9. R contracted to sing for S at the latter's theater. S ad- vertised the event at great expense. Later R refused to sing, alleging a throat trouble. S sued for damages. Result? 10. As in number 9, except R breaks the contract with S and engages to sing for X, a rival theater company. What are the rights of S? 11. 0, in Detroit, writes P in Chicago offering to sell a factory site, known to the parties, for $100,000. P mails his acceptance by return of post. Is there a contract? 12. The acceptance was never received by O, who later sold the property to Ford & Company. P brings an action for damages. Result? 13. As in number 11, except that P mails his acceptance six weeks later. In the meantime, has sold the property. What are P's rights? 14. As in number 11, except that after P mails his acceptance 26 APPLIED BUSINESS LAW and before it reaches O, he telegraphs a withdrawal of his acceptance. O insists that there is a contract and sues P for a breach of his agreement. Result? 15. As in number 11, except that C wires his withdrawal of the offer after P mailed his acceptance but before it had reached 0. What are the rights of the parties? CHAPTER II AGENCY 11. Agency. The relation of an agent to his principal is termed an agency. An agent is one who represents another, called the principal, in dealings with third per- sons. Agency arises only by contract which may be express or implied, as where an agent has authority to act for a principal and consents so to act. The relation of agency is founded on the principle that what- ever business one may transact in person for himself he may transact through the agency of another acting for him. The limitation of agency is just the converse of this: That is, what a person may not do himself he cannot do through the agency of another. Any person who has capacity to make contracts may appoint agents to act for him, and any person who has sufficient intelli- gence to act may act as an agent for another. Agents are either general or special. One appointed to perform a particular act, or transaction, is a special agent; all others are classed as general agents. Agencies are either express or implied. An express agency arises from an actual contract between the principal and agent. An implied or ostensible agency arises when the principal in- tentionally or through the want of ordinary care causes third persons to believe a person to be his agent who in fact is not really an agent. 12. Authority of agents. An agency may be created and authority conferred upon an agent in advance of his acts, or it may be by a subsequent ratification. The 27 28 APPLIED BUSINESS LAW agent's authority may extend to any acts which his prin- cipal may do, except those which require the principal's personal attention. A consideration between the princi- pal and his agent is not necessary to make an authority binding on the principal. 'Authority may be conferred by word of mouth and it is suffi- cient for any purpose except where the agent is to make con- tracts required by law to be in writing and under seal, in which case the authority must be given by a writing under seal. The authority under seal is called a power of attorney, and the agent is known as an attorney in fact. Ratification is the affirmance or adoption of what was previously not binding. In agency it applies to the adop- tion of the acts of an agent which were not previously authorized and which were without any show of authority. The essentials of a valid ratification are: (1) That the principal must have been in existence at the time the agent assumed to act for him; (2) that the principal must have power to do in his own right the thing ratified; and (3) the agent must have assumed to act in the name of the principal and for his benefit, to entitle him to take advantage of the contract negotiated by the agent. Authority by ratification can be given' only in the manner necessary to confer an original authority for the act ratified. Where an oral authority would have been sufficient, ratification may be by accepting or keeping the benefit of the act, with notice of all the facts concerning the transaction. Ratification without full knowledge of all the facts concerning it is not binding and may be rescinded by the principal. An agent has such authority as is actually or impliedly con- ferred upon him by the principal. Actual authority is such as a principal intentionally confers upon the agent, or by want of AGENCY 29 ordinary care allows the agent to believe himself to possess. The implied or ostensible authority of an agent is such as a prin- cipal intentionally, or by want of ordinary care, causes third persons to believe an agent to possess. Every agent has actual or ostensible authority unless specially limited by his principal, and then only as to persons who have notice of the limitation. An agent has authority: (1) To do everything necessary for effecting the purposes of his agency; and, (2) to make rep- resentations concerning any matter of fact upon which his right to use his authority depends and the truth of which cannot be readily ascertained by the person to whom the representations are made. An agent has power to disobey instructions, when acting within the scope of his agency, in cases where it is clearly in the interest of his principal that he should do so and he has not time to communicate with his principal in regard to the matter. 13. Obligation of principal. The principal is bound by all the acts of his agent acting within the scope of his actual or apparent authority, and he is entitled to all the benefits arising from these acts and he must assume all their liabilities. When an agent exceeds his authority, the principal is bound by his authorized acts, only so far as they are plainly separable from those which are un- authorized. Where credit is given exclusively to an agent by a third person dealing with him, the principal is relieved from liability to the third person by making payment or other settlement with his agent hi good faith and before receiving notice that the third party has decided to hold him, the principal, liable. Notice to the agent is notice to the principal, and as against the prin- cipal, both principal and agent are deemed to have notice of whatever either has notice of, and ought, in good faith and in the exercise of ordinary diligence, to communicate to the other. A principal is responsible to third persons for the negligence or wrongful acts of his agents in the transaction of the business SO APPLIED BUSINESS LAW of the agencies except where a principal is by law required to employ a particular agent; but a principal is not liable for the willful wrongs of an agent committed while the agent is engaged in his service unless he has authorized or ratified them. The obligations of a principal to his agent are: (1) To compensate the agent for his service, except in the case of gratu- itous agencies; (2) to reimburse him for expenses and costs in excess of those required of him by the terms of the agency; and (3) to indemnify him or save him harmless from all loss arising from his duties as agent. 14. Obligations of agent. To third parties, the agent is held to warrant that he has the authority he assumes, and he is answerable in damages, to all with whom he has dealings, for breach of this warranty if he does not in fact have such authority. To the principal he owes the following general duties: (1) To act in good faith and with loyalty to the best interests of the principal; (2) to act with reasonable pru- dence and required skill; (3) to act in person, unless he is permitted to appoint subagents; (4) to have regard to lawful instructions; and (5) to render an accounting for all property belonging to the principal and for all acts performed in his behalf. An agent must use ordinary diligence to keep his principal informed of his acts in the course of the agency. When an agent receives a thing for the benefit of his principal, and another person is entitled to it, he must surrender it to such person on demand, on being paid for any advances which he may have made in good faith on account of the thing, or he will be responsible for it, if, after notice from the true owner, he delivers it to his principal. An agent, or one who assumes to act as such, is liable as a principal to third persons in the following cases: (a) When credit AGENCY 31 is given to him personally in a transaction and with his knowledge and consent; (b) when he enters into a written contract in the name of his principal, without believing in good faith that he has authority to do so; (c) when his acts are wrongful in then- nature; (d) when he signs sealed instruments hi his own name; (e) when he signs negotiable instruments in his own name, or in such manner that the principal is not bound; (f) when he acts in excess of his authority so that his principal is not bound; and (g) when he contracts for a fictitious principal. 16. Delegation of agency. An agent may, unless expressly denied this right, delegate his authority to another in the following cases: (1) When the act to be done is purely mechanical, not involving personal judg- ment or personal trust; (2) when it is such as the agent himself cannot lawfully perform but the subagent can, as where the subagent is an attorney at law conducting a lawsuit and the agent is not a lawyer; (3) when the custom of the business permits the agent to delegate such powers, as where a shipmaster delegates the duty of navigating a vessel to a pilot; or (4) when the right of delegation is specially authorized by the original princi- pal. Sub-agents, lawfully appointed, represent the principal in the same manner and to the same effect as the original agent, and the latter is not liable to third persons for the acts of the sub- agents. But if an original agent acting without authority em- ploys a sub-agent, the former is a principal and the latter is his agent, and the principal of the original agent is hi no way liable for the acts of the sub-agent. 16. Particular agencies. Auctioneers are agents employed to sell goods for a principal at public sale and to the highest bidder. An auctioneer has authority from 32 APPLIED BUSINESS LAW the bidder at the auction, as well as from the seller, to bind both by a memorandum of the contract of sale. In the absence of special authorization or usage to the contrary, the auctioneer has authority: (a) To sell by public auction to the highest bidder; (b) to sell for cash only, except such articles as are usually sold on credit at auction; (c) to warrant in like manner as other agents to sell, that is, to warrant the title of the principal and the quality and quantity of the property; (d) to prescribe reasonable rules and terms of sale; (e) to deliver the thing sold, upon payment of the price; (f) to collect the price; and (g) to do whatever else is necessary in the ordinary course of business for effecting these purposes (see sec. 50, post). Factors are commonly known as commission mer- chants. They are agents who, in the pursuit of an inde- pendent calling, are employed by others to sell property for them, and are invested by the owners with the posses- sion or control of the property, or are authorized to re- ceive payment for it from the purchaser. Factors have authority to deal with the property of their principals as their own in transactions with persons not having notice of the true ownership. In addition to the authority of ordinary agents, a factor has actual authority from his principal, unless specially restricted, (a) to insure all property consigned to him uninsured, (b) to sell on credit anything intrusted to him for sale, except such things as it is customary to sell on credit, but not to exchange, mortgage, or pledge the same, and (c) to delegate his authority to his partner or partners or to his servant, but not to any person in an independent employment. Shipmasters. The master of a ship is appointed by the owner and holds during his pleasure. He is a general agent for the owner in all matters concerning the ship. AGENCY 33 He is bound to be on board when entering or leaving port, harbor, or river. At such times he is bound to take a pilot if one offers and while the pilot is on board the navigation of the ship devolves on him. The master of a ship has authority to borrow money on the credit of its owner if it is necessary to enable him to complete the voyage, and if neither the owner nor his agent can be con- sulted without injurious delay. He is a general agent for the owners of the cargo during a voyage, and has authority to do whatever they might do for the preservation of their respective interests. 17. Termination of agency. An agency is terminated, as to every person having notice thereof, by: (1) The expiration of its terms; (2) the destruction of the subject- matter of the agency; (3) the death of the agent; (4) his renunciation of the agency; or (5) the incapacity of the agent to act as such. Unless the power of an agent is coupled with an interest in the subject-matter of the agency, it is terminated, as to every person having notice thereof by: (a) Its revocation by the prin- cipal; (b) by the death of the principal; or (c) by his incapacity further to contract. QUESTIONS FOR REVIEW 11. Explain the relation of agency. Upon what principle or theory is it founded? What are its limitations? Who may be a principal? Agent? 12. How may an agent derive his authority? What are the essentials of ratification? 13. What are the obligations of a principal? 14. The obligations of an agent? When may an agent be liable as a principal? 15. When may an agent delegate his authority? To whom is a sub-agent responsible? 84 APPLIED BUSINESS LAW 16. State the duties and authority of an auctioneer; of a factor; of a shipmaster. What implied authority has the ship- master? Of a factor? May he pledge or mortgage goods consigned to him by a principal? 17. How may a contract of agency be terminated? What is understood by a power of agency coupled with an interest? TEST PROBLEMS FOR REVIEW 1. M, an infant, authorizes A by power of attorney, to sell and convey "Blackacre" to X. A makes the conveyance and delivers to M the purchase money. Is the conveyance valid? 2. As in number 1, except M seeks to ratify the conveyance when he becomes of age. Is this ratification valid? 3. P is a cotton dealer. He employs A to purchase cotton for him. A makes a written contract with O for the purchase of 1000 bales of cotton, 500,000 Ibs., at 30c. a pound. At the time of the purchase A told O that he was acting for P. (a) If P refuse to perform, what right has against him? Against A, the agent? (b) If refuse to perform, what right has P against him? Against A, his agent? Note: The price fixed on cotton by the Government at this time was 27c. a pound. What effect will this have on the contract of the parties? 4. C appoints A his attorney to collect certain debts. A makes a reduction in the amount of each debt to the debtor in consideration of prompt payment. Is C, the creditor, bound by the act of A? May he recover the balance? If so, from whom? 5. P desires a horse owned by 0, but the latter refuses to sell to P at any price. P then hires A to negotiate a contract for the purchase of the horse, and A carries out this scheme. P then tenders the purchase price to and demands the horse. refuses to deliver the horse, saying, "I have a right to choose the person or persons with whom I deal," What are P's rights? CHAPTER III SERVICE 18. Employment. A contract of employment is one by which an employer engages another, called the em- ployee, to do something for the benefit of the employer, or a third person, the service being for compensation or reward. EXAMPLE : A, an employer, engages B to act as his gardener at his country place at a salary of sixty dollars a month and found. This is a contract of employment from month to month and is valid whether oral or written. 19. Obligations of employer. The employer must afford the employee a proper opportunity for carrying out the terms of the employment and he must pay the agreed compensation. If no wages are agreed upon, then he must pay a reasonable wage. An employer must save his employee free from loss arising from injuries which are the result of the discharge of his duties as such, or of his obedience to the directions of the employer, and he must reimburse him for all sums necessarily expended in the interest of the employer. The employer must, in all cases, indemnify his employee for losses caused by the employer's want of ordinary care. Under the rules of the common law an employer is not bound to indemnify his employee for losses suffered by the latter in consequence of the ordinary risks of the business in which he is employed, nor in consequence of the negligence of another per- 35 36 APPLIED BUSINESS LAW son engaged by the same employer in the same general business, unless the negligence arose in the performance of a duty the em- ployer owed by law to the employee, or unless the employer neglected to use ordinary care in the selection of the employee who caused the injury. In most states the employer is not an insurer of the safety of the employee, but this rule is being changed rapidly so that an increasing number of states now re- quire some form of insurance for the indemnity of injured em- ployees. 20. Obligations of employee. One who for pay agrees to serve another must do the thing agreed and must use ordinary care and diligence therein so long as he is em- ployed. He must obey the instructions of his employer concerning the service on which he is engaged, except where such obedience is impossible or unlawful or would impose new and unreasonable burdens upon him. He must perform his service according to the usage of the place of performance, unless otherwise directed by the employer, or unless it is impracticable, or clearly injurious. He is bound to use a reasonable degree of skill, unless the employer had notice of his want of skill before employing him. In the latter case he is bound to use such skill as he has, otherwise he will be answerable for resulting loss. A promise to render service for another without reward is not binding upon the promisor unless he actually begins its perform- ance. If he induced the other by his own special request to in- trust him with doing the service, he must perform it fully and with reasonable care and diligence. In all other cases one who undertakes a free service may give it up at any time. In matters connected with his employment, a confidential employee is bound to act in the highest good faith toward his employer and he may not obtain any advantage therein over the latter by the slightest unfairness of any kind. SERVICE 37 21. Master and servant. A servant is one who is employed to render personal service to his employer, otherwise than in the pursuit of an independent calling, and who in such service remains entirely under the control and direction of the master. A servant is presumed to have been hired for such length of time as the parties adopt for the estimation of wages. A hiring at a monthly rate is presumed to be for one month; a hiring by piece work, for no specified term. In the absence of any agree- ment as to the term of service, time of payment, or rate of wages, a servant is presumed to be hired by the month at a monthly rate of reasonable wages, to be paid when the services are performed. A master may discharge any servant, other than an apprentice, whether engaged for a fixed term or not: (a) If he is guilty of misconduct in the course of his service, or of gross immorality, though unconnected with the same; or, (b) if, being employed about the person of the master, or in a confidential position, the master discovers that he has been guilty of misconduct, before or after the commencement of his service, of such a nature that if the master had known it, he would not have employed him. 22. Termination of employment. Every employ- ment in which the power of the employee is not coupled with an interest is terminated by notice to him of: (1) The death of the employer, or (2) his legal incapacity to contract; and employments are also terminated by, (3) the expiration of the appointed term, (4) the extinction of its subject-matter, (5) the death of the employee, or his legal or physical incapacity to act as such employee. A contract for service, even for a specified term, may be ended at any time by the employer for willful breach of duty by 38 APPLIED BUSINESS LAW the employee in the course of his service, or in case of his habitual neglect of duty or incapacity to perform it. In like manner it may be ended by the employee at any time for the willful or permanent breach of the contract by the employer. An employee dismissed for good cause, is not entitled to pay for services rendered since the last day upon which a payment became due to him under the contract; but if he quits the service for good cause, he is entitled to such proportion of the compensa- tion which would become due in case of full performance, as the services which he rendered bear to the services which he was to render. An employee, unless his term of service has ended, or unless he has a right to quit at any time without notice, must continue his service after notice of the death or incapacity of his employer, so far as is necessary to protect from loss the interests of the employer's successor; the latter must pay the employee for his service according to the terms of the original contract. An employmenth aving no specific term may be ended at the will of either party, on notice to the other. QUESTIONS FOR REVIEW 18. Explain the nature of a contract of employment. Illustrate. 19. State the chief obligations of the employer. What is the common-law rule with reference to indemnity? How changed by statute? 20. State the chief obligations of the employee. What degree of skill is required? 21. Explain the relation of master and servant. How does it differ from that of agency? Illustrate. 22. How may employments be terminated? What pay may an employee recover on the termination of the employment? TEST PROBLEMS FOR REVIEW 1. A promises to take care of B's country place during the winter months and without compensation. Later he declines to care for it. Is A liable to B for breach of contract? Why? SERVICE 39 2. M hires X at sixty dollars a month. After three weeks he discharges X without cause. X demands pay for a full month. May he recover? 3. M tells S he will give him permanent employment at one hundred dollars a month. At the end of a week he dis- charges S without cause. What may S recover? 4. As in 3, except unknown to M and prior to the employment S had been a notorious criminal. What effect would this have on the rights of S? 5. S is employed to wash windows for the X company. While on a ladder, D a delivery man for the X company pushes the ladder as he passes and S is injured. Is the X company liable to S? 6. M, a minor and a trespasser, goes on the property of the X railway company and steals a ride on a freight train. An employee of the company discovers him and pushes him off while the train is moving at an ordinary rate of speed, and M is injured. Is the company liable for the act of its employee? 7. F is an electrician for the X company, and S is the superin- tendent of the company. While F is working on a trans- mission gear, S negligently turned on the electric current greatly injuring F. Is the company liable to F for his injury? 8. X is a mechanic working in the shops of the X railway com- pany, and, unknown to the superintendent, he is an alien enemy. He pretends to repair a locomotive boiler but in fact he leaves it in a dangerous condition. When the engine is used the boiler explodes and injures the engineer. Is the company liable in damages to the engineer for his injuries? 9. X is a pilot on a fishing craft operated by the W company. The vessel is torpedoed by an enemy submarine and X is seriously injured. Is the W company liable hi damages to CHAPTER IV DEPOSITS, LOANS, AND HIRING OF THINGS 1. Deposits 23. Kinds of deposits. Deposits of things are for their safekeeping or for exchange. They are of two kinds, voluntary and involuntary. A voluntary deposit is made by one giving to another, with the free consent of both, the possession of personal property to be kept for the benefit of the owner or of some other person. The person making the deposit is variously known as the depositor, bailor, pledger, and the like, while the one receiving it is known as the de- positary, bailee, and pledgee, or other like titles. An involuntary deposit is made, (1) by the accidental leaving or placing of personal property in the possession of any person, without negligence on the part of the owner; or, (2) in cases of fire, shipwreck, flood, or similar emergencies, by the owner of personal property com- mitting it, out of necessity, to the care of another. Such person is bound to take charge of the thing deposited if he is able to do so. A deposit for safekeeping is one in which the depositary is bound to care for and return the identical thing deposited. A deposit for exchange is one in which the depositary is bound only to return a thing corresponding in kind to that which is deposited. It transfers the title to the thing deposited to the depositary and creates between him and the depositor merely the relation of debtor and creditor. 40 DEPOSITS, LOANS, AND HIRING OP THINGS 41 24. Obligations of depositary. The person receiving a thing for safekeeping is bound to take reasonable care of it during the term of deposit. What is reasonable care will depend on the nature, character, and value of the thing deposited. If it is small, fragile, and of great value, then extreme precaution only would constitute reason- able care. The depositary must, on demand, deliver the thing to the person for whose benefit it was deposited whether the deposit was for a specified time or not, unless (1) he has a lien on the thing deposited, or (2) has been forbidden or prevented from returning it by the true owner of the thing, or (3) has been prevented by operation of the law, and has given notice to the owner, or person for whose benefit the deposit was made, of any proceedings taken against his interest which would excuse the depositary from delivering the thing to him. The depositary is bound to deliver a thing deposited with him only upon demand, and this is true even where the deposit was made for a specific time and the term of deposit has expired. Demand must be made, and when delivery is due it must be made at the residence or place of business of the depositary as may be most convenient for him. A depositary cannot use a thing deposited or permit it to be used for any purpose without the consent of the depositor. He is liable for any damages to the thing deposited during his wrong- ful use of it unless the damage would inevitably have happened though the property had not been used. If a thing is lost or injured during its deposit, and the depos- itary refuses to inform the depositor of the circumstances under which the loss or injury occurred, to the extent of his knowledge of the matter, or willfully misrepresents the facts to him, the depositary is presumed to have caused or permitted the loss and 42 APPLIED BUSINESS LAW is liable therefor.- But his liability for negligence cannot exceed the amount which he is informed by the depositor the thing is worth, or in fact what it is reasonably worth. 25. Gratuitous deposit. Gratuitous deposits are those for which the depositary receives no consideration beyond the mere possession of the thing deposited. An involuntary deposit is of this class. A gratuitous depositary must use slight care, at least, for the preservation of the thing deposited. His duties cease, (a) upon his restoring the thing deposited to its owner, or (2) upon reason- able notice to the owner to remove it, or to an involuntary de- positor after the emergency has passed. 26. Deposits for keeping. A depositor must save the depositary harmless from loss, (1) for all damages caused to him by the defects or vices of the thing deposited; and (2) for all expenses necessarily incurred by him about the thing, other than such as are involved in the nature of the undertaking. A depositary or keeper of live ani- mals must provide them with suitable food and shelter, and give them proper care. 27. Storage. A deposit for hire is called storage. A depositary for hire must use at least ordinary care for the preservation of the thing deposited. In the absence of a fixed time, a deposit may be terminated by the de- positor at any time, and by the depositary upon reason- able notice. Where there is an agreed time, the depositor may terminate the deposit by paying all that would become due to the depos- itary in case of the deposit continuing for the full time. As a rule, a depositor is liable for one week's hire for the care and keep ipf live stock during any fraction of a week, and for half a month's DEPOSITS, LOANS, AND HIRING OF THINGS 43 hire for the storage of any other property during any fraction of a half month. Storage property may be sold in open market to satisfy the depositary's lien for storage charges due and unpaid for not less than one year at the time of the sale, except in the case of perish- ables which may be sold at any time that emergency may require. 28. Warehousemen. A warehouseman or other per- son doing a storage business must not issue any receipt for goods or anything of value to any person claiming to be the owner, nor to any person as security for any in- debtedness, unless such goods or thing has been received by such warehouseman or other person and is stored under his control at the time of issuing the receipt; nor must any second receipt for any such property be issued while a former receipt for it or any part of it is outstand- ing and uncanceled. Warehouse receipts for property stored are of two classes: (1) Transferable or negotiable, and (2) those not transferable, that is, non-negotiable. Under the first form of receipt the property is transferable by in- dorsement of the receipt by the party to whose order it was issued, and such indorsement is a valid transfer of the property represented by the receipt, and it may be in blank or to the order of another. All warehouse re- ceipts must distinctly state on their face for what they are issued, with a description of the goods or things, showing the quantity and kind, and the rate of storage. Where a negotiable receipt is issued for property, neither the person issuing it nor any other person into whose care the prop- erty comes must deliver any part of the property without in- dorsing on the back of the receipt, in ink, the amount and date of the delivery; nor can he make any claim or demand other than 44 APPLIED BUSINESS LAW that expressed on the face of the receipt, when called upon to deliver the property for which the receipt was issued. If a receipt is not negotiable, it must have printed across its face, in bold, distinct letters, the word "Non-negotiable." In the case of such receipt, neither the person issuing it nor any other in whose care the property may come must deliver any part of it, except upon the written order of the person to whom the receipt was issued. Warehousemen and other persons doing a general storage busi- ness are not responsible for any loss or damage to property by fire while in their custody, if they exercise reasonable care and diligence for its protection and preservation. Persons doing a general storage business who fraudulently issue receipts for goods not received or otherwise violate the laws regulating the conduct of the storage business render them- selves liable to fine and imprisonment for every such offense. 2. Loans 29. Loan for use. A loan for use is a contract by which one gives another the possession and use of a thing and the latter agrees to return the same thing at a future time without pay for its use. The title to the thing lent and all its increase during the term of the loan belongs to the lender. The borrower must use great care for keeping in safety and in good condition the thing lent, and he is bound to use such skill in its care as he has caused the lender to expect. He is liable for all losses or injuries to the thing lent which are caused by his lack of care. He may use the thing for such purposes only as the lender might reasonably expect at the time of lending, and he must not part with it to a third person without the consent of the lender. Expenses necessarily incurred to preserve the thing borrowed from unexpected and unusual injury, DEPOSITS, LOANS, AND HIRING OF THINGS 45 arising from no fault of the borrower, must be borne by the lender. The lender must save the borrower harmless from damage caused by defects or vices in the thing lent of which he had knowl- edge at the time of lending and concealed from the borrower. He may at any time require the return of the thing lent even though it was lent for a specified time or purpose; but if, on the faith of the agreement, the borrower has made such arrange- ments that a return of the thing before the end of the period would cause him loss, exceeding the benefit derived from the loan, the lender must indemnify him for such loss. Where a thing is lent for use for a specified time or purpose, it must be returned to the lender without demand as soon as the time has expired or the purpose has been accomplished. In other cases it need not be returned until demand has been made. The borrower must return the thing to the lender at the place agreed upon by the parties at the time of lending, or if no place was agreed upon, then at the place where it was at the time of the borrowing. 30. Loan for exchange. A loan for exchange is an agreement by which one delivers a thing to another upon a promise to return a similar thing to the lender at a future time and without pay for its use. The title to the thing thus lent is transferred to the borrower, and he must bear all its expenses and is entitled to all its increase. A loan of money is a loan for exchange, though it is usually for compensation. The lender cannot require the borrower to discharge the loan in a manner or at a time different from that in the original agreement. 31. Loan of money. A loan of money is a contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent 46 APPLIED BUSINESS LAW to that which lie borrowed. The borrower must repay the loan when due in such money as is current at the time, whether it is worth more or less than the actual money lent, unless there is an express agreement to the contrary, as for payment in gold coin. All loans of money are presumed to be upon interest, unless it is otherwise provided by an agreement in writing. Interest is the rate per cent, allowed by law, or a lawful rate agreed upon by the parties, as compensation for the use of money. When a rate of interest is prescribed by law or by agreement of the par- ties without specifying the period of time by which such rate is to be calculated, it is to be taken as an annual rate (see page 116, post). 3 Hiring. 32. Hiring in general. Hiring is a contract by which one gives to another possession and use of a thing, other than money, for reward, and the latter agrees to return the same to the former at a future time. A contract of hiring binds the owner to secure to the hirer the quiet possession of the thing hired during the term of the hiring against all lawful claims of others. The hirer of a thing must use ordinary care for its preservation in safety and in good condition. He must repair all loss or in- jury to the thing caused by his want of ordinary care. When a thing is let for a particular purpose, the hirer must not use it for any other purpose. If he does, he is liable to the owner for all damages resulting from such use, or the owner may treat the contract as rescinded and recover the thing hired. The owner of the thing hired may terminate the hiring and re- claim the thing before the end of the term agreed upon, (a) when the hirer uses or permits it to be used in a manner con- DEPOSITS, LOANS, AND HIRING OF THINGS 47 trary to the agreement, or (b) when the hirer does not, within a reasonable time after request make such repairs as he is bound to make for the preservation or protection of the thing hired. The hirer may end the hiring before the end of the time agreed upon (a) when the owner does not, within a reasonable time after request, fulfill his obligations in securing to the hirer the quiet possession of the thing hired, or putting it in good condi- tion, or (b) when the greater part of the thing hired, or the part which was the inducement to the contract of hiring, perishes from any cause other than the want of ordinary care of the hirer. Termination of hiring. The contract of hiring a thing ends: (1) At the end of the term agreed upon; (2) by the mutual consent of the parties; (3) by the hirer acquiring lawful title to the thing hired; or (4) by the destruction of the thing hired. 33. Hiring personal property. One who lets personal property must put it into a condition fit for the purpose for which he lets it, deliver it to the hirer, secure to him the quiet enjoyment of it against all lawful claimants, and make good all decrease in value not caused by the fault of the hirer and not the natural result of its use. The hirer must bear all such expenses concerning the thing as might naturally be expected to attend it during its use by him. All other expenses must be borne by the owner, and if he fails to fulfill his obligations, the hirer may, after notice to the owner, expend any reasonable amount necessary to make good the owner's default, and he may recover such amount from him. At the end of the term for which a thing is hired, the hirer must return it to the owner at the place named by the parties at the time of the hiring; or, if no place was agreed upon, then at the place where it was at the time of hiring. 34. Hiring real property. A contract for hiring real property is known as a lease; the consideration paid is 48 APPLIED BUSINESS LAW rent; the person owning or letting the property is the land- lord, while the person to whom it is let is the tenant, thus creating the relation of landlord and tenant. All tenure or hiring of real property arises by contract, express or implied. A lease for a term longer than one year should be in writing, and if it be for a term longer than three years it should be in writing and recorded in a public office of record with other contracts that go to af- fect the title to such property. The lessor of a building intended for human habitation does not, by the rules of common law, warrant that it is fit for such purpose, but by statutes in most states he must put it into a condition fit for such habitation and repair all subsequent dilap- idations which render it untenantable, unless otherwise agreed by the parties. The tenant must repair all deteriorations or in- juries caused by his want of ordinary care. If within a reason- able time after notice of need of repair the lessor neglects it, the tenant may repair if the costs of such repairs do not exceed an amount greater than one month's rent, and deduct the costs of the repairs from the rent, or the tenant may vacate the prem- ises, in which case he is discharged from further payment of rent. A lease of real property, other than lodgings and dwelling houses, is presumed to be for a term of one year, unless other- wise agreed. A hiring of lodgings or a dwelling house for an un- specified term is presumed to have been for such length of time as the parties adopt for the estimation of the rent. Thus, a hiring at a monthly rate of rent is presumed to be for one month. Where the tenant of real property remains in possession after the expiration of the lease and the lessor accepts rent from him, they are presumed to have renewed the lease on the same terms and for the same time not exceeding one month when the rent is payable monthly, nor in any case exceeding a period of one year. When there is no contract or usage to the contrary, rents are payable at the termination of the holding if it does not exceed one year. If the term of letting be by the day, week ; month, DEPOSITS, LOANS, AND HIRING OF THINGS 49 quarter, or year, rent is payable at the expiration of the agreed period as it becomes due, unless by express agreement it is pay- able otherwise. At common law a tenant may assign or sublet his lease, but by statute it is commonly provided that an assignment or trans- fer of a lease to a stranger by a tenant is void, unless it is made with the consent of the landlord, or in consequence of a judgment of court. In most states a tenant who receives notice of any proceeding to recover the real property occupied by him, or recover the pos- session of it, must immediately inform his landlord of the same, and also deliver to the landlord the notice, if in writing, and he is responsible to the landlord for all damages which he may sus- tain by reason of any omission to inform him of the notice or to deliver it to him. QUESTIONS FOR REVIEW 23. Classify deposits. Define voluntary deposit; involuntary. Distinguish between deposits for safekeeping and for exchange. 24. Give the obligations of the depositary. 25. Define gratuitous deposit. Give the duties of the depositary. 26. Give the duties of a depositary for safekeeping; of the depos- itor. 27. Define storage. What are the duties of the depositary for hire? 28. Define warehouseman. State his duties. Explain the forms and purposes of the receipts issued. 29. Define loan. The rights of the lender. The duties of the borrower. 30. What is a loan for exchange? Who has title to the thing loaned? 31. Define loan of money; interest. What is the legal rate in your state? 32. Define hiring. State the duties of the hirer; of the owner. How may the contract of hiring be terminated? When does it regularly end? 50 APPLIED BUSINESS LAW 33. What are the chief duties of a hirer of personal property? 34. Define lease; rent; landlord; tenant; tenure. State some of the rights and duties of the landlord; of the tenant. May the tenant assign or sublet the premises? TEST PROBLEMS 1. is the owner of a chest which contains $50,000 in gold which he leaves at the X bank to be locked in the vaults for safe keeping. The bank made no charge for this serv- ice and kept the chest, which was locked, in the same vault with its own money. A trusted employee broke open the chest, stole the gold, together with money belonging to the bank and absconded. Question: Is the X bank liable to for the amount of the loss? 2. H hires an automobile of to drive to A. Instead of driving to A he drove to X, a saloon city in the opposite direction. While he was in X the automobile was stolen. Question: Who sustains the loss? . CHAPTER V CARRIAGE 35. Carriage in general. A contract of carriage is an agreement to transport property, persons, or messages, from one place to another. Carrying is either inland or marine. If it is on the ocean or any arm of the sea, it is marine carrying; all other forms of carrying are said to be inland. Carrying may be gratuitous or for reward. When a carrier without reward begins to perform, he must com- plete his undertaking in like manner as if he were a carrier for reward, unless he restores the person or thing carried to as favorable a position as before he undertook to per- form. EXAMPLES: C promises to haul O's produce to market with- out compensation. Later C changes his mind and refuses to ac- cept or transport the produce for at the time appointed. O has no remedy. The promise was a mere gratuity. If C had taken the produce into his custody and actually be- gan to transport the same, he would be obliged to complete the undertaking, otherwise he would be answerable in damages to O. 36. Common carriers in general. A common carrier is one who offers to the public to carry persons, property or messages for reward. He must, if he is able to do so, ac- cept and carry whatever is offered to him, at a reasonable time and place, of a kind he undertakes to carry. He must not give preference in tune, quantity, price, or otherwise, to one person over another, but he may give preference to the United States and to the State. He is entitled to a 51 52 APPLIED BUSINESS LAW reasonable compensation for his services and no more, and he may require to be paid in advance. If payment is re- fused, he may refuse to carry. The obligations of a common carrier cannot be limited by general notice on his part, but he may limit them by special contract. He cannot by any agreement made in anticipation thereof, free himself from liability for the gross negligence, fraud, or willful wrong of himself or his servants. 37. Carriage of persons. A carrier of persons with- out reward nlust use ordinary care and diligence for their safety. And a carrier of persons for hire must use .the ut- most care and diligence for their safety, must provide everything necessary for that purpose, and must exercise a reasonable degree of skill. He is bound to provide vehi- cles safe and fit for the purposes to which they are put, and he is not excused for default in this respect by any de- gree of care. He must not overcrowd or overload his vehi- cle. He must give to passengers all such accommodations as are usual and reasonable and he must treat them with civility, and give them a reasonable degree of attention. He must travel at a reasonable rate of speed and without unreasonable delay or deviation from his proper route. 38. Common carrier of persons. A common carrier of persons, unless his vehicle is fitted for the reception of persons exclusively, must receive and carry a reasonable amount of luggage for each passenger without charge. Luggage may consist of whatever the passenger takes with him for his personal convenience according to the habits or wants of the particular class to which he belongs. The liability of a carrier for luggage received by him is the same as that" of a com- mon carrier of property, and he must deliver every passenger's luggage, whether within the prescribed weight or not, imme- CARRIAGE 53 diately upon the arrival of the passenger at his destination. The carrier has a lien on the luggage of a passenger for the payment of such fare as he is entitled to receive from him. A common carrier of persons must provide a sufficient number of vehicles to accommodate all the passengers who can be reasonably expected to require carriage at any one time, and he must provide every passenger with a seat. He must not overload a vehicle by receiving and carrying more passengers than its rated capacity allows. He may make rules for the conduct of his business, and he may require passengers to conform to them, if they are lawful, reasonable, and uniform in their application. A common carrier may demand the fare of passengers either at starting or at any subsequent time, and a passenger who re- fuses to pay his fare or to conform to the lawful regulations of the carrier, may be ejected from the vehicle by the carrier, but this must be done with as little violence as possible, and at a regular stopping place or near a dwelling house. 39. Carriage of property. Property carried is called freight; the reward to be paid for carrying, if any, is called freightage, or freight charges. A person who delivers prop- erty to be carried is called the shipper or consignor, and the person to whom it is to be delivered is called the consignee. A carrier of property for reward must use at least ordinary care and diligence in the performance of all his duties, and a carrier without reward must use at least slight care and diligence. The carrier must comply with the directions of the consignor or consignee to the same extent that an employee is bound to comply with those of his employer. When the directions of a consignor and consignee are conflicting, the carrier must comply with those of the consignor in respect to all matters except the delivery of the freight. In this, he must comply with the direc- 54 APPLIED BUSINESS LAW tions of the consignee, unless the consignor has forbidden the carrier to obey orders from the consignee inconsistent with his own. A carrier of property must deliver it to the consignee at the place named in the bill of lading and in the manner usual at that place. If there is no usage to the contrary, freight must be delivered as follows: (1) If carried upon a railway owned or managed by the carrier, it may be deliv- ered at the station nearest to the place to which it is ad- dressed; (2) if carried by sea from a foreign country it may be delivered at the wharf where the ship moors, within a reasonable distance from the place of address; or, if there is no wharf, on board a lighter alongside the ship; or (3) .in other cases, it must be delivered to the con- signee or his agent, personally, if either can, with reason- able diligence, be found. If for any reason a carrier does not deliver freight to the con- signee or his agent, personally, he must give notice to the con- signee of its arrival, and keep the same in safety upon his re- sponsibility as a warehouseman, until the consignee has had a reasonable time to remove it. If the place of residence or busi- ness of the consignee be unknown to the carrier, he may give no- tice by letter dropped in the nearest post office. If a consignee does not accept and remove freight within a reasonable time after the carrier has fulfilled his obligation to deliver, or duly offered to fulfill the same, the carrier may ex- onerate himself from further liability by placing the freight in a suitable warehouse in storage on account of the consignee, and giving notice to him. 40. Common carriers of property. An inland common carrier of property, unless the shipper accompanies and has exclusive control of it, is liable, from the time he ac- CARRIAGE 55 cepts until he delivers the property, for loss or injury of the same from any cause whatever, except: (1) An in- herent vice, defect, or weakness of the property itself; (2) any fraud or willful wrong of the shipper; (3) the act of a public enemy of the United States or of the State; (4) the act of the law, or (5) any irresistible superhuman cause; and the carrier is liable even in these cases if his want of ordinary care exposes the property to the cause of the loss. A marine carrier is liable in like manner as an inland car- rier, except for loss or injury caused by the perils of the sea or fire. The perils of the sea are from, (a) storms and waves, (b) rocks, shoals, and rapids, (c) other obstacles, though of human origin, (d) changes of climate, (e) the confinement necessary at sea, (f) animals peculiar to the sea, and (g) all other dangers peculiar to the sea. A consignor of valuables must declare their identity and value, otherwise the carrier may limit his liability for loss or injury to such property. If freight for a destination beyond that of the carrier who first receives it is lost or injured, he must give satisfactory proof to the consignor that the loss or injury did not occur while the freight was in his charge, or he will be liable therefor. By ac- cepting freight for a destination beyond his line the receiving carrier binds himself, unless otherwise agreed, to deliver at the end of his route to some other connecting carrier carrying to the place of destination, and his liability ceases upon making such delivery. 41. Bill of lading. A bill of lading is both a receipt and a form of contract signed by a carrier or his agent, de- scribing the freight so as to identify it, stating the name of the consignor, the terms of the contract for carriage, and agreeing or directing that the freight be delivered to the 56 APPLIED BUSINESS LAW order or assigns of a specified person at a specified place. Bills of lading are of two kinds, negotiable or transferable and non-negotiable. All title to the goods which the first holder of a negotiable bill had when he received it, passes to every subsequent indorsee thereof in good faith and for value, in the ordinary course of business, with like effect and in like manner as in the case of a bill of exchange or promissory note. When a bill of lading is made to "bearer" or in equivalent terms, a simple transfer by delivery from hand to hand conveys the same title as an in- dorsement (see sec. 72, post; also, sec. 28, ante). A carrier must subscribe and deliver to the consignor, on de- mand, a reasonable number of bills of lading of the same date and tenor, expressing truly the original contract for carriage, and if he refuses to do so, the consignor may recover the freight and any loss or damage resulting from such refusal. Duplicate bills must be plainly marked "Duplicate," otherwise the carrier will be liable upon each one not so marked as upon an original bill. A carrier is exonerated from liability for freight by delivery, in good faith, to any holder of a bill of lading for it, properly indorsed or made in favor of the bearer; and when he has given a bill he may require its surrender or a reasonable indemnity against claims thereon, before delivering the goods (see sec. 28, ante) . 42. Freight charges. A carrier may require his freightage to be paid in advance of his service upon re- ceiving the goods; but if he does not demand it then, he cannot until he is ready to deliver the same at destination. The consignor of freight is presumed to be liable for the freight charges, but if the contract between him and the carrier provides that the consignee shall pay it, and the carrier allows the consignee to take^the freight, he cannot afterward recover the freight charges from the consignor. CARRIAGE 57 The consignee is liable for the freight charges if he accepts the freight with notice of the intention of the consignor that he should pay it. If freight charges are apportioned by a bill of lading or other contract between a shipper and the carrier, the carrier is en- titled to payment according to the apportionment for so much as he delivers. And, if a part of the freight is accepted by a con- signee without a specific objection that the rest is not delivered, the freight charges must be apportioned and paid as to that part, though not apportioned in the original contract. Where the consignee voluntarily receives freight at a place short of destination the carrier is entitled to a just proportion of the freightage according to distance. If the carrier being ready and willing, offers to complete the transit he is entitled to full freightage. But if he does not thus offer to complete the transit and the consignee receives the goods only from necessity, the carrier is not entitled to any freight charges. If freight is carried further or more expeditiously than was agreed upon by the parties, the carrier is not entitled to additional compensation, and cannot refuse to deliver it on demand of the consignee at the place and time of its arrival. A carrier has a lien for freight charges on all freight carried. 43. General average. A carrier by water may, when in case of extreme peril it is necessary for the safety of the ship or cargo, throw overboard or otherwise sacrifice any or all the cargo or appurtenances of the ship. This throw- ing property overboard for such purposes is called jettison, and the loss incurred thereby is called a general average loss. A jettison must begin with the most bulky and least valuable articles so far as possible. It can be made only by authority of the master of the ship except in case of his disability, or of an overruling necessity, when it may be made by any person, 58 APPLIED BUSINESS LAW The loss incurred by a jettison, when lawfully made, must be borne in due proportion by all that part of the ship, appurte- nances, freightage, and cargo for the benefit of which the sacri- fice was made, as well as by the owner of the goods sacrificed. The proportions in which a general average loss is to be borne must be ascertained by an adjustment in which the owner of each separate interest is to be charged with such proportion of the value of the loss as the value of his part of the property af- fected bears to the value of the whole. But an adjustment made at the end of the voyage, if valid there, is valid everywhere. In estimating values for the purpose of a general average, the ship and appurtenances must be valued as at the end of the voy- age, the freightage at one-half the amount due on delivery, and the cargo as at the time and place of its discharge, adding, in each case, the amount made good by contribution. The owner of goods stowed on deck, in case of their jettison, is entitled to the benefit of a general average contribution only in case it is usual to stow such goods on deck upon such voyages. 44. Carriage of messages. A carrier of messages for reward, other than by telegraph or telephone, must deliver them at the place to which they are addressed, or to the person for whom they are intended. Telephone and tele- graph companies must deliver messages at destination and to the person addressed provided the place or person for whom they are intended are within a distance of two miles from the main office of the carrier in the city or town to which the messages are transmitted, and the carrier is not required in making the delivery to pay toll or ferriage on his route of delivery. For any distance beyond one mile from such office, compensation may be charged for a mes- senger employed by the carrier. A carrier of messages for reward must use great care and dili- gence in the transmission and delivery of such messages. CARRIAGE 59 A carrier by telegraph must, if it is practicable, transmit every such message immediately upon its receipt. But if this is not practicable and several messages accumulate upon his hands, he must transmit them in the following order: (a) Messages from public agents of the United States, or of the State, on public business; (b) messages intended in good faith for immediate publication hi newspapers and not for any secret use; (c) mes- sages giving information relating to the sickness or death of any person; and (d) other messages in the order in which they were received. Where the transmission is otherwise than by tele- graph, the common carrier of messages must transmit them in the order in which he received them, except those from agents of the United States or of the State on public business to which he must always give priority. Every person whose message is wrongfully refused or postponed is entitled to recover damages from the carrier. QUESTIONS FOR REVIEW 35. Define carriage; inland carriage; marine carriage; gratui- tous carrier. 36. Who are common carriers? State some of his rights and duties. 37. What are some of the rights and duties of carriers of persons? 38. State some of the rights and duties of common carriers of persons. How do these differ from those of a private carrier? 39. Explain the meaning of freight; freightage; consignor; con- signee. What are the rules governing delivery of goods by carriers? When must the carrier give notice that goods have reached destination? When may he store the goods? 40. What five circumstances may relieve a common carrier from liability for injury or loss to goods he is carrying? What circumstances may relieve the marine carrier from lia- bility for loss? 41. Explain bill of lading; the classes of such bills; duplicate bills, 60 APPLIED BUSINESS LAW 42. How are freight charges apportioned? 43. Explain general average; jettison. Give the rules governing jettison. 44. What are the chief duties of carriers of messages? Their rights? CHAPTER VI SALES OF GOODS 45. Sales. A sale is a contract by which one transfers to another an interest in property for a price in money. The subject-matter of a sale must be some form of prop- erty the title to which can be transferred immediately from seller to buyer. This gives rise to a present sale, which must be distinguished from a mere agreement to sell. The latter is a contract by which one engages to transfer the title to a certain thing to another who agrees to buy the same from him for an agreed or ascertainable price. Any property which, if in existence, might be the subject of sale, may be the subject of an agreement to sell, whether in existence or not. EXAMPLES: 1. A agrees to buy and B to sell all the present crop of oranges now on B's trees for an agreed consideration; A is to pick and pack the fruit within the next ten days* This is a present sale and title passes immediately to A, and risk of loss follows title. 2. A contracts to buy and B to sell at an agreed price the crop for the following year that may grow on these same orange trees. If the parties intend this as a "present sale of future goods," title at once passes to A and all risk of loss rests upon him; but if they merely intend this to be a contract for a future sale, title will not pass until the parties intend it shall. If the crop is wholly lost or destroyed through no fault of either party, this will discharge the contract. Potts Drug Co. v. Benedict, 104 Pacific Reporter, 432 (1909). 61 62 APPLIED BUSINESS LAW 46. Statute of frauds. No sale of personal property, or agreement of sale, for a price of five hundred dollars or more is valid unless: (1) The agreement or some note or memorandum of it be in writing and subscribed by the party to be charged, or by his agent; or (2) the buyer ac- cepts and receives part of the thing sold, or when it con- sists of a debt, demand, or thing recoverable by an action or suit, part of the evidence thereof; or (3) the buyer, at the time of the sale, pays a part of the price. But these provisions do not apply to contracts for work, labor, and materials, or an agreement to manufacture a thing from materials furnished by the manufacturer or another. The amount of the sale is fixed at $50 or over in most states, following the provision in the original Statute of Frauds en- acted by Parliament in 1676 (see foot-note, p. 10) ; in Connecti- cut, it is $100 or over; in California, $200 or over; in Arizona, Idaho, Maryland, Massachusetts, Michigan, New Jersey, New York, Montana, Utah, and Wisconsin, $500 or over; in Ohio, $2500 or over. (The uniform Sales Act provides for $500 or over.) 47. Delivery. Delivery is made at the place where the property is at the time of the sale or agreement to sell, or if it is not then in existence, it is deliverable at the place where it Is produced. One who sells personal property must bring it to his own door, or other convenient place, for its acceptance by the buyer, but further transporta- tion is at the risk and expense of the buyer, unless other- wise agreed. If the seller agrees to send the thing sold to the buyer, he must follow the directions of the latter as to the manner of sending it or he will be answerable for any loss arising in transportation. If he follows his directions or, in the absence of special directions, if he uses ordinary care in forwarding the thing, it is at the risk of the buyer. SALES OF GOODS 63 One who sells personal property, whether it is in his possession at the time of the sale or not, must put it into a condition fit for delivery and deliver it to the buyer within a reasonable time after demand, unless he has a lien on it. Such delivery can be offered or demanded only within reasonable hours of the day. After personal property has been sold, and until the delivery is completed, the seller has the rights and obligations of a depos- itary for hire, except that he must keep the property, without charge, until the buyer has had a reasonable opportunity to re- move it. But if a buyer of personal property does not pay for it according to contract, and it remains in the possession of the seller after payment is due, the seller may rescind the sale or he may enforce his lien for the price by a resale of the goods, by giving actual notice to the buyer of the time and place at which the property is to be sold, and at a reasonable time before the sale. Morris v. Allen, 121 Pac. Reporter, 690 (1912). 48. Rights of buyer. The buyer, on an agreement for sale with warranty, has a right to inspect the thing sold at a seasonable time before accepting it; and, if the seller refuses to permit him to do so, he may rescind the contract. He must pay the price of the goods or thing sold on its delivery and take it away within a reasonable time after the seller offers to deliver it. The breach of warranty entitles the buyer to rescind an agree- ment for sale, but not an executed sale, unless the warranty was intended by the parties to operate as a condition. 49. Warranty. A warranty is a contract whereby a seller assures to a buyer the existence of some fact affect- ing the subject-matter of the sale, whether past, present, or future. Warranties are either express or implied. Ex- press warranties are those arising by agreement of the 64 APPLIED BUSINESS LAW parties; implied warranties are those arising by operation of the law whether known to the contracting parties or not. The law reads the implied warranties into the agree- ment of the parties and thereby makes them a'part of the agreement. Implied warranties, as follows, apply to contracts of sale or agreements to sell: (1) The seller warrants that he has a good and unencumbered title thereto. (2) One who sells or agrees to sell goods by sample, thereby warrants the bulk to be equal to the sample. (3) One who sells or agrees to sell personal property, knowing that the buyer relies on his advice or judgment, thereby war- rants to the buyer that neither the seller nor any agent em- ployed by him in the transaction, knows the existence of any fact concerning the thing sold which would to his knowledge de- stroy the buyer's inducement to buy. (4) One who agrees to sell merchandise not then in existence, thereby warrants that it shall be sound and merchantable at the place of production contemplated by the parties, and as nearly so, at the place of delivery, as can be secured by reasonable care. (5) One who sells or agrees to sell an article of his own manu- facture, thereby warrants it to be free from any latent defect, not disclosed to the buyer, arising from the process of manufacture, and also that neither he nor his agent in such manufacture has knowingly used improper materials therein. (6) One who manufactures an article under an order for a par- ticular purpose, warrants by the sale that it is reasonably fit for that purpose. (7) One who sells or agrees to sell merchandise inaccessible to the examination of the buyer, thereby warrants that it is sound and merchantable. (8) One who sells or agrees to sell any article to which there is affixed or attached a trade-mark, thereby warrants that mark to be genuine and lawfully used, SALES OF GOODS 65 (9) One who sells or agrees to sell any article to which there is affixed or attached a statement or mark to express the qual- ity, or quantity thereof, or the place where it was, in whole or in part, produced, manufactured, or prepared, thereby war- rants the truth thereof. (10) One who sells or agrees to sell an instrument purporting to bind any one to the performance of an act, thereby warrants that he has no knowledge of any facts which tend to prove it worthless, such as the insolvency of any of the parties thereto, where that is material, the extinction of its obligations or its invalidity for any cause. (11) One who makes a business of selling provisions for do- mestic use warrants by a sale thereof, to one who buys for actual consumption, that they are sound and wholesome. (12) One who sells the good will of a business, thereby war- rants that he will not endeavor to draw off any of the customers. (13) Upon a judicial sale, the only implied warranty is that the seller does not know that the sale will not pass a good title to the property. (14) In a contract to sell or a sale of goods by description there is an implied warranty that the goods shall correspond with the description. General warranties do not extend to defects inconsistent therewith of which the buyer was then aware, or which were then easily discernible by him without the exercise of peculiar skill; but it extends to all other defects. 50. Auctions. A sale by auction is a sale by public outcry to the highest bidder. It is complete when the auctioneer publicly announces, by the fall of his hammer, or in any other customary manner, that the thing is sold. Until the fall of the hammer any bidder may with- draw his bid, if he does so in a way reasonably suffi- cient to bring it to the notice of the auctioneer. When a sale is made at auction upon published conditions, 66 APPLIED BUSINESS LAW written or printed, such conditions cannot be modified by any oral declaration of the auctioneer, except so far as they are for his own benefit. By-bidding at an auction is a fraud upon the rights of the buyer which entitles him to rescind his purchase upon discover- ing the fraud. When property is sold by auction, an entry made by the auc- tioneer, in his sales book at the time of the sale, specifying the name of the person for whom he sells, the thing sold, the price, the terms of the sale, and the name of the buyer, binds both the parties in the same manner as if made by themselves (see sec. 46; 16; also p. 10, ante). 61. Exchange. Exchange or barter is a contract by which the parties mutually give, or agree to give, one thing for another, neither thing being money or valued at a price in money. The rules governing contracts of sale apply to all exchanges in which the value of the thing to be given by either party is five hundred dollars or more (see sec. 46, ante). Each party has the rights and obligations of a seller as to the thing which he gives, and of a buyer as to that which he receives. QUESTIONS FOR REVIEW 45. Give all the elements of a valid contract of sale. Explain what is meant by a present sale; agreement to sell; future goods. 46. State the provisions of the statute of frauds. 47. Define delivery. Where must it be made? What are the duties and liabilities of the seller who agrees to forward the thing sold? Where goods have been sold and title passed to the buyer, what are the rights and duties of the seller? 48. State some rights of the buyer. What are his rights upon a breach of warranty in an executed sale? In an agree- ment to sell? SALES OP GOODS 67 49. Define warranty; express warranty; implied warranty. Give some of the more important of the implied warranties. What is the effect of a general warranty? 50. Define auction. When is the contract of sale at an auction complete? 51. Define exchange. What rules govern in contracts of ex- change or barter? CHAPTER VII PARTNERSHIP 52. In general. Partnership is the association of two or more persons for the purpose of carrying on business as a firm and dividing the profits. A partnership can be formed only by the consent of all the parties concerned. Hence, a new partner can be admitted into a partnership only with the consent of every existing member of the firm. 53. Partnership property. The property of a partner- ship consists of all that is contributed to the common stock at the formation of the partnership, and all that is later acquired. The interest of each member of a partnership extends to every portion of its property. The share of each member of a partnership extends to every portion of its property. The share of each is the value of his orig- inal contribution increased or diminished by his share of the profits or losses. In the absence of any agreement on the subject the partners share equally in the profits and losses of the busi- ness, except in non-trading partnerships where each part- ner shares in the profits and losses in proportion to the in- terest he holds. An agreement to share the profits of a business implies an agreement for a corresponding division of its losses, unless it is otherwise expressly provided. Each member of a partnership may require its property to be applied to the discharge of its debts and he has a lien on the shares of the other partners for this purpose and for the payment of the general balance if any is due him. Property, whether real or per- 68 PARTNERSHIP 69 sonal, acquired with partnership funds, is presumed to be part- nership property. 54. Obligations of partners. Partnership relations are confidential. Each partner voluntarily assumes a re- lation of personal confidence toward the other. In all matters connected with the formation, conduct, dissolu- tion, and liquidation of a partnership, every partner is bound to act in the highest good faith toward his copart- ners. He may not obtain any advantage over them in the partnership affairs by the slightest misrepresentation, con- cealment, or adverse act of any kind. Each partner must account to the partnership for everything that he receives for it, and he is entitled to be repaid for every- thing that he properly expends for its benefit, and he must be saved harmless from all losses and risks he necessarily incurs on its behalf. He is not entitled to pay for his services rendered to the partnership except by special agreement. 65. Renunciation by partner. A partner may free himself from all future liability to third persons on ac- count of the partnership by renouncing, in good faith, all intention to share in its future profits. He must give notice to such third persons and to his own copartners that he has made such renunciation and that, so far as may be in his power, he dissolves the partnership and does not intend to be liable on account of it for the future. After such notice of renunciation has been given, he cannot claim any of its profits and his copartners may proceed to dissolve the partnership. 66. General partnerships. All partnerships, unless formed in accordance with the law concerning special or non-trading partnerships, and all special partnerships as 70 APPLIED BUSINESS LAW regard the general partners, are general partnerships. The decision of a majority of the members of a general part- nership, unless otherwise expressly provided, binds it in the conduct of its business. (1) Powers of partners. A partner, as such, has no au- thority to do any of the following acts unless his copartners have wholly abandoned the business to him, or are incapable of act- ing: (a) To make an assignment of the partnership property or any portion thereof to a creditor, or to a third person in trust for the benefit of a creditor or all creditors; (b) to dispose of the good will of the business; (c) to dispose of the whole of the part- nership property at once unless it consists entirely of merchan- dise; (d) to do any act which would make it impossible to carry on the ordinary business of the partnership; (e) to confess a judgment; (f) to submit a partnership claim to arbitration; (g) to do any other act not within the scope of the partnership. Every general partner is agent for the partnership in the transaction of its business and has authority to do whatever is necessary to carry on such business in the ordinary manner, and for this purpose he may bind his copartners. But a partner is not bound by any act of a copartner in bad faith toward him though within the scope of the partner's powers, except in favor of persons who have in good faith parted with value in reliance on such act. (2) Obligations of partners. All profits made by a general partner in the course of any business usually carried on by the partnership belong to the firm. A general partner who agrees to give his personal attention to the business of the partnership, may not engage in any business which gives him an interest ad- verse to that of the partnership, or which prevents him from giving to such business all the attention which would be advan- tageous to it. Otherwise he may engage in any separate business. (3) Liability of partners. Every general partner is liable to third persons for all the obligations of the partnership, jointly with his copartners. Any person permitting himself to be represented as a partner, general or special, is liable as such PARTNERSHIP 71 to third persons who on the faith of such representation give credit to the partnership; but no one is liable as a partner who is not such in fact unless he is held out as a partner. (4) Termination of partnership. Where no term is agreed on, the duration of a general partnership continues until dis- solved by a partner or by operation of law. A general partner- ship is dissolved: (a) By lapse of the time limited by agreement for its duration; (b) by the express will of any partner, if there is no such agreement; (c) by the death of a partner; (d) by a transfer to a person, not a partner, of the interest of any partner in the partnership property; (e) by war, or the prohibition of commercial intercourse between the country in which one part- ner resides and that in which another resides; or (f) by a judg- ment of dissolution. A general partnership may be dissolved, as to a particular partner, by the expressed will of such partner notwithstanding his agreement for its continuance, but he is liable to his copart- ners for any damage caused to them unless the circumstances are such as entitle him to a judgment of dissolution. He is en- titled to a judgment of dissolution: (a) When he, or another partner, becomes legally incapable of contracting; (b) when another partner fails to perform his duties under the agreement of the partnership, or is guilty of serious misconduct; or, (c) when the business of the partnership can be carried on only at a loss. The liability of a general partner for the acts of his copart- ners continues, even after a dissolution of the partnership, in favor of persons who have had dealings with and given credit to the partnership during its existence, until they have had per- sonal notice of the dissolution; and in favor of other persons until such dissolution has been advertised in a newspaper pub- lished in every county where the partnership, at the time of its dissolution, had a place of business, if a newspaper is there pub- lished, to the extent in either case to which such persons part with value in good faith, and in the belief that such partner is still a member of the firm. A change of the partnership name, which plainly indicates the withdrawal of a partner, is sufficient notice of the fact of such withdrawal to all persons to whom it is communicated; but a change in the name, which does not contain such an indication, is not notice of the withdrawal of any partner. (5) Liquidation. After the dissolution of a partnership the next step is its liquidation. The powers and duties of the partners are, in the case of a general partnership, (a) Any mem- ber may act in liquidation of its affairs, except, (b) if the liqui- dation is committed, by consent of all the partners, to one or more of them, the others have no right to act therein; but their acts are valid in favor of persons parting with value, in good faith, upon the credit thereof; (c) a partner authorized to act in liquidation may collect, compromise any claims against it, and dispose of the partnership property; and (d) a partner authorized to act in liquidation may indorse, in the name of the firm, promissory notes or other obligations held by the partner- ship, for the purpose of collecting the same, but he cannot create any new obligation in its name, or revive a debt against the firm when an action thereon is barred under the provisions of the statute of limitations. (6) Trade name. A partnership transacting business under a trade name, or a designation not showing the names of the persons interested as partners in such business, must file with the clerk of the county in which its principal place of busi- ness is located a certificate stating the names in full of all the members of such partnership and their places of residence, and make proper publication of the same in a newspaper. The certif- icate filed with the clerk must be signed by the partners, and acknowledged before some officer authorized to take acknowl- edgments. For every change in the membership of the partner- ship a new certificate must be filed. 57. Special partnerships. A special partnership may be formed by two or more persons for the transaction of any business except banking or insurance. It may con- sist of one or more persons called general partners, and one or more called special partners. Persons desiring to PARTNERSHIP 73 form a special partnership must severally sign a certifi- cate stating: (1) The name under which the partnership is to be conducted; (2) the general nature of the business intended to be transacted; (3) the names of all the part- ners, and their residences, specifying which are general and which are special partners; (4) the amount of capital which each special partner has contributed to the common stock; and (5) the periods at which such partnership will begin and end. The certificate must be acknowledged and ecorded in the county recorder's office, and accompany- ing it there must be an affidavit of each of the partners, stating the sum he contributed and that it has been ac- tually paid into the business, and the certificate, or a statement of its substance, must be published in a news- paper for a required time, usually four weeks. A renewal or continuance of a special partnership must be certified, recorded, verified, and published in the same manner as upon its original formation. Until these steps are taken all members of the partnership are liable as general partners. The general partners only have authority to transact the busi- ness of a special partnership, but a special partner may at any time investigate the affairs of the partnership and advise his partners as to the management. The general partners may sue and be sued alone, in the same manner as if there were no special partners. A special partner cannot under any circumstances withdraw any part of the capital invested by him in the partnership during its continuance, or if he does so, he thereby becomes liable as a general partner. (1) Liability of partners. The general partners in a special partnership are individually liable for the debts of the partner- ship in the same manner and to the same extent as partners in a general partnership. 74 APPLIED BUSINESS LAW The contributions of a special partner to the capital of the firm, and the increase thereof, is liable for its debts, but he is not other- wise liable except, (a) if he has willfully made or permitted a false or materially defective statement in the certificate of the partnership, the affidavit filed therewith, or the published an- nouncement thereof, he is liable as a general partner, to all creditors of the firm; (b) if he has willfully interfered with the conduct of the business, he is liable in like manner; (c) if he has wilfully joined in or assented to an act whereby a special part- ner has withdrawn any part of the capital invested by him, he is liable as a general partner to all creditors of the firm. When a special partner has unintentionally done any of the acts above mentioned, he is liable as a general partner to any creditor of the firm who has been actually misled by such act to his damage. (2) Dissolution. A special partnership becomes general if, within a reasonable time after any partner withdraws from it, or any new partner is admitted into it, or a change is made in the nature of the business or in its name, a certificate of such fact duly verified and signed by one or more of the partners, is not filed with the county recorder with whom the original cer- tificate of the partnership was filed, and notice thereof pub- lished. A special partnership is subject to dissolution in the same man- ner as a general partnership (see sec. 56-4), except that no dis- solution, by the act of the partners, is complete until a notice thereof has been filed and recorded in the office of the county recorder with whom the original certificate was recorded, and published once in each week for four successive weeks in a news- paper printed in each county where the partnership has a place of business. The name of a special partner must not be used in the firm name of the partnership unless it be accompanied with the word "Limited." PARTNERSHIP 75 QUESTIONS FOR REVIEW 52. Give the essentials of a contract of partnership. 53. What constitutes the partnership property? How are the gains and losses shared? 54. What obligations rest upon every member of a general part- nership? May a partner recover pay for his service in the partnership? 55. What is meant by renunciation? Give its effect. Does a renunciation affect a partner's liability for debts already incurred? 56. State some of the powers of a general partner. Some lim- itations imposed upon general partners. How may a gen- eral partnership be dissolved? 57. Discuss special partnership; its advantages and disadvan- tages. TEST PROBLEMS FOR REVIEW 1. X, Y, Z are partners in the X grocery business. X owns one-half, Y and Z one-fourth each of the capital stock. (a) X without any special authority bought a large bill of groceries from the T company and gave in the firm's name a note for the amount of the bill. Is the firm liable? (b) Y without special authority decided to put in a drug department and so he bought $1000 worth of drugs from the D company. Is the firm bound on this con- tract? (c) Z carelessly drove the delivery truck against A's car- riage and injured A and damaged the carriage. Is the firm liable to A? (d) X owned a large interest in a canning factory, unknown to Y and Z, and he purchased vast quantities of canned goods from this factory, to his own personal profit. What are the rights of his partners? 76 APPLIED BUSINESS LAW (e) Y, on learning of the duplicity of X, decides that the business is unsatisfactory to him and without con- sulting his partners he sells the entire business to the B company. Is this contract binding on the firm? 2. P and Q are partners in the shoe business. Each agrees to give his full time and service to the business of the firm. P becomes ill and all the work falls upon Q for several months. At the end of the year Q claims compensation for this extra work. What are his rights? 3. A, B, and C are partners, having invested $1000, $2000, and $3000 respectively. At the end of the first year there is a net gain of $6000; what is the share of each? At the end of flie second year there is a net loss of $6000; what is the loss of each? CHAPTER VIII INSURANCE 68. In general. Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from an unknown or uncertain event. Any uncertain or unknown event, whether past or future, which may cause loss to a person having an insurable interest, or create a liability against him, may be insured against; but this insurance does not apply to lottery, wagering, or other illegal agreements. Insurance is classified as property, personal, and credit insur- ance. Under the property group falls marine, fire, and casualty insurance, including a great variety of risks. Under personal insurance falls life, accident, health, and various other risks of a personal nature. Under credit insurance falls guaranty, sure- tyship, and fidelity insurance. 1. Property Insurance 59. Parties. The person who undertakes to indem- nify another by a contract of insurance is the insurer, and the person indemnified is known as the insured. As a rule, only lawfully authorized corporations can undertake con- tracts of insurance and issue policies therefor. Any per- son except a public enemy may be insured. 60. Insurable interest. Every interest in property or liability in respect to it which might be the subject of loss is an insurable interest. It may consist in: (1) An existing interest, (2) an incomplete interest founded on 77 78 APPLIED BUSINESS LAW an existing interest, or (3) an expectancy coupled with an existing interest in that out of which the expectancy arises. A mere uncertain or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid con- tract for it, is not insurable, but a carrier or other bailee has an insurable interest in a thing held by him as such to the extent of its value. The measure of an insurable interest in property is the extent to which the insured might be damaged by loss or injury of the property. The interest insured must exist when the insurance takes ef- fect, and when the loss occurs. Since the sole object of insurance is to save whole from loss the insured, it follows that if he has no insurable interest, the contract is void. 61. The policy. An oral agreement may be perfectly valid as a contract of insurance, but such contracts are rare. It is customary to have the contract set forth in a written instrument; this is called a policy of insurance. The policy must specify: (1) The parties between whom the contract is made, (2) the rate of premium, (3) the property or life insured, (4) the interest of the insured in property insured if he is not absolute owner of it, (5) the risk insured against, and (6) the period during which the insurance is to run. A policy may be open, valued, or running. An open policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specified sum. A running policy is one which contemplates successive insurances and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or in- dorsements. INSURANCE 79 The mere transfer of a thing insured does not transfer the pol- icy, but suspends it until the same person becomes the owner of both the policy and the thing insured; but a policy may be so framed that it will inure to the benefit of whomsoever may be- come the owner of the interest insured during the continuance of the risk. 62. Premium. Premium is the consideration paid for insurance. The insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. An acknowledgment in a policy of the receipt of premium is conclusive evidence of its pay- ment. The insured is entitled to a return of premium: (a) If no part of his interest in the thing insured has been exposed to the perils insured against, or (b) where the insurance is for a definite time and the insured surrenders his policy, he is entitled to such pro- portion of the premium as corresponds to the unexpired time, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued. But if a peril insured against has existed and the insurer has been lia- able for any period, however short, the insured is not entitled to return of premium, (c) A person insured is entitled to a re- turn of the premium when the contract is voidable on account of the fraud of the insurer or his agent. 63. Representations. A representation may be oral or written, and it may be made at the same time with issu- ing the policy, or before it. A representation is a state- ment of a fact or what purports to be a fact material to a contract of insurance. If it pertains to the future it is deemed to be a promise, unless it appear that it was merely a statement of belief, opinion, or expectation. If the facts fail to correspond substantially with a representa- 80 APPLIED BUSINESS LAW tion, it is deemed to be false and the injured party may rescind the contract. 64. Concealment. Concealment is the neglect to communicate that which one knows and ought to com- municate. Whether intentional or unintentional, it en- titles the injured party to rescind the contract of in- surance. Each party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be ma- terial to the contract and which the other party has not the means of ascertaining. One party need not communicate to the other, except in answer to inquiries, information concerning the following mat- ters: (a) Those which the party knows, (b) those which, in the exercise of ordinary care, the party ought to know, and of which the other has no reason to suppose him ignorant, (c) those of which the party waives communication, (d) those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material, and (e) those which re- late to a risk excepted from the policy, and which are not other- wise material. Neither party is bound to communicate even upon inquiry information of his own judgment or express an opinion upon the matters in question. 65. Warranties. A warranty may be express or implied and it may relate to the past, the present, the future, or to any or to all of these. A statement in a pol- icy of a matter -relating to the person or thing insured or to the risk, as a fact, is an express warranty. A state- ment in a policy which implies that it is intended to do or not to do a thing which materially affects the risk, is a warranty that such act or omission shall take place. Im- INSURANCE 81 plied warranties are those which are made a part of the contract of insurance by operation of the law. The violation of a material warranty or other material pro- vision of a policy on the part of either party to it entitles the other to rescind. 66. Loss, notice of. Notice of loss must be given to the insurer without unnecessary delay, otherwise he will be relieved from liability. Delay in giving notice is waived if it is caused by any act of the insurer, or if he omits to make objection promptly upon that ground. When preliminary proof of loss is required by a policy, it is sufficient if the insured give the best evidence which he has at the time, and he is not bound to give such proof as would be nec- essary hi a court of justice. The insurer is not liable for a loss caused by the willful act of the insured, but he is liable even though the loss arises from the negligence of the insured, or of his agents or others. 67. Marine insurance. Marine insurance is an in- surance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable in- surable interest may be exposed during a certain voyage or a fixed period of tune. (1) Insurable interest. The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who covenants to pay him its value in case of loss. The charterer has an insurable interest in the ship, and one who has an interest in the thing from which profits are expected, whether the ship, freightage, or cargo, has an insurable interest. (2) Concealment. Willful concealment by the insured of a material fact, by which the insurer is misled, always avoids the policy. In marine insurance, innocent concealment or non-dis- 82 APPLIED BUSINESS LAW closure has the saftie effect. Each party is bound to communi- cate all the information he possesses which is material to the risk, except as already stated (see sec. 64, ante). In marine insurance a concealment in respect to any of the following matters does not avoid the entire contract, but merely relieves the insurer from liability for loss resulting from the risk concealed: (a) The national character of the insured, (b) the liability of the thing insured to capture and detention, (c) the liability to seizure from breach of foreign laws of trade, (d) the want of necessary documents, and (e) the use of false and simu- lated papers. (3) Implied warranties. In every policy of marine in- surance a warranty is implied that the ship is seaworthy. A ship is seaworthy when reasonably fit to perform the services and to encounter the ordinary perils of the voyage contemplated by the parties to the policy. When the perils of a particular voyage are insured against, there is an implied warranty against unnecessary deviation. Deviation is a departure from the course of the voyage insured or an unreasonable delay in pursuing the voyage or the com- mencement of an entirely different voyage. A deviation is proper and excused: (a) When caused by cir- cumstances over which neither the master nor the owner of the ship has any control, (b) when necessary to comply with a war- ranty, or to avoid a peril, whether insured against or not, (c) when made in good faith, and upon reasonable grounds of be- lief in its necessity to avoid a peril, or (d) when made in good faith for the purpose of saving human life or relieving another vessel in distress. All other deviations are improper and the in- surer is not liable for any loss arising after such deviation. Where the nationality or neutrality of a ship is expressly war- ranted, it is implied that she will carry the documents requisite to show such nationality or neutrality and not carry any docu- ments which will cast reasonable suspicion on these points. (4) Loss and abandonment. Loss may be total or partial, and total loss may be actual or constructive. Actual total loss INSURANCE 83 is caused by any event which entirely deprives the owner of the possession of the thing insured in the port of destination. A con- structive total loss is one which gives the insured a right to aban- don the thing insured. Abandonment is the act by which the insured declares to the insurer that he gives up to him his interest in the thing insured. Notice of abandonment may be oral or in writing, but the abandonment must be absolute and unqual- ified. The insured may abandon the thing insured and recover for a total loss when the cause of the loss is a peril insured against and when the injury, damage, or loss to the thing insured has reduced its value more than one-half. (5) Measure of loss. Where the insured has some interest at risk and there is no fraud on his part, a valuation in a policy of marine insurance is conclusive between the parties to it in the adjustment of either a partial or a total loss. The insurer is lia- ble upon a partial loss only for such proportion of the amount insured by him as the loss bears to the value of the whole in- terest of the insured in the property insured. EXAMPLE : The interest of X in a cargo is $10,000. He takes insurance for $5000. There is a loss or damage to his interest to the amount of $2000. He may recover such proportion of the amount insured, $10,000, as the loss, $2000, bears to the whole interest of the insured, $10,000, or one-fifth. Therefore, he may recover one-fifth of $5000, or $1000. 68. Fire insurance. Fire insurance is indemnity against loss caused by fire. If there is no valuation in the policy, the measure of indemnity in an insurance against fire is the expense at the time the loss is payable, of re- placing the thing lost or injured in the condition in which it was at the time of the loss. A valuation in the policy is conclusive between the parties to it in the adjustment of either a partial or a total loss. Notice of loss caused by fire must be given to the insurer with- 84 APPLIED BUSINESS LAW out unnecessary delay, otherwise he will be relieved from liability. Delay in giving notice is waived if it is caused by any act of the insurer, or if he omits to make objection promptly upon that ground (see sec. 66, ante). 2. Personal Insurance 69. Personal insurance. Insurance upon a life may be made payable on the death of the person, or on his sur- viving a specified period, or periodically so long as he shall live, or as may otherwise be agreed by the parties. Every person has an insurable interest in the life and health: (1) Of himself, (2) of any person on whom he de- pends wholly or in part for education or support, (3) of any person under a legal obligation to him for the pay- ment of money or respecting property or services, of which death or illness might delay or prevent the performance, and (4) of any person upon whose life any estate or in- terest vested in him depends. A policy of insurance upon life or health may pass by transfer, will, or succession to any person, whether he has an insurable interest or not, and such person may recover upon it in the same manner as the insured might have recovered. Notice of such transfer is not necessary unless required by the terms of the pol- icy. 3. Credit Insurance 70. Guaranty. Guaranty is a contract to answer for the debt, default, or failure of another. Any person com- petent to make contracts may become a guarantor, and he may guaranty the debt or obligation of another even without the knowledge or consent of the principal debtor. All contracts of guaranty must be in writing and signed INSURANCE 85 by the guarantor or by his agent for him (p. 12, ante). The parties to the guaranty are the guarantor, guarantee, and principal. Where a guaranty is entered into at the same time with the original obligation, or with the acceptance of the latter by the guarantee, and forms with that obligation a part of the consid- eration to him, no other consideration need exist. In all other cases there must be a consideration distinct from that of the original obligation. A guaranty relating to a future liability of the principal under successive transactions which either continue his liability or from time to time renew it after it has been satisfied, is called a con- tinuing guaranty. It may be revoked at any time by the guar- antor in respect to future transactions, unless there is a continu- ing consideration as to such transactions which he does not renounce. A mere offer to guaranty is not binding until notice of its ac- ceptance is communicated by the guarantee to the guarantor, but an absolute guaranty is binding without notice of acceptance. A guaranty that an obligation is good, or is collectible, imports that the debtor is solvent and that the demand is collectible by the usual legal proceedings if taken with reasonable diligence. Liability of guarantor. The obligation of a guarantor cannot exceed that of the principal debtor, nor hi other respects be more burdensome; neither is the guarantor liable if the con- tract of the principal is unlawful, but he is liable notwithstanding any personal disability of the principal. A guarantor of payment or performance is liable to the guar- antee immediately upon the default of the principal, and without demand or notice. Discharge of guarantor. If the creditor without the con- sent of the guarantor alters in any respect the original obliga- tion of the principal, or if the remedies or rights of the creditor are in any way impaired or suspended, the guarantor is relieved from liability unless indemnified by the principal. Mere delay on the part of a creditor to proceed against the 86 APPLIED BUSINESS LAW principal does not exonerate a guarantor, and he is not exonerated by the discharge of his principal by operation of law, as in the case of infancy. 71. Suretyship. A surety is one who at the request of another and for the purpose of securing to him a bene- fit, becomes responsible for the performance by the latter of some act in favor of a third person, or pledges property as security therefor. If he appear to be a principal, whether by the terms of a written instrument, or otherwise, he may show that he is in fact a surety, except as against persons who have acted on the faith of his apparent liabil- ity as principal. Liability of surety. A surety cannot be held beyond the express terms of his contract. Performance by the principal or an offer of performance duly made exonerates the surety from Lability. A surety is exonerated: (a) In like manner as a guarantor; (b) to the extent to which he is prejudiced by any act of the creditor which would naturally prove injurious to the remedies of the surety or inconsistent with his rights, or which lessens his security; or, (c) to the extent to which he is prejudiced by an omission of the creditor to do anything when required by the surety which it is his duty to do. Rights of surety. A surety has all the rights of a guarantor, whether he become personally responsible or not. He may re- quire his creditor to proceed against the principal, or to pursue any other remedy in his power which the surety cannot himself pursue, and if in such case the creditor fails to do so, the surety is exonerated to the extent to which he is prejudiced. If a surety satisfies the principal obligation or any part of it, whether with or without legal proceedings, the principal is bound to reimburse what he has disbursed, including necessary costs and expenses; but the surety has no claim for reimbursement INSURANCE 87 against other persons, though they may have been benefited by his act, except he is entitled to enforce every remedy which the creditor has against the principal to the extent of reimbursing what he has expended, and also to require all his co-sureties to contribute thereto. The surety is entitled to the benefit of every security for the performance of the principal obligation held by the creditor, or by a co-surety at the time of entering into the contract of surety- ship, or acquired by him afterward, whether the surety was aware of the security or not. Whenever property of a surety is pledged with property of the principal, the surety is entitled to have the property of the principal first applied to the discharge of the obligation. QUESTIONS FOR REVIEW 58. Explain the purpose of insurance; to what does it apply; how classified? 59. Name the parties to a policy of insurance. Who may insure? Who may be insured? 60. What is an insurable interest? Why is it necessary for the insured to have such interest? What is a "wagering con- tract" ? 61. What must a policy specify? What is meant by an "open policy" ? A "valued policy" ? 62. Define premium. When is it returnable? 63. What is a representation? How made? 64. Define concealment. What is its effect? 65. Define warranty, in insurance; what is the effect of a breach of warranty in insurance? 66. Discuss loss, and notice of loss. 67. Define marine insurance. Warranties in. What is the effect of concealment? 68. Discuss fire insurance. The measure of loss. 69. Who has an insurable interest in a life? 70. Define guaranty; suretyship; distinguish between these forms of insurance. J8 APPLIED BUSINESS LAW TEST PROBLEMS FOR REVIEW 1. A is a stockholder in a steamship company. He insures a steamer belonging to the company and the vessel is lost. The insurance company refuses to pay A the amount of his policy, alleging a want of insurable interest. What are A's rights? 2. A makes a loan of $1000 to X and takes a mortgage on a building belonging to X for the amount of the loan. He then takes out a $2000 fire insurance on the building, which later is destroyed by fire. How much may he recover? 3. A sister insures the life of her brother who has gone on a gold prospecting journey to a northern goldfield. The brother dies and the company refuses payment. Is the company liable on the policy? 4. O's building is threatened by a fire in an adjoining building. He hastens to secure insurance on his property, which later is destroyed by the fire. Is the company liable for the amount of the insurance? 5. O owned a patent-right which he leased to L, with the ex- clusive privilege of using it. O then took out insurance on L's factory in order to protect his claim for royalties for use of the patent-right. The factory burned and the in- surance company refused payment to 0, alleging a want of insurable interest. May recover, and how much? CHAPTER IX NEGOTIABLE PAPER 72. In general. A negotiable paper is a written promise or order for the payment of a certain sum of money, to order or to bearer, which can be transferred from one person to another like money (see sees. 28 and 41, ante). Characteristics of negotiable paper. At common law there are five characteristics that distinguish negotiable contracts from ordinary contracts: First, the negotiable contract must always be in writing. Second, the holder of a negotiable contract may sue in his own name and recover on the obligation, though this feature is now commonly given to ordinary contracts by statutory provision. Third, the maker of the obligation or the person who is to pay it is entitled to three days beyond the time stated in the writing in which to make payment, but these days of grace have been pretty generally abolished by statute. Fourth, there is always a presumption that something of value has been given for the negotiable paper, though this presump- tion may be overcome by evidence that the facts are otherwise. Fifth, negotiable paper can be transferred from one person to another like money. This is called negotiability, and it is the chief characteristic of these obligations. It gives the holder of the paper the legal title to the amount represented by it so he can sue in his own name and recover the amount. 73. Kinds of negotiable paper. The principal kinds of negotiable paper in ordinary use are notes, checks, and drafts or bills of exchange. 90 APPLIED BUSINESS LAW Promissory notes. These are written promises signed by the maker who promises to pay a certain sum of money to a per- son named or to his order or to bearer. If no time of payment is specified, the note is payable on demand. This form of nego- tiable paper includes the written promises of persons, of banks, called bank notes, and certificates of deposit, of corporations, under seal and known as bonds, and other similar paper. PROMISSORY NOTE $400.00 Appomattox, Va., May 5, 1919. Sixty days after date we promise to pay to the order of Asa M. White Four Hundred Dollars. At the First National Bank of Lynchburg, Va. For value received, with interest at six per cent per annum. Vinson & White No. 73 By The parties to a promissory note are the maker, or the person who makes the promise to pay, signs and issues the note, the payee or the person to whom the money is payable. Point out the maker in the above form of note; the payee. Be able to tell why in each case. Checks. A check is a written order for the payment of a certain sum of money to a person named therein, or to his order or to bearer, drawn on a bank and payable on demand. Checks are classed as bills of exchange and are subject to all the rules concerning bills of exchange, except that the drawer and indorser of a check are exonerated by delay in presentment only to the extent of the injury they suffer, whereas on a regular bill of exchange the drawer and indorsers are discharged absolutely from all liability by such delay in presentment. The holder of a check has until the close of business on the following business day after its receipt in which to make pre- sentment. NEGOTIABLE PAPER 91 FORM OF CHECK No. 87 El Centra, California, Dec. 24th, 1919. THE FIRST NATIONAL BANK OF El Centra, California Pay to the order of John Doe Four hundred Dollars. Ross & Conscience. $400.00 By The parties to a check are the drawer, or the person who writes the order on the bank and signs it, the drawee, the bank on which the check is drawn and which pays the amount of the check to the payee, or the person in whose favor the check is made, or to his order or to the bearer as the case may be. The above check should be presented for payment before the close of business on the next succeeding business day, or December 26th. The assent of the bank to the payment of the check may be indicated by writing the word "Accepted " across the face of the check with the signature of the cashier or other proper officer of the bank. When this is done the paper is termed a " Certified Check," and the bank becomes liable for its payment as upon its own promissory note. Drafts. A draft is a bill of exchange. It may be inland or foreign. In any event it is a written order from one person to another for the payment of a certain sum of money to a third person, or order or to bearer, and signed by the drawer. The parties to a draft are the drawer, the drawee, and the payee ; they correspond with the same parties on a check. A draft is said to be an inland bill of exchange when it is be- tween parties or places in the same state; it is a foreign bill of exchange when it is between parties or places in different states or countries. 92 APPLIED BUSINESS LAW TIME DRAFT, OR BILL OF EXCHANGE $700.00 Palo Alto, California, September 9, 1919. At ten days sight Pay to the order of The Bank of Palo Alto, California Seven Hun- dred Dollars. For value received, and charge to the account of John Doe. To Dr. Seth Warren Bush, No. 73c. Parkersburg, W. Va. In the above form of draft, point out the payee, drawee, and drawer, and rights and obligations of each. 74. Essentials of negotiable paper. In order to be negotiable commercial paper must contain certain valid essentials and at the same time it must be free from cer- tain conditions. The essentials are: (1) It must contain an uncon- ditional promise or order in writing. A promissory note contains a promise; a check or draft contains an order. In every case these must be unconditional and in writing. (2) It must be to pay a sum certain in money. A promise to pay in wheat or an order to deliver grain would not constitute a negotiable contract in the sense of com- mercial paper (see p. 43, ante). (3) It must be payable to order or to bearer. The words rendering the obligation negotiable are "to order," or "to bearer." Without these the instrument would be non-negotiable. (4) It must be payable at a fixed or determinable future time, or on demand. If no time for payment be expressed, the paper is payable on demand. NEGOTIABLE PAPER 93 (5) A check or draft must indicate the drawee with reasonable certainty. The drawee is the person on whom the paper is drawn and who is to make payment to the payee, or holder. He must be named or otherwise indicated in the paper. (6) A negotiable paper must be signed by the drawer or maker. A note is signed by the maker; a bill of ex- change is signed by the drawer. (7) It must contain no condition to do any act other than pay money. But the paper may give the holder a right to choose whether he receive payment in money or elect to take something in lieu of money; or it may author- ize the sale of collateral securities if the obligation is not paid at maturity, the proceeds of the sale to be applied to a discharge of the paper. (8) Negotiable paper must be delivered by the maker or drawer to render it valid. Want of delivery operates as an absolute defense against recovery except as against a holder in due course. In the latter case, if the paper is complete and regular on its face, a delivery to the payee is conclusively presumed; that is, no evidence will be ad- mitted to show that the facts are to the contrary. 76. Non-essentials. There are some elements which should appear in a negotiable instrument but their ab- sence will not affect its negotiability. First, the paper should be dated, but the absence of a date does not invalidate the obligation. If the paper is issued undated, the true date may be inserted by the holder. If a wrong date be inserted and the paper ne- gotiated to an innocent holder for value, all prior parties are bound by it in favor of the holder. 04 Second, it should state the time of payment. When no time of payment is stated the paper is payable on demand. Third, the paper should state the place where it is made and where it is payable, but the omission of these will not affect its validity. Fourth, it is customary to have the writing recite a con- sideration, as "for value received," or some equivalent expression, but this is not an essential since the law gives the paper a presumptive consideration. Fifth, at common law the presence of a seal on an instru- ment renders it non-negotiable unless it be the seal of a corporation, hi which case the seal is regarded as part of the signature and, therefore, does not affect the nego- tiability of the instrument. In most states this rule ap- plies to private seals, so that if an instrument contains a seal, this will no longer render it non-negotiable. If any essential of a negotiable instrument be omitted or left blank, the person to whom it is delivered has an implied author- ity to fill it in according to the authority given and he is put upon inquiry to find out this authority. If a blank is filled in in excess of authority and the instrument negotiated to an innocent holder for value, all prior parties are liable to such holder according to the form of the instrument as he received it. 76. Obligations of the parties. (1) The maker. The obligation of the maker of a promissory note is absolute and unconditional. His liability is already fixed and no further steps are necessary. Where no place of payment is specified, the note is payable at the residence or place of business of the maker, or wherever he may be found. Presentment to the maker at maturity for payment is necessary in order to hold an indorser liable but not to fix NEGOTIABLE PAPER 95 the liability of the maker. If the paper is by its terms pay- able at a specified place and the maker is able and willing to pay it there at maturity this is equivalent to an order of payment on his part. (2) The drawer. The obligation of the drawer is not absolute but conditional. It rests on these conditions: (a) That the check, draft, or bill of exchange, be duly pre- sented to the drawee for acceptance or payment, as the case may be, and (b) if acceptance be refused, that due notice of the fact be given him, and if it is a foreign bill, that it be duly protested. Strict compliance with these conditions is necessary, otherwise the drawer will be re- lieved from liability. (3) The acceptor. The obligation of a drawee is conditional upon his acceptance. He is not bound to ac- cept, but if he does, he is bound absolutely by the accept- ance. When a check is accepted it is usually paid at once, though it may be " certified," if the holder requests it. Ac- ceptance of a draft or other form of bill of exchange is usu- ally indicated by writing the word "Accepted," with the date and the name of the acceptor, across the face of the paper. The holder is entitled to have the acceptance written upon the face of the paper, though an acceptance upon another paper is valid and binds the acceptor in fa- vor of all who take the paper because of such acceptance. Who may accept. Only the drawee named in the paper may accept it and bind all the parties to it. If he dishonor the paper by non-acceptance, then any person may accept it for the honor of any other whose name appears on the paper. The acceptor for honor becomes liable to the holder on condi- tion that the paper be again presented to the drawee at maturity 96 APPLIED BUSINESS LAW for payment and if "it be not then paid, the paper must be pro- tested and notice given to the acceptor for honor. A bill may contain the name of a second person to whom re- sort may be had in "case of need," that is, if the first does not accept; this second person is known as a "referee in case of need." Kinds of acceptance. There are two forms of acceptance, general and qualified. A general acceptance is one that assents fully to the terms and tenor of the bill and agrees to pay accordingly. The paper then becomes an "acceptance," and the acceptor is liable as on a promissory note, that is, his liability becomes absolute. In the form of draft given on page 92, a general acceptance would be: "Accepted, September 15, 1919. Dr. Seth Warren Bush." The date of acceptance is necessary in order to fix the date of maturity in sight drafts which are payable a given number of days after sight. A qualified acceptance is one that does not fully assent to the terms and tenor of the bill. The qualification may be as to the time, the place, or the amount of the bill. An acceptance may name a particular place and still be a general acceptance if it does not limit payment to that place only. In the form given above, the following would be a limited ac- ceptance: "Accepted, September 15, 1919, Payable October 1, 1919. . .Dr. Seth Warren Bush," or "Accepted, September 15, 1919, Payable at the First National Bank of Parkersburg, only . . .Dr. Seth Warren Bush." The first qualifies the draft as to tune of payment; the second qualifies the acceptance as to the place of payment. A third form might qualify the amount to be paid. A qualified acceptance releases the drawer. Presentment for acceptance. In the case of sight paper, an acceptance is necessary in order to fix the date of maturity. Presentment for acceptance should be at a reasonable hour of a business day, and the presentment should be to the drawee by NEGOTIABLE PAPER 97 the holder or his agent. The drawee has twenty-four hours in which to decide whether he will accept or refuse to accept the paper. If he accepts, he thereby admits the genuineness of the drawer's signature and his then right to draw. If the drawee's place of business or residence cannot, with reasonable diligence, be found, presentment for acceptance is excused, and the paper may be protested for non-acceptance. (4) The indorser. One who writes his name on ne- gotiable paper, otherwise than as a maker or acceptor, and delivers it with his name thereon to another person, is called an indorser, and his act is an indorsement. Every indorser of negotiable paper, unless his indorse- ment be qualified, warrants to every subsequent holder: (a) That the paper is in all respects what it purports to be; (b) that he has a good title to it; (c) that the signatures of all prior parties are binding on them; and (d) that if the paper be dishonored, he, the indorser, will upon notice, pay the same unless excused by law. Kinds of indorsements. An indorsement may be general or special, and these may be qualified or restrictive. An indorser may qualify his indorsement with the words, "without recourse," or other equivalent words, and upon such indorsement he is lia- ble on the first three warranties given above, in the same manner as if he had transferred the paper without indorsement. Illustrations: On a negotiable instrument payable to John Doe, the indorsements may be as follows: (a) General, or blank indorsement, "John Doe," or "Pay to bearer, John Doe." (b) General, qualified, "Without recourse. . .John Doe." (c) Special, "Pay to Richard Roe, or order. . .John Doe." (d) Special, restrictive, "Pay Richard Roe, for collection, John Doe..." (e) Waiving conditions, "Waiving protest. . .John Doe. . ." 98 APPLIED BUSINESS LAW An irregular indorser is one who indorses out of the usual order of indorsement, as where one indorses before the payee. Gen- erally an irregular indorser is one who lends his credit to the maker or other party to the paper and he is known as an accom- modation indorser. 77. Holder in due course. A holder in due course is one who, in the ordinary course of business, takes negotia- ble paper complete and regular on its face, before it is overdue, in good faith and for value. He acquires an ab- solute title to the paper so that it is valid in his hands not- withstanding any defect in the title of the person from whom he acquired it. The rights of a holder in due course are subject to the absolute defenses: Unauthorized alteration, forgery, infancy, want of execution, and the like; but they are superior to the personal defenses, such as fraud, duress, illegality, and the like. Where there arises serious question as to the rights of the holder, he should at once procure the service of a good lawyer to protect his rights. 78. Maturity of paper. If the paper does not specify the time of payment, it is payable on demand. When a fixed or ascertainable time is stated in the paper, it ma- tures at the time designated. It is provided by statute in most states that: (1) The apparent maturity of a paper payable at sight or on demand, is (a), if it bears interest, one year after date; or (b) if it does not bear in- terest, ten days after its date in addition to the time necessary to forward it for acceptance. (2) The apparent maturity of a promissory note payable on demand is, (a) if it bears interest, one year after its date; or. (b) if it does not bear interest, six months after its date. If the NEGOTIABLE PAPER 99 note is payable a certain time after sight or demand, such time is to be added to the periods just mentioned. When the paper falls due on Sunday or a holiday, it is pay- able on the next succeeding business day. In counting time, omit the date of the paper and include the date of payment. ILLUSTRATION: A ten-day note dated December 15th, matures on December 25th. If the 25th falls on Saturday, the paper will be payable on the following Monday, the 27th of December. 79. Dishonor of paper. Negotiable paper is dis- honored when it is not paid, or not accepted for payment according to its tenor, on presentment for that purpose, or without presentment where that is excused. Delay in presentment or in giving notice of dishonor is excused when caused by circumstances which the party could not have avoided by the exercise of reasonable care and dili- gence. Notice of dishonor may be given, (a) by a holder of the paper, or (b) by any party to the paper who might be com- pelled to pay it to the holder. The notice may be in any form which sufficiently describes the paper. It may be given, (a) by delivering it to the party to be charged, personally at any place, or (b) by delivering it to some competent person at the place of residence or business of such party who is apparently acting for him, or (c) by mail- ing the notice properly addressed, postage paid, to the party liable. Notice must be given or mailed to the party liable on or before the end of the next succeeding business day after the dishonor of the paper. 80. Discharge of obligation. The obligation of a party to a negotiable paper is discharged: (1) In like man- ner with that of parties to ordinary contracts, or (2) by 100 APPLIED BUSINESS LAW payment of the amount due on the paper, at or after its maturity, in good faith and in the ordinary course of busi- ness, to any person having actual possession of the paper and entitled by its terms to receive payment. Where the paper is paid by an indorser, it is not discharged, but the party paying it preserves all his rights against all prior parties. It is not discharged until paid by the party primarily liable, or by the intentional cancellation of the paper by the holder, or by some other act which would have the effect to dis- charge an ordinary contract for the payment of money. QUESTIONS FOR REVIEW 72. Explain the purpose of negotiable paper. Give the five common-law characteristics of such paper. Which of these have been most affected by statute law? Which do you regard as the chief characteristic? Why? 73. Name five or six forms of negotiable paper with which you are familiar. Which is the most common form? Define promissory note. Illustrate. Define maker; payee. De- fine check; drawee; holder; certified check. Define draft; bill of exchange; inland bill; foreign bill. Explain the parties to a bill of exchange. 74. State the essentials of negotiable paper. Which form of negotiable paper contains a promise? Which an order? 75. Name some things that should be written in negotiable paper but the absence of which will not invalidate the paper. 76. What are the obligations of a maker? Is presentment for payment necessary to render him liable on his note? When is it necessary? State the obligations of the drawer of a check or draft. Give the obligations of an acceptor. Is he bound to accept? When does he become liable and to what extent? Define general acceptance; qualified ac- ceptance; illustrate each. Who may accept bills of ex- change? When is presentment for acceptance necessary? When may it be made; where; by whom; to whom? NEGOTIABLE PAPER 101 What does the acceptor admit by his acceptance? When is presentment excused? 77. Define a holder in due course. What are his rights? What defenses defeat his rights? 78. When does negotiable paper mature? When a paper falls due on Sunday or a holiday, when is it payable? 79. When is paper said to be dishonored? When will delay in presentment or hi giving notice of dishonor be excused? How may notice of dishonor be given? By whom; to whom; in what length of time? 80. How may the obligations of a party liable on negotiable paper be discharged? TEST PROBLEMS FOR REVIEW 1. "Pay to John Doe, or order, the balance due on my ac- count. (Signed) Richard Roe..." Adressed "To John Dale." Is this in form a negotiable paper? What form? Does it contain all the essentials of a draft? 2. "On demand, I promise to pay to John Doe, or order, fifty dollars, or deliver to him fifty bushels of wheat. (Signed) John Dale..." Is this valid as a promissory note? Point out the essentials present; those missing. 3. "El Centro, California, May 7, 1919. Ten days after date I promise to pay to John Doe, or order, fifty dollars; for value received. (Signed) John Rex ..." Is this a valid form of promissory note? It was written out and left on the desk of John Rex and later was stolen from the desk by X. Is the maker liable on the paper? To whom? Why? 4. M signs his name to a printed form of promissory note and delivers it to X with the understanding that X is to fill in the amount which corresponds with the balance on ac- count from M to X, The balance, in fact, is fifty dollars, 102 APPLIED BUSINESS LAW but X fraudulently fills in the blank for $500, and then negotiates the paper to H, an innocent holder for value. May H recover from M? To what extent? Why? 5. A note written in the usual form, "We promise to pay, etc.," is signed "J. C., President, and E. H. C., Treasurer." Across the end is printed "R. I. Co." It was transferred by the payee to a holder in due course who, learning that the "R. I. Co." was insolvent, sued J. C. and E. H. C. personally for the face of the note, $7,500.00. They set up the defense that they had signed as officers of the "R. I. Co." a corporation, and therefore they were not per- sonally liable. Question : May H, the holder in due course, recover against the signers of the note, or must he look to the insolvent corporation for his claim? 6. "I promise to pay to the order of X. Y. one thousand dollars, on demand without days of grace, after his marriage to Z. (Signed) M." Is this a negotiable promissory note? 7. A note payable to the order of X is indorsed by him "With- out recourse, X." It later develops that the maker is insolvent, and after presentment and dishonor by the maker and notice to X, the holder, H, sues X for the amount. May H recover? Why? CHAPTER X REAL PROPERTY 81. In general. Property consists of anything of which there may be ownership, or the right of one or more persons to possess and use it to the exclusion of others. All property has an owner, whether that owner be the State, and the property public, or an individual, and the property private. Property is either real or personal. Real property consists of: (a) land, (b) that which is affixed to land, (c) that which is incidental or belongs to land, and (d) that which is immovable by law. Land is the solid material of the earth, whatever may be the ingredients of which it is composed, whether rock, soil, water or other substance. A fixture is a thing joined to land: (a) By means of roots, as in the case of trees, vines, or shrubs; (b) by being imbedded in it, as in the case of walls; (c) by permanently resting upon it, as in the case of buildings; (d) by being permanently attached to what is permanent, as by nails, bolts, cement, and the like; (e) by adaptation to use in connection with what is permanent, as the keys of a door. A thing is incidental or appurtenant to land when it is by right used with the land and for its benefit, as a road or right of way. Real property is governed by the law of the state in which it is located except where the title is in the United States, then it is governed by Federal law, as in the case of national pre- serves, military barracks, or forts. 103 104 APPLIED BUSINESS LAW 82, Estates in real property. Estates in real property may be of inheritance, for life, for years, or at will. An estate of inheritance, if unconditional, is a fee simple, the largest estate that may be owned in real property; but lar- gest estate does not necessarily mean the most valuable. A life estate cannot be inherited; it ends upon the death of the owner. It is a freehold estate, and the owner is a freeholder. Estates for years are created by leases and end upon the ex- piration of the time specified in the lease. They are called chat- tels real, and if for more than one year, they must be created by a written contract known as a lease. An estate at will is a chattel interest but of so small value that it cannot be sold on execution. It can be terminated by the landlord, upon giving written notice to the tenant at least one month in advance of the time at which he is required to remove from the premises. 83. Rights of owners. The owner of land in fee has the right to the surface and to everything permanently situated beneath, upon, or above it, unless this right is in some way limited by the conveyance through which he acquired title to the land. The owner of a life estate may use the land in the same manner as the owner of a fee simple, except that he must do no act to the injury of the inheritance, as, for example, he must not cut historic shade trees. A tenant for years or at will has no other rights to the property than such as are given to him by the agreement or lease by which his tenancy is acquired. In the absence of an agreement, unless he is a mere wrongdoer holding over, he may occupy the buildings, take the annual prod- ucts of the soil, and work mines and quarries which were open at the commencement of his tenancy. He must commit no act of waste or injury to the estate. REAL PROPERTY 105 An owner of land bounded by a road or street is presumed to own to the middle of the way, but the contrary may be estab- lished by evidence. If his land borders upon a non-navigable lake or stream, he takes to the middle of the lake or stream; if it bor- ders on navigable water, the owner takes to low-water mark if there is no tide, and to the ordinary high-water mark if there is a tide. An owner is entitled to the support which his land receives from adjoining land, subject to the right of the adjoining owner to make proper and usual excavations for purposes of construc- tion, on using ordinary care and skill and taking reasonable precautions to sustain the land of the other, after giving previous reasonable notice of his intention to make such excavations. Trees which stand on the boundary line of adjoining owners belong to them in common, but trees whose trunks stand wholly upon the land of one owner belong exclusively to him, although their roots grow into the adjoining land. 84. Obligations of owner. The owner of real property must use it in such a way that he will not unlawfully in- terfere with the rights of others. With this exception, the owner of a fee simple may use his premises as he may choose. He must comply with state law and city ordi- nances (see sec. 2, ante). The owner of a life estate must keep the buildings and fences in repair from ordinary waste, and he must pay the taxes and other annual charges, and share a just proportion of unusual assessments which benefit the whole inheritance. Adjoining owners must share equally the expense of main- taining the boundaries and landmarks between them. The cost of division fences must be shared equally unless one of the owners chooses to let his land lie unfenced, but if he after- ward incloses it, he must pay a just proportion of the cost of the division fence. 106 APPLIED BUSINESS LAW 85. Title to real property. Title is the means by which an estate in real property is held; it is the right of ownership. Title to real property may be acquired in two ways, by purchase or by inheritance. Title by inherit- ance arises by operation of law,, as where an heir takes an estate upon the death of an ancestor. All other forms are classed as title by purchase. 86. Transfer of title. Transfer of title to real property from one living person to another may be effected by act of the parties or by operation of the law. The most com- mon form of transfer is by private grant, or by a deed of conveyance. A transfer of title to real property must always be in writing and the writing must be under seal unless otherwise provided by statute. The person making the grant, or conveyance, is the grantor; the one to whom it is made is the grantee. A grant, or deed of conveyance takes effect only upon its delivery by the grantor. It cannot be delivered to the grantee upon condition; the moment it is delivered to him it takes ef- fect, discharged of any condition on which the delivery was made. But a grant may be delivered in escrow, that is, deposited with a third person to be delivered on performance of a condi- tion, and on delivery to the grantee it takes effect. A delivery in escrow must place the instrument beyond the re- call of the grantor, otherwise it is not a delivery. Re-delivering a grant or deed of title to real property to the grantor, or canceling it, does not operate to re-transfer the title. This re-transfer can be made only by a new grant or deed of con- veyance from the original grantee back to the original grantor. A transfer vests in the transferee all the actual title to the property which the transferor then had, unless a different inten- tion is expressed or necessarily implied. A fee simple title is presumed to be intended to pass by a grant of real prop- REAL PROPERTY 107 erty, unless it appears from the grant that a lesser estate was intended. 87. Essentials of grant. An estate in real property, other than an estate at will or for a term not exceeding one year, can be transferred only by operation of law, or by an instrument in writing, usually sealed, subscribed by the party disposing of the estate, or by his lawfully authorized agent. The word "grant" in any conveyance by which an estate in fee simple is to be passed, implies the following covenants, un- less the contrary is expressly provided hi the conveyance: (a) That previous to the tune of making the conveyance, the grantor has not conveyed the same estate, or any right, title, or interest in it, to any person other than the grantee. (b) That such estate is at the tune of the execution of the conveyance free from incumbrances by the grantor or any person claiming under him. These covenants may be sued upon in the same manner as if they had been written into the conveyance. Incumbrances include taxes, assessments, and all liens and rights of way on real property. 88. Recording transfers. Any instrument or judg- ment affecting the title to or possession of real property, other than a lease for a term not exceeding one year, is void as against any subsequent purchaser or mortgagee of the same property, unless the instrument or judgment first be duly admitted to record. 89. Mortgages of real property. Any interest in real property which is capable of being transferred may be mortgaged. A mortgage is a contract by which specific property is pledged for the performance of an obligation, but without a transfer of possession, A mortgage caa be 108 APPLIED BUSINESS LAW created, renewed,- or extended, only by writing, executed with the formalities required in the case of a grant of title to real property. A mortgage is against the specific property pledged and not a personal obligation unless made so by express agreement to that effect in the mortgage. EXAMPLE: O sells Whitacre to X and retains a mortgage on the premises for the purchase price, $10,000. Later, forecloses the mortgage and sells the premises, which has greatly deterio- rated in value, for $5000. He has no remedy against X for the balance unless he expressly preserved that right by the terms of the mortgage or by proper evidences of indebtedness as by a note or bond for the purchase price. 90. Discharge of mortgage. When any mortgage has been satisfied, the mortgagee or his assignee must im- mediately, on demand of the mortgagor, execute, acknowl- edge, and deliver to him a certificate of the discharge, so as to entitle it to be recorded, or he must enter satisfac- tion, or cause satisfaction of such mortgage to be entered of record. The entry may be in the margin of the record, properly signed and certified to by the recorder, as a dis- charge of the mortgage. QUESTIONS FOR REVIEW 81. Define property; real property; land; fixture. By what law is real property governed? 82. What are the rights of an owner in fee? Of an owner of a life estate? Of a tenant for years? 83. What are the estates that may be held in real property? 84. What are some of the obligations of an owner of an estate in fee? Of a life tenant? Of adjoining owners of real prop- erty? 85. Explain the meaning of title to real property. How is it acquired? Define title by inheritance; by purchase. REAL PROPERTY 109 86. How may title be transferred? What is a grant or convey- ance of title to real property? 87. What are the essentials of a grant? What is the effect of the word "grant" in a conveyance of title? What is a covenant? 88. Why should instruments affecting the title to land be re- corded? 89. What is a mortgage? How may it be discharged? TEST PROBLEMS FOR REVIEW 1. X conveyed an estate to Y by grant. The deed was executed, delivered, and accepted by Y, the grantee. Later, the parties made an agreement that the conveyance should be returned to X, who was to destroy the deed, which had never been recorded. What was the effect of the re- delivery to the grantor of the deed? What effect had the destruction of the deed? The failure to record the deed? (see Dukes v. Spangler, 35 Ohio St. 119). 2. X, the owner of Blackacre, sold the estate to Y on May 8th. On May 10th he sold the same estate to Z, who had the deed recorded at once. On the following Monday, May 12th, Y had his deed recorded. Question: Who is en- titled to Blackacre? 3. and B signed a written agreement whereby was to sell and B was to buy and pay for a house and lot, the prop- " erty of 0, the sum of $10,000; the transaction to be com- pleted within ten days of the date of the agreement. The value of the house was estimated to be $5000. Within three days the house burned down. Who must sustain the loss? 4. O agreed to sell a ten-acre tract of land to P for $10,000, and P agreed to purchase it. The agreement was reached by telephone. Later on P refused to take the land, alleging that the price was too high: What can do? 5. As in number 4, but suppose O refused to carry out his part of the agreement, alleging that the land was worth $15,000. What can P do? CHAPTER XI BUSINESS CORPORATIONS 91. In general. A corporation is a creature of the law, having certain powers and owing certain duties of a natural person. Being created by the law, it may con- tinue for any length of time which the law prescribes. Corporations are either public or private. A public corpora- tion is formed or organized for the government of a portion of the state. All other corporations are private. Private corporations may be formed by the voluntary asso- ciation of any three or more persons in the manner prescribed by law. A majority of such persons must be residents of the state. Private corporations may be formed for any purpose for which individuals may lawfully associate themselves, whether for busi- ness, benevolent, or social purposes. 92. Articles of incorporation. The writing by which a private corporation is formed is known as "Articles of Incorporation," or articles of association. These arti- cles must set forth: (1) The name of the corporation; (2) the purpose for which it is formed; (3) the place where its principal office is to be located; (4) the term for which it is to exist; (5) the number of its directors or trustees, and the names and residences, of those who are appointed for the first year; (6) the amount of its capital stock, and the number of shares into which it is divided; and (7) if 110 BUSINESS CORPORATIONS 111 there is a capital stock, the amount actually subscribed, and by whom. The secretary of state, or commissioner of corporations, is the state official who considers applications for incorporation. When the articles of incorporation have been properly made out and, with certain other required information, have been filed in the proper offices, the secretary of state will issue to the corporation, over the great seal of the state, a certificate that a copy of the articles containing the required statement of facts has been filed in his office, and this certificate becomes the " charter " of the corporation. This charter sets forth the powers conferred upon the corporation, and thereby becomes a contract between the corporation and the state. Hence, the corporation, through its directors, must comply strictly with the law governing it, other- wise it will forfeit its charter. 93. By-laws. Within a reasonable time after receiv- ing its charter, a corporation must adopt a code of by- laws for its government. The assent of shareholders rep- presenting a majority of all the subscribed capital stock is necessary to adopt by-laws. A corporation may by its by-laws, where no other provision is specially made, provide for: (a) The time, place and manner of calling and conducting meetings, and may dispense with notice of all regular meetings of stockholders or directors; (b) The number of stockholders or members constituting a quorum; (c) The mode of voting by proxy; (d) The qualifications and duties of directors, and also the time of their annual election, and the mode and manner of giving notice thereof; (e) The compensation and duties of officers; (f) The manner of electing and tenure of office of all officers other than the directors; and 112 APPLIED BUSINESS LAW (g) Suitable penalties for violations of the provisions of the by-laws. When adopted, the by-laws must be certified by a majority of the directors, and a copy of the same must be open for pub- lic inspection. 94. Powers of corporation. Every corporation has power: (1) Of succession by its corporate name, for the period limited; and when no period is limited, then per- petually. (2) To sue and to be sued in any court. (3) To make and use a common seal, and alter the same at pleasure. (4) To purchase, hold and convey such real and per- sonal property as the purposes of the corporation may require, not exceeding the amount limited by the laws of the state. (5) To appoint such subordinate officers or agents as the business of the corporation may require, and to allow them suitable compensation. (6) To make by-laws, not inconsistent with any exist- ing law, for the management of the property, the regula- tion of its affairs, and for the transfer of its stock. (7) To admit stockholders or members, and to sell their stock or shares for the payment of assessments or in- stalments. (8) To enter into any obligation or contract essential to the transaction of its ordinary affairs, or for the pur- poses of the corporation. A corporation may not possess or exercise any powers in ad- dition to the above enumerated powers, except such as are nec- essary to the exercise and carrying out of the powers just enu- merated, BUSINESS CORPORATIONS 113 95. Stockholders. All corporations for profit must issue certificates of stock when fully paid. The shares of stock for which such certificates are issued are personal property, and may be transferred by indorsement and delivery of the certificate. The holder of such a certifi- cate is known as a stockholder of the corporation. As a rule, stockholders are liable for the debts of the corpora- tion only to the extent of their unpaid subscription for stock in the corporation. In some cases, as under the national banking law, a double liability is imposed upon the stockholder. That is, he becomes liable to the extent of his initial investment, up to the par value of the stock he holds, plus an additional liability for such pro- portion of all the debts of the corporation contracted while he was a stockholder as the amount of his stock bears to the sub- scribed capital stock, provided this additional liability does not exceed the par value of his stock. In extreme cases the stockholders become liable for the entire indebtedness of a corporation, being governed by the rule of un- limited liability as in the case of ordinary partnership liability. 96. Directors. The business and property of a corpo- ration must be conducted and controlled by a board of directors to be elected from among the holders of stock. All elections must be by ballot, and every stockholder has the right to vote in person or by proxy the number of shares of stock standing in his name, for as many persons as there are directors to be elected. Or, in most states, he may "cumulate" his votes and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock shall equal; or, he may dis- tribute his votes on the same principle among as many can- didates as he may see fit. 114 APPLIED BUSINESS LAW Immediately upon their election, the directors must organ- ize by electing a president, who must be one of their number, a secretary, and a treasurer. They must perform the duties as- signed to them by law and by the by-laws of the corporation. A majority of the directors is sufficient to form a board for the transaction of business, and every decision of a majority of the directors forming such board, made when duly assembled, is valid as a corporate act. 97. Dissolution of corporation. Since a corporation is a contract between the state and the organizers, and their successors, of a corporation, its dissolution can take place only in certain lawful ways. As a rule, it may be dissolved by: (1) A forfeiture of the charter upon a de- cree of a proper court for misuse or nonuse of its powers; or (2) where the state has reserved the right, the char- ter may be repealed; or (3) the charter usually provides for a voluntary dissolution where all the creditors have been provided for and a decree of dissolution is obtained from a court of proper jurisdiction; or (4) the method of dissolution contemplated in the charter is that by limita- tion or the expiration of the time stated in the charter. QUESTIONS FOR REVIEW 91. Explain the nature and purpose of corporations. Define public corporation; private corporation. 92. What do the articles of incorporation show? Explain what is meant by the "charter" of a corporation. 93. What are the purposes of by-laws? How made? Explain "voting by proxy." 94. Give the general powers of a corporation. 95. Explain certificates of stock; stockholders; liability of stock- holders for the indebtedness of the corporation, BUSINESS CORPORATIONS 115 96. Who may become directors of a corporation? What are the duties of the directors? 97. Give the ways in which corporations may be dissolved. TEST PROBLEMS A, B, and C own the entire stock of the X corporation. They mutually agree to shut up shop and give up the business. May they do this? Why? It is a private corporation, owned by pri- vate citizens. May they not do as they like with their own pri- vate property, so long as they do not wrong or injure others? A, B, and C are partners owning a private business. They mutually agree to pay their debts and shut up shop, discontinu- ing the business. Do they have to ask permission of the state in order to do this? Why not? INTEREST RATES AND PENALTY FOR USURY Name of State Legal Rate Highest Rate Penalty for Usury Ala. 8 8 Loss of all interest Alaska 8 12 Loss of interest Arizona 6 10 No penalty Ark. 6 10 Loss of prin. and int. Cal. 7 . No limit No penalty Colorado 8 No limit No penalty Conn. 6 12 Loss of excess Del. 6 6 Loss of principal D. C. 6 10 Loss of interest Fla. 8 10 Loss of interest Ga. 7 8 Loss of excess Idaho 7 12 Loss of intrest 111. 5 7 Loss of interest Ind. 6 8 Loss of excess Iowa 6 8 Loss of interest Kan. 6 10 Loss of excess Ky. 6 6 Loss of excess La. 5 8 Loss of interest Maine 6 No limit No penalty Md. 6 6 Loss of excess Mass. 6 No limit No penalty Mich. 5 7 Loss of interest Minn. 6 10 Loss of interest Miss. 6 8 Loss of interest Mo 6 8 Loss of excess Mont. 8 12 Loss of interest Neb. 7 10 Loss of interest Nev. 7 10 Loss of interest N. H. 6 6 Loss, treble excess N. J. 6 6 Loss of interest N. Mex. 6 12 Loss of excess N. Y. 6 6 Loss of int. and prin. N. C. 6 6 Loss of interest N. Dak. 6 10 Loss, double interest Ohio 6 8 Loss of excess Okla. 6 10 Loss of interest Oregon 6 10 Loss of principal Pa. 6 6 Loss of excess R. I. 6 No limit Loss of debt; fine S. C. 7 8 Loss of interest S. D. 7 12 Loss of excess Tenn. 6 6 Loss of excess Tex. 6 10 Loss of interest Utah 8 12 Loss of excess Vt. 6 6 Loss of excess Va. 6 6 Loss of interest Wn. 6 12 Loss, double interest W. Va. 6 6 Loss of excess Wis. 6 10 Loss of interest Wyoming 8 12 Loss of interest 116 PART II HOW TO WRITE BUSINESS PAPERS GROUP I SIMPLE CONTRACTS 201. In general. With reference to their written forms, contracts are classified as (1) simple and (2) formal. Simple contracts are those that are in ordinary written form, while formal contracts are writings under seal. The former are often referred to as parol agreements, this designation including both oral and written forms of the simple contract, while the latter are known as special- ties or sealed instruments. - In a number of states all distinction between sealed and un- sealed instruments has been abolished. In these states, the mere fact that a contract or promise is in writing implies the presence of a consideration, but in the states that still retain the common- law rule a simple contract must recite the presence of a con- sideration, otherwise the obligation will be in the nature of a gift and unenforceable. EXAMPLES: 1. Simple contract to pay money: "Mobile, Alabama, December 28, 1918. One year after date I promise to pay . . . John Doe . . . the sum of one hundred dollars, for ten thousand feet of pine boards delivered to me this day " (Signed) RICHARD ROE." 2. Bond, or promise under seal to pay money: "$100.00 Mobile, Alabama, December 3, 1918. " KNOW ALL MEN BY THESE PRESENTS: That I, John Doe, . . . am held and firmly bound unto . . . Richard Roe . . . in the sum of One Hundred Dollars, to be paid in lawful money of the United States to the said. . .Richard Roe. . .his executors, 119 120 APPLIED BUSINESS LAW administrators, or assigns, on the. . .third day of December, one thousand nine hundred nineteen; to which payment I bind my- self, my executors and administrators by these presents. " WITNESS my hand and seal this third day of December, one thousand nine hundred eighteen. " (Signed) JOHN DOE (Seal).". 3. DIRECTIONS: On separate pieces of paper make a copy of each of the above forms. The first, if well arranged in short lines and with proper margins, will occupy about six lines on the page. The second, when written in an ordinary hand and well ar- ranged on the page, will occupy more than a dozen lines. Write the word "Specimen" across the face of each in red ink. Do all work in ink, or on the typewriter, and with the greatest possible care and neatness. Place your name on each page and submit for approval. TEST: "Is this the best you can do? If not, write it over again " Remember, careless or slovenly work will not be tolerated in an up-to-date business office. 202. Oral and written contracts. In ordinary busi- ness, most contracts may be oral in form, that is, by word of mouth. Such contracts are just as binding in law as if written in full. But with oral contracts mistakes are com- mon and misunderstandings are numerous. They are always more or less difficult to prove in court. Therefore, to avoid misunderstandings and to make proof certain, all important contracts should, whether required by law or not, be in writing. After an oral agreement has been reached, great care must be used when it is put into writing in order that it shall express the exact intention of the parties. This is absolutely essential, since the written form is the only part admissible as evidence to prove SIMPLE CONTRACTS 121 the existence of the agreement. In other words, oral testimony is not, as a rule, admissible to vary or contradict the terms of a written contract. Statute of Frauds. In most states there are only about a half-dozen forms of contracts that are expressly required by law to be in writing in order to render them valid. These sev- eral forms should be so carefully learned that they will be in- stantly recognized (see p. 12, Book I). 203. Offer and acceptance. Contracts arise from agreement, and agreements originate in some form of offer and acceptance. In oral contracts the offer and accept- ance are by word of mouth; after the agreement is reached it may be reduced to writing, thus forming a written con- tract. Agreement's may also be reached by correspondence. Where the negotiations are in this form, the agreement of the parties and the written form of the contract originate at the same time. A written offer followed by an accept- ance in writing, whether by letters or by telegrams, re- sults in a contract; these writings constitute the evidence of the agreement, and are, in fact, the written contract. EXAMPLES: 1. Oral offer and oral acceptance: "I will sell you that cow for $500, and deliver her at your place not later than May 3d," said to B, as he pointed out a cow in his dairy herd. "Agreed," replied B, "I will take her at that price, and make payment on delivery." This oral agreement may be reduced to writing; if so, it will be somewhat as follows: "THIS AGREEMENT between and B, both of Cowlitz, Oregon, witnesseth: "That 0, in consideration of the agreement of B, contracts 122 APPLIED BUSINESS LAW to sell and deliver to B one full-bred Jersey dairy cow, registered and known as 'Jersey Lil,' the delivery to be made on or before May 3d, 1919, at the dairy farm of B. "That in consideration of the agreement of 0, B agrees to pay to the sum of Five Hundred Dollars, at the time of the delivery of the above described cow, this sum being in full payment of the purchase price. "!N WITNESS WHEREOF, we have hereunto subscribed our names, this the 4th day of February, 1919." "(Signed) O " "(Signed) B " 2. Agreement reached by means of letters: OFFER Troy, Minnesota, February 3, 1919. John Doe, Home Place. Dear Sir: I will sell you one hundred bushels of select seed wheat, No. 1 Dura, delivered at your farm for four dollars a bushel. Upon receipt of your letter of acceptance, I will consider the contract closed, and deliver as you may direct. Yours truly, RICHARD ROE ACCEPTANCE Home Place, Feb. 4, 1919. Richard Roe, Troy, Minn. Dear Sir: I accept your offer of one hundred bushels of select seed wheat, No. 1 Dura, at four dollars a bushel, to be delivered at my place March 4, 1919. Yours very truly, JOHN DOE . . SIMPLE CONTRACTS 123 The foregoing letters constitute a valid written contract, and taken together, contain all the essential elements of a valid contract. Point out five essentials of a valid contract found in these letters. 3. Agreement reached by telegrams: OFFER Salem, Oregon, Feb. 5, 1919. Isaac Stein, Milwaukee, Wis. Can supply five ton hops, ten cents spot; f. o. b. cars, Salem; immediate delivery. KREPS HOP Co ACCEPTANCE Milwaukee, February 5, 1919. Kreps Hop Co., Salem, Ore. Accept your offer five ton hops, ten cents spot; immediate delivery, f. o. b. cars Salem. ISAAC STEIN These telegrams constitute a written contract. The language used is such as can be understood readily by dealers in hops, and which may be explained and established by parol evidence to show, from the customs and usages of the business, the peculiar meaning and intention of the parties. 4. Negotiation by letter. Is there a contract? f INVITATION TO BID" Fresno, Dec. 27, 1915. To the Trade: We quote prime seedless raisins at 7c, in lots of 10,000 Ibs. or more. The stock is this season's pack and put up in fancy car- tons, printed to, suit the purchaser. Fresno Raisin pmp&ny , ,..,., 124 APPLIED BUSINESS LAW ORDER Denver, Dec. 30, 1915. Fresno Raisin Co., Fresno, California. Gentlemen : Please book us for 100,000 Ibs. your prime seedless raisins at 7c, the cartons to be printed for our trade as indicated by the inclosed form. Yours truly, Colorado Supply Company REPLY Fresno, Jan. 3, 1916. Colorado Supply Co., Denver, Colorado. Gentlemen: In reply to your letter of December 30th, we regret that we can not book your order for 100,000 Ibs. seedless raisins as our supply has been exhausted by heavy foreign orders. Regretting our inability to supply you, we are Very truly yours, Fresno Raisin Company, By A. R. MANN ANALYSIS: Was the circular letter an offer to sell raisins to any particular buyer, or was it an invitation to the trade generally to order goods at the price quoted? Was the price quoted in- tended as a fixed offer, or was it to be subject to market varia- tions? If the circular letter was an invitation to order, was the letter from the Colorado Supply Co. an order or an offer to buy the amount specified? If the order was an offer to buy, was the re- ply an acceptance of the offer? Did the parties reach an agree- ment through an offer and an acceptance? Do these letters show the existence of a complete contract between the parties? SIMPLE CONTRACTS 125 5. DIHECTIONS: Make a copy of the form of contract given under the first example above. Use a proper heading and see that you make an exact copy. Mark it "Copy," place your name on it and submit it for approval. Write two letters which indicate a contract has been made by correspondence, as under the second example. Remember the caution as to neatness. Write two telegrams which indicate a complete contract, as under the third example. Try to keep near or within the ten- word limit. Write a form of circular letter inviting orders from the trade. Based on this invitation, write two other letters which give rise to a valid contract. 204. Essentials of contract. The first essential of any contract is the presence of competent parties, and the second is the mutual agreement of these parties. Agree- ment arises from a meeting of the minds, or an assent to the same thing and in the same sense, and it must be with an intention of being bound by the obligations of the con- tract. The third essential is that the agreement must be free from fraud, mistake, or duress. Fourth, it must be based upon sufficient cause, price, or consideration, (fifth) to accomplish a lawful purpose. The sixth and last essen- tial of a written contract is that it must be clearly stated. Therefore, however simple the contract, great care must be used to express the agreement in clear, exact language. Every essential must be set down with precision; the parties, the agree- ment, the consideration, a lawful object or purpose, and all the terms set out with clearness. The omission of any essential or a want of clearness will be fatal to the validity of the contract. In every case, the person writing out a contract should note carefully that it expresses all the essentials just named, though the order in which they are given is immaterial. 126 APPLIED BUSINESS LAW DIRECTIONS: Read, the form of contract given in example 1, in the preceding section, and point out each of the above named essentials. Does the language clearly express an agreement be- tween the parties? Indicate one or two changes which would make the form more concise and yet leave it clear. Point out the essentials in example 3. Is the language intel- ligible? How may it be made so? Is oral testimony admissible to show the meaning of a written instrument? Is it admissible to change the meaning? (see sec. 202, ante). What essentials are missing in example 4? 205. Parts of written contract. In every well written contract there are five parts, at least, and where necessary there may be more. These five parts are: (1) Heading, (2) initial agreement, (3) counter agreement, or consid- eration, (4) conclusion, and (5) subscription. (1) Heading. The heading or opening paragraph names the parties to the contract, and gives their addresses. It may state that the contract is in duplicate, triplicate, or other fold, or is to be held in escrow by a third party, and it may also give the date. (2) Initial agreement. The second part contains a clear statement of the exact thing that the first party to the contract agrees to do or refrain from doing. All the stipulations and specifications are set forth in detail and in logical order. This part of the contract may be put into a single paragraph, or as many paragraphs may be used as are required for its clear statement. Paragraphs after the first are grouped as further agreements. (3) Counter agreement, or consideration. This part of the contract contains a statement of the consideration, or the exact inducement and undertaking of the second party to the agreement. If it is for the payment of money, SIMPLE CONTRACTS 127 it should state when, where, and how payment is to be made and to whom, and it may state for what the pay- ment is given, and it must state the exact amount. (4) Conclusion. The conclusion is merely a witness- ing clause and not absolutely essential to the validity of the contract, though in well written contracts it is custom- ary to include it. (5) Subscription. The last part of a well arranged written contract contains the signature of each party to the agreement properly written at the end. The word sub- scription is from the Latin, "sub," meaning under, and "scriptio," to write, and literally means to underwrite. To subscribe is to "underwrite" a contract, or to sign at the end of the writing. In some states the statutes require certain contracts to be in writing and "signed" by the parties, while in others the require- ment is that the writing be "subscribed." The point is, a sig- nature may appear in any part of a writing, but a subscription can be only at the end. The subscription in a contract may be by the parties themselves or by their lawful agents acting for them, and it may contain the signature of one or more witnesses to the genuineness of the written agreement and the signatures of the contracting parties or their agents. 206. Form of agreement. The following form illus- trates the usual arrangement in writing out contracts: FORM OF CONTRACT Heading .... THIS AGREEMENT, Made in duplicate, this the sixth day of May, one thousand nine hundred and nineteen, entered into by and between AARON BAAL of Boise, Idaho, and CABEZ DANN of Provo, Utah, 128 APPLIED BUSINESS LAW Initial WITNESSETH, that the said Aaron Baal, in consider- agree- ation of the agreement of the said Cabez Dann, as here- ment inafter set forth, agrees to sell to the said Cabez Dann one full-bred short-horn Durham bull, known as "El Toro Primero," the same to be of registered stock, and the delivery of which is to be accompanied by a certifi- cate of registry to be delivered to the said Cabez Dann within ten days from this date. Further And the said Aaron Baal further agrees to deliver agree- to the said Cabez Dann at his stock farm one mile east ment of the City of Provo, Utah, the above described bull, "El Toro Primero," or at his election to deliver the same at the Inter-state Live Stock Exhibit, Union Stock Yards, Denver, Colorado, not later than the tenth day of May, nineteen hundred nineteen. Consid- In consideration of the agreements just stated, the eration said Cabez Dann agrees to pay to the said Aaron Baal the sum of One Thousand Dollars ($1000.00), lawful money of the United States, at the time the said bull, "El Toro Primero," is safely delivered as directed by the said Cabez Dann, this sum being in full payment therefor. Conclu- IN WITNESS WHEREOF, the parties to this agree- sion ment have hereunto set their hands the day and year first above written. Sub- . . . .Witnessed by AARON BAAL scrip- EZRA FAY CABEZ DANN EXERCISE I 207. Analysis. Read the above form carefully. Point out all the essentials of a written contract. Point out one or more non-essentials. Name the parties to the contract. State the initial agreement. Which party makes the initial agreement? State the counter-agreement, or consideration. Which party furnishes the consideration SIMPLE CONTRACTS 129 for the initial agreement? Give the conclusion. What does the subscription include? Does the writing sufficiently identify the parties to the con- tract? Does it sufficiently describe and identify the subject- matter of the agreement? Does it clearly state the undertaking of the first party to the contract? Does it indicate with sufficient exactness the place and manner of performance of the initial agreement? Does it indicate the time of performance? Is there any uncertainty as to who has the right to elect where the bull is to be delivered? Is the consideration clearly stated? Is the amount certain? Is the tune of payment given? Is the payment to be hi full of the purchase price? How may payment be made? Would the omission of the conclusion render the contract in- valid? Would the omission of the date affect the validity of the agreement? Is it necessary that the contract be witnessed? What effect has the witnessing? DIRECTIONS: Make an exact copy of the contract either in longhand or on the typewriter. Remember the caution: "Care- less or slovenly work will not be tolerated hi a good business office." Do your best. Mark the copy " Exercise I," write your name on it, and submit it for approval. After it has been ap- proved, file it away until you are directed to use it again. 208. Briefing. A brief title or identification mark or number is usually written on the back of folded docu- ments before they are filed away. This is called " briefing " and its purpose is to enable one readily to identify the document without opening and reading it. The briefing title should be centered properly upon the left end of the outside fold nearest the middle of the document. It should be arranged in a neat and orderly manner. The following is a suitable form of briefing for the contract in section 200; 130 APPLIED BUSINESS LAW FORM OF BRIEFING CONTRACT Between AARON BAAL and CABEZ DANN For the Sale of Bull May 6, 1919 DIRECTIONS FOR BRIEFING. After your copy of the contract in section 206 has been approved, fold it carefully and brief it by writing the above form on the left end of the fold nearest the middle of the document. If the contract is written on commercial size paper, 83^ x 11 inches, fold as follows: Grasp the lower left corner of the sheet and turn it upward until the bottom is about three and one-half or four inches from the top, then press the fold until flat; next grasp the upper left corner of the sheet and bring it down to within a quarter of an inch of the left corner of the first fold and press the fold until flat. Thus, the document when folded is a little less than four inches wide. The briefing or "indorsement" is placed upon the left end of the middle fold. If legal-cap paper is used, size 8^ x 13 inches, it may be folded in the following manner: Grasp the lower left corner of the sheet and turn it upward until the bottom and top edges are even, then press the fold out flat. Next, fold from the bottom upward as before, thus making four folds. The briefing or "indorsement" should be placed on the left end of the outside fold nearest the middle of the document. Where it desirable to put business papers and legal documents in covers ; the folding may be made as indicated above and the SIMPLE CONTRACTS 131 briefing or indorsing is written on the cover, in the same relative position. After the briefing of this document has been approved, file it for future reference. EXERCISE II 209. Material facts. Gus Hall of Yolo, California, operates a fruit packing business. Eli Fox of Afton, Cali- fornia, is a fruit and olive grower and has offered to sup- ply Hall with 50,000 pounds of ripe and marketable cher- ries of the Melifera variety, to be delivered at the pack- ing house at the rate of 10,000 pounds a day from the sixth to the tenth day of June, 1919; and he has offered twenty thousand pounds of ripe and marketable figs of the Calmyrna variety to be delivered at the packing house at the rate of two thousand pounds a day from the first to the tenth day of July, 1919; and he has also offered 60,000 pounds of ripe olives of the Primero variety, to be delivered at the packing house at the rate of two thousand pounds a day during the month of September, 1919. Hall agrees to take the cherries at three cents a pound, the figs at ten cents a pound, and the olives at five cents a pound, the purchase price to be paid immediately upon delivery of the various allotments. The contract is dated June third, 1919. 1. Analysis of Facts. As TO SUBSTANCE: (1) Name the parties to the negotiation. Their residence. (2) Is there an offer? By whom made? What is the offer, or is there a series of offers? State each. (3) To whom is the offer made? Has it been accepted? Or is there a series of acceptances? State each part. (4) Is there 132 APPLIED BUSINESS LAW mutual agreement? Is there a contract? (5) Is the object or purpose of the agreement a legal one? (6) What is the consider- ation for the undertaking of Fox? (7) Is the contract re- quired, by the Statute of Frauds, to be in writing? Does the value amount to more than $200? As TO FORM : How many parts will there be in the written form of this contract? What will the heading contain? (Make an oral statement of the heading.) What will be the substance of the initial agreement? (Make an oral statement of the initial agree- ment.) Who makes this agreement? Does he make any "fur- ther agreements" ? (If so, make an oral statement of each.) What is the counter agreement or consideration in the contract? (Make an oral statement of the counter agreement.) Who makes this agreement? It is made in consideration of what undertaking? What would be the effect on this promise should the initial agreement fail? Would the counter agreement still be binding on the second party? Would he have to make payment even though no fruit be delivered? Payment is conditioned upon what? Make an oral statement of a suitable conclusion for the above agreement. What will the subscription include? Will it be necessary to have a witness to the signatures? 2. Directions for Writing (1) The heading. Draft the heading or opening paragraph for this contract. Give the name and address of each party; state that the contract is written in dupli- cate; give the date. The form may be somewhat as follows: CONTRACT THIS AGREEMENT, Made in duplicate, this the third day of June, one thousand nine hundred and nineteen, entered into by and between Eli Fox, of Afton, California, of the first part, and Gus Hall, of Yolo, California, of the second part, WITNESSETH: SIMPLE CONTRACTS 133 (2) Initial agreement. Draft the initial agreement or the undertaking of Eli Fox, as the first party to the con- tract. Use as many paragraphs as may be needed, or if convenient use only one. Be careful to set out the entire undertaking of Fox. This will include not only the initial agreement but all further agreements undertaken by him. The initial and further agreements may be stated as follows: INITIAL AND FURTHER AGREEMENTS FIRST, That the said Eli Fox, in consideration of the agree- ments hereinafter contained, to be performed by Gus Hall, agrees to sell and deliver to the said Gus Hall at his packing and canning factory at Yolo, California, fifty thousand pounds of ripe and marketable cherries of the Melifera variety, the same to be de- livered at the rate of ten thousand pounds a day, or as near to that amount as may be, the date of delivery beginning on the sixth day of June, 1919, and continuing daily thereafter until the full amount of fifty thousand pounds of cherries have been delivered. SECOND, That the said Eli Fox further agrees, in considera- tion of the undertaking to be performed by Gus Hall, to sell and deliver to the said Gus Hall at his packing and canning factory at Yolo, California, twenty thousand pounds of ripe and mar- ketable figs of the Calmyrna variety, to be delivered at the rate of two thousand pounds a day from the first to the tenth day of July, 1919, or as near to that amount daily as may be practicable until the full amount of twenty thousand pounds of figs has been delivered, as agreed. THIRD, That the said Eli Fox further agrees, in consideration of the undertaking to be performed by Gus Hall, to sell and de- liver to the said Gus Hall at his packing and canning factory at Yolo, California, sixty thousand pounds of ripe and marketable olives of the Primero variety, to be delivered at the rate of two thousand pounds daily or as near to that amount as may be prac- 134 APPLIED BUSINESS LAW ticable, during the month of September, 1919, until the full amount of sixty thousand pounds of olives has been delivered. FOURTH, It is expressly provided in this agreement that the said Eli Fox may be discharged from performing the undertak- ings herein agreed to be performed in the event that the fruits and crops herein contracted to be sold to the said Gus Hall shall become destroyed or damaged by and from any cause over which the said Eli Fox has no control, such as inclement weather or other natural causes, provided such natural causes were not con- nected and related to any act of negligence or want of reasonable diligence on the part of the said Eli Fox. (3) Consideration, or counter agreement. Draft the consideration or counter agreement of Gus Hall, as the second party to the contract. Be careful to set out the entire undertaking of Hall and specify clearly the time, place, and manner of payment, and the amount to be paid for the fruit. This part of the writing may be set out somewhat as as follows: COUNTER AGREEMENT And the said Gus Hall, in consideration of the undertakings of the said Eli Fox, as herein above stated, well and faithfully per- formed, agrees: FIRST, To pay to the said Eli Fox the sum of three cents a pound for the said fifty thousand pounds of cherries, immediately on delivery of the various allotments of the same, the total pay- ment to be completed at the completion of delivery of said cher- ries. SECOND, To pay to the said Eli Fox the sum of ten cents a pound for the said twenty thousand pounds of figs, immediately upon the delivery of the various allotments of the same, total payment to be completed at the completion of the delivery of the SIMPLE CONTRACTS 135 THIRD, To pay to the said Eli Fox the sum of five cents a pound for the sixty thousand pounds of olives, immediately upon the delivery of the various allotments of the same, total pay- ment to be completed at the completion of delivery of the olives. (4) Conclusion. The form of the conclusion is practi- cally the same in all simple contracts. It may be written somewhat as follows: IN WITNESS WHEREOF, The said parties hereto have sub- scribed their respective signatures the day and year first above written. (5) Subscription. The subscription contains the sig- nature of each party to the contract and of any person who signs as a witness. The signature must be made by each party himself, or by his lawful agent acting for him. In no case should the student sign the name of another unless he has authority to sign it, or unless the name is known to be a pure fiction. The names used in the above contract are mere fictions and, therefore, the student may write them in as though authorized to act as the agent for each party. He may also subscribe his own name as a witness to the contract. Signature by agent. As stated above, no person should sign the name of another without first having authority to act for him. Assuming that authority has been given one to sign for another, then the manner of making the signature will determine which party is liable. The signature should be in such form as to leave no question as to the liability of the principal. The principal's name should be written first, with the name of the agent, or his initials, placed after it. EXAMPLES: Correct forms: Ira Jones, acting as agent for Gus Hall, may sign in the following forms and render the principal liable: 136 APPLIED BUSINESS LAW (a) Gus Hall, by Ira Jones, Agent. (b) Gus Hall, by Ira Jones; or . (c) Gus Hall, by his agent, Ira Jones. Incorrect forms. The agent alone may be held liable on any of the following forms: (a) Ira Jones, Agent. (b) Ira Jones, Agent for Gus Hall. (c) Ira Jones, Secretary for the Gus Hall Packing Company. 3. Directions for Briefing The contract in Exercise II should be written out carefully on legal-cap paper, and after the work has been approved, it may be folded and briefed as directed in section 208, and placed in the file for future reference. " Budget Method." Should it be desired to make up a "BUD- GET OF BUSINESS PAPERS," then the various forms written out should not be folded but placed in a vertical or flat file or port- folio until directed to bind them in covers as a budget. The "budget method" gives better results, when properly worked out, than folded filing, as it shows in collected form all the documents of a given group of business papers. EXERCISE III 210. Material facts. Irwin James, of Palo Alto, California, desires to have a house built on his lot at 1112 College Terrace. Kieth Lang, a contractor of San Fran- cisco, offers to build the house as a brick-veneered frame dwelling of a bungalow type according to plans and speci- fications drawn by Max Norton, architect. The house is to be ready to be occupied on or before the first day of July, 1919, otherwise the builder is to pay $100 a month, or fraction of month, that may elapse after July 1, 1919, before the house is completed. The consideration for the SIMPLE CONTRACTS 137 construction of the house is to be $12,000.00, to be paid, two thousand dollars when the foundation and cement work is completed, two thousand dollars when the super- structure is roofed and enclosed, two thousand when the glazing and plastering are completed, and the balance, $6000, to be paid when the house is fully completed. James accepts the offer on the tenth day of February, 1919. 1. Analysis of Facts As TO SUBSTANCE : (1) Who are the parties to the negotiation? Give the address of each. (2) Is there an offer? By whom made? What is the offer? (3) To whom was the offer made? Has it been accepted? By whom? When? In what manner? (4) Is there mutual agreement? Is there a contract? (5) Is the subject or purpose of the contract legal? (6) What is the con- sideration for the undertaking of Lang? (7) Is the contract re- quired by law to be in writing in order to make it valid and en- forceable? As TO FORM: How many parts will there be in the written form of this contract? State orally what the heading should con- tain. State the substance of the initial agreement. Who makes this agreement? Does he make any further agreements? What is the counter agreement? Who makes this agreement? For what is this consideration to be given? What would be the effect on the counter agreement of a failure of the initial agree- ment? Would Irwin James still be liable for the payment of the consideration? Upon what is payment conditioned? State a form of conclusion for this contract. What will the subscrip- tion include? 2. Directions for Writing (1) Heading. Write the heading. Use the form given in section 206 as a model. The framework of this form of heading should be memorized so it can be used readily without reference to any particular model. 138 (2) Initial agreement. Write the initial agreement. The arrangement may be as follows: FIRST, That the said party of the first part, for and in con- sideration of the agreements herein stated, to be performed by the party of the second part, agrees to construct and finish in good and workmanlike manner for the said party of the second part, and on a lot belonging to him, known as 1112 College Terrace, in the City of Palo Alto, California, one brick-veneered frame dwelling house, of a bungalow type, in accordance with the plans and specifications drawn by Max Norton, an architect of the same place, and hereto annexed as a part of this agreement. The building is to be constructed of good and substantial materials in accordance with the specifications of the architect, and to be completed ready for occupancy on or before the first day of July, 1919. SECOND, That the party of the first part further agrees that in the event of his failure to complete the building ready to be occupied by the above specified date, he will pay to the party of the second part $100, as liquidated damages, for such delay for every month or fraction thereof, the full completion of the build- ing is delayed beyond the date above specified. (3) Consideration, or counter agreement. Write the counter agreement. The wording and arrangement may be as follows: THAT the party of the second part, in consideration of the fore- going, agrees to pay to the said party of the first part for the same the sum of twelve thousand dollars ($12,000.00), lawful money of the United States, in the following payments: (1) The sum of two thousand dollars when the foundation, cellars, basement, and other cement work are completed; (2) the sum of two thou- sand dollars when the superstructure is roofed and enclosed; (3) the sum of two thousand dollars when the glazing and plas- tering are completed and approved by the architect, Max Nor- ton; and (4) the balance of six thousand dollars to be paid when SIMPLE CONTRACTS 139 the building is fully completed and approved by the architect in accordance with the plans and specifications as provided herein. (4) Conclusion. Write the conclusion in the usual form. This form should be memorized. (5) Subscription. Leave blank rulings for the sig- natures of the parties. After the writing has been approved, fold and brief, or file without folding as already directed. Remember the cautions about careful work. Do not submit work that contains errors, erasures, or other indications of a lack of care. If you do, you should be asked to rewrite it. EXERCISE IV 211. Material facts. Ole Petersen, of Appomattox, Virginia, writes under date of February 9, 1919, to Queed Robson, Roanoke, Virginia, asking quotations on cross- ties and suggesting that he has for sale 10,000 first class oak ties. Robson replies February 10th, offering one dol- lar each for first class^ oak ties, 7 ft. long, 7 inches thick, and with not less than 7 inch faces, in lots of from 1000 to 10,000 ties, the same to be delivered at the tracks of the Norfolk & Western Railway at Appomattox, where they can be inspected and accepted, at the rate of 1000 ties a month until the contract is filled. Petersen immediately accepts this offer and agrees to supply 10,000 ties. He requests Robson to send written form of contract in duplicate. The letter of acceptance was dated Febru- ary 11, 1919. 1. Analysis of Facts As TO SUBSTANCE: (1) Name the parties to the negotiations. (2) Is there an offer? From whom? Was Peterson's letter of 140 APPLIED BUSINESS LAW February 9th an offer to supply crossties, or was it merely an in- quiry? What is the offer? (3) To whom was the offer made? Has it been accepted? By whom? When? For how many crossties? (4) Have the parties reached an agreement? Is there a contract? (5) Is the purpose of the contract legal? (6) What is to be the consideration for the undertaking of Petersen? (7) Must the contract be in writing to be valid? Would it make any difference if the ties were not already pre- pared but had to be made and prepared for delivery after the agreement was reached? Does a contract for work, labor, and materials, have to be in writing to render it enforceable? As TO FORM: Name the parts required for this written con- tract. Make an oral statement of each part in the order they are to appear in the contract. Who makes the initial agreement? Who the counter agreement. 2. Directions for Writing Write a first draft of each part of the above agreement, work- ing each part out separately. Reread for possible errors or omis- sions. Next, rewrite all together in regular form. Brief and submit for approval. After approval, mark the contract "Exer- cise IV," and file with the others. EXERCISE V 212. Material facts. Sam Tate, of El Centre, Cali- fornia, has for sale 1000 bales of 500 pounds each of Im- perial long-staple cotton. He issues a circular letter under date of February 10, 1919, inviting bids on the cotton, f. o. b. cars at El Centro. Uriah Vrooman, of Boston, mails an offer of 30c. a pound under date of February 15, 1919, which was received by Tate on the 20th. The cot- ton was to be shipped at the rate of fifty bales a week, and to be paid for by draft on receipt of the bills of lading, forwarded from El Centro. Tate writes accepting Vroo- SIMPLE CONTRACTS 141 man's offer, providing that in case the cotton is lost or destroyed through no fault of his the contract is to be dis- charged. The letter of acceptance is posted February 21st, but before it reaches Vrooman he wires revoking his offer. This telegram is received by Tate on February 24, 1919, and the letter of acceptance reaches Vrooman on the 25th. ANALYSIS: Analyze the facts carefully, first, as to substance; second, as to form. Is there an offer? By whom? Is there an acceptance? Did the acceptance become effective before the telegram revoking the offer reached Tate? When does an ac- ceptance become effective? When does a revocation become ef- fective, the moment it is transmitted, or not until it is received by the offeree? "Is there a contract?" That is the question to be decided here. Is it required to be in writing? Are the letters a sufficient memorandum of the agreement to render it enforceable? DIRECTIONS FOR WRITING: Taking as granted that there is a valid agreement between the parties, write out the agreement in duplicate, following the directions given in the preceding ex- ercises. After it is properly written and approved, brief and file, or without briefing, file with the other forms, marking it "Exercise V." EXERCISE VI 213. Material facts. The following advertisement appeared in Boot and Shoe Recorder. FOR SALE, a large and growing boot and shoe busi- ness; good location, rent reasonable, with long term lease. First class stock and fixtures, high class trade. Address, X c/o The Recorder, Boston. On May 10th, Ward McGrew, of Salem, Oregon, wrote asking an opportunity to investigate the business, and offering fifty per cent of the cost value of stock and fixtures, 142 APPLIED BUSINESS LAW if the proposition suited him. On May 19th he received a telegram from Otto Piez, Racine, Wisconsin, accepting his offer, and inviting him to come and investigate and arrange for taking an inventory at once. DIRECTIONS: Analyze the facts and determine if there is a contract. Look for all the essential elements of a valid contract. Go over each element carefully. Be sure there is an agreement with nothing yet remaining to be done in order to render it bind- ing on both parties. Distinguish between an unconditional ac- ceptance and an invitation to investigate. Examine the offer carefully. Is it conditional or unconditional? After your analysis, if you find all the elements of a valid con- tract present, you may then reduce the agreement to written form. Review section 204, in connection with the above analysis. Every step in your work must be taken with as much care as though it were to be passed upon by the keenest legal minds of the supreme court of appeals in your own state, or in the state in which the contract is supposed to be made. EXERCISE VII 214. Material facts. Andrew Brown, of New York City, advertises for a manager to take charge of a general department store for a period of one year, or as long there- after as mutually agreeable, at a salary of $12,000 a year, service to begin March, 1 1919. Carl Dole, of Denver, offers his services and gives satisfactory references. Brown accepts the application February 11, 1919, and asks to have the agreement put in writing so that it may be signed by each of the parties. DIRECTIONS: Analyze the facts and determine if there is a contract. If so, is it required by law to be in writing in order to render it enforceable? SIMPLE CONTRACTS 143 The above agreement was drafted in the form of a contract by Dole, as follows: "CONTRACT, Made the llth day of February, 1919, by and be- tween Andrew Brown, of New York City, of the first part, and Carl Dole, of Denver, Colorado, of the second part, IN THESE WORDS: "The party of the second part agrees to and with the party of the first part, to furnish his services to the party of the first part as manager of a General Department Store to be located at Cadillac Place, Detroit, Michigan, for the period of one year, or twelve calendar months, beginning March 1, 1919, and ending February 29, 1920; and said party of the second part promises and agrees to perform faithfully all the duties incident to the said position as business manager, or in the event of his inability to do so through illness or other cause, to give immediate notice of the fact to the party of the first part. "And the party of the first part agrees to pay to the party of the second part, for the services as business manager properly rendered, the sum of twelve thousand dollars ($12,000.00) as follows: The sum of one thousand dollars on the tenth day of April, 1919, and the sum of one thousand dollars on or before the tenth day of each succeeding calendar month until the expir- ation of the period of one year above mentioned, the last pay- ment to be on the 29th day of February, 1919, or within ten days thereafter. "For the true and faithful performance of all the provisions and promises of the foregoing agreement, the parties to this con- tract bind themselves each unto the other in the sum of one thou- sand dollars ($1000.00), as a fixed and liquidated amount of damages to be paid by the failing party to the other in the event of a breach by either party to this agreement. "!N WITNESS WHEREOF, The parties to this agreement have hereunto set their hands to these writings in duplicate, this the day and year first above written. Witnessed by Signed by f ' ' ' f 144 APPLIED BUSINESS LAW ANALYSIS: (1) Does the contract as written by Dole contain all the essentials of a well written contract? Name these essentials (see sec. 205). Give the heading of this contract. What does it contain? Does it state that the contract is to be signed in duplicate? (2) State the initial agreement. Who makes this agreement? Is the contract to be performed within the year? Is such a con- tract required by the statute of frauds to be in writing? Is Dole bound to perform his obligations at all events? What may ex- cuse him from performance? What act must he do to relieve himself from performance or from liability for non-performance? (3) Give the counter agreement, or consideration for the under- taking of Dole. Who undertakes this agreement? What are the conditions for his performance? What will excuse him from performance? (4) State the penalty clause of this contract. Is such a clause legal? Is it enforceable? May the parties to the contract agree between themselves upon what they would consider reasonable damages in the event of a breach of the agreement by one of the parties? If the agreed damages are greater than the actual dam- ages suffered as a result of the breach, would a court of law per- mit a recovery upon such an obligation? State the agreed penalty. (5) State the conclusion. Is it in any way different from the forms you have already had? In what way? As TO LANGUAGE : Is the statement of the initial agreement in language clear and exact? Point out an error or an ambiguous expression. Does it make the meaning doubtful or uncer- tain? What ambiguity is found in the counter agreement? What change would you suggest in the wording or arrange- ment of these parts? DIRECTIONS: Rearrange and rewrite each part of the above form of contract with a view to improving it. After you have completely rewritten it, compare your draft carefully with the original and point out points of superiority in your own work. After your work has been approved, brief and file it with your other forms as "Exercise VII," SIMPLE CONTRACTS 145 EXERCISE VIII 216. Material facts. Elton Farmer, of Shreveport, Louisiana, sends out circular letters under date of Feb- ruary 11, 1919, inviting orders for Al cypress lumber at $50 per M board feet, f . o. b. cars at Shreveport, in lots of not less than 10,000 feet. Gib Holmes, of Memphis, Ten- nessee, on receipt of this letter, writes under date of Feb- ruary 14th, "accepting the offer," and asks for 100,000 feet Al cypress lumber, delivered f. o. b. river packet at Shreveport. On February 15th, Farmer writes that he cannot supply lumber at the price quoted in the cir- cular letter, but offers to fill the order for Holmes, f . o. b. river packets at $60 a thousand. On February 17th, ' Holmes wires, "Accept your offer, 50,000 feet at $60 a thousand, f. o. b. river packets, Shreveport; delivery on or before March 1, 1919. Contract in duplicate for- warded. Gib Holmes." ANALYSIS, AS TO SUBSTANCE: (1) Who are the parties to the negotiation? (2) Is there evidence of an offer? By whom? Did the circular letter constitute an offer to supply the lumber de- scribed therein at the price named? (3) What, in fact, was the offer? To whom made? Is there evidence that it was accepted? (4) Did Farmer have a right to vary or revoke the price quoted in his circular letter after receiving the letter from Holmes or- dering 100,000 feet of the lumber? (5) Supposing Farmer's cir- cular letter to have been an offer, would the letter from Holmes under date of the 14th have been a sufficient acceptance of the offer? How about the terms of delivery? After receiving this letter, had Fanner a right to change the price of the lumber? Would delivery f. o. b. river packet be more expensive than f. o. b. cars? (6) Farmer's letter of the 15th was a specific offer of a definite amount of lumber of a given grade at a fixed price and to be de- '146 APPLIED BUSINESS LAW livered in a particular manner. Was the telegram from Holmes a sufficient acceptance? Was there any variation between the terms of the offer and the acceptance? (7) At this point, is there a contract or mutual agreement be- tween the parties? Has Farmer a right to refuse to sell or de- liver the 50,000 feet of lumber ordered by Holmes? What will be the effect if he signs the contract Holmes sends? As TO FORM: Suppose you are asked to draft a form of con- tract for Holmes, how many parts will you use? Name them. What will the heading contain? Give the substance of the initial agreement. Who makes this agreement? Does he make any further agreements? Are there any conditions or reservations in his undertaking? What is the counter agreement? Who makes this agreement? Would the counter agreement be bind- j ing in the event of a failure of the initial agreement? Give thej form of conclusion. DIRECTIONS: Write the contract in duplicate and in the usual form, stating all the agreements in clear, exact language. Suppose your "rough draft" is somewhat like the following form. You are to rewrite it and eliminate all ambiguous parts. CONTRACT THIS AGREEMENT, Made in duplicate, this the seventeenth day of February, 1919, entered into by and between Elton Far- mer, Shreveport, Louisiana, of the first part, and Gib Holmes, Memphis, Tennessee, of the second. WITNESSETH, that the party of the first part, in consideration of the agreement of the party of the second part as hereinafter set forth, agrees to sell, and by this contract does sell to the party of the second part, 50,000 feet cypress lumber of first quality, and agrees to deliver the same f . o. b. interstate railway cars at Shreve- port, La., or f. o. b. river packet at the same place, at the elec- tion of the said party; the delivery to be to the order of the pur- chaser, on or before March 1, 1919. That in consideration of the foregoing agreement on the part of the party of the first part, the party of the second part agrees SIMPLE CONTRACTS 147 to pay to the said party of the first part the sum of sixty dollars ($60.00) a thousand board feet for the entire 50,000 feet of first class cypress lumber delivered as above agreed, and upon re- ceipt of an order bill of lading covering such shipment or ship- ments, the total payment of $3000.00 to be in full payment for the entire shipment or shipments of the above described lumber. ' And it is further agreed by and between the parties, that in the event of the total destruction, or the destruction or damage of any part of such lumber at or before the time of delivery, through no fault of the party of the first part, he shall be relieved from all liability arising from a non-performance of the undertaking above agreed upon, and the contract to that extent discharged. IN WITNESS WHEREOF, The parties to this agreement have hereunto set their hands the day and year first above written. Signatures of the Parties ' FURTHER ANALYSIS : Is there any doubt or uncertainty in the language of the initial agreement? Point out the ambiguous part and suggest wording that will make the meaning clear. Is it clear which party shall have the right to elect whether the lum- ber be delivered on cars or on river packets? If not, use language that will make this point clear. Is there unnecessary repetition in the counter agreement? Suggest a rearrangement and wording that will render the state- ment clear and concise. Rewrite the entire contract. When it has been approved, mark it "Exercise VIII," and file. EXERCISE IX 216. Material facts. Iver Johnson, of Detroit, Mich- igan, is a dealer in rebuilt automobiles and motor trucks. He sends out descriptive circulars from time to time listing the various cars he has on hand ready for immediate de- livery. Kurt Leeds, of Cleveland, Ohio, in reliance on the 148 APPLIED BUSINESS LAW statements and descriptions in Circular No. 7-F, orders a rebuilt Cadillac listed at $1100, but specifies certain changes and additions to be made, as shown by the follow- ing letter: "Cleveland, February 10, 1919. Mr. Iver Johnson, Detroit, Mich. Dear Sir: I have selected from your Circular No. 7-F, the car listed therein as No. 234, rebuilt Cadillac, $1100, as the one I desire, provided you will add Max Farad Electric equipment, and also remove the jump-seats and tonneau seat and rebuild the back of the body for camp equipment with two Pullman sleeping berths, according to the enclosed diagrams and speci- fications. Yours, truly, KL/S. KURT LEEDS " To this letter Johnson replies offering to make the desired changes and additions at an increased cost of $400; the total cost of the rebuilt car f. o. b. Detroit, to be $1500. This letter was of date February 15th. On the 17th, Leeds wrote accepting the offer and asking to have the car ready for delivery within ten days from that date. ANALYSIS: Is there an agreement? State the offer; the ac- ceptance; the consideration. Is the agreement legal? Is it re- quired to be in writing? Would the correspondence between the parties be a sufficient memorandum to render the contract bind- ing? Is the contract made in Ohio or in Michigan? If in Michigan, it must be in writing as the amount involved is more than $50 as provided in the Michigan statute of frauds, unless the contract is for "work, labor, and materials," and not the sale of a finished article. Which is it? DIRECTIONS : Write the contract in duplicate stating the under- taking of each party. Use clear, exact language. After your work has been approved, mark it "Exercise IX," and file. SIMPLE CONTRACTS 149 EXERCISE X 217. Material facts. Marx Nieman, Pueblo, Colorado, advertised for 4000 tons first grade washed coke, to be delivered at the rate of fifty tons a week at the Union Iron Works, San Francisco, California. Otto Parks, agent for the Victor Fuel Company, Del Agua, Colorado, offered by letter of February 12, 1916, to supply the 4000 tons of coke to be delivered f . o. b. Santa Fe cars at Del Agua, Colorado, at the rate of 50 tons weekly at $10 a ton, pay- ment to be made on delivery of bill of lading to Nieman at Pueblo, and shipments to begin March 1, 1916. Nieman accepted this offer February 14, 1916, and asked to have a contract in duplicate forwarded for his signature. Parks stipulated against liability in case of strikes, explosions or other delays arising through no fault of the fuel com- pany. ANALYSIS: (1) Name the parties to the contract. Is Parks a party to the agreement? Suppose he signed as "Otto Parks, agent for the Victor Fuel Company," would the company be lia- ble? Suppose he signed, "Victor Fuel Company, by Otto Parks, Agent," would this make any difference? (2) Is there an agreement between the parties? (3) Is the purpose of the contract lawful? (4) What is the consideration? (5) Is the contract required to be in writing? What is the initial agreement? The counter agreement? Which party makes the initial agreement? State the conditions or provisions against liability for failure to deliver? Are there any provisions for liquidated damages in case of a breach of the contract? DIRECTIONS: Write the contract in duplicate. Look it over carefully for possible omissions or mistakes. Make all state- ments in clear, exact language. Brief and present for approval. After approval, mark it "Exercise X," and file. 150 APPLIED BUSINESS LAW , EXERCISE XI 218. Explanation. The following form of contract, we will suppose, was drafted and submitted to Ole Peter- sen for his signature, as indicated in Exercise IV. Upon examination, he suggested the changes indicated and asked to have the contract rewritten before he would sign it. Read the form with the directions and make the cor- rections suggested in the notes which follow the form. ARTICLES OF AGREEMENT THIS AGREEMENT, written in duplicate, 1 made and entered into by and between Ole Petersen, of Appomattox, Virginia, and Queed Robson, of Roanoke, Virginia, 2 scilicet: 3 First, That in consideration of 4 $1.00 in hand paid and other good and valuable considerations, the agreements by and be- tween the said 6 Ole Petersen and the said Queed Robson, is as follows, viz: 3 Second, That 6 the said 7 party of the first part is 7ffl to cut, hew, make and manufacture 8 white oak crossties of a first class grade and of a standard size, viz., 7 feet long, 7 inches thick from face to face, and with not less than 7 inch hewed face, and deliver the same at the freight yards and siding of the 9 Railway at Appomattox, Virginia, 9a where they are to be inspected and accepted 10 at the rate of 1000 ties a month, beginning with May, 1916, and continuing until the full number of 10,000 crossties has been delivered. 3 Third, That the said 7 party of the first part further agrees, 11 in consideration of the undertakings of the party of the second part, to load the said crossties 12 on flat cars furnished by the 1S Railway Company 14 each lot to be loaded within ten days after they have been inspected and accepted 14 3 Fourth, That the said 15 party of the second part agrees to receive and accept, 16 upon proper inspection, and pay for all first class ties delivered " the sum of fifty cents each SIMPLE CONTRACTS 151 upon acceptance, and a further sum of fifty cents each when the ties have been loaded as provided above, 18 the first sum to be due and payable immediately upon acceptance of the ties at the railway siding and the remainder to be paid upon receipt of a bill of lading for the said crossties. IN TESTIMONY WHEREOF, the parties to this agreement have hereunto set then* hands 19 and seals the day and year first above written. Witnessed by (Seal) M (Seal) NOTES AND DIRECTIONS: The following additions and changes are to be inserted at the points corresponding with the respective numbers. (1) Insert, "the llth day of February, 1919." (2) Change "scilicet" to "witnesseth." (3) Omit the ordinals, "First," etc. (4) Omit, "$1.00. in hand paid and other good and valuable considerations . ' ' (5) Omit, "Ole Petersen and the said Queed Robson, is as follows, viz.," and insert "parties." (6) Omit "that." (7) Omit "party of the first part," and insert "Ole Petersen." (7a) Change "is" to "agrees." (8) Omit "white" and insert "10,000." (9) Insert "Norfolk & Western." (9a) Insert "at the rate of not fewer than 1000 ties a month, beginning with May, 1919, and continuing until the full number of 10,000 crossties has been delivered." (10) Insert a period here. (11) Omit "in consideration of the undertakings of the party of the second part." (12) Insert "after they have been inspected and accepted." (13) Insert "Norfolk & Western." (14) Insert "for that purpose." (14a) Insert "or as soon thereafter as cars are provided." (15) Change to "Queed Robson." 152 APPLIED BUSINESS LAW (16) Insert "the ties." (17) Insert "as provided above." (18) Insert "and to pay for second class ties the sum of forty- cents each as accepted." (19) Omit "and seals." (20) Omit the word "(Seal.)" DIRECTIONS: Rewrite the above contract, making all nec- essary changes as indicated, and compare your finished draft with the original to see that there have been no omissions. After the new draft has been approved, brief, mark it "Exercise XI," and file with your other forms. EXERCISE XII 219. Explanation. The California Fruit Company, of Sacramento, desires to open sales branches for the dis- tribution of their products in various eastern cities. The principal products of this concern are fresh fruits, canned and dried fruits, and various by-products such as pre- serves, flavoring extracts, fruit-juices, fruit-acids, vinegars, distillate, and other like products. The first branch office is to be established at Pittsburg, Pennsylvania, and to be known as the Pittsburg Produce Company. The manager wishes a form of contract for the Pittsburg branch and desires it to be in such form that it may be used as a gen- eral form for the establishment of other branch offices, or sales agencies. The following form has been submitted. ARTICLES OF AGREEMENT THIS AGREEMENT, Made * by and between the California Fruit Company, of Sacramento, California, 2 and the Pittsburg Produce Company, of Pittsburg, 3 Pennsylvania, WITNESSETH: That the party of the first part 4 agrees to ship and consign to the said party of the second part as selling agent for the party of the first part in the City of Pittsburg 5 such quantities of SIMPLE CONTRACTS 153 fruits and other products 7 packed 8 by the 9 California Fruit Company as may be required by the 10 Pittsburg Produce Com- pany to meet the demands for these products in the Pittsburg district. That the said u goods shall be ua consigned to the 10 Pitts- burg Produce Company at the regular 12 (market quotations) as made and published by the party of the first part, the same to be subject to a TRADE DISCOUNT of 25, 20, and 10% off the list prices, 60 days net, or 2% for cash, within ten days. 12a That the said fruit 13 so consigned shall remain the property of the 9 (California Fruit Company) until disposed of by the party of the second part, in which case the party of the second part becomes and is hereby agreed to be a del credere selling agent for the party of the first part. That the party of the second part 14 agrees to sell the 14a prod- uce consigned by the party of the first part to retail dealers and to consumers that purchase in large quantities, 15 the sales price to be uniformly at 20 and 10% off the regular 16 list. That the 10 Pittsburg Packing Company shall " make regular l8 monthly accountings to the party of the first part, 19 that the party of the second part shall insure and further care for the fruit M consigned with all reasonable and due care required by the 21 goods thus consigned. And it is 22 agreed " that the party of the second part shall execute in behalf of the party of the first part an indemnity " bond 25 conditioned on the 26 discharge of the obligations incum- bent upon him, the principal sum and ahiount of which is to be- come due and payable to the party of the first part 27 on a failure or breach of the conditions thereof. And it is further 28 agreed w that this 30 agreement may be terminated by mutual assent or 31 on notice given 32 and a proper accounting. IN WITNESS WHEREOF, We have hereunto affixed our J4 seals this the day and year first above written. (Seal) Witnessed by " (Seal) 154 APPLIED BUSINESS LAW NOTES AND DIRECTIONS: Rewrite the above form of contract making the changes as indicated by the numbered notes. (1) Insert "and signed in duplicate, this the tenth day of February, 1919." (2) Insert "party of the first part." (3) Insert "party of the second part." (4) Insert "in consideration of the agreement made by the party of the second part as hereinafter stated." (5) Add "and adjoining territory." (6) Add "both fresh and packed." (7) Insert "manufactured." (8) Add "and shipped." (9) Omit "California Fruit Company" and insert "party of the first part." (10) Omit "Pittsburg Produce Company" and insert "party of the second part." (11) Add "consignments of." (lla) Change to "billed." (12) Insert "trade price list" in place of "market quotations." (12a) Join paragraphs three and four by omitting "that." (13) Add "and other products." (14) Insert "in consideration of the foregoing agreement of the party of the first part." (14a) Change to "various products." (15) Insert "equal to the quantities usually required by retail dealers." (16) Insert "trade price." (17) Add "in consideration of the foregoing." (18) Change "monthly" to "weekly." (19) Insert "and remit any balance due the latter." (20) Insert "and other products." (21) Add "character of the." (22) Add "further." (23) Insert "by and between the parties hereto." (24) Add "and fidelity." (25) Add "for $10,000." (26) Add "faithful.'? SIMPLE CONTRACTS 155 (27) Insert "immediately." (28) Add "provided and." (29) Insert "by and between the parties hereto." (30) Change "agreement" to "contract." (31) Insert "sixty days." (32) Add "in writing." (33) Add "between the parties hereto." (34) Insert "signatures" and omit "seals." (35) Omit the "seal" and scroll. DIRECTIONS: After the above contract has been rewritten with the various corrections and additions suggested, you should make a careful study of each paragraph and each sentence in each paragraph with a view to further improvement. Brevity and simplicity with a view to clear and exact state- ment of the undertaking and duty of each party to the contract should be the goal. After this work has been approved, you may mark it "Exer- cise XII," and file with your other forms. QUESTIONS FOR REVIEW 201. Of what does Group I treat? Distinguish between the two classes of contracts. 202. Discuss oral and written contracts, and their relation to the statute of frauds. 203. Discuss the origins of agreements in the matter of busi- ness contracts. 203. State clearly and concisely all the essentials of a valid con- tract. 205. Name and explain the purpose of each of the parts in a well written contract. 208. Explain the purpose and method of "briefing" or "indors- ing" business papers. 209. Discuss "signature by agent," and give examples to il- lustrate. 156 APPLIED BUSINESS LAW EXERCISE XIII. Write a brief contract for the sale of a stock of groceries,' valued at $5000. EXERCISE XVI. Write a brief contract for the sale of a stock of clothing, value, $10,000. GROUP II ARTICLES OF AGREEMENT Articles of Co-partnership 220. Kinds of Co-partnership. The kinds of partner- ships are as numerous as the varied interests of man- kind. The principal kinds may be grouped under three general divisions: (1) Industrial partnerships, which in- clude every form of industrial activity, as agriculture, mining, lumbering, fishing, manufacturing, transporting, and the like. (2) Commercial or trading partnerships of every kind, including wholesaling and retailing, as owners or as factors or agents for others. (3) Professional partnerships, which include partnerships for carrying on or practicing the various learned professions, as law partnerships, engineering partnerships, and the associa- tion of physicians, surgeons, and other skilled and tech- nically trained persons in the practice of their voca- tions. Of the various kinds of partnerships with which one may come into contact, three of the most common types have been selected for the purpose of drafting articles of agreement for their conduct. These three are typical of partnerships in general and the forms may readily be varied, to suit any special form desired. They will be con- sidered in the following order: (1) A farm partnership; (2) a grocery partnership; and (3) a law partnership. 157 158 EXERCISE XV 221. Material facts. Albert Brown, Havana, Florida, is the owner of 160 acres of farm land, but without funds or equipment to engage in the sort of farming he wishes to carry on. Charles Dean, Macon, Georgia, has been a tenant farmer for a time and is the owner of teams, farm implements, and equipment ample to cultivate 160 acres. In a letter to Dean, February 14th, Brown offers to form a partnership with him for the purpose of carrying on a general farming enterprise, each to have his property valued by appraisers and then to be taken over by the partnership as the capital invested by each partner, to- gether with the time, labor, and skill of each in behalf of the partnership; the losses and gains, after each partner receives $100 a month as salary which is to be considered as a part of the running expenses of the enterprise, to be shared in proportion to their investments. Dean replies to this, February 15th, accepting the offer but with the suggestion that the term of the partnership be limited to five years, unless sooner lawfully dissolved, the dissolution to be by competitive bid, that is, the privilege of continu- ing the enterprise to go to the highest bidder. To this sug- gestion Brown assented, by letter of February 17th, 1919. Each party then made out a schedule of the property he wished to invest in the partnership. Brown's schedule listed, "One hundred sixty acres of farm land, being the S. E. Y of section 32, Tp. 3 North, Range 2, West, Tallahassee Meridian, valued at $62.50 an acre, to- gether with the buildings, fences, timber, orchards, pe- can trees, and other improvements thereon, total valua- tion as appraised, $10,000." ARTICLES OF AGREEMENT 159 Dean's schedule listed the following items, "Two heavy teams, four horses, $1000; one span light driving horses with harness and market wagon, $500; plows, drills, reap- ers, and general farm machinery, $1500; mill and evap- orators for sugar cane, $1000; dairy cows and live stock, $3000; grain, feed, and supplies, $1500; motor truck, for hauling to market, $1500; total valuation, $10,000." These schedules were audited, the properties inspected, and the valuations approved by the committee of apprai- sers. The parties then agreed to have the terms of their con- tract written out in the form of articles of copartnership. ANALYSIS: (1) Name the parties to the adventure. Where is the contract to be carried out? The laws of what state will govern in the interpretation of this contract? (2) Was there an offer? By whom? To whom made? (3) Was the offer ac- cepted? Is the acceptance qualified, that is, does it vary the terms of the offer? What is the effect of an acceptance that varies the terms of the offer? (5) Do the facts show a mutual agreement? (6) Is the object of the adventure legal? (7) State the consideration. Can there be a valid contract without a con- sideration? (8) Is the contract to be performed within one year? Must it be in writing? (9) Does the contract involve any interest in or title to real property? Must it be in writing? DIRECTIONS FOR WRITING: The articles of copartnership should be written and signed in duplicate. They may be written in the customary form of ordinary contracts with the various es- sential parts, but with such additional paragraphs as the special provisions and restrictions may require. The form may be somewhat as follows: ARTICLES OF COPARTNERSHIP THIS AGREEMENT, Made and signed in duplicate the 17th day of February, 1919, between Albert Brown, of Havana, Flor- 160 APPLIED BUSINESS LAW ida, of the first part, and Charles Dean, of Macon, Georgia, of the second part~, WITNESSETH AS FOLLOWS: FIRST, That the said parties above named have agreed to be- come partners in the business of farming, and by this contract do agree to be partners together under the firm name of BROWN & DEAN, at and in the County of Gadsden, and State of Florida, on the S. E. % of Section 32, Tp. 3 North, Range 2 West, in the said State, and on such other land or lands as may be acquired from time to time by the said firm for partnership purposes in the business of general or special farming. The said partnership is to BEGIN on the first day of March, 1919, and continue for a period of FIVE YEARS, to February 29, 1924, unless sooner dis- solved by mutual consent, or terminated by the death or disabil- ity of one of the parties hereto or the bankruptcy of the partner- ship. SECOND, To this end and for this purpose, the party of the first part has contributed his farm of 160 acres, together with all the buildings and other improvements thereon, being the S. E. 24 of Section 32, Tp. 3 North, Range 2 West, in Gadsden County, Florida, as his share of the partnership capital, being valued at $10,000 and accepted at such valuation by the parties hereto; and the party of the second part has contributed all his certain teams, farm implements, and farm equipment, dairy cows, motor truck, the itemized schedule of which is hereto appended and made a part of this contract, all of which said stock and equip- ment are estimated and valued at $10,000 and accepted at such valuation by the parties hereto; the said property both real and personal being the shares contributed to the partnership capital by the parties to this agreement, the same to constitute the capi- tal stock and equipment of the above named partnership to be used and employed in common by and between the partners for the purpose, promotion, and conduct of the farming business undertaken by the parties hereto and for their joint and mutual benefit. THIRD, And the parties hereto further agree that at all times. ARTICLES OF AGREEMENT 161 during the continuance of their said partnership they and each of them will give his full time and attention, or as nearly thereto as may reasonably be required, to said business and occupation of farming, and exert themselves for their joint interest, benefit, and profit, and to employ their skill and knowledge and under- standing of the science of agriculture and general farming to that end. FOURTH, That each member of the firm shall receive from the partnership funds available therefor, the sum of $100 a month as wages, which is to be considered as a part of the run- ning expenses of the business; and all rents, charges, ex- penses and losses that may arise from the conduct of the busi- ness as well as all gains and profits of any and every sort that shall come from or arise out of the said farming business, either directly or indirectly, shall be divided and shared ratably be- tween them in proportion to the respective amounts invested by each partner, the accounting and adjustment to be made at least once a year, preferably on the first day of March of each year during the continuance of this partnership. FIFTH, That accurate and complete books of account and record of the said business shall be kept by double-entry of all money or property transactions of the said partnership, and each partner shall at all times have access to such books. At the ex- piration of the agreed term of five years, or sooner termination, of the partnership the said partners, each to the other, shall and truly make a just and final accounting of all things relat- ing to their said business, and in all things truly adjust the same, and to this end the final dissolution of the partnership shall be by competitive bid for the property, equipment, and good will of the partnership, and the privilege of continuing the business to go to the highest bidder. IN WITNESS WHEREOF, The above named parties have hereto set their hands and seals the day and year first above written. Witnessed by (Seal) (Seal) 162 APPLIED BUSINESS LAW FURTHER DIRECTIONS: Study each paragraph of the above form with a view to greater brevity. Rewrite each paragraph separately, looking carefully to clearness and exactness of ex- pression. See that no essential is omitted. After each para- graph is worked over, rewrite the whole form of agreement and submit for approval. These articles of copartnership should be written in duplicate and the work should be done with great care and neatness. Do not submit poor work; it should not be approved. Hold your work to the highest possible standard. After your work has been approved, mark it "Exercise XV," and file. EXERCISE XVI 222. Material facts. Eli Ford, of Denver, Colorado, wishes to go into the grocery business, and for this pur- pose he offers to form a partnership with George Howe, of the same city. The terms of the offer are that each partner is to invest cash to the amount of $5000, and the business to continue for a period of five years, unless sooner lawfully dissolved. The location of the business is to be at such place or places as may be mutually agreed upon by the parties. Howe accepts the offer, February 15, 1919. ANALYSIS: Name the parties to the negotiation. Is there an offer? By whom made? Has it been accepted? What is the consideration involved? Is the purpose of the undertaking law- ful? Is the undertaking to be performed within a year? Must it be in writing? DIRECTIONS: Make a careful study of the following form of agreement and where possible state the provisions of the con- tract with greater clearness and brevity. With these points in mind, rearrange the paragraphs and write the agreement in Duplicate, ARTICLES OF AGREEMENT 163 ARTICLES OF COPARTNERSHIP THIS AGREEMENT, Made in duplicate the 15th day of Feb- ruary, 1919, by and between Eli Ford, of Denver, Colorado, of the first part, and George Howe, of the same city, of the second part, WITNESSETH: First, That the said parties above named have agreed to be- come partners in a trading business, and by this contract do agree to be partners together under and by the firm name of FORD & HOWE, in the City of Denver, Colorado, to engage in the re- tail grocery business, buying and selling all sorts of groceries and produce which may reasonably be handled in such business. The said partnership to BEGIN on the first day of March, 1919, and to continue for a period of FIVE YEARS, to February 29, 1924, unless sooner dissolved by mutual consent, or terminated by the death or disability of one of the partners hereto, or by the bank- ruptcy of the partnership. Second, That to this end and for this purpose the party of the first part has contributed five thousand dollars ($5000.00) in cash, and the party of the second part has contributed a like sum, five thousand dollars ($5000.00) in cash, and the capital stock so formed is to be used and employed in common between them as partners for the support and management of the said grocery business, to their mutual benefit and advantage. Third, That the parties hereto further agree that at all times during the continuance of their said partnership they and each of them shall and will give his full time and attention, or as nearly thereto as may reasonably be required, to said busi- ness and exert themselves for their joint interest, profit, and benefit, and to employ their skill and experience in trading to that end. Fourth, That it is further agreed that each member of the firm shall receive from the partnership funds available therefor, the sum of two hundred dollars ($200.00) a month as wages which is to be considered as a part of the operating expenses of the busi- 164 APPLIED BUSINESS LAW ness; and all rents, charges, expenses, and losses, that may arise from the conduct of the business as well as all gains and profits of any and every sort that shall come from or arise out of the said grocery business, either directly or indirectly, shall be divided and shared equally between them, such sharing and apportion- ment to be not less frequent than once annually, preferably on the first day of March, during the continuance of this partnership. Fifth, That accurate and complete books of account and rec- ords of the business shall be kept by double entry of all money or property transactions of the said partnership, and each partner shall at all times have access to such books. At the expiration of the agreed term of five years, or sooner termination of the part- nership, the partners, each to the other, shall and will make a true, just and final accounting of all things relating to the said partnership business, and in all things truly adjust the same. IN WITNESS WHEREOF The above named parties have hereto set their hands and seals the day and year first above written. Witnessed by (Seal) (Seal) FURTHER DIRECTIONS. Reread and check over your work to see that no essential element or provision of the agreement has been omitted. Note carefully the order of arrangement of words, sentences, and paragraphs. Clearness and conciseness of statement are the qualities you should cultivate in your work. After your work has been approved, mark it "Exercise XVI," and file. EXERCISE XVII 223. Material facts. James Knox, of Madison, Wisconsin, advertises for a law partner to engage in the general law practice in Seattle, Washington. Levi Miller, of Albany, New York, writes on February 1, 1916, inquiring the terms and requirements, and stating his ARTICLES OF AGREEMENT 165 experience and qualifications as a lawyer. He indicates his willingness to engage in the practice in Seattle under suitable conditions. Knox replies on February 5th that he wishes to have an experienced lawyer for a partner and one who can in- vest at least $5000 cash as a working capital to offset the law books, desks, and office equipment that he proposes to put into the partnership business. He indicates his willingness to make a contract on these conditions, the term of partnership to extend over a period of seven years, and if mutually agreeable to be renewed indefinitely; the income and gains from the practice to be shared equally between the partners. Miller accepts this offer February 15th, 1916. ANALYSIS: Point out five of the essential elements of a valid contract in this agreement. Is it necessary that the agreement be in writing to render it enforceable? In what state is the con- tract to be carried out? What law will govern in its interpre- tation? DIRECTIONS: Make a careful study of the following form and where possible, state the provisions of the contract with greater brevity and clearness. Omit all unnecessary repetitions, and try to avoid the tendency to use a stilted legal style in your writing. ARTICLES OF AGREEMENT THIS CONTRACT, Written and signed in duplicate the 17th day of February, 1916, made and entered into by and between James Knox, Madison, Wisconsin, of the first part, and Levi Miller, Albany, New York, of the second part, WITNESSETH AS FOLLOWS: FIRST, That the said parties above named have agreed to be- come partners in the practice of law and in legal business, and 166 APPLIED BUSINESS LAW by this contract do agree to be partners together under and by the firm name of KNOX & MILLER, at and in offices to be selected and agreed upon later, in the City of Seattle, County of King, and State of Washington, in the business and profession of at- torneys and counselors at law. The said partnership is to BEGIN on the first day of March, 1916, and to continue for a period of seven years, to February 28, 1923, unless sooner dissolved by mutual consent, or terminated by the death or disability of one of the partners hereto. SECOND, That to this end and for this purpose the said party of the second part has contributed the sum of five thousand dol- lars ($5000.00) in cash, and the said party of the first part has contributed all his certain law library, containing one thousand volumes, the titles and descriptions of which are hereto appended as "Annex A," and together with the said library he has contrib- uted all such book-cases, office desks, chairs, filing-cabinets, and office furniture and fixtures that are now located in his offices at Rooms 958-960 at the Eli Building, in the City of Madison, Wis- consin, above mentioned, a list and description of the said furni- ture and equipment being appended hereto as "Annex B," all of which library and fixtures are estimated and valued by the parties hereto at the sum of five thousand dollars ($5000.00); these contributions to constitute the capital stock and equip- ment of the firm to be used and employed in common between them, for the support, promotion, and conduct of the said law business, in the City of Seattle, Washington, to and for their mutual benefit. THIRD, That at all times during the continuance of their said partnership they and each of them will give their time and at- tention to said business and profession, and to exert them- selves for their joint interest, benefit, and profit, and to employ their skill and knowledge and understanding of the law in the trial of causes and the care of all such legal business entrusted to them. FOURTH, That they shall and will at all times during the said partnership bear, pay, and discharge equally between them all ARTICLES OP AGREEMENT rents, charges, and expenses that may be required for the main- tenance of offices and the conduct of said business, and that all gains, profits, fees, retainers, and compensations of any and every kind and sort that shall come from or arise out of their said busi- ness, either directly or indirectly, shall be divided, and shared equally between them on the first day of March, June, September, and December, of each and every year during the continuance of this partnership. FIFTH, That accurate and complete records and books of ac- count of said business shall be kept by double-entry of all money transactions of said firm, and each partner shall at all times have access to these books and records. At the expiration of the agreed term, or sooner termination, of the partnership the said partners, each to the other, shall and will make a true, just and final ac- count of all things relating to their said business, and in all things truly adjust the same. IN WITNESS WHEREOF, The above named parties have hereto set their hands and seals the day and year first above written. Witnessed by (Seal) (Seal) FURTHER DIRECTIONS: Reread and check your work to dis- cover possible errors and omissions. See that every essential element is present. With a view to clearness, brevity, and completeness of state- ment, rewrite the above form of agreement in duplicate. After your work has been approved, mark it "Exercise XVII," and file. 2. Articles of Incorporation 224. Agreement to incorporate. Articles of associa- tion represent the written agreement between the parties who enter into a contract to organize a corporation. These articles of association are required by statute to set out 168 APPLIED BUSINESS LAW certain information concerning the parties, the capital stock, and the proposed business to be undertaken. These essentials are usually required in the following order: (1) Corporate name, (2) purpose for which formed, (3) capital stock, (4) shares of stock, (5) location of principal office, (6) period of duration, (7) number of its directors, and (8) names and addresses of the subscribers of the articles of association, with the number of shares of stock which each agrees to take. EXERCISE XVIII 225. Material facts. Asa Albers, of Amador, Cali- fornia, has discovered upon his own and adjoining lands what he believes to be a valuable vein of coal. Not being able to develop it on a commercial scale, he promotes the organization of a company for the purpose of mining and marketing this coal. On solicitation, he gains the assent of four of his friends to join him in the enterprise. His plan is to organize a corporation with a capital stock of a million dollars, which will take over his 160 acres of land at $1000 an acre for which the corporation shall issue to him 1600 shares of stock fully paid, and that he further subscribe for 400 shares at $100 par value; that the prin- cipal business of the corporation shall be the mining of coal for sale to the market generally, and for manufac- turing coke and illuminating gas and other by-products arising from such manufacture; that the principal place of business of the company shall be Amador, California, with the principal office located at San Francisco. The parties agree to incorporate under the laws of California and to ARTICLES OF AGREEMENT 169 take and pay for at the par value of $100 a share the num- ber of shares set opposite their respective names. The subscribers are: Asa Albers, Amador, California, 2000 shares; B. H. Eaton, Eaton, Colorado, 1000 shares; Cecil Hay, Calaveras, California, 2000 shares; Edward Day, Detroit, Mich- igan, 2000 shares; and Eric Cooper, Eureka, California, 1000 shares. With these subscriptions, Albers has Articles of Association drafted ready for the signatures of the proposed incorporators of the company. ANALYSIS: (1) Who are the parties to the agreement? What is the agreement? (2) The laws of what state will govern in the organization of the company? (3) Is there an offer? An ac- ceptance? To whom is the offer made? By whom? By whom accepted? (4) Is there mutual agreement between the parties? (5) Is there a consideration? (6) Is the object of the under- taking lawful? (7) Must the agreement be in writing? Is it to be performed within a year? (8) Is the agreement to organize merely between the parties incorporating, or is it between them as one party and the State as the other party to the contract? Is there an initial agreement among the parties before the final contract between them and the State? (9) What is the nature of the agreement in each case? (10) What is the consideration in each case? (11) What would be the effect of a breach of the agreement in either case? (12) What is the obligation on the part of the State? DIRECTIONS: The Articles of Association should conform with the requirements of the state law. They should be written in triplicate and should state the various requirements called for in the statute. They should be as brief as possible to afford clear- ness and state the purpose of the corporation fully, since the future operations of the corporation will be limited by the pro- visions recited in the articles of incorporation. These Articles of Association will later be certified by the Secretary of State and they then become the "Articles of Incorporation," or "char- ter" of the corporation. 170 Make a carefuLstudy of the following form of articles of as- sociation, and where possible, state the provisions of the agree- ment with greater brevity and clearness. Rewrite each para- graph with this purpose in mind. ARTICES OF INCORPORATION KNOW ALL MEN BY THESE PRESENTS, That we, Asa Albers, of Amador, California; B. H. Eaton, of Eaton, Colorado; Cecil Hay, Calaveras, California; Edward Day, of Detroit, Michigan; and Eric Cooper, of Eureka, California, each a citizen of the United States of America, and a resident of the State named, have associated ourselves together as a. . .Company. . .under the name and style of ... THE CALIFORNIA COAL COMPANY . . . for the purpose of becoming a body corporate and politic under and by virtue of the laws of the State of California and in ac- cordance with the provisions of the said laws of said State, we do hereby make, execute and acknowledge in ... Triplicate . . . this certificate in writing of our intention so to become a body cor- porate, under and by virtue of the said laws: First, the corporate name and style of our said Company shall be. . .THE CALIFORNIA COAL COMPANY. . . Second, the object for which our said Company is formed and incorporated is for the purpose of acquiring, holding, owning, working, and developing, mineral lands and mineral bearing veins, ledges, lodes, and other formations for the production of coal and the manufacture of coke and for the use and sale of the products thereof, of every kind whatsoever; and to construct, own, and operate all necessary equipment, buildings, and ap- purtenances necessary or valuable in any way in the develop- ment of such mining enterprise. Third, the capital stock of our said Company is One Million Dollars, one-fifth of which amount is set apart as preferred stock, all of which has been subscribed, together with three-fourths of the total common stock, making a total of eighty per cent of ARTICLES OF AGREEMENT 171 the entire capital stock subscribed before the filling of this certifi- cate. Fourth, the capital stock of our said Company is divided into Ten Thousand Shares, of the par value of One Hundred Dollars for each share, the same to be fully paid and non-assessable. Fifth, the operations of our said Company shall be carried on in the Counties of Amador, Butte, Calaveras, and such other counties of the State of California as may later be designated by the Board of Directors; and the principal place of business and HOME OFFICE of the said Company shall be located in the city and County of San Francisco, in the State of California. Sixth, the affairs and management of our said Company is to be under the control of an Executive Board of Directors, and Eric Cooper, of Eureka, California, Cecil Hay, of Calaveras, California, and Asa Albers, of Amador, California, all of the State of California, are hereby elected to act as said Board of Directors, and to manage the affairs and concerns of said Com- pany for the first year of its corporate existence. Seventh, the stockholders shall have power to make such pru- dential by-laws as they may deem proper for the management of the affairs of this Company, according to the statute in such case made and provided. IN WITNESS WHEREOF, we have hereunto subscribed our names and set our seals, this the 14th day of October, 1918. Asa Albers, Amador, California (Seal) Subscribed for 2000 shares of stock B. H. Eaton, Eaton, Colorado (Seal) Subscribed for 1000 shares of stock Cecil Hay, Calaveras, California (Seal) Subscribed for 2000 shares of stock Edward Day, Detroit, Michigan (Seal) Subscribed for 2000 shares of stock Eric Cooper, Eureka, California (Seal) Subscribed for 1000 shares of stock 172 APPLIED BUSINESS LAW ACKNOWLEDGMENT State of California, County and ss. City of San Francisco I, Martin L. Field, a Notary Public, in and for the County and State above named, do hereby certify that: Asa Albers, of Ama- dor, California; B. H. Eaton, of Eaton, Colorado; Cecil Hay, of Calaveras, California; Edward Day, of Detroit, Michigan; and Eric Cooper, of Eureka, California, personally known to me to be the persons whose names are subscribed to the foregoing Articles of Association, appeared before me in person, and ACKNOWL- EDGED that they each signed, sealed, and delivered the said instrument of writing as his free and voluntary act, for the uses and purposes therein set forth. Given under my hand and Notarial Seal, this . . . 14th . . . day of October, one thousand nine hundred and eighteen. (NOTARIAL SEAL.) MARTIN L. FIELD, NOTARY PUBLIC. FURTHER DIRECTIONS: Re-read and check your work to dis- cover possible omissions and errors. See that every essential element is present. With a view to clearness, brevity, and com- pleteness of statement, write the articles of association in tripli- cate. - Include the form of acknowledgment in each. After your work has been approved, mark it " Exercise XVIII, "and file with your other papers. SUPPLEMENTARY EXERCISES 226. Purpose. Ability to write business papers comes from intelligent practice under wise guidance. One may get this kind of practice, to some extent, by serving a period of apprenticeship in a business office, but usually this course is open to very few, it gives inadequate ex- perience except along a certain narrow line, and it is en- ARTICLES OF AGREEMENT tirely too slow to be justified by the results produced. To increase the student's skill in writing business papers, the following material is suggested for -further practice; or better still, the student should supply his own facts and then write out the various articles of agreement and of association based on these facts of his own experience. EXERCISE XIX. John Doe, of Denver, offers to form a trading partnership with Richard Roe, of Pueblo, and John Dale, of Greeley, all in the State of Colorado, for the purpose of engag- ing in the wholesale grain and produce business, with the princi- pal place of business to be in Denver, and with branches in Greeley, Grand Junction, Rocky Ford, and Pueblo, all in the State of Colorado. Roe and Dale each accepts the offer Feb- ruary 18, 1919. DIRECTIONS: You may supply other essential details for this business and write out articles of copartnership in triplicate for the parties. EXERCISE XX. Olaf Nelsen, of Leadville, Colorado, offers to form a mining partnership with Peter Sorensen, of Squaw Gulch, Arizona, for the purpose of prospecting and mining for gold, silver, copper, and other metals, minerals, and commercial substances. Sorensen accepts the offer October 14, 1918. DIRECTIONS: Supply essential details and write out articles of agreement for the parties to this agreement. When your work is approved, mark it Exercise XX, and file with your other papers. EXERCISE XXI. Daniel Webster Smith and John Marshall Jones, both of Wabash, Indiana, after a preliminary negotiation, agree to form a partnership for the purpose of practicing law and carrying on legal business in the City of Indianapolis, Indiana. DIRECTIONS: Supply other essential details for this part- nership and write out articles of copartnership for the parties. When your work has been approved, mark it Exercise XXI, and file with your other papers. EXERCISE XXII. (a) Change the articles of agreement in 174 APPLIED BUSINESS LAW Exercise XIX to articles of association for the incorporation of the business. (b) Change the articles of copartnership in Exercise XX to articles of association for the incorporation of the mining ad- venture agreed upon. After these papers have been written out in proper form, mark them properly and file. GROUP III NEGOTIABLE CONTRACTS 227. In general. Negotiable contracts differ in char- acter from ordinary contracts (see sec. 72). They had their origin in the law merchant and serve a different purpose in the affairs of business. Their purpose was not so much to create rights and impose obligations as it was to make clear the evidence of the obligation and to facilitate the ready transfer of rights from one holder to another. Essentials. Commercial paper to be negotiable: (1) Must contain an unconditional promise or order in writing; (2) must be to pay a sum certain in money; (3) must be payable to order or bearer; (4) must be payable at a fixed or de terminable future time or on demand; (5) must, if it is a bill of exchange, indicate the drawee with reasonable certainty; (6) must be signed by the drawer or maker; (7) must contain no condition to do any act other than to pay money; and (8) it must be delivered by the maker or drawer to render it valid. Non-essentials. The presence or absence of any of the following will not affect the validity of the instrument, but it is customary that commercial paper: (1) Should be dated; (2) should state the time of payment, otherwise it is payable on demand; (3) should state the place where made and where pay- able; (4) should recite a consideration, as "for value received"; and (5) should not be under seal, but this rule of the common law has been changed by statute so that the presence of a seal will not affect the negotiability of commercial paper. Kinds of negotiable contracts. As stated in section 73, Book I, the principal kinds of negotiable paper in ordinary use are notes, checks, and drafts. But for convenience in studying 175 176 APPLIED BUSINESS LAW ^ the different forms,, we shall consider them in the following order: (1) Promissory notes, (2) certificates of deposit, (3) negotiable bonds, (4) checks, (5) bank drafts, (6) bills of exchange, (7) negotiable documents of title, as bills of lading and warehouse receipts. 228. Promissory notes. What is a promissory note? Is it negotiable? State six essential characteristics of a negotiable* promissory note. State three or more non- essentials that usually may be found in a well written promissory note. EXERCISE XXIII 229. Material facts. John Doe bought a cow of Richard Roe for $100 for which it was agreed that he should give his promissory note payable six months after date, February 21, 1919, to the order of Richard Roe at The Stanford National Bank of Palo Alto, California, with interest at six per cent per annum. ANALYSIS: (1) Are all the elements of an agreement present? (2) What sort of contract is the undertaking of John Doe? (3) Is there an offer? An acceptance? (4) Is there a consideration? (5) Do the facts indicate the presence of all the essential ele- ments of a negotiable contract? Do they include any non-es- sentials? DIRECTIONS: Scrutinize the facts carefully and then group them in the form of a negotiable promissory note. Examine the following form to see if it contains all the above facts. PROMISSORY NOTE $100.00 Palo Alto, Cal., Feb. 21, 1919. Six months after date I promise to pay to the order of Richard Roe One Hundred Dollars. Nego- NEGOTIABLE CONTRACTS 177 tiable and payable at "The Stanford National Bank of Palo Alto Payable with interest at 6% from date, for value received. JOHN DOE. No. XXIV. . . Due August 21, 1919... FURTHER DIRECTIONS: Make a copy of the above form of negotiable promissory note. Observe the arrangement, and with a view to greater brevity and simplicity of form, rewrite the note. FURTHER ANALYSIS: Name the parties to the note. Who is the maker? Who the holder? Who is the payee? Does the paper name- a "drawee"? Does it contain the name of a "drawer"? Who is the person that promises to pay? What is he called? Who is the person to receive payment? What is he called? How many parties to this paper at present? May there be other parties to a promissory note? Who? Who is an in- dorser? A holder for value? Since the law does not require a promissory note to be in any particular form, arrangement, or wording, the above note may be expressed in a number of ways. You may arrange the material in different forms, but always with the essentials of a valid nego- tiable promissory note present. Examine the following ar- rangement: "I promise to pay to Richard Roe or order, One Hundred Dollars, on the 21st day of August, 1919, with interest at six per cent, for value received (Signed) JOHN DOE . . Caution: "In no case should the student sign the name of another unless he has authority to do so." Where a name is known to be fictitious, the student may write it in (see sec. 209- 5, p. 135), but the following is a safe rule: "NEVER WRITE in the name of another person as a SIGNATURE, unless you have express authority to do so, and, where possible, the authority should be in writing and signed by the person whose name is to be signed." 178 APPLIED BUSINESS LAW - EXERCISE XXV 230. Material facts. John King leads out a horse and says to Leo Marx, "I will sell this horse to you for $100." To this offer, Marx replies, "Agreed, I will take him at that price, if you will accept my personal note payable on demand." To this qualified acceptance King assents, and a nego- tiable note is drawn for the amount. ANALYSIS: Are all the elements of a valid contract present? Are the facts sufficient to indicate a negotiable contract? The note is in the following form: DEMAND NOTE $100.00 No. XXV On demand, I promise to pay John King or order, One Hundred Dollars. For value received . . . LEO MARX. . . Who is the maker of the above note? The payee? The holder? What non-essentials are included? What ones are omitted? Does this impair the validity of the note? Is there an absolute promise? By whom? In favor of whom? How payable? When? For what amount? What words render this promise negotiable? DIRECTIONS: Make a copy of the above note. Rewrite it, supplying at least three non-essentials that have been omitted. Do these change the essential nature of the contract? NEGOTIABLE CONTRACTS 179 EXERCISE XXVI 231. Material facts. John Rex is the owner of an automobile which he offers to sell to John Doe and Richard Roe for $1000. Doe and Roe accept this offer with the provision that Rex is to accept their joint note payable in sixty days at 57 Battery Street, El Paso, Texas, with interest at 6% from date of the note. Rex assents to this arrangement of terms, and a joint and several note is drawn and signed by Doe and Roe. ANALYSIS: Point out every essential of a valid contract in the above set of facts. When the writing is signed, will the obliga- tion be negotiable? Should it be negotiable? Why? Joint and several notes are written obligations in the form of negotiable contracts by which two or more persons be- come liable jointly and individually for the payment of the obligation. In the above exercise Doe and Roe sign as makers of the note, and thus become jointly and individually liable for its payment at maturity. DIRECTIONS: Examine the above facts and then arrange the material in the form of a joint and several note. The names are fictitious so you may write them in without further authority. The note will be in something like the following form: JOINT AND SEVERAL NOTE $1000.00 El Paso, Tex., May 7, 1919. Sixty days after date, we, or either of us, promise to pay to the order of John Rex the sum of One thousand Dollars, At his Office, No 57 Bat- tery Street, El Paso, Texas For value received, with interest at 6% from date. . . . JOHN DOE . . . Due July, 6 1919. RICHARD ROE 180 APPLIED BUSINESS LAW Compare the above form with the following which was held to be a joint and several note. It was held to be joint because it was signed by both parties as makers. It was held to be sev- eral because each signer promised severally to pay. "$400. Ripon, Wis. Nov. 4, 1856. Thirty days. . .after date, for value -received, I promise to pay Putman C. Darst, ... or order, Four Hundred Dollars, with interest, at the rate of twelve per cent per annum. J. C. SHERWOOD WM. C. SHERWOOD. . .SURETY. ." For the decision in this case by the Supreme Court of Wiscon- sin, see Darst v. Sherwood, 7 Wis. at pages 523, et seq. Compare the following with the above form, at the same time remembering that the following note had printed across the left end, "Ridgewood Ice Company." "$7,500.00 Brooklyn, N. Y., Aug 2, 1890. Three months after date, we promise to pay to the order of Clark and Chaplin Ice Company Seven Thousand Five Hundred Dollars at Mechanics Bank; for value received. E. H. CLOSE. . .TREASURER.. . JOHN CLARK, PRESIDENT." ANALYSIS: Are all the essentials of a negotiable contract to be found in the foregoing example? Who are the parties to the note? Remembering that the name of the "Ridgewood Ice Company" is printed across the left end, will this make the note the obligation of the Ice Company? It is signed by Clark, President, and Close, Treasurer; will this fix the liability on the Ice Company? Suppose the Ridge- wood Ice Company is insolvent and you are the holder of the note, will you allow yourself to believe that Close and Clark were personally liable on the note? Could you argue that it made no more difference to have signed as "E. H. Close, Treasurer" than to have signed as "E. H. Close, Iceman," or "Farmer"? NEGOTIABLE CONTRACTS 181 In an action on the above form of note, it was held by the court that the terms "President" and "Treasurer" were merely terms of description and had no more effect upon the nature of the liability of the parties than if they had signed as "farmer" or "merchant." It was held that Close and Clark were "joint makers" of the above note, and therefore "jointly and severally liable on it." To have rendered the company liable, the form should have been: "Three months after date, The Ridgewood Ice Company promises to pay to the order of Clark and Chaplin Ice Com- pany, Seven Thousand Five Hundred Dollars, at Mechanics Bank, for value received . . . JOHN CLARK, PRESIDENT. . . . E. H. CLOSE, TREASURER ..." "Brooklyn, August 2, 1890...." DIRECTIONS: Write out correct forms for the three notes given above. After your work has been approved, mark them Exer- cises XXVI, XXVII, and XXVIII, and file. Read, Cdsco National Bank v. Clark, 139 N. Y. at pages 307, et seq. EXERCISE XXIX 232. Material facts. John Doe and Richard Roe contract to pay John Dale, or order, the sum of $400. The date of the agreement is February 25, 1919, and payment is to be sixty days after date. The principal sum is to bear interest at 6% per annum from date until paid, and if the note is not paid at maturity the makers promise to pay all costs of suit and attorney's fees for collection. The makers and indorsers severally waive presentment for payment and protest, and notice of protest, and also, waive all homestead exemptions, 182 APPLIED BUSINESS LAW ANALYSIS: Are all the elements of a valid negotiable promis- sory note present in the above set of facts? Are there any con- ditions present that would render the note non-negotiable? Is the object or purpose of the undertaking legal? Can the makers of a note lawfully waive protection afforded them by homestead exemption laws? DIRECTIONS: Arrange the above facts in the form of a "Joint and Several Note." FORM OF "IRONCLAD NOTE" $400... Wabash, Ind., Feb. 25, 1919. Sixty days after date, we, or either of us, promise to pay to the order of.. John Dale Four Hundred Dollars Negotiable and payable at the "Farmers Bank of Wabash," Indiana, with interest at 6% per annum from date, and if not paid at maturity, all costs and attor- ney's fees, without relief of homestead exemption and ap- praisement laws. The maker' and indorsers, severally, waive presentment for payment, protest, and notice of pro- test upon non-payment of this note. Given for value. . . JOHN DOE. . . No. 29X . . . RICHARD ROE .... FURTHER ANALYSIS: (1) Point out the first essential of a nego- tiable instrument in the form given above. (2) Is there an ab- solute promise to pay? (3) Is it for a definite or ascertainable amount? Will court costs and attorney's fees not make the amount payable uncertain? Are these involved if the note is paid at maturity? Will the addition of uncertain sums -after maturity have any effect on the prior negotiability of the note? Are the "secondary" promises conditioned upon the dishonor of the note by non-payment? (4) Is payment to be at a definite or ascertainable time? (5) Is the note negotiable? By the provisions of the Uniform Negotiable Instruments Law it is expressly provided that a promise to pay attorney's fees upon dishonor of a negotiable instrument does not impair NEGOTIABLE CONTRACTS 183 its negotiability. Hence, the above form is valid as a negotiable instrument. In some states, however, the waiver of homestead exemption laws is not permitted. In such states the above "wai- ver" would have no effect whatever, even when present. EXERCISE XXX 233. Material facts. John Doe, with Richard Roe as surety, contracts to pay John Dale, or order, six hun- dred dollars. The date is February 25, 1919, and payment is to be made one year after date, with interest at six per cent per annum from date. This note was given in dis- charge of a debt owed by Doe to Dale. The maker of the note by his power of attorney therein given authorizes the holder to have judgment entered without an action or suit for the amount; he also consents to the pay- ment of costs and twenty-five dollars attorney's fees, and waives his right of homestead exemption. ANALYSIS: Point out the essential elements of a valid nego- tiable note in the above facts. Who is the maker? Who the surety? What are the duties of a surety? What are his rights and liabilities? Is he bound by the provisions of the power of at- torney? What are the advantages of this form of note? Are any of these advantages in favor of the maker or surety? A surety is one who is bound with the principal upon the original contract and in the same terms. In the case of nego- tiable paper the surety is bound with the maker, and he is held to know every default of the maker. He is liable absolutely if the maker does not pay, and the holder does not have to demand pay from the maker before he calls on the surety to make good. The surety is jointly and severally liable with the maker, and he may be sued with or apart from the maker, at the elec- tion of the holder of the note. 184 APPLIED BUSINESS LAW ' JUDGMENT NOTE Corry, Pa., Feb. 25, 1919 One year after date, for value received, I promise to pay to the order of John Dale Six Hundred Dollars, at his place of business with interest at 6% per annum, until paid. FURTHERMORE: To secure the pay- ment of the above amount, I hereby authorize, irrevocably any attorney of any Court of Record to appear for me in such Court, in term time or vacation, at any time hereafter, and confess a Judgment without process in favor of the holder of this note, and without relief from homestead ex- emption and appraisement laws, for such amount as may appear to be unpaid thereon, together with costs and Twenty-five Dollars attorney's fees, and to waive and re- lease all errors which may intervene in any proceedings hereon, and consent to immediate execution upon such judgment, hereby ratifying and confirming all that my said attorney may do by virtue hereof. JOHN DOE No. SOX RICHARD ROE, SURETY. . DIRECTIONS: Make a copy of the above form of note. The exact form need not be followed, but all the essential elements of a negotiable note must be retained. After your work has been approved, mark it Exercise XXX, and file with your other papers. . EXERCISE XXXI 234. Material facts. John Dale of your place con- tracts to pay John Doe, or order, five hundred dollars. John O'Dee is surety for the performance of Dale's obliga- tion. Payment is to be sixty days after the current date, at Doe's place of business, and it is to bear interest from NEGOTIABLE CONTRACTS 185 date at the legal rate. The note is given in discharge of a balance due on a bill of merchandise. The maker of the note is to give a power of attorney by which the holder can confess judgment for the full amount of the obliga- tion -or for any balance due thereon, and collect all costs and attorney's fees, in the event the note is not paid at maturity, and he expressly waives all benefit and protec- tion arising from homestead exemption laws. ANALYSIS: Look for each essential of a valid negotiable instru- ment in the above statement of facts. Are there any conditions that will render the contract non-negotiable? DIRECTIONS: Write a negotiable contract for the above under- taking in the form of a judgment note. After your work has been approved, mark it Exercise XXXI, and file. EXERCISE XXXII 236. Material facts. John Doe has contracted to pay to the order of The First National Trust Company of San Francisco, California, six thousand dollars; pay- ment is to be made two months after date, May 5, 1919, at the office of the Trust Company. The note is given in consideration of a loan of money, and is to bear interest at 6% per annum from date. The maker, John Doe, has deposited with the payee six first mortgage bonds of the Imperial Irrigation Company, District No. 1, Im- perial County, California, as collateral security for the payment of the amount of the note at maturity, or upon non-payment of the principal obligation, the holder is authorized to sell the securities at public or private gale, without advertising the same, with the right to pur- 186 APPLIED BUSINESS LAW chase the securities- if the sale is at a brokers' or stock exchange or public sale. ANALYSIS: Find each essential of a negotiable contract in the above facts. Are there any conditions that will render it non- negotiable? Who is the holder? The payee? Are they the same? COLLATERAL NOTE $6000. San Francisco, Cal., May 5, 1919. Two months after date, I promise to pay to the order of THE FIRST NATIONAL TRUST COMPANY of San Francisco, Six Thousand Dollars, for value received, with interest at six per cent per annum from the date hereof until paid. JOHN DOE . . . I hereby certify that I have delivered, and by this writing do hereby transfer and deliver to the said First National Trust Company, as collateral security, for the payment of this and any other liabilities of mine to the said payee, due or to be- come due, the following property, the value of which is appraised at Six Thousand Dollars, viz.: Six First Mortgage Bonds of the Imperial Irrigation Company, District No. 1, Imperial County, California. Furthermore, I hereby authorize the said payee, or assigns to sell the above described property, or any part thereof, or any substitutes therefor, and all additions thereto, on the maturity of the above note, or any time thereafter, or before, in the event of the said security depreciating in value, at any public or pri- vate sale, without advertising the same, or demanding payment or giving notice, with the right to said payee and assigns them- selves to be the purchasers when sale is made at any stock ex- change, broker's board, or public sale. And after deducting all costs and expenses, to apply the balance to the discharge of any or all liabilities as above described, as the payee or assigns may elect. And it is further agreed that in case the proceeds of the sale of the above described property shall not cover the princi- NEGOTIABLE CONTRACTS 187 pal, interest, and expenses, I shall pay the deficiency with interest, forthwith upon notice of such deficiency. JOHN DOE DIRECTIONS: Arrange a group of facts similar to the above, and write a collateral note for the parties. Mark it Exercise XXXII, and file. EXERCISE XXXIII 236. Certificates of deposit. A certificate of deposit is an acknowledgment of the receipt of money as a deposit and a promise to pay it to the depositor, or to his order, after the expiration of an agreed term of deposit, or upon demand where no term is specified. It is in legal effect a promissory note given by a bank to a depositor. MATERIAL FACTS: Don Carlos Abusto has deposited seven thousand dollars with the Rio Grande International Bank, of El Paso, Texas, for a term of three months, beginning February 28, 1919, the deposit to bear interest at the rate of four per cent per annum during the term of deposit. For this sum the bank issues a certificate payable to the order of the depositor. CERTIFICATE OF DEPOSIT $7000... No.X33... THE RIO GRANDE INTERNATIONAL BANK of El Paso, Texas Feb. 28, 1919 THIS is TO CERTIFY: That Don Carlos Abusto has deposi- ted in this Bank the sum of Seven Thousand Dollars, for the period of three months, payable to the order of himself, with interest thereon at the rate of four per cent per annum dur- ing the term of deposit. Payable, on surrender of this cer- tificate properly indorsed, in gold coin. Not subject to Check. NEMO A. CASA, CASHIER, 188 APPLIED BUSINESS LA\V ANALYIS: (1) Points out the first essential of a negotiable in- strument in the above certificate of deposit. (2) Is there an absolute promise to pay? (3) Is it for a definite amount? (4) Is the payment conditional? Upon what? What will constitute a "proper indorsement " of the certificate? (5) Is payment to be at a fixed or ascertainable future time? (6) Is the obligation negotiable? If so, what words make it negotiable? (7) Is the above certificate in the form of a contract? Who are the parties to the contract? Where is it to be performed? The laws of what State govern the interpretation of the contract? Suppose the depositor is a citizen of Mexico, will that change the situation so that other laws will apply to the case? DIRECTIONS: Make a copy of the above form, or make a sim- ilar certificate based upon different facts suited to your own locality. When this has been approved, mark it Exercise XXXIII, and file it with your other negotiable contracts. EXERCISE XXXIV. Using fictitious names, arrange a group of facts similar to the above, but suited to your own locality, and write a certificate of deposit for the amount deposited. EXERCISE XXXV. Write a form of certificate of deposit adapted to the needs of a bank in the commercial department of a high school or college. After the forms in the preceding exercises have been approved, mark each with its proper number, and file them with your other papers. 237. Negotiable bonds. At common law a negotiable instrument could not be under seal. If the instrument were sealed, it became a bond and was non-negotiable. With the advent of business corporations into the daily affairs of business this rule had to be changed, since the use of the corporate seal was held to be essential to the validity of, any corporate contract, In other words, the NEGOTIABLE CONTRACTS 18d seal of the corporation was held to be an essential part of its signature and, therefore, it did not destroy the negotiability of a bill or note issued by the corporation. So, by force of statute law and by custom arising from the enormous volume of business carried on by corporations, a promissory note issued by a corporation and negotiable in form, although under seal of the corporation, is held to be a negotiable instrument and valid as such. These notes are known as negotiable bonds, as distinguished from non-negotiable or registered bonds of corporations. Negotiable bonds may be issued by industrial or other cor- porations, cities, towns, districts, or governments. In general, they are classified as: (a) Coupon bonds, or (b) registered bonds. (a) Coupon bonds are payable to a particular person or to his order, or to bearer. They have attached to them small coupon notes representing each instalment of interest as it ma- tures. These coupons are detached when the interest falls due and presented for payment, or they may be detached before before maturity and negotiated by transfer like promissory notes payable to bearer, that is, passed from hand to hand like money. (b) Registered bonds are payable to designated persons whose names are registered in the books of the corporation, city, or government, issuing them. They may be transferred only by reg- istering the name of the new owner on the books of the company issuing them. Usually a small charge is made for this transfer and registration, especially where a new certificate or bond is issued. Negotiable bonds may or may not be secured by mortgage, but in the case of large bond issues by industrial corporations, there is usually a mortgage made to a trustee for the benefit of all the bondholders, since it would not be practicable to make a separate mortgage for each particular bond. Such bonds are signed by proper officials of the issuing cor- poration and may be with or without the corporate seal, though 190 strictly to be a bond the instrument should be under seal, and issued in the name of the corporation and not merely by the offi- cers of such corporation (see p. 189, ante). See also, Casco National Bank v. Clark, 139 N. Y. at page 307. EXERCISE XXXVI 239. Checks. What is a check? How many parties to a check? Name them. What are the relations of the parties to the check? May the drawer and payee be the same person? What effect will this have on the negotia- bility of the check? May one lawfully draw upon a bank in which he has no funds to meet payment? No person has a right to draw a check on a bank unless he has funds in that bank subject to his order. Merely over-drawing one's account through carelessness is not regarded as a criminal act, but if one should draw upon a bank knowing he had no funds therein, he would render himself liable to fine and imprisonment for such act. It is generally contrary to law for a bank to accept or honor an over-draft, even though it be drawn by a regular cus- tomer of the bank. Where one has deposited money with a bank and has received a certificate of deposit for the amount, he cannot draw on such amount by check. 240. Kinds of checks. For convenience checks may be grouped in four classes: (1) Ordinary check payable to order or to bearer, (2) certified check, (3) cashier's check, and (4) bank check, commonly called a "bank draft." 241. Material facts. John Doe has money on deposit in the "Rio del Norte Bank." He has bought a cow of Hichard Roe for which he has agreed to pay one hundred dollars, and he wishes to make payment by his personal NEGOTIABLE CONTRACTS 191 check. The date of the transaction is March 11, 1919. Write the check. FORM OF CHECK No. 241 Yuma, Ariz., Mar. 11, '19 RIO DEL NORTE BANK of Yuma, Arizona Pay to the order of Richard Roe $100.00 One Hundred Dollars JOHN DOE ANALYSIS: (1) Point out five essentials of a negotiable instru- ment in the above form of check. (2) Name the drawer; the drawee; the payee. May there be a fourth party to the check? (3) What words make the check negotiable? DIRECTIONS: Make a copy of the foregoing check. Mark it " specimen." After it has been approved, mark it Exercise XXXVI, and file. EXERCISE XXXVII. Using fictitious names, make out ten checks for varying amounts and to different individuals. Write across the face of each in red ink the word "Specimen". When these have been approved, mark each, Exercise XXXVII, No. 1, No. 2, etc., and file. EXERCISE XXXVIII 242. Certified checks. It sometimes happens that a payee wishes to be certain that there are funds in the bank to meet payment of a check before he is willing to receive it as payment of an obligation. In such case he may require the drawer to procure the check to be certi- fied. When this is done, the bank becomes liable to the payee for the amount of the check. It is as if the bank bad given its own promissory note for the amount of the 192 APPLIED BUSINESS LAW check, and it will be answerable for this amount to any holder in due course. A check is certified by writing across its face, usually in red ink, the word "Certified," or an equivalent word, as "Good," or "Accepted," with the date and the signa- ture of the cashier or teller of the bank who certified it. The amount of the check is charged to the account of the drawer, and at the same time an equal amount is placed to the credit of a certified check fund for the redemption of the check when it is presented to the bank for payment. Should a bank become insolvent after a check is pro- cured to be certified by the drawer, the latter would be liable to the payee or holder of the check for the amount named. But where the payee or holder procures the'check to be certified, and the bank becomes insolvent, this will release the drawer from any further liability on the check. 243. Material facts. John Doe has contracted for the purchase of lands from John Rex, at an agreed price. The first payment is to be one thousand dollars, and. it is agreed between the parties that payment may be made by Doe's personal check if properly certified. CERTIFIED CHECK NEGOTIABLE CONTRACTS 198 ANALYSIS: (1) Point out six elements of a negotiable instru- ment in the above form of check. (2) Who are the parties to the check? Is the bank a party to the check? (3) Name the drawee; the acceptor. (4) What is the obligation of a drawee who accepts a check or draft? Is his obligation conditional or absolute? DIRECTIONS: Make a copy of the above check. Write across the face of the check in red ink the word "Specimen." After your work has been approved, mark it Exercise XXXVIII, and file. EXERCISE XXXIX. Using fictitious names, make out five checks for varying amounts, and to different individuals, and then have each certified in a different form, as: "Certified, May 5, 1919. John Dale, Cashier." "Accepted, May 5, 1919. John Dale, Cashier." "Good, when properly indorsed. May 5, 1919 "John Dale... Cashier." "Good, when properly indorsed. May 5, 1919 "Rio Del Norte Bank, by John Dale, Cashier. . ." Other forms, or words of equivalent meaning may be used. Mark each of these "Specimen," number and file. EXERCISE XL 244. Cashier's check. A cashier's check is a check drawn by an officer of a bank, usually the cashier, upon that particular bank. The use of the check saves the bank from paying out actual money at the time it is issued. Such checks may be furnished to the customers of a bank when they wish to make remittances at a distance. 245. Material facts. John Doe of Yuma, Arizona, wishes to make payment for a bill of nursery stock pur- chased from a dealer at Phoenix, Arizona. He draws a check fpr the amount of the bill, $456, and presents it to 194 APPLIED BUSINESS LAW the teller of the Rio Del Norte Bank and asks for a cash- ier's check for an equal sum, the check to be payable to his own order. CASHIER'S CHECK No. 245 RIO DEL NORTE BANK Of Yuma, Arizona May 6, 1919. PAY to the order of John Doe $456.00 Four Hundred fifty-six Dollars . CASHIER'S JOHNDALE, CHECK CASHIER . . ANALYSIS: (1) Point out the essentials of a negotiable paper in the above form of check. (2) Name the parties to the check. (3) State the proper method of negotiating such a check. DIRECTIONS: Make a copy of the above form of check. Mark it as directed in preceding sections and file. EXERCISE XLI. Using fictitious names, make out five cashier's checks for varying amounts, and to different persons, signing them with your own name as cashier of the "North River Bank." When approved, mark and file. NEGOTIABLE CONTRACTS 195 EXERCISE XLII 246. Bank drafts. Bank drafts are, in fact, merely checks drawn by one bank on another bank, and payable on demand. Should the order be payable at a future time, or a specified time after date, or after sight, it would then be a regular bill of exchange. A bank can issue a check or draft on another bank only when it has funds in the custody of that other bank, or a debt due from it. In any event, there must be some form of acceptance by the drawee bank, otherwise there will be no obligation on the part of the drawee to pay the amount of the draft. Bank drafts are a convenient form in which to make remittances at a distance, especially when the drawee bank is at the same place as the payee to whom payment is made. 247. Material facts. John Way of Ely, Nevada, owes a debt in Detroit, Michigan. He wishes to make payment by bank draft, so he draws his personal check on the Ely State Bank for the amount of the debt, $567, and asks the cashier to issue a bank draft for an equivalent amount. He pays the cost of exchange in currency. The draft is dated May 6, 1919. BANK DRAFT No. 247... ELY STATE BANK Ely, Nevada May 6, 1919. PAY TO THE ORDER OP The Fordson Co $567.00 Five Hundred sixty-seven Dollars. To the PONTIAC TRUST Co., JOHN REX, Detroit, Michigan PRESIDENT. MAX ROWE, CASHIER. 196 APPLIED BUSINESS LAW ANALYSIS: (1) Point out the essentials of a negotiable contract in the foregoing bank draft. (2) May this be classed as a bill of exchange? (3) Name the parties to the draft. (4) What are the rights and obligations of each? DIRECTION: Make a copy of the bank draft. Mark as pre- viously directed and file. EXERCISE XLIII. Using fictitious names, make at least three forms of bank draft and sign your own name as cashier of the "North River Bank." Have another sign as president of the bank. When these are approved, file as usual. EXERCISE XLIV 248. Bills of exchange. Bills of exchange are the oldest forms of negotiable paper. At present they are variously known as bills, drafts, checks, money orders, letters of credit, travelers' checks, and the like. A bill of exchange is an unconditional order in writing for the payment of money, signed by the drawer, and ad- dressed to a drawee. It is payable on demand or at a fixed or ascertainable future tune. It must be for a sum certain in money and payable to the order of a designa- nated person or to bearer. The person drawing the bill is known as the drawer; the person to whom it is addressed is the drawee, and the person to whom it is payable is the payee. The bill itself is merely an order for the payment of money. It is not binding on the drawee until he has signified his acceptance or assent to honor it. The acceptance should be made by writing the word "Accepted" and signing the name of the acceptor across the face of the bill, with the date of the acceptance. NEGOTIABLE CONTRACTS 197 249. Material facts. John Doe of Greeley, Colorado, owes a debt in Chicago, Illinois. He has shipped potatoes to the X Company which owes him to the amount of $1000. Accordingly, he draws an order on The X Company, of Chicago, payable to his creditor, March, Field & Co., for the amount of his debt, $149. The bill was drawn May 5, 1919. ANALYSIS: Point out the foundation elements of a valid bill of exchange in the above facts. Name the parties to the bill: the drawer, drawee, and the payee, also the acceptor and the holder. BILL OF EXCHANGE No. 249X Greeley, Colo., May 5, 1919. . . . At ten days sight pay to the order of March, Field & Co $149. One Hundred forty- nine Dollars For value received . . . Charge to the account of . . . JOHN DOE To the X Company. . . Chicago, Illinois . . . Bills of exchange are of two general classes, inland and foreign. An inland bill is one that is payable within the state. On refusal of acceptance or payment, protest of the paper is not required in order to hold the drawer and in- dorsers liable. A foreign bill is one drawn or payable putside the state, Upon dishonor, the paper must be pro- 198 APPLIED BUSINESS LAW tested and notice given in order to render the drawer and indorsers liable on the bill. DIRECTIONS: Make a copy of the above form of bill; after it is approved, mark in the usual manner and file with your other negotiable papers. EXERCISE XLV. Using fictitious names, make out five bills of exchange, part inland and part foreign bills. When approved, mark and file. 250. Negotiable documents of title. Generally speak- ing, negotiable documents of title are of two forms, (1) Bills of lading, and (2) warehouse receipts. 251. Bills of lading. While negotiable documents of title are classed as negotiable contracts they are not nego- tiable instruments in the strict sense of the word, bepause they are not promises for the payment of money, but are promises for the safe delivery of some specified personal property. These contracts have some, but not all, of the characteristics of negotiable instruments, the principal one being that they may be transferred readily from one holder to another, thus giving him title to the goods rep- resented by the document. A bill of lading is both a receipt and a contract. It is a receipt for goods delivered to a common carrier and a contract for their delivery to a designated destination. Bills of lading are of two forms, the ordinary bill, which is negotiable in form, and the "straight bill," or non-nego- tiable form. The parties to a bill of lading are the shipper, or consignor; the consignee, or person to whom the goods are shipped; and the carrier of the goods. EXERCISE XLV. It is suggested that you should, if possi- ble, go to the freight office of a railway company, steamship com- NEGOTIABLE CONTRACTS pany, or other common carrier of freight, and procure copies of the different forms of bills of lading. If the clerk has time, you should ask him to explain the method of filling out the different parts of the bill. When your forms are filled in, you should write across the face of each in a bold hand the words "Specimen Bill." File these bills with your other papers. 252. (2) Warehouse receipts. A warehouse receipt is both a receipt and a written contract of bailment. It acknowledges receipt of certain described goods which have been received by the warehouseman for the purpose of storage and, usually, for the purpose of subsequent sale, and delivery. In the grain and cotton business millions of dollars worth of these products are stored in public warehouses, or "elevators," and receipts are issued for the goods thus stored. These goods may then readily be bought and sold and title to them be transferred by a transfer of the nego- tiable warehouse receipts, or they may be pledged by merely pledging the evidence of title hi the form of the warehouse receipts. As in the case of bills of lading, warehouse receipts may be either negotiable or non-negotiable, as the circum- stances may require, and in either case there are only two parties to the contract as evidenced by the warehouse re- ceipt; these are the bailor, or depositor, and the bailee or warehouseman. EXERCISE XLVII 253. Material facts. John Dale of El Centro, Cali- fornia, having 100 bales of Durango cotton has delivered 200 APPLIED BUSINESS LAW it to the Imperial Cotton Exchange for storage in one of their warehouses. The receipt was issued January 7, 1919. ANALYSIS: Examine the following form of receipt and point out the elements of negotiability. Name the bailor; the bailee. What are the rights and obligations of each party to the receipt? What degree of care must the warehouseman exercise in pro- tecting the property bailed? Is he an insurer of the safe delivery of the goods? WAREHOUSE RECEIPT WAREHOUSE No. 1 RECEIPT No. 253 IMPERIAL COTTON EXCHANGE El Centro, California January 7, 1919 RECEIVED in Storage from John Dale One Hundred Bales Durango Cotton, First-Grade deliverable to the order of the above named John Dale properly indorsed hereon and upon the sur- render of this receipt, and the payment of all charges and advances as herein provided. It is specially agreed by the holder of this receipt that the cotton herein described may be stored with other cotton but the specific bales above mentioned and stencil marked . . . ."(JD)" shah 1 be delivered to order as above pro- vided. Loss by fire arising from no fault of the bailee to be at the owner's risk. NOT GOOD UNLESS COUNTERSIGNED AND REGISTERED 100 Bales 52,000 Ibs JOHN REX PRESIDENT JOHN DAY, MANAGER. (REGISTERED) IMPERIAL COTTON EXCHANGE. DIRECTIONS: Make a copy of the above receipt. Mark it "Specimen," with the proper number and file with your other papers, NEGOTIABLE CONTRACTS 201 EXERCISE XLVIII. Using fictitious names, make out a receipt for 1000 bushels of No. 1 blue stem wheat. Also, a re- ceipt for 100 bales of First Grade Peruvian cotton. Also, for 1000 bushels First Grade "Pearl of Greely" potatoes. After these receipts have been approved, mark them in the usual man- ner and file. 254. Land contracts. Contracts for the sale of lands, or for any interest in or concerning lands, must, by the Statute of Frauds, be in writing (see Part I, sec. 5, page 12). Leases for short terms, as for a year or less, are not included in this provision. The writing may be just a brief statement, or a more formal document. In any case it should set out fully the terms and all the provisions of the agreement and be signed by the parties. It must be remembered that this writing does not operate to convey the legal title to the land, but this latter is effected by a deed of conveyance. The land contract is made merely as evidence of a binding agreement between the parties for the sale and future conveyance of title to an estate in land. EXERCISE L 255. Material facts. On the 9th day of May, 1919, John Whitacre, of Imperial, Imperial County, California, agreed to sell forty acres of land to Elton Farmer, of Wausau, Wisconsin, at an agreed price of $400 an acre. The land is described as the S. E. % of the S. E. ^ of Section 7, Tp. 15 S., S. B. M., Range 15 East. With the land and as part of the conveyance Whitacre agreed to convey ten shares of stock in the Imperial Irri- gation Company, the water to be supplied to the land for 202 CONTRACTS CONCERNING LAND 203 irrigation and domestic use. Farmer is to pay $4000 cash down at the time of the conveyance, and $4,000 a year until the entire amount is paid. Conveyance is to be executed and the first payment made within 30 days of the date of the agreement to sell. It is now necessary to write out a land contract or form of agreement for the parties, pending the future convey- ance of the legal title to the land and water rights in ques- tion. LAND CONTRACT THIS AGREEMENT, Made this the 9th day of May, 1919, by and between John Whitacre of Imperial, Im- perial County, California, of the first part, and Elton Farmer of Wausau, Waukesha County, Wisconsin, of the second part, WITNESSETH, That the said parties have and do hereby mutually covenant and agree as follows: That the party of the first part is to sell, and the party of the second part is to pur- chase, ALL THAT TRACT OR PARCEL OP LAND, situate in the County of Imperial, and State of California, and described as the S. E. % of the S. E. % of Section 7, Tp. 15, South, S. B. M., Range 15 East, by United States Government Survey; the same to be 40 acres more or less, and with the said land and as appur- tenant to it, the party of the first part agrees to transfer and does hereby transfer to the party of the second part Ten Shares of stock in the Imperial Irrigation Company, as a permanent .and perpetual water right for the said land, for the sum of Sixteen Thousand Dollars ($16,000.00) which sum the said party of the second part hereby agrees to pay to the party of the first part as follows: Four Thousand Dollars cash down at the time of the delivery of the deed of conveyance, which is to be within thirty days from the date hereof, and Four Thousand Dollars a year on the first day of May of each year until the en-. 204 APPLIED BUSINESS LAW tire balance of Twelve Thousand Dollars is paid, and in addi- tion to this the party of the second part agrees to pay all taxes and assessments of every land that may be levied upon the said land or water rights, above described, from and after the date hereof until the said purchase price shall have been fully paid. AND the said party of the first part on receiving such pay- ment, at the tune and in the manner above provided, shall, at his own proper costs and expenses, execute and deliver to the said party of the second part, or to his assigns, a warranty deed, for the conveying and assuring to him, or to them, the title to the above described premises in fee simple. And it is further agreed that the above stipulations shall apply to and bind the heirs, executors, administrators and assigns of the respective parties to this agreement. , IN WITNESS WHEREOF, The said parties have hereunto set their hands and seals the day and year first above written. In presence of JOHN WHITACRE (Seal) JOHN DAY ELTON FARMER (Seal) ACKNOWLEDGMENT State of California ' SS County of Imperial. ' On the 9th day of May, 1919, before me, personally appeared John Whitacre and Elton Farmer, to me known, and known to be the individuals described in, and who executed the foregoing instrument, and they severally acknowledged to me that they executed the same as their own voluntary act. (NOTARIAL SEAL.) RICHARD ROE, NOTARY PUBLIC for Imperial County, Calif. ANALYSIS: (1) Give the heading of this contract. (2) What is the initial agreement? (3) State the counter agreement. (4) Give the conclusion. (5) What is the purpose of the acknowledg- ' ment? (6) Where is the contract to be carried out? (7) The CONTRACTS CONCERNING LAND 205 laws of what state govern in contracts concerning real property? (8) Are all the essentials of a valid contract present here? (9) Is the contract required to be in writing? Why? (10) Suppose the purchaser had been an alien enemy, would the contract be valid and binding on Whitacre? DIRECTIONS: Make a copy of the above land contract. When it has been approved, mark it Exercise L, and file. EXERCISE LI. Using fictitious names and adapting the con- tract to your own particular neighborhood or locality, write a similar form of agreement for the sale of a tract of land. EXERCISE LII. Formulate a set of facts and write out a form of agreement for the sale of a city lot in your community or city. After the work in each of the above exercises has been ap- proved, mark them properly and file. EXERCISE LIII 256. Deeds of conveyance. Title to land can be transferred only by a formal writing known as a deed of conveyance, or by some matter of record as by a decree of court. In this connection we are concerned only with conveyance by act of the parties, and that limits us to deeds of conveyance. At common law any writing under seal was classed as a deed. Hence, there were many forms of deeds. But at present it is best to limit the use of the word deed to deeds of conveyance and mortgage deeds, or deeds of trust. There are two common kinds of deeds which oper- ate to convey title to real property; these are, (1) War- ranty deeds, and (2) quitclaim deeds. Each of these is found in two forms, the long, or common-law form, and the short, or statutory, form. 267. Material facts. About ten days after Whitacre and Farmer made the land contract as illustrated in Ex- 206 APPLIED BUSINESS LAW ercise L, they arranged to complete the transaction by having Whitacre execute a deed by means of which title to the land and water in question was to be conveyed to Farmer in consideration of the payment of $4000 by the latter. The deed was executed May 20, 1919. WARRANTY DEED THIS INDENTURE, Made this the twentieth day of May, in the year one thousand nine hundred and nineteen, BETWEEN John Whitacre of Imperial, Imperial County, California, of the first part, and Elton Farmer of Wausau, Waukesha County, Wisconsin, of the second part, WITNESSETH, That the said party of the first part, in con- sideration of the sum of Sixteen Thousand Dollars, lawful money of the United States of America, to him in hand paid by the party of the second part, in manner and form as follows : Four Thousand Dollars to be paid cash in hand at the time of the execution of this deed, the receipt whereof is hereby acknowledged; Four Thou- sand Dollars to be paid on the first day of May, 1920, Four Thou- sand Dollars to be paid on the first day of May, 1921, and the balance of Four Thousand Dollars to be paid on the first day of May, 1922, the deferred payments to bear interest at the rate of six per centum per annum until paid, DOES HEREBY GRANT and release unto the said party of the second part, his heirs and assigns forever, ALL THAT TRACT OR PARCEL OF LAND situate in the County of Imperial and State of California, located and described as follows: The Southeast quarter of the Southeast quarter of Sec- tion seven, Township fifteen, South, San Bernardino Meridian, Range fifteen East, containing forty acres, more or less, by United States Government Survey, TOGETHER with the appur- tenances, and all the estates and rights of the said party of the first part in and to said premises, and with the said land and as appurtenant to it the party of the first part agrees to transfer and does hereby transfer to the party of the second part TEN SHAKES of Stock in the Imperial Irrigation Company, as a per- manent and perpetual water right for the said land, for the con- sideration above described. To HAVE AND TO HOLD the above granted premises unto the said party of the second part, his heirs and assigns forever. And the said party of the first part, does hereby COVENANT with the said party of the second part as follows: First, that the party of the first part is seized of the said prem- ises in fee simple, and has good right to convey the same. Second, that the party of the second part shall quietly enjoy the premises. Third, that the said premises are free from encumbrances. Fourth, that the party of the first part will execute or procure any further necessary assurances of the title to said premises. Fifth, that the said John Whitacre party of the first part will forever warrant and defend the title to said prem- ises. IN WITNESS WHEREOF, the said party of the first part has hereunto set his hand and seal the day and year first above writ- ten. In the presence of JOHN WHITACRE (Seal). JOHN DALE STATE OP CALIFORNIA County and ss. City of Imperial On this twentieth day of May, in the year 1919, before me, the subscriber, personally appeared John Whitacre to me personally known to be the same per- son described in and who executed the foregoing instrument, and he acknowledged to me that he executed the same. (NOTARIAL SEAL.) RICHARD ROE Notary Public for Imperial County, California 208 APPLIED BUSINESS LAW ANALYSIS: (1) Who are the parties to the above deed? (2) Where is the conveyance effective? (3) The laws of what state govern? (4) Which party is known as the "grantor"? As the grantee? (5) Would the conveyance be effective without the knowledge or assent of the grantee? (6) Must he assent to the grant? How? (7) What is the purpose of the acknowl- edgment? Why does the grantee not acknowledge his part to the transaction? DIRECTIONS: Make a copy of the above deed, and mark it Exercise LIII, and file. Write the name of the grantor as: "John Whitacre, by A. Student, Agent," supplying the seal. EXERCISE LIV. Using the facts given hi Exercise LI as a basis for your work, draft a form of deed of conveyance by which the title to the land hi question is conveyed from the grantor to the grantee. After this deed has been approved, mark it prop- erly and file with the land contract. EXERCISE LV. Using the facts given hi Exercise LII as a basis for a deed, draft a form of conveyance which will transfer the title to the lot hi question from the grantor to the grantee. After this deed has been approved, mark it properly and file with the land contract. EXERCISE LVI 268. Short form of deed. The preceding form of warranty deed is the long, or common-law form. Such deeds are usually drawn by lawyers or conveyancers and require more or less legal training and skill to draft them properly. In order to make the matter of transferring title to real property quite simple so a man of average ex- perience can readily write out a deed of conveyance, stat- utes have been enacted in many states which provide for a short form of deed. This statutory form of deed is just CONTRACTS CONCERNING LAND 209 as effective for conveying title to real property as the older form. SHORT FORM OF DEED THIS INDENTURE WITNESSETH: That John Whitacre of Im- perial, Imperial County, California CONVEYS AND WAR- RANTS To Elton Farmer of Wausau, Waukesha County, Wisconsin, for the sum of Sixteen Thousand Dollars, the following REAL ESTATE in Imperial County, California: The Southeast quarter of the Southeast quarter of Section seven, Township fifteen, South, San Bernardino Meridian, Range fifteen East, containing forty acres, more or less, by United States Government Survey, TOGETHER WITH TEN SHARES OP STOCK in the Imperial Irrigation Company, as a permanent and perpetual water right for the said land, for the consideration above mentioned. IN WITNESS WHEREOF, the said John Whitacre has hereunto set his hand and seal, this twentieth day of May, 1919. Witnessed by JOHN WHITACRE . . . (Seal) . JOHN DALE. ANALYSIS: (1) Point out all the essential parts of a valid con- veyance in the above deed. (2) What is the effect of the words "Conveys and Warrants" ? NOTE: These words are held to be words of grant and of gen- eral warranty. In a way they take the place of the FIVE war- ranties or covenants set out fully in the long form of deed, Exer- cise LIII. The acknowledgment in the above deed and in the following exercises will be the same as or similar to the acknowledgments already given. DIRECTIONS: Make a copy of the above deed. Write an ac- knowledgment, mark and file 210 APPLIED BUSINESS LAW EXERCISES LVII and LVIII. Write short forms of deeds for Exercises LIV and LV, with an acknowledgment for each. Mark properly and file. t EXERCISE LIX 269. Quitclaim deeds. A quitclaim deed operates to convey whatever title the grantor may have to the grantee, and it places all risk as to whether or not there is a good title upon the grantee. This deed is found both in the long and short form. 260. Material facts. The following is a short form of quitclaim deed based upon the same set of facts used in Exercise LIII, except that payment is to be made at the time of the execution and delivery of the deed. QUITCLAIM DEED I, John Whitacre of Imperial, Imperial County, California, QUITCLAIM unto Elton Farmer, of Wausau, Waukesha County, Wisconsin, the following described real estate in Imperial County, California: The Southeast quarter of the Southeast quarter of Section seven, Township fifteen, South, S. B. M., Range fifteen, East, Containing forty acres, more or less, with TEN SHARES OF STOCK in the Imperial Irrigation Company, as a permanent and perpetual water right for the said land, for the sum of Sixteen Thousand Dollars, receipt of which is hereby acknowledged. Witness my hand and seal this the 20th day of May, 1919. Witnessed by JOHN WHITACRE (Seal). RICHARD A. REX. ANALYSIS: Examine the preceding form for the essential ele- ments of a conveyance of real property. Does it give good title to the land? Upon whom does the risk of title devolve? CONTRACTS CONCERNING LAND 211 DIRECTIONS: Make a copy of the above form of quitclaim deed. Add an acknowledgment, and when it is approved, mark it Exercise LIX, and file. EXERCISES LX and LXI. Using the material in Exer- cises LVII and LVIII, write the conveyances in the form of quitclaim deeds. Write acknowledgments for each of these deeds and when your work has been approved, mark them properly and file. EXERCISE LXII 261. Mortgages. The mortgage deed is another form of contract which affects the title to real property. This in form is a conveyance of the title to real property, but it has a provision that if the party who owes an obligation pays it on or before a specified time then the conveyance is to be of no effect. The debtor or party who gives the mortgage to secure his debt is known as the mortgagor, while the creditor, or party to whom the mortgage is given is the mortgagee. The mortgage is simply a lien on real property as a security for the payment of a debt. The debt is generally evidenced by a note or bond for the amount, but the mortgage would be perfectly valid without either note or bond. 262. Material facts. Elton Farmer has borrowed six thousand dollars for the payment of which he has given a mortgage on the forty-acre tract of land which he purchased from John Whitacre. The debt is evidenced by a promissory note made payable to the order of Rich- ard A. Rex. The term of credit is three years and the loan is to bear interest at the rate of six per cent per an- num. The mortgage deed was executed on the 10th day APPLIED BUSINESS LAW of May, 1919, to secure the payment of the amount of the loan. MORTGAGE THIS INDENTURE, Made the tenth day of May, 1919, BE- TWEEN Elton Farmer now of Imperial, Im- perial County, California, of the first part, and Richard A. Rex of the same place, of the second part, WITNESSETH, That the said Elton Farmer is justly indebted to the said party of the second part in the sum of Six Thousand Dollars, secured to be paid by his certain negotiable promissory note, bearing even date herewith, conditioned for the payment of the said sum of Six Thousand Dollars on the tenth day of May, 1922, and the interest thereon, to be computed from the date of the note at the rate of six per cent per annum, and to be paid semi-annually on the tenth day of May and of November of each year, until the whole sum of said principal be paid, with the priv- ilege to the party of the first part, his executors, administra- tors, or assigns, on any day when interest is payable, to pay off the principal of said mortgage in sums of one thousand dollars or more at every such payment. Now THIS INSTRUMENT WITNESSETH: That the said party of the first part, for the better securing the payment of the said sum of money mentioned in the promissory note given herewith, with interest thereon, and also for and in consideration of one dollar paid by the said party of the second part the receipt of which is hereby acknowledged, does hereby grant and release unto the party of the second part, and to his heirs and assigns forever, ALL THAT TRACT OR PARCEL OF LAND situate in the County of Imperial, California, and more particularly described as follows: The Southeast quarter of the Southeast quarter of Section seven, Township fifteen, South S. B. M., Range fifteen, East, containing forty acres, more or less, according to United States Government Survey, TOGETHER with Ten Shares of Stock in the Imperial Irrigation Company, as a permanent and per- petual water right for the said land, TOGETHER WITH the ap- purtenances and all the estate and rights of the said party of the CONTRACTS CONCERNING LAND 13 first part in and to the said premises, To HAVE AND TO HOLD the above granted premises unto the said party of the second part, his heirs and assigns forever. PROVIDED ALWAYS, That if the said party of the first part, his heirs, executors or administrators, shall pay unto the said party of the second part, his executors, administrators, or assigns, the sum of money mentioned in the said promissory note herein men- tioned, and the interest thereon, at the time and in the manner mentioned in the said condition, then these presents, and the estate hereby granted, shall cease, determine and be void. AND THE said party of the first part covenants with the party of the second part as follows: First, that the said Elton Farmer, party of the first part, will pay the indebtedness as hereinbefore provided, and if default be made in the payment of any part thereof, the party of the second part shall have power to sell the premises herein de- scribed, according to law. Second, that the said Elton Farmer, party of the first part, will keep the buildings on the said premises insured against loss by fire, for the benefit of the mortgagee. Third, and it is hereby expressly agreed, that the whole of said principal sum shall become due, at the option of the said party of the second part, after default in the payment of interest for thirty days, or after default in the payment of any tax or as- sessment for thirty days after notice and demand. AND that the said party of the first part will execute any fur- ther necessary assurances of title to the mortgaged premises, and will forever warrant said title. IN WITNESS WHEREOF, The said party of the first part has hereunto set his hand and seal the day and year first above writ- ten. In presence of ELTON FARMER. . . (Seal). GEORGE D. STRANGE (Acknowledgment: Similar to those already given.) ANALYSIS: (1) Name the mortgagor; the mortgagee. (2) What is the effect of the third paragraph of the mortgage? Of the fourth? (3) How does the "defeasance clause" begin? 214 APPLIED BUSINESS LAW ("Provided always," etc.) (4) What provision is contained in this clause? (5) How is the debt evidenced? (6) May the mortgage be assigned? (7) What words in the mortgage indi- cate this? DIRECTIONS: Make a copy of the foregoing form of mortgage deed. After it has been approved, mark and file it with your other land papers. EXERCISE LXIII. Using fictitious names, make a form of mortgage adapted to your own community. Write a note as additional evidence of the debt which is secured by the mort- gage. After your forms have been approved, mark them prop- erly and file with your other land papers. 263. Assignment of mortgage. The language of the mortgage usually provides that the obligation may be assigned. The assignment or transfer of the rights of the mortgagee to another person may be effected by an instru- ment in writing, usually under seal, or where the debt is evidenced by a note or a bond which is secured by the mort- gage, the transfer of the note or bond will operate as an as- signment of the mortgage to the holder of the note or bond. EXERCISE LXIV 264. Material facts. Richard A. Rex has arranged to assign the mortgage upon the land of Elton Farmer to John Dale, in consideration of one dollar in hand paid and other good and valuable considerations. The assign- ment is of date May 11, 1919. ASSIGNMENT OF MORTGAGE THIS INSTRUMENT, Made the twelfth day of May, 1919, be- tween Richard A. Rex of Imperial, Imperial County, California, of the first part, and John Dale of the same place of, the second part, CONTRACTS CONCERNING LAND WITNESSETH, That the party of the first part, for one dollar in hand paid to him by the party of the second part, the receipt whereof is hereby acknowledged, and for other and further good and valuable considerations to him in hand paid by the party of the second part, HAS SOLD, ASSIGNED, transferred, and conveyed, and does hereby sell, assign, transfer and convey to the party of the second part a certain mortgage bearing date the tenth day of May, 1919, and executed by Elton Farmer to Richard A. Rex to secure the payment of the sum of Six Thousand Dollars and interest thereon from the date thereof, at the rate of six per cent per annum until paid, recorded in the County Recorder's Office of the County of Imperial, State of California, in Liber sixty- three of Mortgages, at page eighty, on the tenth day of May, 1919, at 11 a. m., together with the note accompanying said mortgage and therein referred to, and all sums of money due and to become due thereon. And the party of the first part hereby covenants that there is at this time a full and complete sub- sisting obligation for the entire amount of the note and interest secured by the mortgage hereby assigned and that he has done no act to impair the validity of the obligation. IN WITNESS WHEREOF, The said party of the first part has hereunto set his hand and seal the day and year first above writ- ten. In the presence of RICHARD A. REX (Seal). JOHN H. SMITH (This assignment should be acknowledged and recorded in the same manner as a mortgage.) ANALYSIS: (1) Name the assignor; the assignee. (2) Point out the essentials of a valid contract in the above assignment. (3) Why should the assignment be acknowledged and recorded? DIRECTIONS: Make a copy of the above assignment. Include an acknowledgment, mark and file. EXERCISE LXV. Using the facts and materials in Exercise LXIII, make a form of assignment of the mortgage as drafted in that exercise. After your work has been approved, number it Exercise LXV, and file. 216 APPLIED BUSINESS LAW 265. Discharge of mortgage. When the debt which is secured by the mortgage is paid, or when there has been a lawful tender of payment, or the obligation of the mort- gage is otherwise performed, the mortgage is at once dis- charged. Usually the discharge of a mortgage must be for a valuable consideration, or by a release in writing which in most states must be under seal. The release should be properly acknowledged and filed for record in the recorder's office. It is frequently provided by statute that a mortgage may be released by merely making mar- ginal notations on the mortgage as recorded in the mort- gate book of the recorder's office, but such notation must be attested by the recorder. A fraudulent notation on the records is a criminal act for which the' guilty party is liable to fine and imprisonment for such act. EXERCISE LXVI 266. Material facts. On July 3, 1919, John Dale received payment in full for the amount of the note and interest due thereon from Elton Farmer. In considera- tion of this payment, Dale gives an unconditional release of the mortgage which was given to secure the payment of the loan of $6000. RELEASE OF MORTGAGE State of California YSS. City and County of Imperial I, John Dale, of the City of Imperial, County of Im- perial, and State of California, Assignee of the Mortgage hereinafter described, Do HEREBY CERTIFY, That a certain CONTRACTS CONCERNING LAND 217 Deed of Mortgage, bearing date of tenth day of May, 1919, made and executed by Elton Farmer to Richard A. Rex, and thereafter on or about the twelfth day of May, 1919, by a instrument in writing duly assigned to me and recorded in the Office of the County Recorder of Imperial County, California, in Liber sixty-three of Mortgages, at page ninety, on the 12th day of May, 1919, at 11 a. m., Is PAID and I hereby consent that the same be discharged of record. IN WITNESS WHEREOF, I have hereunto set my hand and seal this third day of July, 1919. In presence of RICHARD A. REX JOHN DALE (Seal). (The above Release must be properly acknowledged so it may be recorded in the office of the county recorder.) DIRECTIONS: Examine the above form of release carefully to see that the names of the parties, dates, and other essentials are properly stated. If these facts are found to be correct, make a copy of the from. When your work has been approved, mark it Exercise LXVI, and file. EXERCISE LXVII. Using the facts and materials of Exer- cise LXV, draft a form of release for the mortgage given in Exer- cise LXIII. After this form of release has been approved, num- ber it and file. EXERCISE LXVIII 267. Lease of real property. Where one lets the use of real property to another for an agreed term or at will, the contract is known as a lease. The owner of such prop- erty is the landlord, or lessor, and the person to whom it is let is the tenant, or lessee. The compensation paid for the use of real property is known as rent. A lease for one year or longer should be in writing, and if for three years, 218 APPLIED BUSINESS LAW or more, it should be acknowledged and recorded in the county recorder's office. 268. Material facts. On May 1, 1919, Elton Farmer of Imperial, California, makes an agreement with Hiram Hoe, of the same place, by the terms of which he is to let his forty-acre farm to Hoe for a term of four years, at an annual rental of forty dollars an acre, the tenant to pay all water assessments and keep the ditches in good repair, to farm the land in a modern and approved manner, keep the buildings insured, and pay the rental quarterly in advance. FARM LEASE THIS AGREEMENT, Made this the first day of May, 1919, be- tween Elton Farmer, of Imperial County, California, of the first part, and Hiram Hoe, of the same place, of the second part, WITNESSETH, That in consideration of the rents and covenants hereinafter .expressed, the said party of the first part has DEMISED AND LEASED, and does hereby demise and lease to the said party of the second part, the following described prem- ises: ALL THAT TRACT OR PARCEL OF LAND, Situate in the County of Imperial, and State of California, and more particularly de- scribed as the Southeast quarter of the Southeast quarter of Sec- tion seven, Township fifteen South, S. B. M., Range fifteen East, containing forty acres, more or less, TOGETHER with Ten Shares of Stock in the Imperial Irrigation Company, as a water right for the said land, with the privileges and appurtenances, and all the estates and rights of the party of the first part in and to the said premises, for and during the term of FOUR YEARS from the first day of May, 1919, which term will end the 30th day of April, 1923. And the said party of the second part covenants that he will pay to the party of the first part, for the use of said premises, the annual rental of forty dollars an acre for the forty acres, payable quarterly in advance on the first CONTRACTS CONCERNING LAND 219 day of May, August, November, and February of each year dur- ing the continuance of this lease. AND, PROVIDED said party of the second part shall fail to pay said rent or any part thereof when it becomes due, it is agreed that said party of the first part may sue for the same, or re-en- ter said premises, or resort to any other legal remedy therefor. The party of the first part agrees to pay all taxes to be as- sessed against the said lands during said term, EXCEPT taxes and assessments levied against and upon the water rights in the Im- perial Irrigation Company which latter assessments and taxes the party of the second part agrees to pay. The party of the second part covenants that at the expiration of said term he will surrender up said premises to the party of the first part or to his lawful successors in as good condition as now, necessary wear and damage by the elements, earth- quakes, and other inevitable accidents to be excepted. IN WITNESS WHEREOF the said parties have hereunto set their respective hands and seals the day and year first above written. Made and signed hi duplicate in the presence of RICHARD A. REX ELTON FARMER (Seal). HIRAM HOE (Seal). (The lease should be acknowledged and recorded ) ANALYSIS: (1) Point out the essentials of a valid contract in the above form of lease. (2) What is the initial agreement? The counter agreement? (3) Is this contract required to be in writing? (4) Should it be recorded? Why? DIRECTIONS: Study the above form of lease and recast each paragraph with a view to expressing the intention and under- standing of each party with greater clearness and brevity. Re- write the entire lease, and when your work has been approved, number it and file. EXERCISE LXIX. Using the facts given in Exercise LIV, draft a form of lease for the land for a term of five years. After your lease has been approved, number jt and file with, your other land papers, 220 APPLIED BUSINESS LAW EXERCISE LXX 269. Assignment of lease. A tenant may assign his leasehold or sublet any part of it unless restrained by the terms of the lease. If he dispose of the whole premises for the whole term of lease, this is called an assignment of the lease; but if he dispose of only part of the premises or all the premises for only part of the time, this is a sublet- ting. In the case of an assignment, if the landlord consents to it or even accepts rent from the assignee, the original tenant is freed from all liability for the payment of the rent. But if the landlord does not thus assent, he may hold the original tenant liable for the payment of rent even though he cease to have any estate or interest in the leasehold. 270. Material facts. Hiram Hoe, tenant of Elton Far- mer, as indicated in Exercise LXVII, has contracted to transfer his lease to Loftus Wilt for an agreed considera- tion, June 10, 1919. ASSIGNMENT OF LEASE KNOW ALL MEN BY THESE PRESENTS, That I, Hiram Hoe, of Imperial County, California, party of the first part, in consid- eration of One Dollar to me in hand paid by Loftus Wilt, of the same place, party of the second part, the receipt whereof is hereby acknowledged, and for other and further con- siderations, have this day GRANTED, BARGAINED, SOLD, AS- SIGNED, AND TRANSFERRED, and by these presents do grant, bar- gain, sell, assign, and transfer unto the said Loftus Wilt, party of the second part, a certain contract of lease bearing date of the tenth day of May, 1919, and made by Elton Farmer of Imperial County, California, to Hiram Hoe, of the same place, for a term of FOUR YEARS from the first day of May, 1919, and duly ac- CONTRACTS CONCERNING LAND 221 knowledged and recorded in the Office of the County Recorder of Imperial County, California, in Liber 73, at page 125, Whereby the said Elton Farmer granted and leased to the said Hiram Hoe, the party of the first part hereto, ALL THAT TRACT OR PARCEL OF LAND situate in the County of Imperial, California, located and described as the Southeast quarter of the Southeast quarter of Section seven, Township fifteen, South, S. B. M., Range fif- teen East, containing forty acres, more or less, TOGETHER WITH Ten Shares of Stock in the Imperial Irrigation Company, as a water right for the said land, with the privileges and appurte- nances and all the estate and rights of the said Elton Far- mer, for and during the said term of four years. To HAVE AND TO HOLD the same unto the said party of the second part, his heirs, and assigns for his or her own use during the remainder of the said term of leasing, subject only to the pro- visions and covenants in the original contract of leasing, and that the party of the second part assumes all such obligations and undertakings as set forth in the original lease. IN WITNESS WHEREOF, We have hereto set our respective hands and seals this the tenth day of June, 1919. In the presence of HIRAM HOE (Seal). JOHN W. ROCKFQRD LOFTUS WILT (Seal). ANALYSIS: (1) Examine the above form of assignment of lease with a view to finding all the essential elements of a valid contract. (2) Name the assignor; the assignee. (3) Is this agreement binding on the landlord? (4) To whom may he look for payment of his rental? DIRECTIONS: Find each of the parts of an ordinary contract in the above form: Heading, initial agreement, counter agree- ment, further agreements, and conclusion, with the subscrip- tion. Rearrange each part with a view to expressing the dif- ferent paragraphs with greater clearness and brevity. Rewrite the entire contract, and when it is approved, number and file. GROUP V MISCELLANEOUS FORMS 271. Authority of agent. An agent is one who repre- sents another, called the principal, in the formation of contracts. Hence, it is always advisable to have the authority of the agent in some form of writing, unless he is to act in the immediate presence of the principal. This written authority may be general or special, or in the form of a power of attorney or of a proxy. 272. General agency. A general agent is one who has authority to act generally for his principal in the trans- action of a business of a particular kind or at a particular place. He is not limited to the performance of specific acts, but is permitted a reasonable discretion in the trans- action of his principal's business (see section 11, Part I). EXERCISE LXXI 273. Material facts. January 17, 1919, John Doe is appointed to act as manager of the local general merchan- dise store of the Colorado Supply Company at Del Agua, Colorado. AUTHORITY OF GENERAL AGENT COLORADO SUPPLY COMPANY Office of the President Denver, Colorado, January 17, 1919. To WHOM THIS MAY CONCERN: Be it known by this writing that JOHN DOE, of Trinidad, Las Animas County, Colorado, has been selected and appointed to act as MANAGER of our general merchandise store at Del Agua ; 222 MISCELLANEOUS FORMS 223 Las Animas County, Colorado, and by this writing he is given full and complete authority to transact and conduct the business pertaining to said general merchandise store in the regular and ordinary course of business in buying and selling of goods and merchandise. He has no authority, to issue notes or accept drafts binding upon this Company. THE COLORADO SUPPLY COMPANY, By THOMAS W. BOWEN, PRESIDENT AND GENERAL MANAGER. GEO. A. PURDEN SECRETARY. ANALYSIS: (1) What authority is given by the above writing? (2) What restrictions are imposed on the authority of the agent? (3) Under this authority will Doe have a right to hire clerks and salesmen? (4) Doe purchases from X a horse to be used for de- livery purposes, paying $200 for it. May the Company repudiate this contract and refuse to pay for the horse? (5) Doe hires car- penters and has repairs made on the store building; the repairs were needed. Is the Company bound by this contract? (6) He hires carpenters and has a considerable addition built to the store. Is the Company bound by this contract? (7) He adds some new departments to the business of the store, such as a drug department, music department, and the like. Is the Com- pany bound by his contracts for these? DIRECTIONS: Make a copy of the above form, and at the same time make any changes or additions necessary to a clear state- ment of the agent's authority. After your writing has been approved, number it and file. EXERCISE LXXII. Upon somewhat similar facts, and using fictitious names, write a form of general agency. When your writing has been approved, number and file. EXERCISE LXXIII 274. Special agency. A special agent is one who is authorized to act in a single transaction or in relation to a specific matter. 224 APPLIED BUSINESS LAW 276. Material facts. John Dale has appointed Rich- ard Rex as his agent to sell a particular tract of land be- longing to Dale, May 3, 1919. AUTHORITY OF SPECIAL AGENT Appomattox, Virginia, May 3, 1919. To WHOM THIS MAY COME : BE IT KNOWN BY THIS WRITING That Richard Rex of Rich- mond, Virginia, has been selected and appointed by me to act as my agent for the purpose of negotiating and making a sale of my certain property or tract of land known as "Homeacre," sit- uate near Hollywood Post Office, Appomattox County, in the State of Virginia. This tract of land contains two hundred and eighty-four acres and must be sold intact, and in no event shall the sales price of said premises be for a sum less than $30 an acre and the said Richard Rex shall have no authority to accept or receive any part of the purchase price for the said property. The right and authority of the said Richard Rex to act as my agent in and for the sale of the above named property shall ter- minate and expire at the end of one month from the date of this writing, unless otherwise sooner terminated for cause. JOHN DALE ANALYSIS: (1) What authority is conferred by the above writing? (2) How may this authority be terminated? (3) What limitations of authority are imposed on the agent? DIRECTIONS: Examine the above form, then rearrange each paragraph with a view to greater brevity and clarity of state- ment. Rewrite the entire form; after your writing has been ap- proved, number and file. EXERCISE LXXIV. Using similar or other facts suited to your own community, draft an authority for a special agent. When your work has been approved, number it Exercise LXXIV, MISCELLANEOUS FORMS 225 EXERCISE LXXV 276. Power of attorney. A power of attorney is a writing under seal which authorizes an agent to perform some particular duty. The agent so appointed is known as an "attorney in fact," and his authority is limited to the particular duty specified in the writing. In other words, a power of attorney is simply a written authority of an agent, signed and sealed by the principal. This form of authority is required only where the agent may have to execute written instruments under seal, such as deeds conveying title to real property (see section 12, Part I). 277. Material facts. John Doe appoints John Smith, by a writing under seal, to act as his agent for the sale and transfer of title to "Oldacres Plantation," located at Leon Springs, Florida. The power is of a general character. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I John Doe of the County of Leon, State of Florida, have made, constituted, and appointed, and by THESE PRESENTS do make, constitute, and appoint John Smith of the City of Tallahassee, and same county and state, my true and lawful attorney for me and in my name, place and stead, to grant, bar- gain, and sell all such lands, tenements, and hereditaments what- soever, situated in the County of Leon, and State of Florida, whereof I now am by any ways or means however, entitled to or interested in, either in severalty or jointly, or in common with any other person or persons, or any part, share, or proportion thereof, and all such right, title, interest, claim and demand, both in law and in equity, as I may have in the same, for such sum and price and on such terms as to him shall seem meet, GIVING AND GRANTING unto my said attorney full power and authority to do 226 APPLIED BUSINESS LAW and perform all and every act or 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, with full power of substitution and revocation, hereby ratifying and confirming all that my said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this the tenth day of March, 1919. In presence of RICHARD ROE JOHN DOE (Seal). (The Power of Attorney must be acknowledged and recorded as in the case of a deed, otherwise a deed made under such author- ity would not be a valid conveyance of title to real property ) ANALYSIS: (1) In the preceding power of attorney, why is the power general instead of being a special or limited authority? (The principal owns only one tract of land in the county named.) (2) What limitation would be necessary if Doe owned other tracts of land which he did not wish to dispose of? (3) What authority is given the agent in this case? (4) Are there any re- strictions imposed? (5) May the agent sell lands belonging to the principal which are located in Madison, an adjoining County? (6) Must he sell for cash, or may he sell on reasonable terms? DIRECTIONS: Make a copy of the above power of attorney. When your work has been approved, number the exercise and file. EXERCISE LXXVI. Using fictitious names, make out a form of power of attorney authorizing the sale of land in your neighborhood. After your draft has been approved, number and file. EXERCISE LXXVII. Write a power of attorney authoriz- ing John Dale to settle up and adjust your business and dispose of all your property located in a designated city, county, and state. After this authority has been approved, number and file, MISCELLANEOUS FORMS EXERCISE LXXIX 278. Form of proxy. A proxy is a writing which authorizes one to act as the agent or representative of another, as, for example, the voting of shares of stock at a stockholders' meeting of a corporation. Sometimes the person authorized to act is spoken of as a "proxy," but the better usage is to designate the writing as a proxy and the person authorized to act as an agent or attorney. Where stockholders cannot or do not personally attend the stockholders' meetings, they may, by giving a proxy which is a writing somewhat in the nature of power of attorney, authorize or direct another to vote in their stead. No particular form is required for this writing, it being sufficient if it clearly sets out an authority to act for the holder of the shares of stock designated. 279. Material facts. Jack Gibson, of Peoria, Illinois, is the owner of shares of stock in the Last Chance Irriga- tion Company of St. Vrain, Weld County, Colorado. He is unable to be present at the annual stockholders' meet- ing and he authorizes Bruce B. Lockard, of Longmont, Colorado, to act as his agent at such meeting. FORM OF PROXY PROXY FOR ANNUAL STOCKHOLDERS' MEETING To be Held at St. Vrain, Colo., April 21, 1919. KNOW ALL MEN BY THESE PRESENTS: That I, the under- signed, being the lawful owner of TEN shares of Capital Stock of the Last Chance Irrigation Company, a corporation organized under the laws of the State of Colorado, do hereby constitute and APPLIED BUSINESS LAW appoint BRUCE B. LOCKARD my true and law- ful attorney in fact, or proxy, in my name, place and stead, to VOTE upon the stock owned by me and standing in my name, as my proxy, at the Annual Meeting of the Stockholders of the said Company, to be held at the office of the President of the Com- pany, at St. Vrain, Weld County, Colorado, on the twenty-first day of April, 1919, and on such other day or days as the meeting may be thereafter held by adjournment or otherwise, according to the number of votes I am now or may then be entitled to cast, hereby granting to my said attorney, or proxy, full power and authority to act for me and in my name at the said meeting or meetings, in voting for the directors of the said Company or otherwise, and in the transaction of such other business as may come before the meeting legally, as fully as I could do if person- ally present, with full power of substitution and revocation, hereby ratifying and confirming all that my said attorney or his substitute may do in my place, name, and stead. IN WITNESS WHEREOF, I have hereunto set my hand and seal the fourteenth day of April, 1919. In presence of JOHN WENDT JACK GIBSON . . (Seal) . DIRECTIONS: Analyze the above form carefully, then re- write it carefully with a view to brevity. After it is approved, number and file. EXERCISE LXXX. Following the above model, write out a proxy authorizing a friend to represent you at a stockholders' meeting of some corporation in your community. When your work has been approved, number it Exercise LXXX, and file. EXERCISE LXXXI 280. Bill of sale. A bill of sale is a writing by the terms of which the seller transfers to the buyer title to specific goods described in the bill of sale. In addition to MISCELLANEOUS FORMS 29 transferring title to the buyer it may also warrant the title to the buyer. Bills of sale apply to personal property, that is to movable property or goods, and correspond to deeds of conveyance to land, but as a rule they do not have to be under seal or recorded in a public office of rec- ord as in the case of deeds of conveyance. 281. Material facts. John Dale has sold a typewriter to Mary Stiles for the sum of fifty dollars, delivery and payment to be concurrent on the 7th day of March, 1919. Miss Stiles asks for a bill of sale for the machine. BILL OF SALE KNOW ALL MEN BY THESE PRESENTS, That I, John Dale, of Chicago, Cook County, Illinois, have BARGAINED AND SOLD, and by these presents do hereby grant and convey unto Mary Stiles of Athens, Athens County, Ohio, her per- sonal representatives and assigns, one L. C. Smith & Bros. Type- writer, No. 5, Serial Number 136,519-5, for and in consideration of the sum of FIFTY DOLLARS lawful money of the United States of America, to me in hand paid by the said Mary Stiles, the re- ceipt whereof is hereby acknowledged. To HAVE AND TO HOLD the said typewriter unto the said Mary Stiles, her personal representatives and assigns forever. AND I HEREBY COVENANT to and with the said Mary Stiles that I am the true and lawful owner of the said Typewriting Machine described herein and I have good title to the same and a right to sell and transfer the said title and property in the same, and I will defend the same against any person or persons whom- soever claiming the same through any act of mine or want of title in me. IN WITNESS WHEREOF, I have hereunto set my hand and seal this the seventh day of March, 1919. Witnessed by LOTTA MILES. JOHN DALE (Seal). 230 APPLIED BUSINESS LAW DIRECTIONS: (1) State the purpose of the bill of sale. Does it warrant the quality or character of the article sold, as new, re- built, or second-hand, or in good repair? What does it warrant? (2) Make a copy of the above form, number and file. SHORT FORM OF BILL OF SALE Chicago, Illinois, March 7, 1919 To WHOM THIS MAY CONCERN: I have this day sold my L. C. Smith & Bros. Typewriter, No. 5, Serial Number, 136,519-5, to Miss Mary Stiles, of Athens, Ohio, for the sum of Fifty Dollars^ and I hereby convey and war- rant title to the same. JOHN DALE (Seal) . EXERCISE LXXXII. Write a bill of sale for some article which you have sold. After your form has been approved, number it and file. Exercise LXXXIII. Write a bill of sale in the short form for the same article. When your work has been approved, number it Exercise LXXXIII, and file with your other forms. EXERCISE LXXXIV 282. Notice to stop goods in transit. Where one sells goods and ships them by a common carrier to the buyer, and after such shipment but while the goods are still in transit he learns of the insolvency of the buyer, he may give notice to the carrier to hold the goods and not deliver them to the buyer. After such notice, the carrier must hold the goods sub- ject to the order of the seller, and if he fail to do this he will be answerable to the seller for the value of the goods. righ.t to stop goods in transit applies gnly to an un* MISCELLANEOUS FORMS paid seller in case the buyer becomes insolvent, or the seller learns of the insolvency, after the sale and ship- ment of the goods. Three conditions must exist to give rise to a right to stop goods in transit: (1) They must be in the hands of an intermediate or third party as a common carrier or as a warehouseman. (2) There must be some amount or balance due on the goods. (3) The buyer must be insol- vent or at least appear to be in financial straits. 283. Material facts. John Doe, of Imperial, Cali- fornia, shipped a car of cantaloupes to X & Company, Chicago, Illinois, but after making the shipment and be- fore delivery of the goods by the carrier, he learned of the insolvency of buyers. He wired to have the goods held subject to order. NOTICE FOR STOPPAGE IN TRANSIT Imperial, California, April 12, 1919. Mr. John Henry Mann, Agent, C., R. I. & Pacific Ry. Co., Chicago, 111. Sir: You are hereby notified that circumstances have arisen which give me the right of stoppage in transit of a car load of Cantaloupes delivered to the Southern Pacific Railway Company at Imperial, California, April 10, 1919, and consigned to X & Company, Chicago, Illinois, and you are not to deliver the same to the consignee, but HOLD the entire lot for me and SUBJECT TO MY ORDERS. JD Yours truly, JOHN DOE, CONSIGNOR. C ANALYSIS: (1) Who are the parties to the above notice? (2) Is X & Company a party to it? (3) Does the notice show the APPLIED BUSINESS LAW three essential elements or conditions for stopping goods in transit? (4) State these conditions. DIRECTIONS: Make a copy of the above form of notice, omit- ting the salutation and complimentary closing. Does this make the notice more formal? Number your form and file. EXERCISE LXXXV. The above notice is to be sent as a tele- gram or "Night Letter," containing fifty words. Rewrite it, using fifty words or less, but do not omit any essential of its validity as a full and complete notice. When approved, number and file. EXERCISE LXXXVI 284. Notice of dishonor of business paper. When a negotiable paper is dishonored, either by non-accept- ance or non-payment, notice of such dishonor must be given to all parties who are conditionally liable on the paper. If the dishonor takes place in the state in which the paper was made or drawn, then the holder may give notice to the other parties, but if paper had its origin outside of the state then notice must be given after the paper has been duly protested, and usually the notice is given by a notary public. 285. Material facts. John Stiles of Salem, Oregon, is the holder of a promissory note made by Richard Rex of Fresno, California, which falls due on April 14, 1919. The note is dishonored by non-payment when it is pre- sented to the maker. It is indorsed by John Redmon, an indorser in due course, and by Richard Roe as an accommo- dation indorser, or surety, for its payment. Notice was given to the parties conditionally liable. MISCELLANEOUS FORMS $33 NOTICE OF DISHONOR Salem, Oregon, April 17, 1919. State of Oregon 1 County of Marion] BE IT KNOWN, by this Notice, that a Note of $400.00 date March 15, 1919, and payable thirty days from date, at the First National Bank of Salem, Oregon, signed by the maker, Richard Rex of Fresno, California, and indorsed by you, was this day PROTESTED FOR NON-PAYMENT after due demand was made and payment refused, and the holder looks to you for the pay- ment thereof with damages, interest, and costs. Done at the request of John Stiles, the holder of the said note. HENRY A. SMITH Notary Public for Marion County. Addressed to JOHN REDMON, Seattle, Washington. . . . ANALYSIS: (1) What is the character of the paper dishonored? (2) How was it dishonored? (3) Who are the parties to the paper maker, payee, holder, indorsers, etc. (4) Who are the parties "primarily liable" on the note? (5) What de- mand is made in the notice? DIRECTIONS: Make a copy of the above notice, omitting the jurat at the beginning and substituting therefor a form of salutation and complimentary close. When approved, number and file. EXERCISE LXXXVII. Select a promissory note from your file, and write a notice of dishonor. Number and file. EXERCISE LXXXVIII 288. Notice of dissolution of partnership. Dissolu- tion of a partnership terminates the liability of a partner 234 APPLIED BUSINESS LAW for contracts or obligations arising after the dissolution, provided due notice of the dissolution has been given. To persons who have had no dealings with the partnership, notice to the public generally is sufficient. But it is gen- erally necessary to give written notice to all persons who have had dealings with the firm. At any rate, reasonable diligence should be exercised to have notice brought home to the attention of such persons. General notice may be given by publication in a local newspaper. 289. Material facts. Eli Ford and George Howe, doing business under the firm name of FOED & HOWE, engaged in the general retail grocery business in the City of Denver, Colorado, have mutually agreed to terminate their partnership. Notice is to be given to the public generally by publication in a newspaper, and special written notice is to be given to persons with whom the firm has had dealings. NOTICE OF DISSOLUTION NOTICE IS HEREBY GIVEN: That the Copartner- ship heretofore existing between ELI FORD and GEORGE HOWE, under the firm name and style of FORD & HOWE, at the City of Denver, Colorado, is this day dissolved, April 18, 1919. All accounts due the partnership are to be paid to George Howe at the office of the old firm, and all claims against the partnership should be presented to him for payment, at maturity. ELI FORD GEORGE HOWE. ANALYSIS: (1) Does the above notice sufficiently identify the partnership to render the notice effective? (2) Should the no- tice specify if there were more than one place of business? MISCELLANEOUS FORMS 235 DIRECTIONS: Rewrite the above notice with a view to clear and exact statement. Make it complete but concise. After it has been approved, number and file. EXERCISE LXXXIX. Formulate a set of facts, or use the facts given in Exercises XIX, XX, and XXI, and write out a brief form of notice of dissolution of the partnerships. After your work has been approved, number each and file with your partnership papers. EXERCISE XC 290. Special notice. To all persons with whom a partnership has had dealings special notice of dissolution should be given. This notice may be in any form, but the fact of notice is essential. A written notice addressed and mailed to such persons is usually held to be sufficient. 291. Material facts. As in preceding exercise. DISSOLUTION OF PARTNERSHIP Special Notice Denver, Colorado, April 18, 1919. Dear Sir: You are hereby notified that the copartnership heretofore existing between Eli Ford and George Howe, under the firm name and style of FORD & HOWE, at Denver, Colorado, is this day DIS- SOLVED. Accounts due the firm are to be paid to George Howe at the office of the old firm, and all claims against the firm should be presented to him for payment when due. Yours respectfully, Addressed to ELI FORD JOHN COKE GEORGE HOWE. Cokedale, Colorado DIRECTIONS: Write out at least one special form of notice for each partnership indicated in Exercise LXXXIX. Number and file, INDEX INDEX (Numbers refer to Sections) Abandonment, 67 Acceptance, 203, 248 of offer, 5 kinds of, 76 Acceptor, 248 Accommodation indorser, 76 (4) Accord, 10 Acknowledgment, 255 of deed, 255, 258 Actions, discharge, 10 Agency, 11-17, 272, 275 general, 272 special, 274 Agent, 6, 12, 13, 14, 272-275 authority of, 271 of minor, 5 oral, 271-275 signatures, 207 written, 275 Agreements, 5, 7, 203 articles of, 220 forms of, 206 to incorporate, 224 Alteration of written instru- ment, 8 (6) Appointment of agent, 5-11, 272 Arbitration and award, 10 Articles of agreement, 220 Assignment, 7, 270 of lease, 34, 269 pf mprtgage, 263 Attorney by proxy, 278 in fact, 12, 278 power of, 12, 278 Attorney's fees, 232 Auctioneers, 16 Average, general, 43 Baggage, 37 Bailee, 23-28 Bailments, 23-28, 236 Bank draft, 240, 246 Bankruptcy, 8 (6) Barter, 51 Bids, 203 Bills of exchange, 73, 248 dishonor, 284 of lading, 41, 250 of sale, 46, 50, 280 Bonds, 237 Breach of contract, 8 continuing, 9 Briefing, 208 Business, 1 paper, 79, 284 Buyer, insolvent, 282 By-laws, 93 By-bidding, 50 Cancellation of contract, 8, 10 Capacity to contract, 5, Care of goods, 26 23!) 240 INDEX warehouseman, 250 Carriage, 35 of messages, 44 of persons, 37 of property, 39 Carrier, 36-39 Cashier's check, 245 Certificates of deposit, 236 of incorporation, 225 Certified check, 73, 242 Charter of incorporation, 92, 225 Checks, 73, 239-242 kinds of, 240 Coke, contract for, 217 Collateral note, 235 security, 235 Common carriers, 36, 250 of goods, 250 Compensation, 13 of employee, 19 Concealment instrument, 64 Conditional sales, 8 (4) Consideration, 5 (3), 205 Consignee, 250 Consignor, 39 Contracts, 201-204 assignment of, 270 consideration in, 205 counter offer, 205 essentials of, 204 express, 201 for sale of goods, 202 for sale of land, 254 formal, sealed, 201 formation, 203 in general, 3-5 joint, 231 land, 254 lease, 267 memorandum, 202 negotiable, 227-253 oral, 201 parol, 201 sales, 278 sealed, 201 simple, 201 written, 201 Conveyances, 86, 254 Co-partnership, 52-57 see partnership Corporations, 90-97 Correspondence, 203 contracts by, 203 Cotton, contracts for, 212 Covenants, in deeds, 86, 256 Credit, insurance, 70 Damages, 9 Date, of instruments, 75 of paper, 227 not essential, 227 Debt, barred, 10 (3) secured by mortgage, 89, 261 Debtor, principal, 233 Deeds, 86, 256 acknowledgment of, 256 covenants in, 256 delivery of, 256 essentials of, 86, 256 forms of, 256 quitclaim, 256 warranty, 256 Delegation of duties, 15 Delivery, 47 by carrier, 40 Depositary, 24 Deposits, 23-28 certificate of, 336 Directors, of corporation, 97 Discharge, of contract, 8 INDEX 241 of obligation, 80 of mortgage, 90 rights of, 10 Dishonor, of paper, 79, 232 by non-payment, 284 Dissolution, 57 of partnership, 288 Drafts, 73, 240, 246 Drawee, 73, 246 Drawer, of bill, 73 of draft, 246 Duress, 5 (2) E Elements of contract, 4, 204 Elevators, 252 Employee, 18 Employer, 19 Essentials, of contracts, 204 of notes, 227 Estates in real property, 82 Exchange, 51 F Factors, 16 Farm lease, 268 Fidelity insurance, 71 Fire insurance, 68 Fixtures, 81 Formal contract, 201 Forms, see the various titles Fraud, 5 (2) statute of, 5 (5) Freight, 39 Freightage, 42 G General average, 43 Good faith of agent, 14 Goods, in transit, 282 sale of, 16, 278 Grant, 87 Grantee, 87 Guarantee, 87 Guarantor, 70 Guaranty, 70 H Heading of contract, 205, 207 Hiring, 32-34 of property, 33-34 Holder in due course, 77 Implied warranty, 49 Impossibility of performance, 8(5) Incorporation, act of, 92, 225 Incumbrances, 87 Indemnity of agent, 13 Indorser, 76 (4) Indorsement, 76 Infancy, 5 Injunction, 9 Innkeeper, 27 Insolvency of buyer, 282 Insurable interest, 60 Insurance, 58-71 Interest, 31 Invitation to bid, 203 Jettison, 43 Joint, debtors, 8 (3) notes, 231 Judgment note, 233 K Knowledge of defects, 29 242 INDEX Lading, bill of, 250 Land, 81, 254 contracts, 255 Landlord and tenant, 34 Landmarks, ancient, 84 Lease, 268 assignment, 270 Lessee, 254 Lessor, 34 Letters, offers, 203 circular, 203 Liability, of agent, 14 of principal, 13 of sub-agent, 15 Lien, for freightage, 43 Limitations, statute, 10 Liquidation of partnership, 56 (6) Loans, 20-31 Lodging house, 34 Loss, abandonment for, 67 (4) notice, 66 M Marine carriers, 40 insurance, 67 Master and servant, 21 of ships, 16 Maturity of paper, 78 Measure of damages, 9 Merger of contracts, 8 (6) Messages, 44 Minors, 5 agents for, 5 Mistake, 5 (2) Moratorium act, 10 Mortgages, 89, 261 Mortgages, assignment of, 263 Mutual assent, 7 N Necessaries, 5 Negotiable contracts, 227-253 bonds, 237 documents of title, 250, 253 essentials of, 227 Negotiable paper, 72-SO kinds of, 73 warehouse receipts, 28 Non-negotiable contracts, 7, 253 may be assigned, 7 warehouse receipts, 253 Notes, 72 et seq. demand, 230 negotiable, 73, 228 Notice, of agent, 13 of dishonor of paper, 284 of dissolution, 288 of loss, 66 to stop goods, 282 to tenant, 34 Novation, 8 (3) O Object of contract, 5 Obligations, 2 of agent, 14 of maker of note, 76 of owner of land, 84 Offer and acceptance, 5 in contracts, 203 rules of, 203 counter offer, 205 Operation of contract, 7 Oral contract, 202 INDEX 243 Ostensible agency, 12 authority of, 12 Part performance, 8 Partners, 54, 56 law, 220 Partnership, 52-57 dissolution of, 288 farm, 220 trading, 220 Payee, 73 Payment, 8 Performance, 8 of contract, 8 Perils of sea, 40 insured against, 58 Personal, property, 33 service, 7 Policy of insurance, 61 Power of attorney, 12, 276 Premium, 62 Presentment, 76 for payment, 76 Principal, 11 debtor, 71 fictitious, 14 Promissory note, 73 Property, 7, 81 partnership, 53 real, 267 Proxy, form of, 278 voting by, 93, 278 Public warehouses, 252 Q Qualified indorsement, 76 Quitclaim deed, 256 form of, 259 R Ratification, 12 Real property, 81-90, 254 title to, 254 lease of, 267 Receipts, warehouse, 252 Release, of debt, 8 of mortgage, 265 Relief act, 10 Remedies for breach, 9 Rent, 34 Rental, 267 Rescission, 8 Rough draft of contract, 217 S Sales, 8, 16, 45 bill of, 278 of land, 254 Seal, 201 effect of, 5 (3) Sealed instrument, 201 Seller, warranty of title by, 278 Signatures by agent, 209, 231 Simple contracts, 201 Soldiers' relief act, 10 Statute of Frauds, 46, 254 Stockholders, 95 voting by proxy, 278 Stoppage of goods in transit, 282 Subscription, name, 205 shares of stock, 224 Surety, suretyship, 71, 233 Taxes, 87 Title, documents of, 250 to land, 85 Trade-name, 56 (6) 244 INDEX XJ deeds, 256 covenants in, 257 Underwriter, 205 Written contracts, 202 parts of, 205 W Warehouse receipts, 28, 252 y Warehousemen, 39, 252, 282 Warranty, 49 Years, estates for, 83 UC SOUTHERN REGIONAL LIBRARY FACILITY A 000 682 602 8