The Project Gutenberg eBook, Commercial Law, by Samuel Williston, Richard D. Currier, and Richard W. Hill

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COMMERCIAL LAW

American Institute of Banking

Section American Bankers Association

110 East 42 Street New York City

Copyright, 1921
by
American Institute of Banking

PREFACE

The Institute standard course of study in "Commercial Law" is not intended to make lawyers, but simply to impart to bankers sufficient knowledge of law to enable them to act in accordance with established legal principles, and refer doubtful questions to a lawyer. It is not usurping the functions of a lawyer for a banker to know his legal rights and responsibilities. The banker who does not appreciate the importance of this knowledge, eventually learns from experience, sad or otherwise, that he has neglected an important part of the training necessary to carry on his business with safety and confidence. This text-book is based on the splendid work, originally prepared for the Institute, by Samuel Williston, Weld Professor of Law in Harvard Law School. To this original matter, however, much new material has been added, cases have been cited, and new chapters on Master and Servant, Estates and Trusts, Bills and Notes, and Torts and Crimes added. The work of preparing "Commercial Law" has been done jointly by Richard D. Currier, President of the New Jersey Law School, and Richard W. Hill, member of the New York Bar and Secretary of the American Institute of Banking. The main purpose of this book is to teach bankers to recognize the danger signals in law, when they appear, and thus be able to distinguish between law and law suits.

INSTITUTE PLATFORM

Resolution adopted at the New Orleans Convention of the American Institute of Banking, October 9, 1919:

"Ours is an educational association organized for the benefit of the banking fraternity of the country and within our membership may be found on an equal basis both employees and employers; and in full appreciation of the opportunities which our country and its established institutions afford, and especially in appreciation of the fact that the profession of banking affords to its diligent and loyal members especial opportunities for promotion to official and managerial positions, and that as a result of the establishment and maintenance of the merit system in most banks a large number of Institute members have through individual application achieved marked professional success, we at all times and under all circumstances stand for the merit system and for the paying of salaries according to the value of the service rendered.

"We believe in the equitable cooperation of employees and employers and are opposed to all attempts to limit individual initiative and curtail production, and, insofar as our profession is concerned, are unalterably opposed to any plan purporting to promote the material welfare of our members, individually or collectively, on any other basis than that of efficiency, loyalty and unadulterated Americanism."

CONTENTS

WHO IS A BANKER?

A successful banker is composed of about one-fifth accountant, two-fifths lawyer, three-fifths political economist, and four-fifths gentleman and scholar—total ten-fifths—double size. Any smaller person may be a pawnbroker or a promoter, but not a banker.—George E. Allen.

Commercial Law

INTRODUCTION

DEFINITION OF LAW.—The term "law" is used in many ways. We speak of moral law, law of gravity, divine law, and the like. In each case we are making proper use of the term, but in no instance are we using it as we shall use it in this book. To illustrate: You find a beggar on your front porch when entering your house late at night. Suppose he should ask you for food and lodging for the night. Although there is no other house within five miles of your home, you refuse to take him in, or do anything for him. As a result he contracts pneumonia from exposure, because he is not able to proceed further. You would, nevertheless, not be liable in the sense in which we are using the term "law." But, you say, in an extreme case of this kind, it is one's duty to act. We grant it, but to be accurate, you must preface your proposition with the statement, "under the moral law" or "under divine law it is one's duty to act in such a case." However much it is to be regretted that moral or divine law sometimes does not harmonize with "law" as we shall treat it, we must, nevertheless, recognize that fact. Law, as viewed by the jurist, and this is the way we, as students, are to consider it, is defined by Blackstone to be "A rule of civil conduct prescribed by the supreme power in the State, commanding what is right, and prohibiting what is wrong." Referring again to our illustration, is it not easy to see that it would be impracticable in the present condition of society for the legislature of California, for example, to pass a law which should, in that State, constitute "a rule of civil conduct" commanding that every one "shall be his brother's keeper" and for a violation thereof "shall be imprisoned for one year, or fined one thousand dollars, or both." However much we recognize the obligation of moral law, jurists and legislators cannot ignore the fact that society is composed of ordinary human beings, still far from perfection. Assuming, although perhaps it is doubtful, that it is within the power of the legislature of California to pass such an act as has been suggested, there are not courts enough in the whole United States to decide the cases which would arise in New York City alone in attempting to apply the provisions of such an act. On second thought, then, it is not such a startling proposition for us to learn that "law" is not synonymous with the same term when used in referring to natural law, moral law, and the like. Much has been written on the essential nature of "law" as we shall use the term. The time-honored definition of Blackstone, which we have quoted, is confessedly imperfect. The last clause, "commanding what is RIGHT, and prohibiting what is WRONG" has been much criticized, and Mr. Chitty has modified it to "commanding what shall be done, and what shall not be done." Today, to attempt to buy a bottle of light wine at a hotel does not seem to many of us intrinsically WRONG, but legally, under existing laws, it is, and so perhaps Mr. Chitty's modification of Blackstone's definition does bring out the correct idea more clearly. For our purpose, these two definitions are sufficient.

THE SYSTEMS OF LAW.—There are two chief systems of law in use among civilized peoples today, the Roman or civil law, and, the English or common law. The Roman, or civil law (Roman law is spoken of as civil law, from the Latin "civilis," belonging to a citizen) as its name implies, originated in Rome. As the city of Rome developed into the Roman Empire, its law became that of the ancient world. It was finally codified by the Roman Emperor Justinian, in the year 530 A.D., and was eventually absorbed, from the twelfth to the eighteenth century, into the law of modern Europe. It is the basis of the systems of law used in the countries of continental Europe, Central and South America, and all French, Spanish, Portuguese, and Dutch colonies or countries settled by those peoples.

COMMON LAW.—The common law had its roots in the customary law of the Germanic peoples of western Europe, and was developed by the English courts from the thirteenth to the nineteenth centuries. Like the Roman law, it has spread all over the world wherever English-speaking peoples have settled, and founded colonies. The common law now prevails in England, Canada (except Quebec), India, except over Hindus and Mohammedans in certain instances, and the principal British colonies, except those in South Africa. The United States is largely an English settlement, hence the common law prevails with us, except in the State of Louisiana, where the influence of the French and Spanish settlements still remains and makes the basis of the Louisiana law the Roman law, and in the Philippines and Porto Rico, where the law was Roman when we took those possessions from Spain in 1898.

THE SOURCE OF LAW.—Where does this rule of civil conduct we are to study come from? At first blush, the superficial observer might suggest some legislative hall where it is created by a legislative body, a perfect product, to be imposed on men and women as the guide in their every act in civil life. The slightest reference to historical jurisprudence will convince us that this is not the true source of the law. Mr. Justice Holmes of the United States Supreme Court, in his classic, "The Common Law," indicates the real source of law when he observes: "The life of the law has not been logic; it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed. The law embodies the story of a nation's development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics. In order to know what it is, we must know what it has been, and what it tends to become. We must alternately consult history and existing theories of legislation. But the most difficult labor will be to understand the combination of the two into new products at every stage. The substance of the law at any given time pretty nearly corresponds, so far as it goes, with what is then understood to be convenient; but its form and machinery, and the degree to which it is able to work out desired results, depend very much upon its past."

WHERE TO LOOK FOR LAW.—Knowing the source of law does not necessarily tell us where to look for the law. Today, in the United States, we have three primary sources to which the lawyer goes to seek the law on any particular point. First, the Constitution of the United States and the Constitution of the State in which he is to ascertain the law, including the statutes which have been enacted by Congress and by the State legislature under those constitutions. Second, the decisions of the courts, particularly those of the United States courts and of the State where he wishes to learn the law, and, if need be, the decisions of other States. Third, text-books and treatises on the branch of law to be investigated.

ILLUSTRATION.—Let us suppose you wish to ascertain the law concerning a question that comes up in your own daily life. Take two problems. First: We will assume you keep a clothing store, and an infant, twenty years old, purchases a suit of winter clothes. His income is $1000 per year. He already has two perfectly good winter suits. A week after purchasing this suit, he returns it and demands his money back. You wish to know whether you have to give it to him. If you should look in the Constitution of the United States, or of the State of Vermont (assuming this to be a Vermont contract), you would find nothing that would give you any help in answering this question. If you should look through all of the acts of Congress and the laws passed by the legislature of the State of Vermont, you would find nothing to give you any help. If, however, you should look in the decisions of the courts, both of the United States and of the State of Vermont, you would find cases, probably many of them, covering this particular situation, and you would find the rule to be laid down as law, that an infant (and by an infant we mean anyone under twenty-one years) is not liable on his contracts, except for necessities, and then only in a quasi-contractual action for their reasonable value. Applying the law to the problem, you would be obliged to admit the legality of the infant's claim, and if you did not refund the money to him, he would be entitled to sue for it in a court. Three winter suits are clearly not necessaries at one time for an infant with an income no greater than $1000 per year. This is a comparatively simple problem. Now let us take another case somewhat more difficult. You live in New Jersey near the plant of an airplane manufacturing company. Machines are constantly being tried out, and they circle over your premises within four or five hundred feet from the ground. You have several children who are using your back yard as a playground and you are much alarmed, fearing that an airplane may fall in the yard and kill or injure a child. You wish to ascertain your rights. You look in the Constitution of the United States, and of the State of New Jersey. You will find nothing in either about airplanes. You look in the acts of Congress and the laws of the legislature of the State of New Jersey. You will find nothing there to help you. You look in the decisions of the courts, both of the United States and of the State of New Jersey. You will find nothing there. You look in the text-books, and, except in the most recent, in all probability you will find nothing there in regard to airplanes. You may search the recent legal publications and you will find articles discussing in a purely theoretical way this interesting topic. You study recent legislation and you will find stray instances of attempts to deal with aerial matters. For example, Connecticut has a statute on airplanes. In fact, your whole search will be most interesting. All you will find, however, is not law in New Jersey, but is simply theory, based on common law principles or statutes having no force in New Jersey. Should you then conclude that you have no rights, that the law cannot help you? Perhaps not. If you turn to treatises relating to the ownership of land as developed in the English common law and as applied by the courts in the United States, you will find that the word "land" is often used as practically synonymous with realty or ground or soil, and you will also find that it includes everything attached to the realty or growing on it. As is commonly said, land has an indefinite extent upward as well as downward, the old books using the Latin maxim: "Cuius est solum, eius est usque ad coelum usque ad orcum." (To whomsoever the soil belongs, he owns also to the sky and to the depths.)

There are three houses in a row on Smith Street, Nos. 1, 3 and 5. Mary Jones lives in No. 1, and Sarah Green in No. 5. They are friends, and accordingly arrange to stretch their clotheslines from their rear second-story windows across the back yard of No. 3. Under common law principles, this is a trespass upon No. 3. Should Mary Jones and Sarah Green continue to do this for the required time, usually twenty years, they would acquire by prescription a permanent right to stretch clotheslines over lot No. 3. When the owner of lot No. 3 wished to erect a ten-story building covering all of his lot, he would be seriously interfered with by the right acquired by his two adjoining neighbors. He could have protected himself by proper action in a court when the offense was first committed. Could not, therefore, the court take this principle of the common law as to the ownership of land and apply it to the airplane case? If the owner of lot No. 3 could prevent the owners of lots Nos. 1 and 5 from stretching clotheslines across his land, could you not prevent the airplane from crossing your land, although it is five hundred feet above the surface of the soil? Twenty years' continuation of that practice would interfere with your ability to build a Woolworth building twenty-five years from now should you desire to do so. It is simply taking an old principle of law recognized for centuries, and applying it to new conditions. This is what we mean when we say that the principles of common law are capable of indefinite expansion; that the common law is always growing, or, as Mr. Justice Holmes puts it, it is the product of "the felt necessities of the time." As soon, however, as you have secured an injunction from the court preventing the airplane factory from practicing its machines over your land, all of the other property owners in the neighborhood of the factory decide to protect their rights, with the result that no airplane can leave the factory through the air. Does this mean that the airplane factory must move, and probably be subjected to the same annoyances in its new location in a short time? We are coming to realize that airplanes are necessities. When a necessity and a principle of law cannot exist side by side, something must be done to remedy an intolerable situation. The illustration here used presents what in the course of a few years, undoubtedly, will become an intolerable situation, unless remedied in some way. It has been suggested that we must modify our principles of the ownership of land, and give airplanes the right of free passage over the land of any person, when a certain distance in the air, far enough up to cause no great amount of danger or annoyance. Such a change in the law would have to be accomplished by the State legislature or by an act of Congress for such territory as Congress has jurisdiction over. No doubt, legislation along such lines may be expected soon. It will be simply a repetition of a situation created by a leading case in New York in 1902.

In Roberson v. The Rochester Folding Box Company, 171 New York 538, the suit was brought on behalf of a living person, a young lady, to restrain a flour company from putting her likeness upon prints advertising its flour. Mr. Justice Parker, writing the opinion of the court, held that there was no principle of law which would authorize the court to issue an injunction restraining this unauthorized use of a photograph. This created the unfortunate situation in the State of New York of allowing anyone to make use of another's photograph without that person's consent, for advertising or other purposes. The court, in its opinion, admitted the unfortunateness of the situation, observing that "The legislative body could very well interfere and arbitrarily provide that no one should be permitted for his own selfish purpose to use the picture or the name of another for advertising purposes without his consent. In such event no embarrassment would result to the general body of the law, for the rule would be applicable only to cases provided for by statute. The courts however, being without authority to legislate, are required to decide cases upon principle, and so are necessarily embarrassed by precedents created by an extreme, and therefore unjustifiable application of an old principle. The court below properly said that: 'While it may be true that the fact that no precedent can be found to sustain an action in any given case is cogent evidence that a principle does not exist upon which the right may be based, it is not the rule that the want of a precedent is a sufficient reason for turning the plaintiff out of court,' provided (I think should be added)," Mr. Justice Parker continues, "there can be found a clear and unequivocal principle of the common law, which either directly or mediately governs it, or which, by analogy or parity of reasoning, ought to govern it." Relief was denied the young lady. The following session of the legislature corrected the evil by passing a law making it a criminal offense to use another's photograph without that person's consent. This has been a long illustration. It has served its purpose best if it has left the very distinct impression that the law is a vital, living, growing thing. True, its roots are in the dim past, but it lives, and moves, and has its being in the problems of today. In no field of law is this more true than in our subject, Commercial Law.

WHO KNOWS THE LAW.—The layman is frequently of the opinion that a lawyer ought to be able to give him a definite answer as to just what the law is in a given set of facts. Why is it not possible to go to the sources which we have been discussing and from them ascertain definitely what the law is in a given case? Frequently the lawyer can do this, but one should not lose respect for the lawyer because he is not, in many cases, willing to give a definite answer, but may frame his reply in an opinion beginning "It would seem that the law in this case would be, etc.—" We have already suggested some of the difficulties that in part answer the question we now ask. Let us take one more illustration, a striking example from the United States Supreme Court. Few would question the statement that that Court is the highest type of judicial body in the world today. We are familiar with the rent profiteering legislation enacted in the District of Columbia, New York and at least five other States, as a result of the house shortage created by the world war. The United States Supreme Court, in the cases of Block v. Hirsh, 254 U.S. 531 and Marcus Brown Holding Co. v. Feldman et al., 254 U.S. 539, held the New York and the District of Columbia rent profiteering laws to be constitutional, but this decision is by a vote of five to four, and the arguments advanced in the two opinions, one by Mr. Justice Holmes, representing the majority of the court, and the other by Mr. Justice McKenna, are striking examples of how strongly the ablest body of jurists in the United States can differ on a legal question. Speaking for the majority in Block v. Hirsh, Mr. Justice Holmes says: "The main point against the law is that tenants are allowed to remain in possession at the same rent that they have been paying, unless modified by the commission established by the act, and that thus the use of the land and the right of the owner to do what he will with his own and to make what contracts he pleases are cut down. But if the public interest be established, the regulation of rates is one of the first forms in which it is asserted, and the validity of such regulation has been settled since Munn v. Illinois, 94 U.S. 113. It is said that a grain elevator may go out of business, whereas here the use is fastened upon the land. The power to go out of business, when it exists, is an illusory answer to gas companies and waterworks, but we need not stop at that. The regulation is put and justified only as a temporary measure. * * * A limit in time, to tide over a passing trouble, well may justify a law that could not be upheld as a permanent change." In the case of Marcus Brown Holding Co. v. Feldman, involving a similar New York law, Mr. Justice Holmes says: "The chief objections to these acts have been dealt with in Block v. Hirsh, supra. In the present case more emphasis is laid upon the impairment of the obligation of the contract of the lessees to surrender possession, and of the new lease, which was to have gone into effect upon October 1, last year. But contracts are made subject to this exercise of the power of the State when otherwise justified, as we have held this to be." Mr. Justice McKenna, in writing the dissenting opinion in Block v. Hirsh, supra, and with whom the late Chief Justice White, and Justices Van Devanter and McReynolds concurred, says: "If such exercise of government be legal, what exercise of government is illegal? Houses are a necessary of life, but other things are as necessary. May they, too, be taken from the direction of their owners and disposed of by the Government? * * * An affirmative answer seems to be the requirement of the decision. If the public interest may be concerned, as in the statute under review, with the control of any form of property, it can be concerned with the control of all forms of property. And, certainly, in the first instance, the necessity or expediency of control must be a matter of legislative judgment. * * * The facts are significant and suggest this inquiry: Have conditions come not only to the District of Columbia, embarrassing the Federal government, but to the world as well, that are not amenable to passing palliatives, and that socialism, or some form of socialism, is the only permanent corrective or accommodation? It is indeed strange that this court, in effect, is called upon to make way for it, and through an instrument of a constitution based on personal rights and the purposeful encouragement of individual incentive and energy, to declare legal a power exerted for their destruction. The inquiry occurs, have we come to the realization of the observation that 'War, unless it be fought for liberty, is the most deadly enemy of liberty.'"

In the Marcus Brown Holding Co. case, he again says for the same justices: "We are not disposed to further enlarge upon the case, or attempt to reconcile the explicit declaration of the Constitution against the power of the state to impair the obligations of a contract, or, under any pretense, to disregard the declaration. It is safer, saner, and more consonant with constitutional pre-eminence and its purposes, to regard the declaration of the Constitution as paramount, and not to weaken it by refined dialectics, or bend it to some impulse of emergency because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment." No more striking illustration of the most decided differences of opinion among nine of the ablest jurists in the world can be found. It is no wonder then that a lawyer at times hesitates in giving an opinion as to what the law may be.

THE FUNCTION OF THE COURT.—An infant bought a motorcycle on an installment contract at the agreed price of $325. He made an initial payment of $125, used the machine a month, damaged it to the amount of $156.25, and then returned it in this condition and demanded the return of his $125. These are the facts in the case of Petit v. Liston, 97 Oregon 464, a case decided in the Supreme Court of Oregon. The case involves the right of an infant to disaffirm a contract made by him, when purchasing an article which is not a necessity. The Oregon court had never before been called on to determine what the law in Oregon was as applied to such a situation. According to the rule in New York, as laid down in Rice v. Butler, 160 N. Y. 578, the infant could not recover the $125, but according to the rule in Pyne v. Wood, 145 Mass. 558, the infant would be entitled to his money. It thus became the problem of the Oregon court to refer to the theories back of these two decisions. After doing so, it approved of the New York view, rather than the Massachusetts view. This case indicates the function of a court. If a court, from the various sources of law which we have enumerated, can find an exact precedent for the case before it, or can find a general principle of law which can be applied, it renders a decision as to the law, as the Oregon court did. If no law can be found nor any principles which can be applied, the court is forced to deny the relief, as in the Roberson case, 171 N. Y. 538, adding, perhaps, to its opinion, as it did in that case, the suggestion that it is a matter Congress or a State legislature might properly remedy.

THE COURT SYSTEM.—Knowing the function of a court, the student should then have an outline of the court system of his own jurisdiction. We can only sketch, in a book to be used generally throughout the United States, the court systems. Each State has two sets of courts: the Federal and the State courts. We have a Federal and a State Government; it follows that there should be courts to interpret the laws of each of these two Governments. Matters pertaining to the United States Constitution, or matters affecting citizens of different States, are tried in the Federal courts. The same is true of admiralty and bankruptcy. There is at least one United States District Court in each State in the country, and Federal cases are begun in these courts. If either party is dissatisfied with the decision, he may appeal to the next higher court. The entire country is divided into nine Circuit Courts of Appeal, to which appeals from United States District Courts are taken. In case either party is dissatisfied with the decision in that court, he may, in certain cases, appeal to the court of last resort, the United States Supreme Court, presided over by a Chief Justice and eight Associate Justices at Washington. Each State has its own system of courts. Usually that system is more elaborate than that in the Federal Government. There is in each State a court of last resort, which we would expect to find designated the Supreme Court of New York, or whatever State it might be. Frequently there is a misuse of terms, as, for example, the court of last resort in New York is the Court of Appeals, and the Supreme Court is a lower court. This is true in a number of States. In addition to the court of last resort, there will be a court of general jurisdiction, frequently one of these courts for each county of the State, and then courts for the trial of smaller cases in the various cities and towns. The system of appeals is the same as in the Federal courts, either party who is dissatisfied having a right to appeal his case to the higher court. The question as to whether a particular case must be brought in a Federal court or a State court is too complicated to be taken up in detail. Sometimes the suit must be brought in the Federal court, as, for example, a bankruptcy matter, or a matter involving the United States Constitution, while in other cases, perhaps the majority, the suit must be brought in a State court. In other cases a person may have his option of either jurisdiction, as where a citizen of Texas wishes to sue a citizen of Rhode Island, and the amount involved is over $3000, then either the Federal or State courts of either State are open to the parties.

CHAPTER I
Contracts—Mutual Assent

Commercial law is a general term used to cover the legal rules which relate most directly to everyday commercial transactions. It is a term of no exact boundary, but most commercial law is based in one way or another on the law of contracts, which is one of the largest subjects in the law. Bills and notes, for instance, are special forms of contracts. In order to understand business law at all, therefore, it is necessary at the outset to have some knowledge of the fundamental principles of the law of contracts.

DEFINITION OF CONTRACTS.—What is a contract? Simply a promise or set of promises which the law enforces as binding. Any promise, if it is binding, is a contract or part of a contract. So the law of contracts in their formation resolves itself into this: What promises are binding? A man may make all sorts of promises, but when has he a right legally to say "I have changed my mind, I am not going to do what I said I would," and when will he be liable in damages if he fails to do as he agreed?

CONTRACT TERMS EXPLAINED.—There are certain terms in contracts which the student will find repeatedly mentioned and with which he should be familiar at the outset. For example, contracts are spoken of as express contracts, and implied contracts. By an express contract we mean a contract the terms of which are fully set forth. Implied contracts are contracts the terms of which are not fully stated by the parties. There is a mutual agreement and promise, but the agreement and promise have not been expressly put in words. If I say to a man, "I will buy your horse, Dobbin, for $100" and he replies, "I will sell you the horse at that price," there is an express contract. I step into a taxi and simply say to the driver, "Take me to the Union Station." The driver says nothing, but takes me there. Here is an implied contract. By my conduct I impliedly agree to pay him the legal rate for the distance carried.

FORMAL AND INFORMAL CONTRACTS.—Contracts are sometimes also divided into formal contracts, and simple or parol contracts. There are three kinds of formal contracts recognized in our system of law: (1) Promises under seal. (2) Contracts of record, such as judgments and recognizances. (3) Negotiable instruments. Of the three, it may be most difficult to understand why a judgment is included as a form of contract, because a judgment is simply a judicial termination of a fact entered in the office of the county clerk, and generally a lien on the real property owned by the judgment debtor. The sole reason, apparently, for calling a judgment a contract, is that an action of debt may be brought in a court of law upon such a judgment. Sealed contracts and negotiable paper will be taken up in a later chapter. Simple, or parol contracts, are those not embraced in the three previous classifications which constitute the formal contracts. The term parol is a little ambiguous, as it is sometimes used as opposed to a written contract, meaning simply an oral one, and at other times it is used as opposed to the three previous formal contracts.

UNILATERAL AND BILATERAL CONTRACTS.—Contracts are also divided into unilateral and bilateral contracts. In a unilateral contract, the contract imposes obligations on one party only. A promissory note is an example of a unilateral contract. In a bilateral contract, obligation is imposed on both parties. John and Mary become engaged to each other. This is a bilateral contract, and either may sue the other for a breach. Most important results flow from the distinction between unilateral and bilateral contracts. This we shall consider later.

VOID, VOIDABLE AND UNENFORCEABLE CONTRACTS.—Contracts are also divided into void, voidable and unenforceable contracts. Strictly speaking, a void contract is no contract at all. Some statutes provide that no action shall be brought on certain contracts, and declare them absolutely void. A voidable contract is one which is good until the option of avoiding it is availed of by the party who has the option. For example, an infant with an income of $2000 a year contracts for the delivery of a Packard automobile on June 1. The car, being a luxury, makes the contract with the infant voidable on his part, and he may, before June 1, repudiate the contract and not be liable in a suit for breach of contract, or he may, if he choses, abide by the contract, take the car, and pay the purchase price when it is delivered. An unenforceable contract is one which in itself is perfectly good as a contract, but because of some rule of law cannot be enforced. For example, A agrees, orally, with the owner of 1 Broadway, to buy that property for $1,000,000. The terms of the contract are understood by both parties. This contract is not enforceable, because, as we shall see later, the Statute of Frauds requires every contract for the sale of real property to be in writing.

CONTRACTS UNDER SEAL.—There are two ways of making promises binding, and unless the promisor fulfils the requisites of one or the other of these two ways his promise will not be binding. The first of these ways relates to the form in which the promise is made; the second relates to the substance of the transaction, irrespective of the form. The way to make a promise binding by virtue of its form is to put it in writing and attach a seal to the writing. It is often thought that written promises are binding in any event, or that a promise that is not written is not binding in any event. Neither of these propositions, however, is true. A promise is not binding merely because it is in writing; it is necessary that something more shall be done. Not only must it be written, but a seal must be attached in order to make the promise binding by virtue of its form. Everyone is familiar with the common ending in written contracts—"witness my hand and seal," that is, my signature and seal.

WHAT IS A SEAL?—A seal may be—and was originally—made with sealing wax stamped with a crest, initial or what not. This is still a sufficient seal, but the common kind of seal is simply a wafer attached by mucilage to the writing. Another kind of seal, in use by corporations and notaries especially, consists simply of an impression made on paper without attaching any foreign substance whatever. Any of these methods of sealing a promise is good. In most States a written or printed scroll with the letters "L. S." written or printed within, or the word "Seal" written or printed may also be a seal if so intended. It may seem a ridiculous formality for the law to attach importance to this lapping a wafer and attaching it to the end of a writing. In a way it is ridiculous, but it is desirable to have some method by which a promise may be made binding. One method, as an original question, may be as good as another so long as it is an easy method, and attaching a seal is an easy method, and one which makes it possible to make a promise binding whenever you wish.

CHANGE BY STATUTE OF THE LAW AS TO SEALED CONTRACTS.—There has been in this country a certain hostility to the law of sealed instruments. It has been thought, with reason, that some of the rules governing contracts under seal have by their technicality promoted injustice. This has certainly been true of an old rule that contracts under seal could not be altered or discharged by any agreement not itself under seal. The rule, however, that a seal avoids the necessity of consideration is a desirable rule, since it is important to have some means by which those who so intend may make gratuitous promises binding. It would be better then to abolish undesirable incidents of sealed contracts by statute rather than to destroy totally the legal effect of a seal. However, in many States the distinction between sealed and unsealed contracts is totally abolished. In a number of other States the common-law rule has been changed by the enactment of statutory provisions to the effect that sealed contracts shall be presumed to have been made for a sufficient consideration, but this presumption is only prima facie, and lack of consideration may be affirmatively proved, even in the case of a sealed instrument. And under such statutes unsealed contracts remain as at common law, i. e., the burden of proving consideration rests upon the plaintiff who seeks to enforce such a contract.

REQUISITES OF SIMPLE CONTRACTS.—Sealed contracts are comparatively easy to understand. Simple contracts, which are promises made binding by virtue of their substance rather than their form, though called simple, are more difficult to understand, and more complex. They are also much more common than sealed contracts. A simple contract is a promise, or promises, to which the parties have assented, and for which a price called consideration has been paid. One may promise as much as he wishes, orally or in writing so long as he does not attach a seal to his signature, and then say he does not care to keep his promise, unless he has both been paid for the promise and there has been an assent by the promisor and promisee to the terms of the transaction. Mutual assent and consideration are, then, the requisites of simple contracts.

INTENT TO CONTRACT.—In the law of contracts, intention, as we ordinarily understand that term, plays little part. In fact, the Supreme Court of Connecticut, in the case of Davidson vs. Holden, 55 Conn. 103, said: "It is of no legal significance that the defendants did not intend to be individually liable, or that they did not know or believe that as a matter of law they would be."

It is our overt acts that count in contracts. Or shall we put it this way: In the eyes of the law overt acts manifest legal intention. A says to B: "I will sell you my watch for $25, and you may have until 9 o'clock tomorrow morning to decide." A meets B the next noon and says to him: "I am sorry you did not take the watch. It was a bargain." B replies: "Here is the price, I will take it. I intended to call you this morning but have been so busy I did not have an opportunity to do so. I told my wife last night I was going to accept your offer and I can produce five witnesses who were in the room and heard me say so." It is, nevertheless, no contract, for, as has been said, quoting from an old English case, "It is trite learning, that the thought of man is not tryable, for the devil himself knows not the thought of man." Occasionally there may be the overt act and still no contract, although the mere formalities of contract may have taken place. The facts in the case of McClurg v. Terry, 21 New Jersey Equity 225, were as follows: The plaintiff was an infant nineteen years of age, and had returned late in the evening to Jersey City, from an excursion, with the defendant and a number of young friends, among whom was a justice of the peace, and all being in good spirits, excited by the excursion, the plaintiff in jest challenged the defendant to be married to her on the spot; he in the same spirit accepted the challenge, and the justice, at their request, performed the ceremony, they making the proper responses. The ceremony was in the usual and proper form, the justice doubting whether it was in earnest or not. The defendant escorted the plaintiff to her home, and left her there as usual on occasions of such excursions; both acted and treated the matter as if no ceremony had taken place. In deciding the case, the court said: "In this case the evidence is clear that no marriage was intended by either party; that it was a mere jest got up in the exuberance of spirits to amuse the company and themselves. If this is so, there was no marriage." The overt act of the parties manifested no legal intention to be married. Should we change the facts in the following way, the court undoubtedly would have held a valid marriage: If, after the parties had gone through the marriage ceremony, as recited, they went on a two weeks' honeymoon, and on their return lived together as man and wife for a month and then suddenly decided to call the marriage off, on the ground that it was a joke and they did not intend the ceremony to be binding, regardless of what they said as to the transaction, their overt acts would be taken by the court as showing their real legal intention at the time the ceremony was entered into. One more illustration: When leaving the class tonight, there is a sudden downpour of rain, and the instructor remarks: "I will give ten dollars for an umbrella." A student offers an umbrella and claims the money. Here is an overt act, but a reasonable person would not take the words used literally. Generally speaking, agreements made jokingly and social agreements confer no contractual rights.

OFFER AND ACCEPTANCE.—The usual way that mutual assent is manifested is by an offer and an acceptance of the offer. Two persons are not likely to express at the identical minute the same proposition. It is as a practical matter, then, essential that one should make a proposition, and if a contract is to be made, that the other should assent to it. An offer may be made to one or more specified persons, or to anyone whomsoever who will do what the offer requests, as in case of an offer of a reward. An offer is itself a promise, but is a promise conditional on the payment of a consideration or return for it either by some act or some promise from the other party. According as the offer asks for an act or a promise it will fall into one or the other of the two great divisions of simple contracts; one kind is called unilateral (meaning one-sided), that is, a promise only on one side; the other is bilateral, a promise on each side.

ILLUSTRATIONS.—Let us give illustrations of these contracts. We say to John: "We will promise to give you, John, $100 if you will do a specified piece of work." That is a proposal to make an exchange of the work for the money in a sense, but more exactly it is an offer to exchange an agreement to give the money in return for the work. We are not saying to John: "If you will agree or promise to do that work we will promise to give you the money." We are saying that we will give him the money if he actually does the work. That offer requires the actual doing of the work before it is binding. Until then the price requested for the promise has not been paid. It is an offer of a unilateral contract. Again, when we say to a man: "If you will spade up our garden we will pay you $2 a day," we are making an offer for a unilateral contract. We are asking him to spade up the garden; not to promise to spade it up, but to do it, and when he does it he can hold us liable on our promise to pay him $2 a day. The promise will have become binding because we have been given the payment that we asked for in our promise. But if we say to a man: "If you will agree to work for us the next month we will pay you $100," and the man says, "All right," then we have a bilateral contract. We are asking him, as the price of our promise, not to work but to agree to work, and he has promised to do so. To say "I accept" is always sufficient acceptance in the case of a bilateral contract where a promise is requested, but if I said to you, "I will give you $5 if you will bring me a book here," it would not make a contract to say "I accept." I said I would give you $5 if you brought the book here, and nothing but bringing it here will form a contract. The offeree must always do what the offerer asks him. If an offerer asks for a promise, any form of words indicating assent would be sufficient, because they would mean, in effect: "I consent to make the promise you specify in your offer." The form of wording in simple contracts is immaterial. Any plain language is sufficient for an offer, and as for acceptance, it does not matter whether the acceptor says "all right," or "I accept your offer," or in what form he expresses his assent. The question is, does he express assent? Now, the offerer is at liberty to name any consideration in his offer that he sees fit. He can name, in other words, whatever price for his promise he chooses to ask. If the person addressed does not choose to pay that price, all he has to do is to reject the offer, but he can bind the offerer only on the terms proposed. Therefore, if the offerer asks for an act in return for his promise, that is, asks for an immediate payment, or work, or the giving of property for his promise, no contract can be made by the person addressed saying, "All right, I will do it;" that is not giving the price the offerer asked. On the other hand, should the offerer ask for a promise and not for an act, the acceptor must give the promise asked for.

OPTION WITHOUT CONSIDERATION.—A common business transaction that presents very well the principles governing the formation of simple contracts is what is called an option. Suppose the owner of a mine says: "I will sell you this mine for $50,000, and you may have thirty days to decide whether you choose to accept the offer or not." Now, it does not matter whether that statement is oral or in writing; it is merely an offer, and not binding as the matter stands as far as we have stated. However, if it were in writing and a seal attached (in a State where seals still have the force which the common law gave them) it would be a binding promise to sell the mine at that price at any time within thirty days. If there is no seal attached, as long as the offer is unaccepted and unpaid for, it is not binding. The man who makes it may say: "I withdraw my offer. It is true that I promised to keep the offer open thirty days, but you did not pay me for that promise and I am going to break the promise. I withdraw my offer." Any offer for the formation of a simple contract, while unaccepted, may be withdrawn. But, if before it was withdrawn and within the thirty days' limit, the person to whom the option was given says, "Here is the $50,000 which you said you would take for your mine," the offerer would then be bound, and would have to perform his part of the contract.

OPTION WITH CONSIDERATION.—Let us change the character of the option a little. Suppose in consideration of $1000 paid down the owner of a mine promises to sell the mine for $50,000 at any time within thirty days. Here the offer, or the contract—for it is now more than an offer—has been paid for, and it is therefore binding. The person to whom the offer was made paid $1000 for the promise, therefore the promisor is bound to keep it. It was not an absolute promise to give the mine to the buyer, but it was a promise to sell it to him for $50,000 if he chose to take it within thirty days; that is a conditional promise. A conditional promise may be binding and paid for just as well as an absolute promise.

INSURANCE POLICY.—Take the case of a fire insurance policy. That is a conditional promise, a promise to pay indemnity for the destruction of a house by fire. Therefore, the performance of the insurance company's promise is conditional on the suffering by the insured of loss by fire. An insurance policy is ordinarily a unilateral contract; the premium is the consideration or price paid for the promise, and the promise is binding on the insurance company from the time when the premium is thus paid. Of course, the promise is only binding according to its terms. The insured has bought a conditional promise, a promise to pay if the house burns down. He gets that promise, but he will not become entitled to any money or any damages unless the house burns down nor unless he complies with the other conditions of his policy.

GUARANTEE.—Another kind of a promise worth referring to is a guarantee. A question arises whether a business house will sell something to a buyer on credit, and it decides it will not without a guarantee. Accordingly, John agrees, in writing, that if the business house in question will sell James a bill of goods, John will guarantee the payment of the price. That means, if James does not pay for the goods, John will. That is a unilateral contract in which the promise is conditional, and the consideration for that promise is the selling of goods to James.

PRELIMINARY NEGOTIATIONS—ADVERTISEMENTS.—An offer is sometimes difficult to distinguish from other things. Suppose the case of an advertisement. A business house advertises that it will sell goods for a certain price. Take the case of a bond list issued by a banking house. The list states that the banking house will sell specified kinds of bonds at quoted prices. John receives one of those lists, looks it over, sees something that looks good to him, and goes into the banking house and says: "I will take five of those bonds at the price named here." The banking house says: "We have sold all the bonds of that kind that we had;" or it says, "The market has changed on those bonds and there has been some advance in the price." Has John a cause of action against the banking house? He has if that bond list amounts to an offer—that is, if the list means that the banking house offers to enter into a contract with anyone receiving the list. But it has been held that that sort of advertisement does not prima facie amount to an offer, although it might be put in such clear words of agreement to sell on the part of the banking house that it would amount to an offer. Generally an advertisement of this sort, or anything that can fairly be called an advertisement of goods for sale, is held to mean simply that the advertiser has these goods for sale and names a price he is putting upon them; he invites customers to come in and deal with him in regard to them. It is an invitation to come and make a trade rather than a direct offer of a trade.

ILLUSTRATION.—Again to illustrate: You are looking at a new model of an automobile in a show-room window. You like it, enter the salesroom, and say you will take the car, tendering the price. The manager tells you that it is simply their demonstration car, that he will be glad to book your order for a car of the same model, and can make delivery in a month. You are not satisfied, and wish to sue, claiming that your tender of the price constituted an acceptance of the dealer's offer. Your position would be unsound and there would be no recovery in such a case. The placing of the demonstration car in the window is simply an invitation to the public to come in and deal with the seller. On the other hand, suppose you go into a second-hand automobile salesroom. There are fifty cars of various makes and models on the floor and each one is labeled with a different price. You pick out a 1918 Packard which is marked $1500. You tender the price to the salesman and say you will take the car. He refuses to sell. In this case your tender is an acceptance of his offer to sell. In the former instance, placing a price on the demonstration car was not a statement to the public generally that that particular car was for sale at that price, but in this case, where the cars are all second-hand cars, the reasonable interpretation of placing the price on the 1918 Packard is that that particular car is for sale. Quite likely, the dealer did not have any other Packard car in stock and would have no way of securing any of that model at that price.

ORAL AGREEMENT PRELIMINARY TO WRITTEN CONTRACT.—Another case of the same nature that comes up not infrequently is this: Parties talk over a business arrangement and then they say, "As this is an important matter let us put it down in writing; let us have a written contract containing what has been agreed upon." When it comes to drawing up the contract, however, they cannot agree. One party then says, "Well, we made a definite oral agreement any way; let us carry that out." The other replies, "Why, no, all that was dependent on our making a written agreement." The settlement of their dispute depends on how definite and absolute the oral agreement was. It is possible to make an oral agreement binding, although the parties do agree and do contemplate that it shall subsequently be reduced to writing, but generally the inference is that the oral agreement was merely a preliminary chaffering to fix the terms of the writing, and that everything is tentative until the writing is made and signed.

AUCTION SALES.—Another state of affairs involving preliminary invitations is presented by auction sales. The auctioneer puts goods up for sale, a bid is made, the auctioneer gets no other bid, and then says, "I will withdraw this from sale." Is the auctioneer liable? Has he made a contract to sell that article to the highest bidder? When the transaction is analyzed, is this what the auctioneer says in effect: "I offer to sell these goods to the highest bidder?" If this is the correct interpretation, then when the highest bidder says, in effect, "I agree to buy them," there would be a contract. On the other hand, if what the auctioneer says is in effect like what the advertiser says: "Here are some goods for sale, what do you bid, gentlemen," then the auctioneer is not making an offer himself. He is inviting offers from the people before him, and until he accepts one of those offers from the bidders before him there would be no contract; and until then the auctioneer could withdraw the goods. And that is the construction put upon the auction sale—that the auctioneer is not making an offer, but is simply inviting offers. Even if the auctioneer promises that he will accept the highest offer, that is, that he will sell to the highest bidder, his promise to accept the highest bid, not being paid for, would not be binding upon him were it not for a statute in some States which, in the sale of goods, would make an auctioneer bound to keep a promise to sell without reserve, that is, to the highest bidder, if he made such a promise.

BIDS OR TENDERS.—Somewhat similar to the case of the auctioneer is the case of tenders or bids for the construction of buildings, or for the sale of goods to a city or to a corporation. There, too, the corporation or the city is simply inviting offers. They do not say, "We offer to enter into a contract with anyone who makes the lowest bid," but rather, "We are thinking of entering into a contract, and we want to receive offers in regard to it." When the offers are made by the bids or tenders, any or none of them may be accepted, according as the receiver thinks best. It is sometimes required by law that public corporations, like cities or counties, shall accept the bid of the lowest responsible bidder, but, aside from such statutes, any or none of the bids may be accepted.

IMPLIED CONTRACTS.—An offer and acceptance are ordinarily made by words either spoken or written; but any method of communication which would convey to a reasonable man a clear meaning will serve as well as words. If A goes to his grocer and says "Send me a barrel of flour," he has in terms made no promise to pay for the flour, but the natural meaning of his words is that he agrees to pay. In this case A used words, though not words of promise; but the same result might follow where no words at all were used. Suppose A went into a shop where he was known, picked up an article from the counter, held it up so the proprietor could see what he was taking, and went out; this would be in legal effect a promise by A to pay for the article. A contract, where the promises of the parties are to be inferred not from express words of promise but from conduct or from language not in terms promissory, is called an implied promise or contract, as distinct from an express promise or contract, which is one where the undertaking is in express language. This difference between express and implied contracts relates merely to the mode of proving them. There is the same element of mutual assent in both cases, and the legal effect of the two kinds of obligations is identical. There is, however, another kind of obligation which is frequently called an implied contract, but sometimes called a quasi-contract, because it is not really a contract at all, though the obligation imposed is similar. If a husband fails to support his wife, for instance, she may bind him by purchases of goods necessary for her support. She may do this even though he directly forbids the sales to her. There is obviously no mutual assent in this case; the husband emphatically dissents and expresses his dissent, but he is bound just as if he had contracted.

TERMINATION OF OFFER BY REVOCATION OR REJECTION.—Since offers do not become binding until accepted according to their terms, up to that time they may be terminated without liability. This may happen in several ways. In the first place an offer may be revoked by the offerer. To effect a revocation he must actually notify the other party of his change of mind, before the latter has accepted. We have already stated that offers may be rejected by the person to whom they are made. For instance, we say, "We offer you one hundred shares of stock at a certain price, and you may have a week to think it over." You say, "I do not care for that offer, I reject it." You come around the next day and say, "On reflection I have concluded to accept that offer." The acceptance is within the seven days which we originally said might be used for reflection, but the offer has been terminated by the rejection. There is no longer any offer open, and consequently the acceptance amounts to nothing. A troublesome question in regard to the revocation of an offer for a unilateral contract is this: Suppose A offers B $5 for a book and B starts to get it but when he reaches the door, then A refuses to take the book. The general disposition is to try to hold that promise binding, and yet the difficulty is that the offeree has not fully done what he was asked to do, and if he chose to turn back and take the book away he could do so without liability. He could say, "I did not promise to bring the book. I brought it part way, the walk was long and I am going to take it back." If he is thus free to withdraw it seems impossible to deny that the other party is equally free. Bilateral contracts are more desirable than unilateral because in bilateral contracts the mutual promises bind the parties before they begin to perform and both parties are therefore protected while they are performing. In unilateral contracts, the contract is not completed until the act requested is fully done. Until then, therefore, either party may withdraw.

A COUNTER OFFER IS A REJECTION.—Another way in which offers may be terminated is by a counter offer on the part of the person to whom the offer was made. We say, "We will sell you stock for $100 a share, and you may have a week to think it over." You say, "I will give you $99 a share." We say, "No, we will not take it." You say, "Well, I will give you $100." You are too late; you rejected our offer of sale at $100 by saying you would give us $99. The minute you say you will give us $99, our offer is rejected. Of course, when you make the counter offer of $99, if we say we will accept your offer to buy, that would make a contract. Offers are constantly rejected by counter offers by people who really intend to enter into a contract. Suppose A says, "I will lease you my house a year for $800." You say, "All right, I will take it if you paper the dining-room." That rejects the offer. A new offer has been made by the person addressed, who offers, if the dining-room is papered, to take the house at $800.

TERMINATION OF OFFER BY DEATH OR INSANITY.—An offer is also terminated by the death or insanity of either party before acceptance. After a contract has once been formed neither subsequent death nor insanity terminates liability upon it unless the contract is of such a personal character that only performance by the contractor in person will fulfil it.

ILLUSTRATION.—In Beach v. First Methodist Episcopal Church, 96 Ill. 177, a fund was being raised to build a new church, and a subscription paper, as follows, was signed by Lorenzo Beach:

"Fairbury, Feb. 14, 1874.

"We, the undersigned, agree to pay the sum set opposite our respective names, for the purpose of erecting a new M. E. church in this place, said sums to be paid as follows: One-third to be paid when contract is let, one-third when building is enclosed, one-third when building is completed. Probable cost of said church from ten thousand dollars ($10,000) to twelve thousand dollars ($12,000)."

Mr. Beach attached and subscribed to that paper the following:

"Fairbury, 1874.

"Dr. Beach gives this subscription on the condition that the remainder of eight thousand dollars is subscribed.

"Lorenzo Beach, $2000."

In April, 1875, Dr. Beach was adjudged insane by the county court. The court held that the "subscription made by Dr. Beach was, in its nature, a mere offer to pay that amount of money to the church upon the condition therein expressed. There is nothing in the record tending to show that the church, in this case, took any action upon the faith of this subscription, until after Dr. Beach was adjudged insane, or that the church paid money or incurred any liability. His insanity, by operation of law, was a revocation of the offer." Suppose a letter for a winter's supply of coal is sent to your coal dealer and is acknowledged by him, delivery to be made before October 1. On September 15, the coal dealer dies, and his estate refuses to fulfill the contract. In such a case, if you were compelled to buy coal at a higher price from another dealer, you would have a cause of action against the estate for the damage you suffer. The coal dealer's executor or administrator could very easily carry out a contract of this character. On the other hand, suppose you are running a series of lectures during the winter, and you have engaged a noted lecturer to deliver six lectures. After he has delivered three, he dies. In this case, death would terminate the contract, as this is clearly a contract for personal services and the executor or administrator of the deceased lecturer could not perform the contract for him, as could be done in the case of the coal dealer.

TERMINATION OF OFFER BY LAPSE OF TIME.—An offer may be terminated by delay on the part of the person addressed. An answer to an offer must be sent in time, whether mail or telegraph is used, or whether the parties are dealing face to face. An offer lapses if it is not accepted within the time the offer specifies if any time is specified. If no time is specified, then within a reasonable time. One may specify any length of time in his offer, and it will remain open for that time provided it is not rejected or revoked, and neither party dies or becomes insane, in the meantime. But frequently offers contain no express limit of time; then it is a question of what is a reasonable time, and reasonableness depends upon business customs, the character of the transaction, the way the offer is communicated, and similar circumstances. An offer on the floor of a stock exchange will not last very long. A reasonable time for acceptance of such an offer is immediately, and an offer sent by telegraph will not remain in force long. The use of the telegraph indicates that the offerer deems haste of importance. An offer sent by mail will last longer. An offer relating to things which change in value rapidly will not remain open for so long a time as an offer which relates to land, or something that does not change in value rapidly.

ILLUSTRATION.—In the case of Loring v. the City of Boston, 7 Met. (Mass.) 409, the facts were that on May 26, 1837, this advertisement was published in the daily papers of Boston: "$500 reward. The above reward is offered for the apprehension and conviction of any person who shall set fire to any building within the limits of the city. May 26th, 1837. Samuel A. Eliot, Mayor." In January, 1841, there was an extensive fire on Washington Street, and Loring, after considerable effort, was able to secure the apprehension and conviction of the criminal. He then sued to recover the reward, which the city of Boston refused to pay. The ground of defense was that the advertisement "offering the reward of $500 for the apprehension and conviction of persons setting fire to buildings in the city, was issued almost four years before the time at which the plaintiff arrested Marriott and prosecuted him to conviction." The opinion of the court reads: "three years and eight months is not a reasonable time within which, or rather to the extent of which, the offer in question can be considered as a continuing offer on the part of the city. In that length of time, the exigency under which it was made having passed, it must be presumed to have been forgotten by most of the officers and citizens of the community, and cannot be presumed to have been before the public as an actuating motive to vigilance and exertion on this subject; nor could it justly and reasonably have been so understood by the plaintiff. We are, therefore, of the opinion that the offer of the city had ceased before the plaintiff accepted and acted upon it as such, and that consequently no contract existed upon which this action, founded on an alleged express promise, can be maintained."

BOTH PARTIES MUST BE BOUND OR NEITHER.—Both parties to a simple contract must in effect be bound, and until they are, there is no contract. In a unilateral contract, before the promise becomes binding, the promisee must have actually performed what he was requested to do, that is, he must bind himself by actual performance before the offerer's promise is binding on him. In a bilateral contract, where each party makes a promise, neither promise can be binding unless and until the other one is. So that in the case of the proposed agreement to lease, as the proposed tenant might refuse to take the house if the dining-room was not papered, the proposed landlord has a similar right; that is, since one is not bound, the other is not.

CONTRACTS BY CORRESPONDENCE.—Contracts are often made by correspondence, simple contracts especially. That raises rather an important question as to how and when the contract is formed. Suppose a letter containing an offer is addressed from Boston to a man in New York. A reply is sent by him from New York accepting the offer. That reply goes astray. Is there a contract? Yes. It creates a contract by correspondence for a letter to be mailed by the acceptor provided the offerer imposes no conditions to the contrary, and impliedly authorizes the use of the mails, as he does by himself making an offer by mail. But suppose the offerer in his letter says, "If I hear from you by next Wednesday I shall consider this a contract." Then, unless the offerer receives an answer by the next Wednesday, there will be no contract. It will make no difference that an answer has been mailed, it must have been received; that is a condition of the offer. Suppose an offer is made by word of mouth, and it is accepted by sending a letter. Does the contract then become binding, irrespective of receipt of the letter? No, unless in some way the offerer has authorized the use of the mails in sending such an answer, and if the circumstances were such that the use of the mails would be customary, that would amount to an implied authorization. The use of the telegraph depends upon similar principles. If an offer is sent by telegraph, an answer may be sent by telegraph, and an acceptance started on its way will become binding although it is never received. Similarly, one may authorize a telegraphic answer to a letter containing an offer sent by mail, and if the use of the telegraph is authorized, a contract will arise at the moment that the telegram is sent.

ILLUSTRATIONS.—In the case of an option, if the acceptance was made by mail and lost in the mails, a binding contract would be formed if the use of the mail was expressly or impliedly authorized, and similarly if the option called for payment and a letter was mailed containing a draft or cash. There is a right to send a check or draft by mail if the parties had been dealing by mail. That authority would be implied. When parties are dealing by mail and there is a bargain that a check shall be sent, the check becomes the property of the person to whom it is sent as soon as it is mailed, and, therefore, when the letter with the check is put in the mail it operates as a payment on the option, and the loss of the draft is not the sender's loss, but the other man's. A lost draft, however, can be replaced and must be replaced. Authority to send actual cash by mail would not be so easily implied, especially if the amount were large, because it is contrary to good business custom; but if authority were given, the result would be the same as in the case of a check. It would, however, be a proper business precaution to register the letter if it contained cash. If the offerer, not having received the letter of acceptance and thinking none had been sent, sells the property to another person, though not morally blamable, he would get into trouble. The second purchaser would get title to the property, supposing that the property was actually transferred to him. The lost letter created a contract, but it did not actually transfer title to the property, and, therefore, when the purchaser actually got possession of the property he would become the owner of it and could not be deprived of his title if he took it innocently. If, however, the person to whom the property was transferred had notice of the prior completion of a contract, he could not keep the property. In any event the seller would be liable in damages for breach of the contract completed by mailing the lost letter. Suppose an option is given by telephone to one who, just before the option expires, tries to get a connection by phone to accept and is unable to do so, and ten minutes after the time has expired a connection is secured? There is no contract and he has no action. It is no fault of the offerer that the acceptor was unable to accept in time, and, generally speaking, one who wishes to accept an offer must at his peril keep the means of acceptance open. It may be asked why does not the same principle apply in regard to mail as to the telephone; that is, why does not starting the acceptance by telephone complete the contract? Because there is no authority to send communication by telephone to the offerer when the acceptor has no telephone connection. When one sends an offer by mail the reason that he is bound by an acceptance sent by mail is because he, in effect, asks that an acceptance properly addressed to him be started on its course. He takes his chance as to the rest, but an offerer by telephone does not authorize a reply by talking into the telephone when there is no connection.

MISTAKES IN THE USE OF LANGUAGE IN OFFER AND ACCEPTANCE.—Another question which has to do with the express mutual assent of parties relates to the meaning of language used. Suppose an offerer says, "I will sell you a cargo of goods from the ship 'Peerless,' due to arrive from India, at a certain price." The buyer assents. There are two ships named "Peerless," and the buyer thinks one is meant, but the seller thinks the other is meant. Is there a contract for the sale of the cargo of "Peerless" No. 1, or a contract for the sale of the cargo of No. 2, or no contract at all? The answer is, that language bears the meaning which a reasonable person in the position of the person to whom the offer is made is justified in attaching to it. If a reasonable person in his position would think "Peerless" No. 1 was meant, then there is a contract for the cargo of No. 1. If he was not justified in thinking that, and ought to have thought No. 2 was meant, although in fact he did not think so, there was a contract for the cargo of "Peerless" No. 2. If either meaning were as reasonable as the other, then each party has a right to insist on his own meaning, and there would be no contract. This principle often comes up in contracts made by telegraph, where the words of the telegram are, by the mistake of the telegraph company, changed. For instance, a telegram purports to be an offer to sell a large quantity of laths at $1 a bundle. The terms as actually despatched by the seller in making his offer fixed the price at $1.20. The telegraph company dropped off the words "and twenty cents." A telegram is sent back by the buyer, "I accept your telegraphic offer." Then trouble arises when buyer and seller compare notes. Well, the offerer is bound. He selected the telegraph as the means of communication, and he must take the consequences of a misunderstanding, which arose from a mistake of the agency which the offerer himself selected. The question may be asked: Would there be any right of action against the telegraph company by the offerer, the sender of the telegram? The answer is yes. The company has broken the contract it impliedly made with the sender to use reasonable diligence in despatching and delivering the message. But the trouble with that action is that on telegraph blanks there is always this in substance: that on unrepeated telegrams this company is liable for mistakes only to an amount not exceeding twice the cost of the telegram; and it has been held in many States that that limit on unrepeated telegrams is not unreasonable. The sender of the telegram has agreed to the contract on the reverse side of the telegraph blank, and he ought to have his message repeated if he desires to hold the company liable in full damages if his message does not reach the party addressed in absolutely correct form. In other States, however, this limitation of liability is held to be against public policy and the company is liable for the full damage suffered.

CONDITION IN OFFER REQUIRING RECEIPT OF ACCEPTANCE.—An offerer, as has been said, may insert in his offer any condition he sees fit. He may therefore insert a condition that an acceptance shall reach him, not merely be despatched. The condition may specify the time within which the acceptance must arrive in order to be effectual. It is a wise precaution in all business offers of importance to insert such a condition in the offer. It will not be sufficient to add to the offer such words as "subject to prompt acceptance," for prompt acceptance would be given, within the meaning of the law, by despatching the acceptance, not by the receipt of it. The condition should be in such words as "subject to prompt receipt of your acceptance," or "subject to receipt of your acceptance," by a stated day or hour.

WHEN SILENCE GIVES CONSENT.—There is one way of manifesting mutual assent, namely, by silence, of which a word should be said. There is a proverb that "Silence gives consent." Is it so in law? Suppose a man goes into an insurance broker's and tosses some policies down and says, "Renew those policies, please." Nobody says anything and he leaves the policies there and goes out. The next night his buildings burn down. Are they insured? They are, in effect, if the insurance broker has contracted to renew the policies; otherwise the buildings are not insured. Now on the bare facts, as we have stated them, they are not insured; some other facts must always exist to make silence amount to assent. If, for instance, on previous occasions, the broker kept silence when such statements were made to him, and nevertheless carried out the proposal, it is a fair inference that he means by his silence this time what he meant the preceding time. Furthermore, silence, when the offer is unknown, can never amount to assent. In the case as we have put it, we did not say that the insurance broker even heard the offer; if he did, then the question would depend on whether he had ever done anything to justify the other person in believing that silence would mean assent in such a dealing, or whether business customs justified the assumption. The offerer cannot by his own act make the silence of the other person amount to an acceptance. Suppose an offer of this sort: "We offer to sell you 100 shares of stock at $50 a share, and unless we hear from you to the contrary by next Wednesday we shall conclude that you have accepted our offer." The offerer does not get any word before next Wednesday. Nevertheless, there is no contract. The person addressed has a right to say, "Confound his impudence, I am not going to waste a postage stamp on him, but I don't accept his offer. He has no business to suppose that if he doesn't hear from me to the contrary I assent." This sort of case is not infrequently referred to: A magazine is sent through the mails on a subscription for a year, the subscription runs out, the magazine is, nevertheless, still sent. Is the person who receives it bound to pay another year's subscription? Here you have a little more than silence; you have the receiver of the magazine continuing to receive it. If he refused to receive it, undoubtedly there would be no contract, but where a man takes property which is offered to him, he is bound by the proposal which was made to him in regard to the property. He ought to let the magazine alone if he doesn't want to pay for it. You may say that the receiver does not know that the subscription has run out, and if he did he would not take the magazine. But then he ought to know. He made the subscription originally. The difficulty is merely in his own forgetfulness, and he cannot rely on that.

ILLUSTRATION.—The leading case of Hobbs v. Massasoit Whip Co., 158 Mass. 194, is a good illustration. The plaintiff in this case had been in the habit of sending eel skins to the defendant and had received pay from him in due course. The skins in the shipment for payment of which suit was brought, were alleged by the defendant to be short of the required length, and in a condition unfit for use. They were kept by the defendant some months, and were then destroyed, without notification to the plaintiff. The latter sued for the price of the skins and the court held that the silence of the defendant and failure to notify the plaintiff that it did not wish to have this particular lot of skins, amounted to an acceptance. The court said: "In such a condition of things, the plaintiff was warranted in sending the defendant skins conforming to the requirements, and even if the offer was not such that the contract was made as soon as the skins corresponding to its terms were sent, sending them would impose on the defendant a duty to act at that time; and silence on its part, coupled with a retention of the skins for an unreasonable time, might be found by the jury to warrant the plaintiff in assuming that they were accepted, and thus to amount to an acceptance."

CHAPTER II
Contracts—Consideration and Enforceability

CONSIDERATION MAY BE ANOTHER PROMISE OR AN ACT.—The second great requisite in the formation of simple contracts is consideration. A price must be paid for a promise in order to make it binding. The price paid may be another promise, in which case the contract is bilateral, or the price paid may be some act actually done or performed, in which case the contract is unilateral.

ADEQUACY OF CONSIDERATION IMMATERIAL.—Not any act, or the promise of any act, is sufficient consideration, as will be seen. Nevertheless, in general the law does not attempt to gauge the adequacy of the consideration; that is, parties may make such bargains as they wish as far as the price is concerned. A may say that he will sell his horse, which is worth $300, for $100, or for a promise to pay $100. That will be a perfectly good contract, if accepted, in spite of the fact that the promised horse is worth more than the promised price. Such difference in the value of the promise and the value of the price may go to a great extreme. The horse may be a thousand-dollar animal, and the price promised only $100, but when you wish to push the case to an extreme you are likely to get into this difficulty: Did the parties really mean to make a bargain? If what they were doing was arranging for a gift of the horse and putting up some little alleged consideration as a blind, that will not do; but any exchange the parties really in good faith bargain for, with certain exceptions hereafter stated, is sufficient.

A SMALLER SUM OF MONEY IS NOT SUFFICIENT CONSIDERATION FOR THE PROMISE SIMULTANEOUSLY TO PAY OR DISCHARGE A LARGER LIQUIDATED SUM.—This is the principal exception, that in contracts or promises relating to a fixed sum of money, the consideration cannot be the simultaneous payment or discharge of a smaller sum of money on the other side. If A promises B $100, it will not be good consideration for B to promise in exchange $50, or even $99.99, payable at the same time and place. In other words, the law does require adequacy in exchanges or agreements to exchange money. A owes B $100 and says to him, "I can't pay it all," or "I don't want to pay it all. Will you let me off for $50?" B replies, "Yes, I will take $50." That agreement is not binding, and even if the $50 is actually paid, B may afterwards come and say, "You paid me only part of the debt you owed me. It is true I said I would call the whole thing square, but there was no consideration sufficient in law for my promise, since you paid me only part of what you were bound to." This rule of common law, though generally well established, does not exist or is much qualified in a few States, such as: Georgia, Maine, Mississippi, New Hampshire, North Carolina, Virginia.

UNLIQUIDATED CLAIMS MAY BE DISCHARGED BY ANY AGREED SUM.—The case cited in the preceding paragraph must be distinguished from another. Suppose A owes B some money for services, the price of which was never exactly fixed, but which B says are of the value of $100. Then if B agrees to take $50 in satisfaction of his claim against A, B is bound; the transaction is effectual. The difference is between what is called a liquidated and an unliquidated claim.

DEFINITION OF LIQUIDATED CLAIM.—A liquidated claim is one of an exact amount definitely fixed. Such a claim, as has been said, cannot be satisfied by partial payment or promise of partial payment. But an unliquidated or a disputed claim—a claim subject to a real bona fide dispute, not merely a dispute trumped up for the purpose of disputing a good claim—may be discharged by any payment on which the parties agree. The law does not know how much the unliquidated claim is worth, and will allow parties to bargain for the sale of the unliquidated claim, just as it will let them bargain for the sale of a horse for which they may fix such a price as they choose, and that price will not be revised.

EFFECT OF RELEASES AND RECEIPTS.—If, however, the original claim were liquidated and undisputed, is there any sort of paper the debtor could get from the creditor that would release him absolutely? A receipt in full would not do it; a receipt in full is something to which business men attach more virtue than it possesses. It is merely evidence of an agreement to accept what has been received in full payment and proof may be given as to just what consideration passed for the receipt in full. As we have seen, such an agreement is not valid without consideration, and payment of part of a debt admittedly due is not sufficient consideration. The really effective instrument at common law is the release under seal. That will do the work whether the debtor paid part of the debt or not, since a sealed instrument needs no consideration. In jurisdictions where seals have been deprived of their efficacy at common law an insuperable difficulty, however, exists. In a few States—Alabama, Arkansas, Connecticut, Michigan, Mississippi, New Hampshire, New York, North Dakota, South Dakota, Tennessee—a receipt in full has been given the effect which the common law gave to a sealed instrument.

OTHER ILLUSTRATIONS.—Suppose the agreement to settle a liquidated claim were oral and suppose a witness heard the words. Such circumstances would not make any difference. It is assumed in all that has been said that the facts are proved. Suppose that neither party denied the facts. Let the creditor admit that he did receive this $50 as a full payment and did give the debtor a receipt in full. Still, he can say, "I propose to break my agreement since it was not supported by sufficient consideration, and I shall collect the balance." Another question is this: Suppose a man had a $100 bill and he wanted some change very badly, and another man had $99. Could the former take that for the $100 bill? He could. If a man wants a particular kind of money, as gold, or silver, or quarters, the principles stated do not apply; they apply only to dollars and cents as such.

PAST CONSIDERATION.—Strictly speaking, the term past consideration is a misnomer; something which is given before a promise is made cannot constitute a legal consideration. The courts have held that a warranty made after a sale has been completed is invalid. It has also been held that a guaranty after the obligation guaranteed has been entered into also is invalid unless there be new consideration. Although this is the general rule, there are several exceptions where a past consideration is recognized. Williston gives these exceptions as follows, although the boundaries between the groups are sometimes indefinite: "(1) Promises to pay a precedent debt; (2) Promises in consideration of some act previously done by the promisee at the request of the promisor; (3) Promises where past circumstances create a moral obligation on the part of the promisor to perform his promise. Under this head may be included cases of ratification and adoption of promises previously made for sufficient consideration but invalid when made for lack of authority or capacity."

PAYMENT OF PART OF A DEBT BY ONE WHO IS NOT THE DEBTOR.—Suppose a little different case: A owes B $100 for a liquidated claim. A's father says to B, "If you will let my son off, discharge him from this claim, I will pay $60, not a cent more." B agrees, and the $60 is paid. Now B never can get any more; the bargain is binding, and the reason is, that although A was bound to pay the whole $100, and could not, by paying B a part of the claim, give good consideration to B for his promise to cancel the balance. A's father was not bound to pay a cent and he may bargain for any exchange in return for a payment which he was not bound to make at all. Therefore, he may bargain that the debt shall be discharged.

PERFORMANCE OR PROMISE OF PERFORMANCE OF A LEGAL DUTY IS NOT SUFFICIENT CONSIDERATION.—In other words, the thing which will not be good consideration, whether done or promised, is the performance or partial performance of something which the man who performs or promises is under a legal duty to do anyway. If he ought to do it anyway, then it will not serve as a price for a new promise or agreement to discharge it. Another illustration of that may be given: Suppose a contractor agrees to build a house for $10,000; he gets sick of his job when he is about half through, says that it is not possible for him to make any money at that price and he is going to quit. "Well," the employer says, "if you will keep on I will give you a couple of thousand dollars more." Accordingly the builder keeps on. That won't do. The builder in keeping on building is doing no more than he was previously bound to do. If he wants to have a binding agreement for the extra $2,000 with his employer, he must secure a promise under seal, for his own promise of performance will not support the promise to pay.

FORBEARANCE AS CONSIDERATION.—Another kind of consideration that is worth calling attention to is forbearance. A has a valid claim against B. He says he is going to sue. B says if he won't sue, or won't sue for the present, B will pay him an agreed sum. That is a good contract so long as it is not open to the objection referred to a moment ago; that is, so long as A's claim is not for a liquidated sum of money and B's promise is not merely a promise to pay part of that liquidated sum. A may promise what B requests, either to forbear temporarily or to forbear perpetually. Either will be good. But suppose A has no valid claim against B, but B is reputed to be rather an easy mark in the community and A is a person of little scruple; he accordingly trumps up a claim against B with the hope of getting a compromise. Is forbearance of that claim by A good consideration for B's promise? It is not. A's claim must be a bona fide one in order to make surrender of it or the forbearance to press it, either temporarily or permanently, a good consideration for a promise of payment.

STATUTE OF LIMITATIONS.—Another case of a promise relating to a subject of very frequent importance in commercial law, and law generally, is a promise to pay a debt barred by the statute of limitations, and this occasion requires a preliminary word in regard to that statute. This statute prohibits the bringing of an action or a claim after the expiration of a certain period. It is a different period for different sorts of claims. Action on a judgment in most States may be begun within twenty years after such judgment is rendered; so in some States may an action on a contract under seal. On the other hand, ordinary contractual claims generally expire in six years. Claims in tort, that is, for injury to person or property, last even a shorter time, but the ordinary contractual statute of limitations is six years. The statute begins to run against a promissory note, or other contract, not from the time when it is made, but from the time when it is by its terms to be performed. A note made now, payable the first of January next, will not be barred until six years from the first of January, not six years from now; and if it was made payable in ten years, as a mortgage note might well be, the statute would not bar it for sixteen years.

PROMISE TO PAY BARRED DEBT.—It has been held, though the reasons are not very easy to explain, that a new promise will revive a debt so far as the statute of limitations is concerned. There need be no consideration for such a promise other than the existence of the old indebtedness; that is said to be a sufficient consideration, although, of course, it can hardly be said to be given as a price for the new promise. Take a promissory note payable January 1, 1905. If nothing happens, that is barred on January 1, 1911, but if in 1911 or 1912 the maker says, in effect, "I know I owe that old note. I have not paid is, but I will pay it," he will be liable on that new promise, and the statute will begin to run again and run for six years from the making of that new promise. It is not enough that the debtor should admit that there was a liability; he must promise to pay it in order to make himself liable. Suppose, instead of a new promise made after the statute had run in 1911 or 1912, the maker had said before the maturity of the note, we will say in the course of 1910, "Don't worry about that note, I shall pay it," that also will start the statute running afresh. In other words, the new promise may be made before the maturity of the note, or before the statute has completely run as well as after the statute has completely run. In either case the new promise will start a fresh liability and keep the note alive for six years from the time the new promise was made. Of course, if the new promise is made the day after maturity of the old obligation, the total effect will be simply to extend the time of the statute one day, because only one day of the six years had run at the time the new promise was made, and counting six years from the date of the new promise gives only one day more.

PART PAYMENT OF BARRED DEBTS.—Not only will a new promise in express terms keep the statute of limitations from barring a claim, but any part payment will have the same effect, unless at the time the part payment is made some qualification is expressly stated. A debtor may say, "I will pay you this part of my debt, but this is all," and incur no further liability; but a part payment without such a qualification starts the statute running afresh as to the balance of the debt. It is by these part payments that notes are frequently kept alive for a long series of years. Interest payments are as effectual for the purpose as payments on account of part of the principal. A new six years begins to run from each payment of interest. The debtor may, however, say, "I will pay you half this debt," or "I will pay you the debt in installments of $10 a month." Such promises are binding according to their terms, and do away with the statute of limitations to that extent, but they do not enable the creditor to recover anything more than the debtor promises. A question may be asked here which is frequently of importance regarding an outlawed note with a payment of interest thereon by the maker. Would an endorser who had waived demand and notice be liable for six years more? Yes, if the payment was made before the statute had completely run in favor of the endorser. Otherwise, no. And if the endorser had not waived demand and notice, the statute could in no case be prolonged against him by any act of the maker.

REVIVAL OF DEBTS DISCHARGED BY BANKRUPTCY OR VOIDABLE FOR INFANCY.—A somewhat similar sort of revival of an old obligation may occur where a debt is discharged in bankruptcy. If a discharged bankrupt promises to pay his indebtedness or makes a payment on account of it, it will revive his old obligation and he will be liable again. And, similarly, though one whom the law calls an infant (that is, a minor under the age of twenty-one) who incurs indebtedness prior to his majority, can avoid liability (unless the indebtedness was incurred for what are called necessaries, that is, food, clothing, shelter and things of that sort); yet if he promises after he has become of age that he will pay these debts, from which he might escape, thereafter he is liable.

CONTRACTS WHICH MUST BE IN WRITING.—There is, in some contracts, one other requisite, besides those already mentioned, necessary to make them enforceable, and that is a writing. It has already been said that writing is not, as such, essential to the validity of contracts, but there are exceptional kinds of contracts which the law has required to be in writing for many years. This is by virtue of what is known as the "Statute of Frauds." This was passed in England in the year 1676, and is known as "Chapter 3, of the Statute of 29, Charles II." This statute was passed for the purpose of preventing frauds and perjuries which were particularly prevalent at the time it was enacted. It is doubtful as to how much good the statute has accomplished. There is no question that in many cases it has caused fraud and perjury rather than prevented it. The statute, however, as passed in England, has been reenacted in practically every State in this country with slight modifications, and it is, therefore, a part of contract law to which attention must be given. Originally, the statute read as follows: "No action shall be brought (1) whereby to charge any executor or administrator upon any special promise to answer damages out of his own estate; (2) or whereby to charge the defendant upon any special promise to answer for the debt, default, or miscarriage of another person; (3) or to charge any person upon any agreement made in consideration of marriage; (4) or upon any contract or sale of lands, tenements, or hereditaments, or any interest in or concerning them; (5) or upon any agreement that is not to be performed within the space of one year from the making thereof; unless the agreement upon which such action shall be brought, or some memorandum or note thereof shall be in writing, and signed by the party to be charged therewith or some person thereunto by him lawfully authorized." A word of comment is necessary to explain the general import of these various sections.

Section 1: An executor or administrator is appointed to settle a deceased person's estate. He is not obliged to personally pay the debts of the deceased person out of his own pocket, if the estate is not sufficient. His liability is limited by the assets of the deceased, but if, in order to save the credit of the deceased or for any other reason, he chooses to promise "to answer damages out of his own estate" that promise must be in writing. This is the situation referred to by this section.

Section 2: This is a very important class and leads us to call attention to the distinction between a guaranty and a contract somewhat similar. Suppose A writes to Jordan, Marsh Company: "Please sell B six good shirts and charge the same to my account." That is not a guaranty. A is in that case a purchaser just as much as if he ordered the shirts sent to himself. Nor is it any more a guaranty if it was further agreed between A and B that B should pay A for the shirts. On the other hand, if A should write to Jordan, Marsh Company, "Let B have six shirts and if he doesn't pay, I will," then you would have a guaranty. It is of the essence of a guaranty that there should be a principal debtor and that the guarantor's liability should be only secondary. A guaranty must be in writing. To put the matter in another way, when there are three parties to a transaction like the above, the writing is necessary. Where there are two parties, no writing is necessary. Where A says to Jordan, Marsh Company, "Let B have six shirts, and if he doesn't pay, I will," we have three parties: A, the guarantor; B, the principal debtor, and Jordan, Marsh Company, the creditor. This must be in writing. Where A says to Jordan, Marsh Company orally, "Give B six shirts and charge to my account," we have simply two parties, A, the principal debtor, and Jordan, Marsh Company, the creditor. Hence no writing is necessary. In connection with this section, it must be kept in mind that some oral contracts which would be good under this section may not be enforceable under another section which we shall refer to later, because the amount involved is over a specified sum.

Section 3: The agreement referred to by this section is not the contract or promise to marry, but is for a marriage settlement such as a promise to make a payment of money or a settlement of property in consideration of a marriage actually taking place.

Section 4: Any contract for the sale of land, or any interest in or concerning land, requires a writing in order to make it binding. The commonest kind of contracts in regard to land are leases or contracts for leases. An oral lease creates what is called a "tenancy at will," that is, the agreement, in so far as it specifies a fixed term, is wholly invalid, but while the tenant occupies he must pay at the agreed rate; but he has no right to stay in; he may be turned out, even though he pays his rent promptly, on notice equal to the time between rent days; and, similarly, he has a right to go out on giving the same short notice.

Section 5: An agreement not to be performed within a year must be in writing, and this provision of the statute has been the subject of rather an odd construction by the courts. The words "not to be performed within a year" have been construed to mean "which cannot possibly be performed within a year." Suppose A hires B for a year from to-morrow and contrast with that case a promise to hire B for B's life, or for the promisor's life. Now the first of those bargains is within the statute and must be in writing, but the second, although it seems for a much longer period, being for the whole life of the promisor or promisee, is not within the statute. The man on whose death the promise depends may die within a year, so there is a possibility of performance within a year. A promise to employ B for all his life, since that may possibly be done within a year, need not be put in writing. But a promise to hire a man for a year from to-morrow cannot be performed in a year. True, he may die within a year, and then the contract cannot be enforced, but there will be no performance. What was agreed, by the parties, was service for a year from to-morrow and that cannot possibly be done earlier than a year from to-morrow.

SALE OF GOODS.—A contract for the sale of goods exceeding in value a certain amount must also be in writing unless part or all of the goods have been delivered or part or all of the price paid. The value of the goods which brings a sale within this section of the Statute of Frauds varies in different States, and local statutes, therefore, should be consulted to ascertain the law in this connection.

Besides the kinds of contracts enumerated in the English statute and which have generally been adopted in this country there are two or three other classes of contracts which in a number of States are required by statute to be in writing. Of this sort is a contract to make a will. That is not a very common sort of contract, but sometimes a man promises in consideration of certain services to make a will in another's favor. The possibility of fraud in such cases is considerable. The testator is always dead before the question comes up, and then if the alleged promisee were allowed to prove by oral statements a contract to bequeath the testator's property on terms which the promisee says were agreed upon between them, it would afford a chance to produce the same effect as if oral wills were allowed. So a contract of a real estate agent for commissions is in some States required to be in writing. A contract with an agent empowering him to sell real estate, though not regarded at common law as within the prohibition of the section of the statute for the sale of an interest in land to be in writing, is by special enactment in many States required to be in writing. A contract for a loan of money reserving a rate of interest higher than that ordinarily allowed by law is sometimes required to be in writing.

WHAT CONSTITUTES WRITING.—The writing being a matter of proof, it is not essential that it be made at the time the contract is entered into. If made at any time before an action upon the contract is begun, that is a sufficient compliance with the statute. The writing, in order to be sufficient, must show who the parties to the agreement are, if not by naming them, by such a description as points to a specific person. Thus a letter addressed simply "Sir," and signed by the party charged, but not containing the name of the person addressed, is not sufficient. It is also required that all the terms of the contract appear in the writing, such as the subject matter, price, terms of credit or any express warranty, but, as often happens, they need not all be expressed in one writing. Contracts are frequently made as the result of an extended correspondence, and in such a case the various letters can be put together and construed as one writing if they obviously refer to one another, and thus all the terms appear in writing. The statutes in some States require "subscription" of the signature, and in that case the signing must be at the end; but where there is not such requirement a signing in the body of the instrument is sufficient.

ALTERATION OF WRITTEN CONTRACT BY SPOKEN WORDS.—Failure to understand and observe the rule restricting parol evidence to vary written contracts leads to a great deal of trouble. The parol evidence rule is this: Where parties have executed a written contract purporting to state the terms of their agreement, the court will not receive evidence that they orally agreed to something less or more or different, at or before the time when the written agreement was executed. That written agreement is taken as conclusive evidence of the contract made at that time. In trying to ascertain what the writing means, however, the court will permit the surrounding circumstances to be shown, and the meaning of technical or trade terms or abbreviations may be proved. It may be shown also that the parties did not intend the written agreement to be effective until some particular event happened; but if the writing was executed as an expression of the intention of the parties at that time, the only endeavor of the court will be to ascertain the meaning of the written words and to enforce them as written. The question of oral agreements made subsequent to the writing is not so simple. We must here distinguish between (1) contracts of which the law requires written evidence because they are within the Statute of Frauds, and (2) contracts which the law does not require to be in writing, but which, nevertheless, are written. Contracts of the latter sort may be rescinded, added to or subtracted from by any subsequent agreement which conforms to the requirements of the law governing mutual consent and consideration, though of course it is very desirable, to avoid dispute, that any variation or rescission of a written contract should itself be in writing. If, however, the Statute of Frauds required the original contract to be in writing, though it may orally be rescinded, it cannot be varied by oral agreement. To permit such an oral agreement would in effect violate the Statute of Frauds by permitting an agreement partly in writing but partly oral to be enforced. Thus, if a written contract for the sale of goods (exceeding in value the amount permitted to be contracted for orally) was made, and the parties afterwards orally agreed to change the price, the time of delivery, or any other terms of the contract, the subsequent oral agreement would be invalid.

THE LIMITS OF CONTRACTUAL RELATIONS.—As a general rule a contract does not impose liabilities or confer rights on a person who is not a party to it. It follows from the very nature of a contract that a person who is not a party to it cannot be included in the rights or liabilities which it creates, so that he will be entitled to sue or render himself liable to be sued upon it. A contract is the result of a voluntary agreement entered into by the parties. Therefore, any contractual rights or liabilities existing by virtue of such voluntary agreement between Smith and Jones are no concern of White and Black. They cannot be bound by any of the provisions of the contract between Smith and Jones, nor can a breach of that contract give them any rights. There are apparent exceptions to the rule we have just mentioned. One is in the case of agency. Here one person represents another in entering into a contract. A contract, however, made by an agent can bind a principal only by force of a previous authority or a subsequent ratification, so that really the contract which binds the principal is his own contract. The other exception is where the rights and liabilities created by a contract may pass to a person other than the original party to it, either by act of the parties themselves or by operation of law. Such would be the case where Smith and Jones have performed the terms of their contract except that Smith has not paid the agreed amount to Jones. Jones assigns his right to collect this amount to White. Such an assignment is permissible, as we will learn when we consider that subject later on. Such is an assignment by act of the parties themselves. Even this exception is limited, as the obligations incurred in purely personal service contracts are not subject to assignment. Thus, if I employ artist Greene to paint my portrait, he could not assign this contract and compel me to accept a portrait painted by artist Brown.

THE RULE OF LAWRENCE v. FOX.—We shall now take up a very generally recognized exception to the principle we have just discussed. The question in its simplest form is this: If Smith and Jones make a contract for the benefit of Greene, may Greene sue on that contract? From what we have said in the preceding paragraph a negative answer might seem to be correct. However, to-day, stated in general terms, and leaving out of the question the limitations recognized in various jurisdictions, the very general rule is that a third party (Greene in our illustration) may enforce a promise made for his benefit, even though he is a stranger both to the contract and to the consideration. In other words, it is held not to be necessary that any consideration move from the third party. It is enough if there is a sufficient consideration between the parties who make the agreement for the benefit of the third party. So in the leading case of Lawrence v. Fox, 20 New York 268, where a debtor of the plaintiff had loaned money to the defendant and the defendant had promised him to pay the plaintiff, although the plaintiff was not a party to the contract, it was held that where a promise is "made to one for the benefit of another, he for whose benefit it is made may bring an action for its breach."

QUALIFICATION OF RULE.—We must call attention to one qualification quite generally recognized. Under this rule, that a beneficiary may enforce a contract, it is necessary that the contract must have been intended for the benefit of a third person. It is not sufficient that the performance may just happen to benefit a third person; it must have been intended for the benefit of a more or less definite person. Thus, where a county board had entered into a contract with a construction company which was building a bridge for it and maintaining a temporary foot bridge during the operation, by the terms of which contract the construction company assumed responsibility for all injuries suffered by pedestrians using the temporary foot bridge, it was held that a person who was injured because of the failure to light the foot bridge properly, was not such a third person as might sue under the rule of Lawrence v. Fox, on the contract made between the county board and the construction company.

APPLICATION OF RULE.—The rule in Lawrence v. Fox has been applied to contracts under seal in many jurisdictions, although there are some decisions to the contrary. A common application of this doctrine is found in the sale of real property with a mortgage upon it. The new purchaser as a part of the purchase price makes an agreement whereby he assumes the payment of the mortgagee. The question of whether the mortgagee, who is really the third party for whose benefit the contract is made, may sue the new owner, is generally answered in the affirmative.

CAPACITY OF PARTIES.—All persons are ordinarily presumed to be capable of contracting, but the law imposes upon some—in varying amounts and for their own protection—disabilities to make contracts which may be enforced against them; and, upon some, for considerations of public policy, disabilities to make enforceable contracts. These persons are (1) Infants; (2) Insane persons; (3) Drunkards; (4) Married women—to a limited extent; (5) Aliens; (6) Artificial persons or corporations.

WHO ARE INFANTS.—All persons under the age of twenty-one are considered infants, except that in some States, by statute, women attain their majority at eighteen. The law endeavors to protect those who have no experience and judgment against the loss of their property because of their inability to deal safely with others who might take an advantage of that fact. It may well be that one who has nearly attained his majority is as able in fact to protect his interests as one of full age, but the essence of the law is that it is a rule of universal application, and the law cannot measure the ability in each particular case. To do the greatest good for the greatest number, therefore, it conclusively presumes that those under twenty-one have not yet gained the ability to cope with others in the preservation of their property.

CONTRACTS OF AN INFANT.—An infant's contracts are voidable; that is, though they bind the other party to the bargain the infant himself may avoid them. If he avoids them the adult with whom he contracted is entitled to recover whatever he may have given the infant which still remains in the latter's possession; but if the infant has spent or used, or for any reason no longer has the consideration which the adult gave him, the infant may avoid his own obligation if he has not already performed it, and if he has already performed it he may reclaim what he has given. After he comes of age, but not before, the infant may ratify his contracts and they then become binding upon him. The retention after coming of age of property received by the infant during his minority amounts to a ratification. There are a few obligations of an infant which on grounds of public policy are binding upon him. This is true of a contract to perform military service. The marriage of an infant is binding though his engagement is not. It is frequently said that his contract for necessaries is binding; strictly this is not true. The infant is liable for necessaries, but his obligation does not depend upon his contract; it is an obligation imposed by law—what has been called a quasi-contract. The importance of this distinction is shown if the price agreed upon exceeded the real value of the necessaries. If the contract were binding, the infant would be bound to pay the agreed price, but in fact he is liable only for the fair value. What is necessary for an infant depends upon his station in life, upon whether he already has a sufficient supply of the necessary article in question, and upon whether he is receiving proper support from a parent or guardian. The privilege of an infant is generally held to exist even though the party dealing with him not only reasonably believed the infant of age, but had received actual representations from the infant to that effect.

INSANE PERSONS AND DRUNKARDS—The law affords protection to insane persons and, to a less extent, to drunkards, for the same reason as in the case of infants, namely, that those who are incapable of understanding what they are doing and of comprehending the effect of their contracts upon their property should be safeguarded against the designs of the more capable. This protection is given them by declaring some of their contracts void, and allowing them, or those legally representing them, to avoid all others with the exception of a few. Also, as in the case of infants, this privilege as to such contracts is for the insane person's protection only, and the other party to the contract may not avoid it by pleading that it was made with an incompetent person.

WHOM DOES THE LAW CONSIDER INSANE?—Modern science has clearly established that a person may be insane on one subject, and yet possess a clear understanding and be perfectly sound on another. If the contract deals with a subject of which the person has a clear understanding, he is not in need of protection and is given none. Those only are given the protection who do not possess the mind to understand in a reasonable manner the nature and effect of the act in which they engage.

BINDING OBLIGATIONS FOR NECESSARIES.—The insane must live as well as the sane; consequently they are bound to pay for necessaries furnished them but only the reasonable value, as has been explained in the case of infants. The rules for determining what these necessaries may be are the same as in the case of infants.

OTHER CONTRACTS.—It is often a difficult matter to know when a person is insane, much more difficult than it is to determine a person's age. One of the contracting parties may have acted in perfect good faith, being ignorant of the other's unsoundness of mind and having no judicial determination of insanity or other warning to put him on his guard. The contract even may be reasonable in its terms, and it may have been so acted upon that the parties to it cannot be restored to their original position. In such a case, while the law should protect the incompetent, it would be clear injustice to protect him to such an extent as to make the other party suffer through no fault of his own. It has been quite generally determined in this country, therefore, that where a person does not know of the other's insanity and there has been no judicial determination of such insanity to notify the world of it, and the contract is a fair one, and has been so acted upon that the parties cannot be restored to their original position, it is binding upon the lunatic as well as upon the other party.

VOID CONTRACTS.—In some States it is held, however, that all contracts of an insane person are void. In such States the rule above stated would not hold. The law of each State must be consulted to determine the law in the particular State. In some States, notably New York and Massachusetts, an insane person's deed of lands has been held to be void, without reference to whether or not the other party entered into the contract in good faith without notice, or that it has been so far acted upon that the parties cannot be restored to their original position. As in the case of infants, an insane person's power of attorney has been declared by high authority to be absolutely void.

VOIDABLE CONTRACTS.—In most jurisdictions an insane person's contracts are voidable by him or by his guardian, provided (1) that the other person knew of his insanity at the time of making the contract, or (2) he had been declared insane by some court, or (3) the parties can be restored to their original position.

RATIFICATION AND AVOIDANCE.—When the insane person's reason has been restored, if the contract is a voidable one, as explained in the foregoing rules, though he may by acts or words avoid the contract he made during his insanity, he may in like manner ratify it, or he may ratify it by not avoiding it within a reasonable time after recovering his reason while continuing to keep something capable of being returned, which he obtained under the contract.

WHAT CONSTITUTES DRUNKENNESS.—It is not ordinary drunkenness which excuses a man from his contracts, and enables him to claim the protection given generally to incapable persons. The person must have been utterly deprived of his reason and understanding, so that he could not comprehend the nature or effect of the act in which he was engaged. That he was so much under the influence of liquor that his judgment was not as good as in his normal state does not excuse him.

MARRIED WOMEN.—It is practically impossible to state in brief form the law upon the subject of married women's contracts. The difficulty arises from the diverse changes made in the plain and clear rules of the common law by statutes in the different States. The old law is wholly incompatible with the enlightened view now held in regard to women, their family, social and business standing, and the changes have been made to give them the rights to which they are justly entitled. But, inasmuch as the statutes have not been uniform in the different States, the law to-day is not wholly uniform. The statutes and decisions in each State must be consulted to determine the law on the subject as it is to-day. Through these changes the law has become very complicated, and business men should obtain legal advice before entering into important business dealings with married women.

THE OLD RULE.—Upon her marriage a woman's existence became merged in that of her husband, and the husband and wife were regarded for many purposes as one person. What tangible personal property she had became his immediately upon marriage, and he had the right to reduce her bills, notes, bonds and other debts to his possession. Her real property she retained the title to, subject to the right of the husband to have the use of it during his life, if children were born of the marriage. He was bound to supply her with necessaries, and so long as he did this her contracts for things of even ordinary use were void; but if he failed to supply the necessaries her contract for them would be valid. All her other contracts were absolutely void—not voidable. Her position, then, was worse than an infant's. She could have personal property of her own only if it was given to someone else to hold the title and pay over the income to her, and even this "separate estate," as it was called, could not be bound by her contracts.

CHANGES MADE BY STATUTE.—The law of married women's contracts has been greatly changed by legislative enactments, to give married women the rights which the more enlightened view of the present time accords to them. The first changes aimed quite generally to give her greater rights over her "separate estate," giving her power to make binding contracts with reference to it, or to make binding contracts if she were carrying on a trade or business of her own. But the earlier statutes frequently did not give her power to contract with her husband, or to make binding contracts if she had no separate estate, or was not carrying on a separate business. Later enactments have largely corrected these defects, but the old rule still stands except as it has been changed by statute, and, therefore, the statutes of each State and the decisions interpreting them must be consulted to determine accurately the law in each State. It may, however, be said that generally a married woman may now contract except with her husband, and except as surety for him. In many States she can even make contracts of these excepted classes.

ALIENS.—An alien is one born out of the jurisdiction of the United States, of a father not a citizen of this country, and who has not been naturalized. In times of peace, aliens may hold property and make contracts and seek the protection of our courts as freely as citizens. When war breaks out between this country and another the making of contracts between citizens of the two countries is prohibited. If such contracts are made during a state of war, they are illegal and void, and the courts of this country will not lend their aid to enforce them, either during the war or after its termination. Contracts made before the war breaks out are good, but cannot be enforced, nor can remedies for their breach be obtained, while the war is in progress. When the war ceases, however, the courts will lend their aid to the enforcement of such contracts.

CORPORATIONS.—A corporation may contract as freely as an individual so long as its contracts are within the business powers and scope of the business which its charter authorizes it to conduct. And even if a corporation has made a contract outside of the scope of its business, and the contract has been acted upon so that either party has had the benefit of the contract, an action will lie in favor of the other for the benefits so conferred. But a contract outside of the business which its charter permits the corporation to engage in, and which is wholly executory, the courts will not enforce. Such contracts are said to be ultra vires. Contracts with a corporation may be in the same form as contracts between individuals, and the corporation need use its seal only where an ordinary person is required to use one. The officer or officers making the contract on behalf of a corporation must, however, be authorized so to do either by the directors or by the general powers attached to such officers. In law corporations are deemed to be artificial persons subject in a general way to provisions governing natural persons.

CHAPTER III
Contracts—Performance and Termination

PRIMARY RULE.-After a contract has been formed, it does not make much difference whether it is under seal or whether it is a simple contract; the rules governing the contract, subsequent to its formation, are very much the same though there are a few distinctions. The primary rule running through the law, governing obligations to perform contracts, is that if a man has once formed a good contract he must do as he agreed, and if he fails substantially (not merely slightly) to do so the other party may refuse to perform on his part. If you remember that fundamental principle you cannot generally go far wrong.

CONDITIONAL CONTRACTS—INSURANCE.-What one agrees to often depends on the conditions which he includes as part of his promise. Take the insurance policy previously alluded to. An insurance company promises to pay $5,000, but it does not promise to pay in any event; the condition "if the house burns down" is obviously a qualification of the promise. But there are other conditions in the insurance policy. The insurance company says that it will not be liable if gasoline is kept in the house beyond a small quantity necessary for cleaning. That, too, is a condition of its promise to pay $5,000; so that "if the house burns down," "if gasoline is not kept in the house," "if the house is not unoccupied more than three months," and "if mechanics are not allowed in possession of the property for more than a certain length of time," are all conditions, and the company's main promise need only be kept if the conditions are complied with. That is why an insurance policy is not always quite as good as it seems—because there is a large promise in large print; but there are a good many qualifications in smaller print which are really part of the promise and must be taken into account.

CONDITIONS IN BUILDING CONTRACTS.—Another kind of conditional promise often occurs in building contracts. The employer agrees to pay the builder or contractor on the production of an architect's certificate. Now it doesn't do the builder any good to build that house unless he gets the architect's certificate, for he has been promised pay only on condition that he produce it. That is the promise between the parties. That is the only promise.

WHEN PERFORMANCE OF CONDITIONS IS EXCUSED.—It is obvious that these conditions in promises may be sometimes used to defeat the ends of justice, and undoubtedly at times they are so used. A person who draws a contract cleverly will put in a great many conditions qualifying his own liability, and will try to make the promise on the other side as unconditional as possible. The law cannot wholly do away with these conditions, because in general, so long as parties do not make illegal bargains, they have a right to make such bargains as suit themselves. The court cannot make their agreement for them, but it is held that if a condition will lead to a real forfeiture by an innocent promisee, the law will relieve the promisee. Thus, in the architect's certificate case, if the house was properly built and it was merely ill temper on the part of the architect that caused him to withhold giving the certificate, the court would allow the builder to recover, and even if the architect had some good reason for refusing the certificate, the court would not allow the builder to be permanently prevented from recovering anything on the contract, providing the builder had substantially though not entirely performed his contract and had acted in good faith. If, however, his default was wilful, if he had tried to beat the specifications, and the architect had found him out and therefore refused the certificate, the only thing the builder could do would be to go at it again, tear out his faulty construction and build as he had agreed.

IN CONTRACTS OF EMPLOYMENT, WORK MUST BE PERFORMED BEFORE PAYMENT IS DUE.—There are other matters which qualify the obligation of a promisor to perform besides express conditions such as those we have alluded to. Take this case: John promises to work for the A. B. Company; the A. B. Company promises to employ him and to pay him a salary of $1,000 a year. John comes to work the first day and works a while, and then he says he would like his thousand dollars. The A. B. Company says, "Well, you have got to do your work first." John says, "Why should I work first and trust you for pay, rather than you pay first and trust me for the work? I will keep on working, but I want the pay now." Of course, the employer is right in refusing to pay until the work has been done, even though the promise of the employer is not expressly qualified by the statement that after the work has been done he will pay $1,000. It has been dictated by custom, rather than by anything else, that where work is to be performed on one side and money to be paid on the other, in the absence of any statement in the contract to the contrary, the work must be done before the pay is given. The result is this: that John must work anyway, his promise to work being absolute; but the employer's promise to pay the money is, in effect, conditional. It is subject to an implied condition, as it is called, that John shall have done the work he agreed to do. The promise of the employer is, in effect, "I will pay if you previously have done the work." But John's promise is absolute: "I will work." He has to trust for the pay.

PERFORMANCE FIRST DUE UNDER A CONTRACT MUST BE GIVEN BEFORE PERFORMANCE SUBSEQUENTLY DUE FROM THE OTHER PARTY CAN BE DEMANDED.—And that case is an illustration of a broader principle which may be stated in this way: where the performance promised one party to a contract is to precede in time the performance by the other side, the party who is to perform first is bound absolutely to perform; whereas the party who is to perform subsequently may refuse to perform unless and until the other party performs. In the cases thus far alluded to, the promises of the two parties could not be performed at the same time. You cannot work for a year and pay $1,000 simultaneously. One performance takes a whole year and the other performance takes only a moment.

PERFORMANCES CONCURRENTLY DUE.—But frequently there arise cases where both promises can take place at the same time. The commonest illustration of that is a contract to buy and sell. You can pay the price and hand over the goods simultaneously, and when a contract is of this character, that is, where both performances can be rendered at the same time, the rule is that in the absence of agreement to the contrary, they must be performed simultaneously. John agrees to buy James' horse and pay $200 for it, and James agrees to sell the horse for $200; that is a bilateral contract of purchase and sale. Now suppose neither party does anything, has each party broken his promise? It might seem so, for John has not bought the horse or paid for it as he agreed, nor has James sold the horse. But where each party is bound to perform simultaneously with the other, if either wants to acquire any rights under the contract he must do what is called putting the other party in default, that is, he must offer to perform himself. John, therefore, must go to James, offer $200 and demand the horse if he wants to assert that James has broken his contract. And James, on the other hand, if he wishes to enforce the contract, must go with the horse to John and say, "Here is the horse which I will hand over to you on receiving simultaneously the $200 which you promised me for it." The obligation of the two promises when they can be performed simultaneously is called concurrently conditional, that is, each party has a concurrent right to performance by the other, and has a right to refuse performance until he receives, concurrently with his own performance, performance by the other party.

INSTALLMENT CONTRACTS.—Sometimes contracts are more complicated than those which we have stated, such as contracts of service and contracts to buy and sell. This, for instance, is a type of a very common sort of contract in business: a leather manufacturer uses large quantities of tanning extract in his tannery. He makes a contract for a regular supply, so many barrels each week for a year, for which he agrees to pay a specified price a barrel on delivery. For a time the extract promised him is sent just as agreed. We will suppose, then, that perhaps the extract manufacturer is slow in sending what he promised; there is a delay; perhaps the extract that is furnished is not as good as it was or as the contract called for. What can the leather manufacturer do about it? Of course, he can keep on with the contract, taking what the extract manufacturer sends him, getting as much performance as he can, and then sue for such damages as he may suffer because of the failure to give what was promised completely. But he does not always want to do that. Suppose it is necessary for his business that he should get tanning extract and get it regularly. He does not want to wait and take chances on the extract manufacturer's delays in delivery and inferiorities in quality. He wants to make a contract with somebody else and get out of his bargain with the first extract manufacturer altogether. May he do so? No question in contracts comes up in business more often than that. And the answer to the question is this: it depends on the materiality of the breach, taking into consideration the terms of the contract and the extent of the default. Is the breach so serious as to make it fair and just in a business sense to call the contract wholly off; or will justice be better obtained by making the injured party keep on with the contract and seek redress in damages for any minor default?

BREACH IN CONTRACTS OF EMPLOYMENT.—The same thing comes up very often in contracts of employment. Suppose an employer hires an employee for a year, and in the course of the year the employee at some time or other fails to fulfill his contractual duty as an employee. He is negligent and in some respect fails to comply with his contract to render good and efficient service. Can the employer discharge him? We must ask how serious is the breach. A merely negligent breach of duty is not so serious as one which is wilful. Or the breach might be on the other side of the contract. Suppose the employer has promised to pay a certain sum each month as salary during the year, and does not pay promptly. Has the employee a right to say, "You pay my salary on the first day of the month as you agreed, or I leave"? No, he does not have a right to speak so positively as that. A single day's delay in the payment of one month's installment of salary would not justify throwing up a year's contract. On the other hand, if the delay ran along for any considerable time, it would justify the employee in refusing to continue. You will see that this principle of materiality of the breach on one side, as justifying a refusal to perform on the other, is rather an indefinite one. It involves questions of degree. That is so in the nature of the case. The indefiniteness of the rule, therefore, cannot very well be helped.

ILLUSTRATIONS AND DISTINCTIONS.—A few concrete illustrations may help to bring out the points under discussion. Suppose an agreement for the sale of real estate, and, for instance, the buyer is unable to be on hand the day the sale is to be completed, and the owner is present, and, finding the buyer absent, immediately sells the land to another. Now is there any action against the owner, or might he justly refuse to go on with the contract because of the momentary breach of contract? No, he cannot refuse to go on in the case of a contract of that sort to sell real estate, unless the contract very expressly provided that the transaction must be carried through at the specified time and place or not at all. The case would be governed otherwise by the principle of materiality of the breach, to which we have alluded. A brief delay would not be a sufficiently material breach to justify the seller in refusing to go on, but a long delay, of course, would be sufficient. In sales of personal property time is regarded by the law as more important than in sales of land. In contracts to sell stocks varying rapidly in value, time is a very important element. Suppose now that an option for a piece of land was given by the owner. May he dispose of the land to another a few minutes after the time specified in the option for the acceptance of the offer? That is different from the case previously put. The option is in effect an offer to make a sale, and the offer is by its terms to expire, we will say, at 12 o'clock, noon, October 23. It will expire at that time, and an acceptance a minute later will be too late. The difference is in the terms of the promise made by the different parties. In the case put first, there is an unqualified contract to buy and sell. In the case now put there is a promise to sell only if the price is tendered or if acceptance is made prior to 12 o'clock, noon, October 23. The terms of the option, assuming in its favor that it was given for consideration or was under seal and therefore not merely a revocable offer, were expressly conditional. The vital thing in contracts is to be sure of the terms of your promise. The term option indicates a right which exists up to a certain point; beyond that point there is no right.

PROSPECTIVE INABILITY OF ONE PARTY EXCUSES THE OTHER.—There is one other thing besides actual breach by his co-contractor, which justifies one party to a contract in refusing to go on with the contract, and that may be called prospective inability to perform on the part of the other side.

INSOLVENCY OR BANKRUPTCY.—Let us give one or two illustrations of that. You have entered into a contract to sell a merchant 100 barrels of flour on thirty days' credit. The time has come for the delivery of the flour, but the merchant is insolvent. He says to you, "I want you to deliver that flour; the agreed day has come." You say, "But you cannot pay for the flour." "Well," he replies, "it is not time to pay for it. You agreed to give me thirty days' credit: perhaps I shall be able to pay all right then. I have not broken my promise yet, and as long as I am not in default in my promise you have no right to break yours." You have a right to refuse to deliver the flour because, though the buyer has not yet broken his contract, the prospect of his being able to keep it, in view of his insolvency, is so slight that his prospective inability to perform in the future, when the time comes, excuses you from going on now. Insolvency or bankruptcy of one party to a contract will always excuse the other party from giving credit or going on with an executory contract, unless concurrent performance is made by the insolvent party or security given for future performance.

REPUDIATION.—Repudiation of a contract by one party is also a good excuse. Repudiation means a wrongful assertion by one party to a contract that he is not going to perform in the future what he agreed. After such repudiation the other party may say, "I am not going to perform now what I agreed to perform, since you have said you will not perform in the future what you agreed. I shall not go ahead and trust you, even though I did by the contract agree to give you credit, in view of the fact that you have now repudiated your agreement by saying that you are not going to do what you agreed." Repudiation may be indicated by acts as well as by words, and often is indicated partly by words and partly by acts.

TRANSFER OF PROPERTY TO WHICH THE CONTRACT RELATES.—Still another illustration of prospective inability arises where a contract relates to specific property, as a certain piece of land, and before the time for performance comes, the owner of the land, who had agreed to sell it we will suppose, transfers it to somebody else or mortgages it. The man who had agreed to buy that piece of land may withdraw from the contract. He may say, "You might get the land back at the time you agreed to perform, but I am not going to take any chances on that. I am off the bargain altogether."

IMPORTANCE OF EXACT PROVISIONS IN CONTRACTS.—So much for the rather difficult subject of the mutual duties of parties to a contract in the performance of it. The best way to avoid doubt or uncertainty in such matters is to provide very exactly in the contract what the rights of the parties shall be in certain contingencies. The law always respects the intention of the parties when it is manifested, and it is only when they have said nothing about their intention that the rules which we have considered become important.

FRAUD.—The next question in regard to contracts arises out of certain grounds of defense that may come up and the most important of these is fraud. Fraud is deception; it is inducing the other party to believe something which is not true, and, by inducing him to believe that, influencing his action. The ordinary way in which fraud is manifested is by misrepresentations. A purchase or sale of stock or of goods may be induced by fraud. A loan may be obtained from a bank by fraud, that is, by misrepresentation of material facts which influence the other side to act.

MISSTATEMENTS OF OPINION ARE NOT FRAUDULENT.—Now what kind of misrepresentation amounts to fraud? There must be misrepresentation of a fact. Merely misrepresentation of opinion is insufficient and what is opinion and what is fact has been the basis of a good many lawsuits. John offers his horse to James for sale at $300. He says that it is the best horse in town. Well, it is not the best horse in town by a good deal, but that sort of statement cannot be the basis of an allegation of fraud. That a thing is "good," or "the best in the market," or similar general statements, all of which ought to be known to the hearer to be simply expressions of opinion, are not statements of positive fact. Take these two statements in regard to the horse. "He can trot very fast." That is a mere statement of opinion. To some minds eight miles an hour is very fast; to more enterprising persons fifteen miles an hour is necessary in order to make travel seem fast. Those are matters of opinion. But a statement that the horse can trot twelve miles an hour, or has trotted one mile in three minutes on the track, are statements of fact, and if untrue are fraudulent. A statement of value is a statement of opinion and cannot be the basis of fraud. A statement that the horse is worth $300, or is worth twice as much as the owner is asking for him, cannot be relied upon; but a statement that $300 was paid for this horse, or was offered for him, is an assertion of fact, and if untrue would be the basis of an allegation of fraud.

PROMISES ARE NOT FRAUDULENT BECAUSE BROKEN.—A promise is not a statement of fact. A man may promise to do something and fail to carry out the promise, and in consequence the person he was dealing with may regret the bargain he entered into, but his only remedy is to sue for damages for breach of the promise if it was part of a contract. He cannot assert that merely because the promise was not kept the transaction was fraudulent. But if a man makes a promise knowing when he makes it that he cannot keep it, he is committing a fraud. The commonest illustration of this is where a man buys goods on credit, having at the time an intention not to pay for them, or well knowing that he cannot pay for them.

STATEMENTS MUST HAVE BEEN CALCULATED TO INDUCE ACTION.—Generally speaking, the statement relied on as fraudulent must have been made with the purpose of inducing action. For instance, suppose John likes to tell large stories. He tells James things about his neighbor's horse. John does not do this for any purpose except to brag about living near a man who has such a splendid horse, but James suddenly takes the notion he would like to have that horse and he goes and buys it. Now it was not legal fraud on John's part to tell those lies about the horse, even though they did induce James to go and buy it, unless John, as a reasonable man, ought to have known that James was likely to buy the horse, as might have been the case if James had been talking about buying him. Then it would be fraud, and it would not make any difference in regard to its being fraudulent that John had nothing to gain by telling these lies, that he was simply doing it for the fun of the thing.

REMEDIES FOR FRAUD.—What remedy has the defrauded person? The law gives him two remedies of which he may take his choice; he cannot have both, but he can have either. One is to sue the fraudulent person for such damages as have been suffered, and the other is to rescind the transaction, to get back what has been given, or to refuse to go on with the contract at all if it is still wholly executory.

DURESS AND UNDUE INFLUENCE.—There are certain defences similar to fraud; duress, or undue influence, is one of them. However, this is comparatively rare. It is compelling a person to do what he does not want to do, making him agree to a bargain that he would not agree to accept under compulsion, as by fear of personal violence or imprisonment; and a bargain made under these circumstances can be rescinded or set aside. Merely threatening to enforce your legal rights by suit against another is not duress, though it may in fact induce him to agree to what he would not otherwise have agreed; but to threaten criminal prosecution as a means of extorting money or inducing an agreement is illegal and in many jurisdictions is itself a crime.

MISTAKE OF FACT.—In certain cases, also, a mutual mistake of a vital fact is ground for setting aside a contract, but these cases are not very common. Mistakes generally do not prevent the enforcement of contracts. Usually where there is a mistake, it is of a character for which one party or the other is to blame. If the mistake arises out of deception it is fraud. If the mistake arises simply because the mistaken party has failed to inform himself of the facts, as he might have done, then it is no defence at all. But if both parties were acting under the mutual assumption that some vital fact was true in making a bargain, either one of them may avoid or rescind the bargain when it appears they were both mistaken.

IMPOSSIBILITY.—Impossibility is sometimes a defence to the performance of a contract. Perhaps the simplest illustration of this arises in a contract for personal services of any kind. Illness or death of the person who promises the services excuses performance. Death does not usually terminate a contract or serve as a defence to it. If a man contracts to sell 100 bushels of grain and dies the next day his estate is liable on the contract just as if he continued alive; but if he agreed to hire a man as an employee for a year, his death or the employee's death within the year would terminate the obligation of both. Unexpected difficulty is not impossibility. For instance, take a building contract: the builder agrees to put up a building within a certain time; he is prevented by strikes. Nevertheless, he is liable for not doing as he agreed. He should have put a condition in his promise, qualifying his agreement to build, that if strikes prevented, he would not be liable. So, if the foundation gave way and the building tumbled down before it was finished, the builder must put it up again. Also, if lightning struck it, he must put it up again.

ILLEGAL CONTRACTS.—One other matter to be considered in connection with contracts and defences to them is illegality. Some kinds of illegal contracts are so obviously illegal that it is not necessary to say anything about them. Anybody would know that they were illegal and that they could not be enforced for that reason. A contract to steal or murder or take part in any crime is a good example. But other kinds of illegal contracts are not so obviously wicked as to make it clear that they are unenforceable. It may be worth while to mention a few of these kinds of illegality.

CONTRACTS IN RESTRAINT OF TRADE.—One class of contracts which has become very important in late years in business is the contract in restraint of trade, so called. The original contracts in restraint of trade were contracts by which one man agreed that he would not thereafter exercise his trade or profession, the object generally being that the promisee should be freed from the competition of the man who had promised to refrain from exercising his trade; and the law became settled a good many years ago that if the promise was general not to exercise the trade or profession anywhere, or at any time, it was illegal, but that if it was only for a reasonably limited space of time it would not be illegal. That old law still exists, but there has grown up further a much more important class of cases where contracts are made to further an attempted monopoly, and one may say pretty broadly that all such attempts are illegal. It does not matter how much business reason there is for it; any attempt to combine in order to get a monopoly, or in order to put up prices, is bad. Moreover, if the attempted restraint of trade or monopoly concerns interstate commerce, the agreement is a Federal crime under the Sherman law.

GAMBLING CONTRACTS.—Another kind of illegal contract is a gambling contract. This seems obvious in agreements for the more extreme kinds of gambling, but in certain business transactions where the matter becomes important, the dividing line is not so clear; especially in dealings on stock exchanges and exchanges for sales of staple products, such as grain, cotton and coffee. The stock exchanges and other exchanges are made the means of a great deal of speculation, which is virtually gambling. Now, in what cases does the law regard these transactions as gambling and, therefore unenforceable, and in what cases are they legal? The answer is, if an actual delivery of the stock, or commodity bought, is contemplated, then the transaction is not gambling in the legal sense; but if a settlement merely of the differences in buying and selling prices is contemplated, as the only performance of the bargain, then the transaction is gambling. The difference is between a stock-exchange business and a bucket-shop business. If you give an order to a stock-exchange house to buy stock, even though you put up but a small margin and could put up but a small margin, and the stock-exchange house knows you could put up but a small margin, nevertheless, the stock-exchange house actually buys that stock, and it is delivered to it. The stock-exchange house would then have a right to demand of you that you pay for that stock in full and take delivery of it, and could sue you for the price if you failed to comply with the demand. However, as a matter of fact, it does not ordinarily do that. If it wants to get the price which you promised to pay, and you fail on demand to take up the stock, it sells the stock which it has been holding as security. The bucket-shop, on the other hand, though it takes your order to buy, does not actually buy the stock; it simply settles with you when you want to settle, or when it wants to settle, because the margin is not sufficiently kept good, by calculating the difference between the price at which the stock was supposedly bought and the price at which it is supposedly sold, those prices being fixed by the ruling market quotations at the time. It would be perfectly possible to make a gambling transaction out of the stock-exchange transaction by a very slight change. If a stock-exchange house should agree, for instance, that the customer should not be compelled to take delivery of the stock, then that added agreement would make the transaction between broker and customer a gambling transaction, even though the broker actually bought the stock on the exchange, and, as between himself and the other broker on the exchange with whom he dealt, there was a perfectly valid sale of the stock. In some jurisdictions, by statute, speculative contracts which are not gambling contracts at common law are made illegal.

BREACH OF FIDUCIARY DUTIES.—Another very important class of illegal transactions arises from breach of fiduciary duties. A fiduciary is rather hard to define. He is somebody that owes a duty higher than a mere contractual obligation, a duty involving something of trust and confidence. A trustee is a fiduciary, so is an agent. A director or officer of a corporation is a fiduciary, and any dealing in which a fiduciary violates his duty to the person for whom he is fiduciary is illegal, and any agreement for such a violation is an illegal contract. It is illegal for a trustee to bargain for any advantage from his trust other than his regular compensation. It would be illegal for a trustee to bargain with a bank to give the bank a trust account in return for some personal advantage, as a loan to be made to the trustee personally. It would be a breach of fiduciary duty for a corporation officer and director to bargain for any personal advantage by virtue of his official action.

KNOWLEDGE OF ANOTHER'S ILLEGAL PURPOSE.—The knowledge of another's illegal purpose will not make the person who knows of it himself guilty of illegality; but if one not only knows but in any way promotes the illegal purpose of another, he will be considered a party to the illegality. A may sell goods to B, knowing that B is going to use them illegally, and A's sale will not be illegal; but if A does anything to help B in using them illegally, or if the goods are of such a character that they can be used only illegally, then A would be guilty of illegality himself.

MEANING OF ASSIGNMENTS.—Much of the difficulty regarding assignment of contracts is due to different meanings which may be attached to the word assignment. When property is assigned the assignee becomes the owner in every sense, if the person from whom he took the assignment had a valid title. This is not true of the assignment of contracts. By the common law, contract rights or "choses in action," as they are termed in law, were not assignable, the reason being that one who contracted with A, cannot without his consent become bound to B.

POWER OF ATTORNEY TO COLLECT A CLAIM.—Though when a man had a contract right he could not by common law make B in a complete sense the owner of the claim, he could give B a power to collect the claim as his, A's, agent, and authorize him to keep the proceeds when the claim was collected. It long ago became established that when an owner of a claim purported to make an assignment of a claim he thereby gave the assignee the power to enforce the claim in his stead, and this power given the assignee is irrevocable.

EFFECT OF ASSIGNMENT OF RIGHTS.—It may be supposed that the effect of an assignment of a right, though the result may be worked out by treating the assignee as an agent or attorney of the assignor, is the same as if the assignee were fully substituted in the position of the assignor as owner of the claim, but this is not quite true. Assuming that the claim is not represented by negotiable paper, the legal owner of the claim is still the assignor. This is shown by the fact that if the debtor pays the assignor in ignorance of the assignment, the debt is discharged and the assignee can only go against his assignor for the latter's fraudulent conduct in collecting the claim after having assigned it. So, too, if the assignor makes a subsequent assignment, this subsequent assignee also has a power of attorney to collect the claim and keep the proceeds; so that if the second assignee in good faith collects the claim in ignorance of the prior assignment, he can keep what he has collected; nor is the debtor liable to the first assignee who must as before seek redress from his assignor. It is, therefore, always important for the assignee of a non-negotiable chose in action to give immediate notice of his assignment to the debtor. If after such notice the debtor should pay the assignor or a subsequent assignee, such payment would not discharge the debtor, and the first assignee could collect the claim from him.

NON-ASSIGNABLE RIGHTS.—Rights cannot be assigned which are personal in their nature. The one who has contracted to paint a picture cannot delegate the duty to another, no matter how skillful. One who has a right to the personal services of an employee cannot assign that right to another. A publisher who has a right to publish all books written by a certain author cannot assign his right to another publisher.

ASSIGNMENT OF DUTIES.—The duties under a contract are not assignable under any circumstances. That is, one who owes money or is bound to any performance can not by any act of his own or by any act in agreement with any other person except his creditor, divest himself of liability and substitute the liability of another. This is sufficiently obvious when attention is called to it; for otherwise debtors would find an easy practical way of escaping from their debts by assigning the duty to pay to irresponsible persons. But the principle is not always recognized. A person who is subject to a duty, though he cannot escape liability, may delegate the performance of his obligation provided the duty is of such a character that performance by an agent will be substantially the same thing as performance by the obligor himself. Thus if a contractor engages to build a house, he may delegate the actual building to another, but he cannot escape responsibility for the work. One who owes a mortgage may delegate the payment of the mortgage to a purchaser of the land who assumes and agrees to pay the debt. If the purchaser of the land actually pays, the debt is discharged; but if he fails to do so, the mortgagee may sue the original mortgagor and the latter will be obliged to bring another action against the purchaser who promised to pay the debt and failed to do so. So where a partnership is changed and a new firm formed, it is very common for the new firm to assume the obligations of the old firm.

ORIGINAL DEBTOR NOT DISCHARGED UNLESS THERE IS A NOVATION.—Though a creditor cannot be deprived of his right against his original debtor without his consent, he may consent. If he does thus consent to take in lieu of the obligation of his original debtor that of the person who assumed the debt, what is called a novation is created. That frequently happens where a new firm succeeds an old one. The new firm goes on dealing with the old creditors, and they impliedly, if not expressly, assent to taking the new firm instead of the old firm as a debtor. But in order to make out a novation you have got to find as a fact that the creditor agreed to give up his right against the old debtor. If the creditor does not assent to a novation then the situation is that the creditor retains his claim against the old debtor, but the person who has assumed the debt has contracted to pay that debt. If he keeps his contract he will pay it and the debt will be cancelled. If he does not keep his contract the creditor will sue the original debtor and the original debtor will sue the man who assumed the debt.

ASSIGNMENT OF BILATERAL CONTRACTS.—In bilateral contracts each party is under a duty to perform his promise, and also has a right to the performance of the other party. If an attempt is made to assign such a contract the effect is this: the assignor delegates to the assignee the duty of performing the assignor's promise, but the assignor himself still remains liable if his agent, the assignee, fails to carry out the duty. Further, the assignor authorizes the assignee to receive the payment or performance due from the other party to the contract and to keep it for himself.

WHAT AMOUNTS TO AN ASSIGNMENT.—No particular words are necessary to constitute an assignment. Any words which show an intention that another shall be the owner of a right are sufficient to constitute the latter an assignee. Especially it should be observed that an order directed to a debtor of the drawer ordering him to pay the debt to a named payee, is an assignment of the debt when delivered to the payee. This case must be sharply distinguished from a bill of exchange or check. A bill of exchange or check is an order to pay a certain amount unconditionally, irrespective of the existence of any particular fund. It is only an order to pay from a particular fund, that is, an order which is conditional expressly or impliedly on the existence of that fund, which constitutes an assignment.

PARTIAL ASSIGNMENT.—A creditor may not only assign his whole claim to an assignee, but he may assign part of it. Such a partial assignment authorizes the assignee to collect the portion of the claim assigned and keep it for himself. But the debtor is not bound to pay the claim piecemeal; he may insist on making but a single payment unless his contract with his creditor provides otherwise. A bank in accepting a deposit contracts to pay that deposit in such amounts as the depositor may indicate on the checks drawn by him, but an ordinary debtor who owes $100 cannot be required to pay in such amounts as his creditor may see fit to demand. For this reason a few courts hold that even if the debtor has notice of a partial assignment, he may pay the whole debt to the original creditor though that results in defrauding the partial assignee. Most courts hold, however, that the debtor when notified of the facts cannot do this, and if he objects to paying fractional parts of his indebtedness he must pay the whole sum into court to be distributed by it among the parties entitled. So, on a question of this character, the local statute should be examined.

ASSIGNMENT OF FUTURE CLAIMS.—Assignments of future claims, as well as of existing claims, may be made, but there are in many States some special provisions of statute law in regard to assigning future wages. Such assignments must often be recorded, and there are certain other special statutory provisions in regard to them. The assignment of future debts is also subject to this qualification: The law does not allow the assignment of a future claim unless the contract or employment out of which the claim is expected to arise has already been made or is already in existence.

DISCHARGE OF CONTRACTS.—Contracts are discharged in much the same way as they are made. The simplest way of discharging a contract is by performing it. When both parties do exactly what they agreed to do the contract is discharged by performance. Where seals still retain their common law effect, it may be discharged without performance by agreement under seal that it shall be discharged, just as a contract may be made by an agreement under seal. The agreement under seal to discharge a contract is called a release. You may release any right that you have—a right for money, a right to have work done or any right. Just as contracts may be made either under seal or by an agreement with consideration, so they may be discharged not only by a release under seal but by an agreement for rescission of the contract. But this agreement must have consideration.

ILLUSTRATIONS.—Suppose A has promised to build a house and B has promised to pay $10,000 for it. Before anything has been done, A and B agree to call that contract off. This is a valid agreement for rescission, because each party agrees to give up something—one party to give up his right to have the house built, the other party to give up the right to get $10,000 pay. So an agreement between employer and employee that a contract shall be terminated before the time originally agreed has sufficient consideration—the employer gives up his right to the employee's services, the employee gives up his right for future pay. But compare with these this case: A owes B a thousand dollars; it is simply a debt. A and B agree to call that square. That agreement is of no validity, for here only one party agrees to give up anything. The creditor agrees to give up his thousand dollars, and he does not get any promised amount in return for it. But that obligation, that debt, could be satisfied if valid consideration were given for the surrender of the claim; and anything agreed upon, as a horse, or ten shares of stock, or anything else the parties agreed to, would be good consideration for the agreement to surrender the claim, so long as one did not get into the difficulty alluded to under the heading of consideration, of trying to surrender a right to a larger liquidated sum in consideration of the payment of a smaller sum of money.

SENDING A CHECK AS FULL PAYMENT.—It is very common for a debtor in making payment by check of his debt to seek to make the check operate as a receipt in full of all claims by the creditor against him. He may do this by writing on the check itself that it is "in full of all demands" or "in full payment" of a certain bill; or he may by a letter accompanying the check state that the check is sent as full satisfaction. The acceptance by the creditor of the check under either of these circumstances is an assent by him to the proposition stated on the check or in the accompanying letter, that the check is in full payment. Such an assent, however, does not necessarily prove that the debtor is discharged; consideration as well as mutual assent is essential to the validity of any agreement which is not under seal. Accordingly if the debt was a liquidated and undisputed one, and the check was for less than the amount due, the agreement of the creditor to take it in full satisfaction is not supported by sufficient consideration under principles previously considered. On the other hand, if the debt was an unliquidated one, or there was an honest dispute in regard to the amount due, the creditor's claim is fully satisfied.

RECEIPT IN FULL.—It may be said generally that though a receipt in full is often thought by business men to be a discharge irrespective of consideration, like a release, this is not true in most States. A receipt in full is good evidence, if payment has been made in full, that it has been so made; but where payment has not been made in full a receipt will not be effectual without consideration, as a release under seal would be.

RENUNCIATION OF OBLIGATION ON NEGOTIABLE INSTRUMENT.—There is one case where the law allows a party who has a right to surrender it without consideration. This is by virtue of the Negotiable Instruments Law, which provides that the holder of a note may discharge any party to it by a written renunciation of his claim. No particular form of words is necessary, but the renunciation must be in writing. No consideration is necessary.

ALTERATION OF WRITTEN CONTRACTS.—The alteration of a written contract in a material particular with fraudulent intent by a promisee in effect discharges the contract so far as he is concerned. He cannot enforce it either in its original form or its altered form, though the other party to the contract may enforce it against him. If the alteration is not material, the contract may be enforced even by the party who altered it whatever the motive of the alteration may have been. If the alteration is material but not fraudulently intended, that party is generally allowed to enforce the contract in its original form. No alteration by a third person affects the rights of a party to a contract. By material alteration is meant one which if given effect would alter the legal obligations of the parties to the contract. The rule of the Negotiable Instruments Law in regard to alteration of negotiable instruments, it should be observed, is somewhat more severe than that generally prevailing in regard to other contracts.

SUGGESTIONS FOR DRAFTING CONTRACTS.—While it is unwise to attempt the drafting of any contract at all complicated, without the services of an attorney, there are certain times when it may be necessary to act suddenly, and a few fundamental facts should be kept in mind. If you are called upon to draft a contract for two other people, the first requisite is to obtain as full information as possible from both parties as to the plans they have in mind. After obtaining this, the details should be arranged in writing, gone over carefully by the draftsman, and submitted to the parties for their approval. A most common mistake made by laymen is to fail to cover contingencies which are more or less likely to happen. For example, what effect would the death of either party have on the contract? This should be provided for. The careful draftsman, whether he be a layman or a lawyer, should draw contracts with the idea of making them so plain that litigation will not result. Contracts should always be drawn in duplicate, so that each party may have a copy, and it is well, if you are the draftsman, to keep a copy for yourself. It is not necessary to appear before a notary public unless you are dealing with a deed, or a similar formal document. If there is good consideration for the contract, no seal is necessary, but under some statutes, a sealed contract is good for a longer period of time, so that there is an added advantage in having the contract under seal.

QUASI CONTRACTS.—The term quasi contract is one which has appeared within the last thirty years. The law in this branch of contracts is still in the process of development and the field of quasi contracts is still not one of settled limits. For our purposes we confine ourselves to those obligations arising from "unjust enrichment," that is, the receipt by one person from another of a benefit, the retention of which is unjust. The term "enrichment" has recently been criticized by one of the ablest writers on this topic, as there are many cases where it is sufficient to show that the defendant has received something which he desired, although the question whether he is thereby enriched, is immaterial. In Vickery v. Ritchie, 202 Mass. 247, we find that where A renders services, and furnishes materials and supplies for the erection of a building for B under a supposed contract and the contract itself is invalid, B is under a supposed quasi contractual obligation to pay A for the services he has rendered and the material he has furnished, regardless of whether B's property is increased in value. We may state the point to be emphasized in quasi contract is the fact that the retention of the benefit received by the defendant would be unjust rather than "enrichment."

DISTINGUISHING CHARACTERISTICS.—There are four characteristics which distinguish quasi-contracts: 1. The obligations of quasi contracts are imposed by law without reference to the assent of the obligor. 2. They are imposed because of a special state of facts and in favor of a particular person and do not rest upon one at all times and in favor of all persons. 3. Although equitable in their origin they are enforced by a common law court. 4. They require that the obligee shall be compensated for the benefit which he has conferred upon the obligor and not for any loss suffered by the obligee.

APPLICATION OF THE PRINCIPLE.—The following are the more common illustrations of the application of the principles of quasi contracts. Where there has been a mistake, and hence the minds of the parties never really met, yet benefit has really been conferred; or, where the attempted contract cannot be enforced as a contract, because it did not comply with the statute, or was illegal, and yet one of the parties has received a benefit; or, where a benefit has been conferred under compulsion or duress.

MISTAKE.—Where parties have attempted to make a contract and a mistake of fact occurs, no contract results. The minds of the parties never really meet. Yet if benefits have been conferred, justice requires that the benefit should be returned, or compensation given, and this, in fact, is just what the law seeks to do when there has been such a mistake that upon the attempted contract itself no suit can be brought. The essentials of mistake, and the way in which a mistake usually arises, are:

(1) It would not be a mistake if a party had paid money when he had any reason to suppose it was not due. A recovery of money under such circumstances cannot be allowed.

(2) The payment must have been induced by mistake in order to allow the recovery. This rule prevents the recovery of money paid in settlement of a disputed matter; but it must be assumed that it was to the party's interest to make the payment. However, suppose that a compromise settlement has been made in the belief that certain facts were different from what they really were. Here the mistake would have induced the payment, and, hence, in such a situation a recovery will be allowed.

(3) The fact regarding which a mistake has been made must also be a material fact, and the fact must have been a part of the transaction itself, not collateral to it in any way. A mistake as to the value of an article purchased, for instance, is not a material fact.

(4) Ordinarily, money paid under mistake of law cannot be recovered, although it is against conscience for the defendant to retain it. A mistake as to the law of another State, however, is a mistake of fact, and money paid under such a mistake can be recovered.

(5) Where the party who mistakenly parted with the money did so because of his own negligence, and to allow a recovery would throw a loss on the other party, he cannot recover what he parted with. One party cannot make another suffer because of his own negligence. Where a party paid money under mistake, and the payee was negligent, the party paying may recover.

(6) When parties suppose they have made a contract, and money has been paid, or services rendered, under that supposed contract, but in fact there was no valid contract at all, or there was a mutual mistake as to a term, this money, or the value of the services, may be recovered.

(7) When money has been paid for the transfer of something by defendant, whether recovery will be allowed in case it should turn out that the defendant had no title, depends on the nature of transaction. If the defendant made a warranty that he had title, a recovery may be had. If, however, the defendant simply sold what he had, whether that was something or nothing, a recovery cannot be allowed unless, as is the law in some States, a vendor impliedly warrants his title by the fact of having possession.

(8) In the case of parties mistaking the existence of a subject matter of sale, if the understanding was that A was purchasing an existing thing, then he can recover the money paid if it should turn out that the thing was not in existence. But if he bought simply a chance, he cannot recover.

BENEFITS CONFERRED UNDER COLOR OF CONTRACT.—Aside from the cases of mistake, there are other grounds for allowing recovery under the principle of quasi contract. A group of these is made up of cases where there cannot be a recovery upon the contract itself, although the parties have come together and agreed without any mistake or misunderstanding, because of the absence of some essential necessary to create an enforceable contract obligation; yet a benefit has been conferred upon the one party who, but for the lack of that essential, would have been liable in an action upon the contract itself. Such cases arise largely where there has been a partial performance of an illegal contract, or of a contract unenforceable because of non-compliance with the statute of frauds, or where full performance is excused by impossibility. Some States also allow recovery on the theory of benefits conferred, where, after partial performance, a party defaults under circumstances not excusing default.

BENEFITS CONFERRED WITHOUT CONTRACT.—We next take up that class of relations where there has been an absence of distinct offer and acceptance, and yet a benefit has been conferred resulting in an unjust enrichment of the other party. If A confers benefit on B, though at B's request, it may be merely a gift. A cannot afterward change his mind and recover for that, as if there had been a contract. A may have paid B's debt in order to prevent a sale of his own property. He may then recover the amount so paid. For example, A left his property with B to have some repairs made. A third party recovered a judgment against B, and A's property was seized on an execution. A paid the judgment in order to release his own property. It was held that he might recover the money so paid from B, who should have paid the judgment. Or A may have paid B's debt because he was surety for B. He then may recover from B the amount so paid; or, if B had two sureties, A and C, and A paid the whole or more than his share, he could recover the share of such payment which C should have paid, on the principle of contribution that equality is equity. But A must have actually made the payment of more than his proportionate share.

CHAPTER IV
Principal and Agent; Master and Servant

THE IMPORTANCE OF AGENCY.—Now that we have finished our discussion of the general principles of contract law, it remains for us to apply these principles to the specific topics of commercial law. Of these, the law of agency is one of the most important. It is perfectly obvious that a man can be in only one locality at a given time. Under modern business conditions he may wish to perform acts in different places at the same time. When business men were first confronted with problems of this kind, the principles of the law of agency began to develop. They resorted to the simple expedient of having others represent them. If these representatives were properly instructed in their duties and faithful in discharging them, there was, of course, no reason why the will of the person who had appointed them was not as fully accomplished as if he had performed the act himself. The Latin maxim, "Qui facit per alium facit per se," that is, "He who acts through another, acts himself," is the basis of the law of agency. The growing importance of the law of agency is strikingly apparent in one branch of modern business. Fifty years ago, the great majority of business operations were conducted either by individuals or by partnerships. To-day, especially in conducting large business enterprises, corporations have replaced individuals and partnerships. Although (as we shall see later in the chapter on corporations) in law a corporation is deemed a separate, legal entity, distinct from the stockholders, in actual practice we know that there is no such distinct physical being as a corporation. It follows, therefore, that every act performed by a corporation must be performed through an agent. With the enormous increase in the number of corporations in the last twenty-five years, and that increase still continuing, we can see that the law of agency is a most important branch of commercial law and very closely connected with corporation law.

AGENCY DEFINED.—Merely for purposes of convenience, it may be best to divide the whole subject of agency into three branches: Principal and agent; master and servant; employer and independent contractor. The term "agency," when used in the broad sense, indicates a relation which exists where one person is employed to act for another. At the outset, we should keep in mind the distinctions between the agent, the servant, and the independent contractor. It is difficult to indicate these distinctions with absolute certainty by definition. An illustration, however, will show clearly what the difference is. I own an apartment house in New York, but as I am not in the city, except infrequently, I employ the real estate firm of Smith & Jones to manage the apartments and collect the rents. They are, of course, my agents, to act in the premises. I own an automobile and I employ a chauffeur to operate the car for me. He is my servant. I own a vacant lot in New York and on it plan to erect an office building. I employ the Smith Construction Company to erect the building. It is an independent contractor. What is the rule, then, to determine the distinction between these three persons? All three persons represent the principal, or the master, or the employer, but the line of distinction lies here: An agent is employed to bring the principal into new contractual obligations; a servant represents his master in the performance of ministerial, or mechanical acts or services, with no thought of bringing his master into new contractual relations with third persons. A person who is employed to perform ministerial or mechanical acts for another, as we have said, is a servant, but there are cases where the master retains no control or right of control of the means or methods by which such work is to be accomplished. In this latter case, the person performing the work is not a servant, but is an independent contractor.

HOW AGENCY MAY ARISE.—Although agency undoubtedly originated from the relationship of master and servant, and that relationship from the enforced service rendered by slaves to their master, to-day the law of agency in the broad sense is a contractual relationship. The agent or servant or independent contractor becomes such upon the express or implied request of the principal. Although agency may exist, in so far as third persons are concerned, without any formal contract between the principal and the agent, yet, in the great majority of cases, there is an actual contract between the parties to the relation. Compensation, although usually an element in the contract, is not necessarily a requisite. For instance, I may be liable for the negligent act of my son in running my automobile in connection with my business, although he is acting without any compensation. There are four methods by which the relationship of agency arises: (1) By contract; (2) by ratification; (3) by estoppel; (4) by necessity.

WHO IS OR MAY BE AN AGENT.—The law of agency, as between principal and agent, is simply an application of the general law of contracts, but as between third parties and the principal, or agent, new questions arise. The first question is, who is an agent and who is a principal? Any employer is a principal and any employee is an agent. The employer is a principal whether he employs the employee for a single act or whether he employs him for a period of time. Besides the ordinary cases that you will think of under the head of employer and employee, an officer of a corporation is an agent, the corporation being the principal. The president of a corporation is as much an agent as a clerk in the employ of the corporation. A partner is an agent—of the firm. These different kinds of agents are distinguished chiefly in the different scope of the authority which they possess.

DISABILITY.—In our discussion of contracts, we found that certain persons were under disability so far as making contracts was concerned. We mentioned the case of infants, married women, insane persons, and the like. The same disabilities do not exist in the law of agency, so far as the agent is concerned. Any person may act as an agent or servant. So infants, married women, slaves, and even lunatics, may be agents or servants whose acts will bind their principals. It has been held that even a dog may be an agent. As to who may be a principal, the ordinary rules of contracts, as we have discussed them, may be relied upon as giving the correct rule.

AGENCY BY CONTRACT.—Concerning agency which arises by contract, little need be said. A contract of agency must possess all of the elements of the ordinary contract, such as mutual assent, consideration, competent parties, legality of object, and in some cases, a particular form. The general principles of contract law as we have discussed them are applicable to this method of forming the agency relationship.

POWERS OF ATTORNEY.—In connection with the formation of agency by contract, special attention must be given to powers of attorney. A power of attorney must oftentimes be given in order to convince third persons that the agent really is an agent, with the powers which he claims to possess. A power of attorney is nothing more than a written statement that a particular person is the agent of another person, with the powers stated in the document. A power of attorney may be very broad, giving the agent very wide powers, or may be narrow, giving the agent or attorney power to do only a specific thing. Now, many powers, so far as the law itself is concerned, might just as well be oral as written, but you could not induce third parties to deal with the agent and believe that he had authority unless he showed as proof of it a power of attorney. That is why a power of attorney is generally given; not that the law requires it, but that the agent may have evidence of his agency which will satisfy third persons that he is really the agent. A corporation would not transfer stock without a written power presented to it; yet, if it chooses to run the risk, there would be nothing illegal in doing so. But it does not choose, and an attempt to compel it to transfer would be held unreasonable unless the authority of the person claiming to be empowered to transfer the stock were in writing and shown to it.

WITNESSED AND SEALED POWERS OF ATTORNEY.—A witness is not necessary on a power of attorney. A witness on a power of attorney has the same effect as on any other document where a witness is not absolutely required, and that is this: if the signature of a document is called in question and the signature is witnessed, the way which the law requires proof of the signature is by calling the witness to testify, and no other evidence is permissible until the witness is produced or his absence accounted for; that is, some adequate reason given and proved for not producing the particular man who witnessed the signature. For this very reason it is sometimes more difficult to prove a signature which is witnessed than one which is not. A signature which is not witnessed may be proved by anybody who has seen the person sign, or who is familiar with his signature, and who can testify that the signature in question is his. The object of a witness is to provide certain evidence that a signature is genuine. The testimony of a witness may be more convincing in case of a dispute than testimony of one who merely recognizes the signer's handwriting. A witnessed power of attorney might be, however, more difficult to prove if the power of attorney were contested than if it was not witnessed, that is, if the witness could not be found. On the other hand, if you had your witness within reach it would be easy to prove the signature by him. The whole matter of witnesses to deeds and other documents, where a witness is not absolutely required, may be thus summarized: it is a good thing to have a witness if the witness is a reliable, well-known person who can always or generally be reached. It is a bad thing to have a witness who is a servant or a person whom you may lose sight of after some time has elapsed. The question may also be asked: How does a power of attorney, when given under seal, compare with one without a seal? One is as good as the other, except that if it is desired that the attorney or agent shall execute any instrument under seal, such as a deed of real estate, the power must itself be under seal; but a power to do anything which does not require the execution of a sealed instrument is just as good without a seal as with one. This, however, is true; if the power contains an agreement by the principal not to revoke the power, this agreement will not be binding if there is neither seal nor consideration, but will be binding without consideration if under seal, in a State where seals still have their common-law effect. The principal will be able, it is true, even in such a case, to revoke the power, but he will commit a breach of contract if he does.

AGENCY BY RATIFICATION.—Where the assent of the principal to the act of the agent is given after the act is performed, it is in the nature of a ratification of the act, and is intended to clothe the act with the same qualities as if there had been a previous authority or appointment. Suppose, for example, A and B are acquaintances. Both are wealthy. A is a good judge of horses and knows B likes good horses. A discovers what he considers a good horse and buys it for B at a very low price. He tells B the next day what he has done and B goes to get the horse and tenders the price, but the dealer refuses to sell, as he has been offered a higher price. B has a cause of action for breach of contract, for by ratifying A's act, he has made a binding contract between himself and the dealer. Suppose in the same illustration, A had selected two horses for B, but when B saw them he decided to take only one of them. In that case, there would be no contract, for it is fundamental that a ratification, to be effective, must be of the whole contract, and not of a part. A ratification, once it is given, dates back to the original transaction and is irrevocable.

FORMATION OF AGENCY BY ESTOPPEL.—An estoppel may be said to arise where a person does some act which will preclude him from averring anything to the contrary. So, if one holds out another as his agent, he is estopped to repudiate the acts of such a person within the scope of his ostensible authority. In the case of Bradish v. Belknap, 41 Vt. 172, the facts were that for a long time prior to 1863, B was the agent of the defendants in selling stoves. This fact was generally known and was well known to the plaintiff. In 1863 B ceased to be the agent of the defendant, but continued to sell stoves, which he purchased of the defendants. No public notice of the termination of the agency was given, nor was the fact known to the plaintiff. B continued to represent himself as agent of the defendants and was in the habit of taking notes for stoves sold, payable to the defendants, and this was known to the defendants. The plaintiff, believing B to be the agent of the defendant, offered to buy a stove of him and pay him in pine lumber. To this B assented and the lumber was accordingly furnished to B and the defendants, together with other lumber which the plaintiff charged up to the defendants. The defendants later attempted to escape liability for the lumber furnished in excess of the value of the stove. The court, holding them liable, said: "B during all this time was perfectly poor and irresponsible, and this fact was known by both parties. B represented himself as the agent of the defendants, and the conduct of the defendants was such as to justify the plaintiff in regarding them as the principals; and we can hardly conceive it possible under the circumstances that the defendants did not understand that the plaintiff so regarded them. And to allow them now to deny the agency and thus defeat the plaintiff's right to recover for the balance of the lumber would be permitting them to perpetrate a palpable fraud on the plaintiff."

ESTOPPEL DEFINED.—This term will occur several times in the different topics of commercial law. An estoppel may be said to arise when a party by conduct or language has caused another reasonably to believe in the existence of a certain state of things and the other party acts on that belief, the first party is precluded from denying the existence of that state of things to any one who has justifiably relied on his language or conduct.

ILLUSTRATION.—There is a common saying in admiralty, that a seaman's claim for wages is nailed to the last plank of the vessel. So if boatswain John Silver is left unpaid by his vessel in London and he later finds the vessel in New York, although its ownership has entirely changed meanwhile, he may still file a libel for his wages and have the United States Marshal for the Southern District of New York seize the vessel. Suppose however you contemplate buying a vessel. You go on board with the present owner and while all the members of the crew are lined up on the main deck, you ask him in a voice loud enough to be heard by everybody whether there are any unpaid wage claims. He replies that everything is paid to date. The crew remain silent. You purchase the vessel and a few weeks later members of this same crew seek to collect from the vessel a wage claim of one year's standing. Their claims against the vessel or against you as owner are unenforcable. In other words, they are estopped because of their conduct when you purchased the vessel. If a person does not speak when he ought, at times the law will not allow him to speak when he wishes. Boatswain Silver had never done anything to preclude him from asserting his wage claim. His, therefore, is not a case of estoppel.

AGENCY BY NECESSITY.—The authority of the agent may be enlarged by some particular necessity or sudden emergency in which case it is the duty of the agent to act, even though he cannot receive the advice or directions of his principal. This method of creating the agency relationship is one upon which the courts are not agreed, and there is great conflict in the decisions. The case of Gwilliam v. Twist, (1895) 1 Q. B. 557, and 2 Q. B. 84, is a good illustration of how close the line may be drawn. The facts were that the driver of an omnibus belonging to defendants became intoxicated while on duty and was taken from his seat by a policeman. A man who happened to be standing near volunteered to drive the omnibus to the defendant's yard, and the driver and conductor acquiesced, the former warning him to drive carefully. The volunteer in negligently turning a corner ran over and injured the plaintiff, who brought action for damages against the defendants, owners of the omnibus. The trial court held, with considerable hesitation, that the defendants were liable for the injury, placing its decision upon the ground of agency by necessity; but the court of appeal reversed the decision on the ground that the necessity did not sufficiently appear, since the defendants might have been communicated with, and left open the question whether, if there had been an actual necessity, the defendants would have been liable.

RIGHT OF PRINCIPAL TO DILIGENT AND SKILLFUL SERVICE.—Let us consider, first, the rights of the principal and agent as between one another. The rights which the principal has against the agent are, first, a right to have the employee render reasonably diligent and skillful service. The amount of skill which the employer can fairly demand from his agent depends on the character of the contract between the two and on the circumstances justifying the principal in expecting a greater or less degree of skill. When a man employs an expert accountant to act for him he has a right to expect greater skill than if he were employing an ordinary bookkeeper. It depends on the character of the work and of the man employed. The amount of compensation paid to the employee may also have a bearing on the amount of skill the employer has a right to expect.

RIGHT OF PRINCIPAL THAT AGENT SHALL NOT EXCEED HIS AUTHORITY.—The second right that a principal has is to demand from his agent that the agent shall act in obedience to instructions and only within the limits of his authority. These limits may be fixed expressly in the contract between principal and agent, or they may be left wholly to implication from the nature of the employment. Perhaps more commonly they are partly fixed by express agreement and partly fixed by natural implications which arise from the nature of the employment.

RIGHT OF PRINCIPAL TO ACCOUNTING.—Thirdly, the principal has a right in financial dealings with his agent, or in regard to financial dealings of the agent with third persons, to demand an account from his agent. It is not enough that the agent actually expend money intrusted to him correctly; he must furnish a correct account of expenses and of collections.

RIGHT OF PRINCIPAL TO FIDELITY.—Finally, the agent is under a duty of fidelity or loyalty to his principal. The principal is entitled to demand that the agent, unless the contrary is agreed, shall make the employment or agency his sole interest in regard to that particular thing. Of course, in many agencies the agent is undertaking a great deal of outside business besides the particular agency in question, and he has a right so to do so long as the principal has not engaged his whole time, and so long as one agency does not interfere with another. But that last is an important point. An agent who undertakes one task for one principal which occupies only one-tenth of his time cannot take another employment which is inconsistent with that. An agent to sell a particular kind of goods for one principal, even though his agency is not expected to take the agent's whole time, cannot undertake an agency for a competing principal. The two things are inconsistent, and the agent would be disloyal if he accepted.

SIDE COMPENSATION.—Then, again, the agent must not get what may be called "side compensation" of any sort. His whole compensation as agent must be what is due him directly from the principal under the agreement. For instance, if a buyer for a department store gets paid a commission by a firm from which he buys goods, that is a side commission which the buyer as an agent has no right to take; and so strict is the law, that if an agent does take any such extra compensation the principal has a right to recover it from him. Of course, if the principal agrees to side compensation, it is all right for the agent to take it; when the principal agrees to it, it ceases to be what we have called side compensation and becomes part of the agent's direct compensation to which he is entitled under his bargain with his principal.

ACTING AS AGENT FOR BOTH PARTIES.—One of the most common difficulties that agents get into in regard to this requirement of fidelity, and sometimes with entirely good faith, is undertaking to act as agent for both parties. That cannot be done unless each party especially agrees that the agent may act for the adverse party. An attorney-at-law cannot represent two sides of a case. A real estate broker cannot represent buyer and seller, and a stock broker cannot represent buyer and seller. Stock brokers have one practice which perhaps may seem to infringe this rule. A customer comes into a broker's office and says he wants to buy 100 shares of New York Central. About the same time another customer comes in and says he wants to sell 100 shares of New York Central. Now, must a broker go on the exchange and make a purchase for one customer and then a sale for the other, or may he, so to speak, negotiate through himself a sale for the customer who wants to buy from the one who wants to sell? What he frequently does, in fact, is this: He buys and sells from himself, but publicly, giving other brokers the chance to buy or sell if they wish. The broker, according to the rules of the New York Stock Exchange, cannot execute this transaction secretly in his office, but must offer the securities in question on the exchange, and the purchase and sale must be recorded on the ticker. If the bidding and asking prices are more than an eighth apart, he may offer the New York Central at a price midway between the bidding and asking quotations and buy it himself and charge each customer a commission, but he must actually make the offer or bid aloud on the floor. The broker is technically acting for both parties, but he is not fixing the price. He makes an open bid on the exchange, and it may be that would save the transaction.

AGENT'S RIGHT TO COMPENSATION.—What are the rights of the agent against the principal? They are two. First, a right to compensation; that is, a right to the pay that has been agreed upon, or, if no pay was agreed upon but it was understood that there should be some compensation, then a right to reasonable compensation. It is perfectly possible to have an agency without compensation. Frequently one man agrees to act for another without pay, and an agent who is acting without compensation, so long as he acts as agent, is bound to the same obligations to his principal as if he were receiving compensation, only he can withdraw from his agency whenever he sees fit since he is not paid for it. But unless circumstances show that an agency was understood to be without compensation, it would be implied that reasonable compensation was to be paid to the agent for his services.

AGENT'S RIGHT TO REIMBURSEMENT.—The other right of the agent is the right to reimbursement and indemnity. As the agent is acting for the principal, the principal ought to pay all the bills of whatever kind incurred, so long as the agent is acting rightfully within his authority, and the principal is bound to pay all such bills. This obligation of the principal to pay all the bills of the agency means not simply that he must pay actual expenses, but that if liabilities of any kind arise by reason of third persons suing the agent or holding him liable, if the action of the agent was within his authority, the principal must indemnify against any loss.

PRINCIPAL BOUND TO THIRD PERSONS BY AUTHORIZED ACTS OF AGENT.—Now let us turn from the rights of principal and agent as between one another to the rights of third persons. When do third persons get rights against the principal? In the first place, whenever the agent, acting in accordance with his authority, enters into a transaction with a third person on behalf of the principal, the principal is bound to the third person to just the same extent as if he himself had entered into the transaction; but it is not only in cases where express authority is given to the agent that this principle applies.

IMPLIED AUTHORITY OF AGENT.—In many cases the authority given an agent is not expressly stated. One has to rely on the general course of business and on the nature of the employment to determine the extent of the agent's authority. A third person deals with a cashier of a bank, or deals with the paying teller, or he deals with the president; now whether the bank is bound by that dealing depends on what is by general custom, or course of business, the authority of a cashier or a paying teller or a president. If cashiers or paying tellers or presidents generally have certain authority, then it is a fair assumption that this particular officer has such authority.

AUTHORITY TO DO PARTICULAR ACTS.—An agent to sell has generally no authority to make a sale on credit or to receive anything but money; he cannot barter or exchange the property even in part, nor pledge or dispose of the property to be sold in payment of his own debts. For the sale of land an agent's authority ought always to be under seal, and the provisions contained in this power of attorney will be strictly construed. In a sale of personal property, an agent has implied authority to do whatever is usual and necessary in such transactions. He may receive payment if he has possession of the goods, but not otherwise, and warrant the quality, if such goods are customarily sold with a warranty by agents. He cannot sell on credit unless such is the custom, as in the case of commission merchants, nor pledge or mortgage the goods. The agent may not buy on credit unless so authorized, or it is the custom of the trade; but a principal's direction to purchase, without supplying the agent with funds, will imply authority to purchase on credit. The agent must purchase precisely as directed. An agent to manage has an authority co-extensive in scope with the business, and possesses the same power and authority as the principal, so far as management goes, but the agent may not sell or dispose of a business, nor mortgage the property used in carrying it on, nor engage in new and different enterprises. Public agents, i. e., public officers, cannot involve their principals, the municipal corporations whose officers they are, in contract liabilities with third parties unless actually authorized to do the act in question; and all persons dealing with them must inform themselves of the scope of their legal powers.

APPARENT AUTHORITY OF AGENT.—But it is not only in cases where the agent is expressly authorized, or authorized by such implication as we have just alluded to, that the principal is bound. There is the further case where the agent has apparent authority, although, as a matter of fact, he has no authority. Take the case of a cashier certifying a check. We will suppose that cashiers, generally, have authority to certify checks. With most cashiers that would be what we have called an implied authority, as it arises from the general nature of their positions though nothing was ever said about it by the bank directors. But suppose in a particular bank it was a rule of the bank, expressly stated and voted by the directors, that the cashier should not have power to certify checks. Now, no one can say that his power here is either express or implied; it is certainly not express, and any implication that might otherwise arise from his position is negatived by the express vote of the directors, and yet if that cashier should certify a check to any person ignorant of this limitation on his authority the bank would be bound by the certification because the cashier has apparent authority. He looks to the world as if he had authority, and seems to the public like any other cashier. Most of the difficult cases in agency, so far as liability of the principal to third persons is concerned, relate to this matter of apparent authority.

ILLUSTRATIONS.—Compare the following case with the case of the cashier above alluded to: A man who is giving some support financially to a book dealer writes a note in which he says, "I authorize A B to buy a stock of books not exceeding, at any one time, $5,000." The book dealer shows that written authority to persons from whom he wishes to buy books. They sell him books, and, unknown to the last person who thus sells him books, he has just before bought a quantity which makes the total largely exceed $5,000. Is the principal liable to the persons who last sold books to the dealer? The answer is no. And what is the difference between that case and the cashier case? In the book case the last seller saw the paper giving authority to the book dealer to purchase. He had no reason to know that the day before a large quantity of books had been purchased. He acted in entire good faith and the deception was natural. Still, the employer, or the writer of the letter, has done nothing here to make the last seller suppose that $5,000 worth of books had not already been bought, nor does the course of business justify the last seller in supposing they might not already have been bought. It was a hard question for him to find out, but on the face of the letter it was evident that any one who dealt with the bookseller might have to determine this question or rely at his peril on the bookseller's word. Here is another case: a town treasurer was authorized to borrow a certain sum of money. He gets a certified copy of the vote and goes to one bank and borrows the money, and goes to another bank with that same certified copy of the vote and borrows the money over again. Is the town liable to the second bank? No; on the face of the paper there was but one loan to the town authorized, and any one who lends the money must at his peril find out whether a loan has already been made. When we say, therefore, that a principal is bound if his agent had apparent authority, we do not mean that whenever a third person is deceived into the belief that the agent has authority, the principal is bound. Quite to the contrary, the principal must have in some way been the cause of that deception; he must have caused it either by some express representations, or he must have caused it by putting a man in a place where the general course of business would induce the public to believe the agent had greater powers than he had.

GENERAL AND SPECIAL AGENTS.—It is much easier to find a case of apparent authority, which will bind the principal, if the agent is a general agent than if he is a special agent. A special agent is an agent authorized to do one act, as this town treasurer was authorized to make one loan. The cashier is a general agent, authorized to do any of the great variety of acts which cashiers ordinarily do, and if the directors vote to take away one of the normal powers of the cashier, they must make the limitation public or the bank will be bound by the cashier's act.

UNDISCLOSED PRINCIPAL.—Not only may the third person hold the principal liable in cases where the agent purports to act for the principal, but also in cases where the agent does not disclose his principal at all and purports to act as a principal himself, so long as it is true that the agent really was acting in the principal's business. Suppose a selling agent for a manufactory enters into a contract for the sale of goods produced in the manufactory. The selling agent, we will further suppose, contracts—as selling agents often do—in his own name; but he contracts in regard to the sale of the product of the principal, the manufacturer, and on his behalf. Now, assume that this contract of the sales agent was authorized; the third person may sue the manufacturing company, though he did not know of the existence of the manufactory at the time he entered into the contract, and supposed he was contracting simply with the agent. As it is phrased in law, an undisclosed principal is liable, and conversely, the undisclosed principal may sue on this contract made by the sales agent.

RATIFICATION.—If an agent acts beyond his authority, the principal, if he chooses, may ratify the acts of the agent. Occasionally in an emergency it becomes necessary for an agent who has his principal's interest at heart to take a chance and act beyond the authority given him. In such a case, if the principal ratifies it, it is all right, both as far as the agent is concerned, and as far as the third person is concerned; but, of course, the principal is under no legal obligation to ratify.

RIGHTS OF PRINCIPAL AGAINST THIRD PERSONS.—Now, the right of the principal against the third person is the converse of the right of the third person against the principal, of which we have been speaking. Generally when a transaction is of such a sort that the third person would have a right of action against the principal, if the principal fails to do as he agreed, the principal will have a right of action against the third person if the latter breaks his agreement.

PRINCIPAL IS LIABLE FOR TORTS OF AGENT.—Not only is the principal liable for the contracts of his agent, but he is also liable for any tort which an agent may commit, so long as he is acting in the course of his business. Of course, accident cases present the commonest type of that sort of liability. A street railway is liable for the results of its motor-man's neglect, so long as the motorman was running the car. If the motorman got off the car on a frolic of his own, the street railway would not be liable for anything he might do then. The same principle may be found in other cases than accident cases. Suppose officers of a corporation wrongfully overissue stock. If those officers were the officers authorized to issue stock, and, therefore, were acting in the general course of their business, the corporation would be liable for that tortious act in overissuing stock.

AUTHORITY MAY GENERALLY BE ORAL AS WELL AS WRITTEN.—The authority given by a principal to an agent may in general be oral as well as written; it is just as good. There are, however, a few exceptions to that. In the first place, an authority given to an agent to execute an instrument under seal must itself be not only written but under seal. An oral or a written authority, if not under seal, given to an agent to convey land, which must be conveyed by a sealed deed, would not enable the agent to make a valid deed. Where the effect of seals is abolished this principle is of course no longer applicable. Generally an agent orally authorized to make a contract to buy or sell land may bind his principal by entering into such a contract. The contract the agent enters into, must, because of the Statute of Frauds, be in writing, and signed, but the agent's authority generally need not be written. In some States, however, written authority is required by statutes.

PROXIES.—A proxy is simply a written power of attorney to an agent, authorizing him to vote for a stockholder, and there, too, a corporation would be held justified in refusing to recognize any proxy that was not in writing, or any agent who did not have a written proxy even though proxies were not required to be in writing.

LIABILITY OF AGENT TO THIRD PERSONS.—How about the rights and duties of the agent as against the outside world? The agent is liable to a third person if he commits a tort. It does not make any difference that the principal is also liable, the agent is liable too. The third person may sue either the principal or agent as he prefers; he cannot get compensation for his injury more than once, but he can get that either from the principal or agent, whichever is more convenient. The third person may hold the agent liable if the agent contracts for an undisclosed principal. In the case of the sales agent referred to a moment ago, where the agent was really acting as agent for a manufacturer but did not say so, the third person might sue the manufacturer on the contract; but he might sue the agent, and if the agent was held liable the agent would have to seek reimbursement from the principal.

AGENT WARRANTS HIS AUTHORITY.—An agent is liable in one other case to the third person with whom he deals. If the agent did not have authority to do what he purported to do, the third person can sue him, though the third person could not sue the principal in this case, since the agent was exceeding his authority. An agent is said to warrant his authority to third persons with whom he does business.

AGENT CANNOT DELEGATE AUTHORITY.—An important rule in agency is that an agent cannot delegate his authority. If A is appointed to do certain work, A must do it himself, and cannot empower B to do it if it proves inconvenient to do it himself. There are three exceptions to this rule. The first is that if he is given express permission to delegate his authority, he may do so, and, of course, if the principal should ratify an unpermitted delegation of authority, the ratification would here, as always, serve as well as original authority. The second case is where the usage of business is such that the principal must be presumed to have understood that there was to be a delegation, or partial delegation, of authority, and in such a case, though the principal has not expressly authorized delegation, he will be treated as if he had authorized it by virtue of business usage. The third case where delegation is authorized is in regard to what are called ministerial or mechanical acts, that is, acts which involve no exercise of judgment or skill. The principal is entitled to the agent's judgment and skill, but if there are parts of the work that do not require skill and that, from their nature, any ordinary clerical assistant can do, then such acts may be delegated.

TERMINATION OF AGENCY BY ACT OF PARTIES.—The parties may have agreed in their contract that it should terminate at a certain time or on the happening of a certain event. The arrival of that time or the happening of the event would of course end the relation as between them. It would not so operate as between principal and third parties, however, unless the third parties were informed. So, performance of the purpose for which the relation was created terminates the relation as between principal and agent. The parties may make a subsequent agreement to terminate the relation, and such an agreement would be good, the abandonment of the rights of each party created by the original contract being a sufficient consideration for the promise of each to surrender his own rights.

REVOCATION.—Except in the case of irrevocable agency noted below, the principal may revoke at any time the agent's authority as to matters not already executed. Any other rule would enslave the principal to his agent by forcing him, at the agent's will, and against his own consent, into contracts with third parties. But, while the principal has this right, the exercise of it may subject him to liability to his agent. If the contract of employment is for a definite time, and the principal, without cause, revokes the agent's authority before that time arrives, the principal is liable to the agent for breach of contract; if no time is fixed for the termination of the agency, it is an agency at will, and the principal, with or without cause, may revoke at any time without incurring liability to his agent. The acts which will amount to a revocation by the principal are various. For instance, if an agent has exclusive authority to represent the principal, the appointment of another agent would amount to a revocation. As to making the revocation effective, a revocation operates on the agent from the time he has notice of it. It is effective as to third parties only when notice is given to those who have dealt with the agent that the agent's authority is revoked. Without such notice the principal does not escape liability to third persons by reason of further acts on his agent's part. Where an agent is appointed in a particular business, parties dealing with him in that business have a right to rely upon the continuance of his authority until in some way informed of its revocation. This notice must be actual to those who have dealt with the agent, and general, as by publication in newspapers, where persons have not before dealt with the agent.

RENUNCIATION.—The agent may renounce his employment at any time, but if he contracted to serve for a certain time, and renounce before that time arrives, he is liable to the principal for breach of contract, unless he has ground for renunciation, such as the principal's breach of faith with him. The sickness of the agent is a ground for renouncing the relation, even though the sickness be caused by his own negligence or wrong. The principal should inform third persons of the agent's renunciation if he would fully protect himself against further acts of the agent.

TERMINATION OF AGENCY BY OPERATION OF LAW.—As in the case of ordinary contracts, a contract of agency may be terminated by the rules of law upon the happening of certain events. Thus, the destruction of the subject-matter of the agency terminates the relation, if the parties contemplated the continued existence of the subject-matter as the foundation for what was to be done. A change in the law, as the enactment of a statute declaring illegal agencies of a certain nature, that previously had been legal, terminates the relation. So also certain changes affecting the parties to the relation—i. e., the principal or the agent—effect a termination. The death of the principal brings the relation to an end, and this is so although the agent had no notice of it and subsequently dealt on behalf of his principal with third persons; such contracts do not bind the principal's estate. The death of the agent necessarily ends the relation. The occurrence of the principal's insanity terminates the relation, and a judicial finding of insanity is notice to all; but without notice of the insanity third persons who deal with the agent in good faith are protected. The bankruptcy of the principal terminates the relation as to all matters affected by the bankruptcy. Impossibility to continue the relation brought about by restraint of law terminates the relation.

IRREVOCABLE AGENCIES.—An agency to do an act touching a thing in which the agent has an interest, or in which he is subject to an obligation, cannot be terminated by act of the principal alone. The principal cannot terminate the relation so as to leave the agent under obligations to third persons, thereby shifting his obligations upon the agent; nor can he do so when the agent has an interest in the subject-matter of the agency. It is difficult to state concisely what will constitute such an interest that the principal cannot terminate the relation, but it may be said to be some ownership or right in the matter dealt with, such that the agent may deal with it in his own name, and not a mere benefit to be obtained from the performance of the contract of agency, as a commission to be realized from sales. Possession of personal property with the right to sell, with authority to apply the proceeds to a debt due from the principal to the agent, is sometimes held to constitute an agency coupled with an interest such that the principal may not revoke it; on the other hand, an interest arising from commissions or the proceeds of a transaction, is not an interest which will prevent revocation. The courts carefully examine agencies claimed to be irrevocable because coupled with an interest, and are inclined to rule against them.

MASTER AND SERVANT.—As we have said, the function of the servant is to perform ministerial or mechanical acts for the master. The chief subject-matter under the law of principal and agent is contracts, while the chief subject-matter of the law of master and servant is tort. The servant, in performing acts for his master, may, inadvertently or wilfully, cause injury to a third person or to the property of a third person. The question arises: What is the master's responsibility? We shall consider this from two standpoints; the relationship of the master and servant, inter se (between themselves), and the relationship of the master and servant as to the outside world. For example: the driver of a delivery truck, operated by Lord & Taylor, negligently runs over a pedestrian. The truck was going at the rate of twenty-five miles an hour, although the instructions issued by Lord & Taylor to all their servants is not to run cars more than fifteen miles per hour in the congested parts of New York City. Is Lord & Taylor liable to the pedestrian? This question involves the relationship of master and servant as to outside parties. The same servant, while operating the delivery truck for Lord & Taylor is run into, negligently, by a delivery truck operated by R. H. Macy & Co. Is the master, Lord & Taylor, responsible to its servant for the injury which he suffers as the result of the collision? This question involves the relationship of master and servant inter se. We shall consider this latter relationship first.

THE COMMON LAW GOVERNING THE RELATIONSHIP OF MASTER AND SERVANT INTER SE.—What is the liability of the master towards the servant if the servant is injured? We shall see in the chapter on torts that a tort is defined to be a breach of duty imposed by law for which a suit for damages may be maintained. Hence it follows that the master's liability in tort flows from a breach of duty owed by him to his servant. If there is no legal duty, correspondingly there is no legal liability. These legal duties which the common law developed over a long period of years may be summed up as follows: (1) To provide a reasonably safe place for the servant to work. (2) To provide reasonably safe, suitable, and sufficient tools and appliances with which the servant is to perform his work. (3) To provide reasonably careful and competent fellow workmen and in sufficient number for the work in hand. (4) To warn the servant of any unusual dangers connected with the work. (5) Generally so to conduct the work as not to expose the servant to dangers which could be avoided by the exercise of reasonable diligence. From the servant's standpoint, it was said that he assumed the ordinary risks inherent to the kind of business in which he was employed. These rules of the common law were the outgrowth of conditions surrounding the small shop and involving the use of simple or no machinery. Under modern industrial conditions they have proved wholly inadequate. We have been unduly conservative in recognizing this. Strangely enough the Workmen's Compensation Acts, with which we are now so familiar, had their origin in Germany in 1884. Nearly all the countries of continental Europe recognized the situation about thirty years ago, and England in 1897, and the United States within the last few years.

THE OBJECTION OF THE COMMON LAW THEORY.—Under the old theory, if the master had observed the duties which we have mentioned, he had performed his whole obligation to his own servant; thus, if two fellow workmen were working on the twentieth story of a new steel skyscraper being erected by the Institute Construction Co., and through the carelessness of servant A, servant B was precipitated to the street and killed, there would be no recovery on the part of the estate of the deceased servant, although he may have left a wife and several children dependent wholly upon him for support. Even admitting that the Institute Construction Co. had exercised due care in selecting competent fellow servants for the deceased to work with, and had, therefore, performed all of its obligations on this score, nevertheless, it is better, from the standpoint of society, that the wife and children of servant B should receive fair compensation rather than be thrown upon the mercy of the public. The great object of the Workmen's Compensation Act is to shift the burden of such economic waste from the employer to the industry, in order that it may ultimately be borne by the consumer as a part of the necessary cost of construction and production. Thus we are asking the master to assume a greater financial responsibility for injuries to his servant under this new theory than he has assumed heretofore. This can be taken care of by the increased price he charges for his work and this in turn will ultimately pass the added burden to the community at large.

ILLUSTRATION.—Again, even if the servant did have a cause of action against his master, because of the master's failure to observe the common law requirements we have mentioned, nevertheless, the expense of litigation and the interminable delays connected with it, amounting at times to two or three years before the case was finally disposed of by the court of last resort, all tended to make litigation for the servant all but impossible. He would ordinarily have no money with which to begin this long litigation, and would be obliged to retain the services of a lawyer, who would take the case on a contingent fee basis, and often take from the workman, should the decision finally be in his favor, a third, a half, or even a greater portion of the amount that he recovers. Perhaps this was no greater compensation than the lawyer was entitled to because of the labor involved and the prospect of no pay if he lost the case, but regardless of this it was hard on the client. The Supreme Court of Washington, in the case of Stertz v. The Industrial Insurance Commission, 91 Wash. 588, has summed up the objections against the whole system as follows: "Both had suffered under the old system, the employers by heavy judgments of which half was opposing lawyers' booty, the workmen through the old defenses or exhaustion in wasteful litigation. Both wanted peace. The master in exchange for limited liability was willing to pay on some claims in future where in the past there had been no liability at all. The servant was willing not only to give up trial by jury but to accept far less than he had often won in court, provided he was sure to get the small sum without having to fight for it.... To win only after litigation, to collect only after the employment of lawyers, to receive the sum only after months or years of delay, was to the comparatively indigent claimant little better than to get nothing. The workmen wanted a system entirely new. It is but fair to admit that they had become impatient with the courts of law. They knew, and both economists and progressive jurists were pointing out, what is now generally conceded, that two generations ought never to have suffered from the baleful judgments of Abinger and Shaw."

WORKMEN'S COMPENSATION ACT.—To meet the objections we have just mentioned, the workmen's compensation act principle was developed on the continent of Europe. Practically all of continental Europe had placed laws of this character on its statute books before the end of the nineteenth century; in 1906 England passed similar legislation, and within the last few years, we have adopted the same principles. With the exception of a few Southern States, every State and territory of the United States has a Workmen's Compensation Act. We cannot consider these acts in detail. The principle underlying them is the same throughout the country. They are designed to compensate servants for "accidents" "arising out of," and "during the course of" their employment, and this, regardless of whether the servant was at fault or not. The whole theory of the common law had been that the master must be at fault in order that the servant may recover. The new theory is that the community at large can better stand the loss suffered by a servant than the individual servant. For example: a steel girder falls upon a workman engaged in structural steel work, through no fault on his part and also through no fault on the part of his employer. Under the common law, he would have to stand the loss himself. Under the Workmen's Compensation Act, such an event is an "accident"; it "arose out of" and "in the course of" his employment. Therefore, he is entitled to a fixed compensation, and he secures it almost immediately through a workmen's compensation bureau, or whatever body the act of the particular State creates for the purpose of settling such matters. This is a burden on the employer, it is true; he was in no way to blame. Neither was the workman. The employer may protect himself against the claims of his workmen by insurance under a plan provided by the State law, or if the State law does not provide for it, by arrangements with private companies the same as any other accident insurance is obtained, and by figuring his cost upon the particular job, he can charge as a part of his operating expense, the cost of his insurance and include that in his charge for work. The loss suffered by the individual workmen is then passed to the community at large. From an economical and sociological standpoint, this situation is undoubtedly better than that existing under the theory of the common law.

THE INTERPRETATION OF WORKMEN'S COMPENSATION ACTS.—Although these acts are comparatively new in this country, there has been a great amount of litigation, and it is not practical to enter into a discussion of all the close questions which are raised in interpreting such acts. A vast amount of the litigation has been concerned with the interpretation of the three expressions, common to almost all the acts, "accident" "arising out of" and "during the course of." While the courts have shown a broad-minded spirit in interpreting these expressions, it is undoubtedly true that some decisions will suggest further legislation in order to correct certain evils which exist at the present time. For example, in defining the term "accident," the leading English case said: "The expression 'accident' is used in the public and ordinary sense of the word, as denoting an unlooked-for event which is not expected or designed." And Judge Siebecker of Wisconsin says "accidental" contemplates "an event not within one's foresight and expectation, resulting in a mishap causing injury to the employee," and Mr. Justice Pound of New York says that the statute contemplates injuries "not expected or designed by the workman himself." To illustrate: A window-dresser is decorating the window in Woolworth's. He swallows a pin. This is an "accident" within the contemplation of the act, and entitles him to recovery. Again, a workman is employed in a white-lead factory. During his six months period of service in the factory, he contracts tuberculosis. This is not an "accident" because you must be able to put your finger upon a definite time when the unlooked-for event happened. This leads us to the general statement that Workmen's Compensation Acts in this country, as at present drawn, do not generally cover occupational diseases. Separate legislation is undoubtedly desirable to extend the principle in such cases, for if it is sound that the window-dresser in Woolworth's should recover, it should be equally sound that the workman who contracted tuberculosis should recover. Again, the other two expressions "arising out of," and "during the course of" have caused much litigation. Perhaps the most satisfactory statement about these expressions is in the leading Massachusetts case, In re McNicol, 215 Mass. 497. Here the court says: "The injury must both arise 'out of' and also be received 'in the course of' the employment. Neither alone is enough. It is not easy * * * to give a comprehensive definition of these words. * * * An injury is received 'in the course of' the employment when it comes while the workman is doing the duty which he is employed to perform. It 'arises out of' the employment, when there is * * * a causal connection between the conditions under which the work is required to be performed and the resulting injury. * * * If the injury can be seen * * * to have been contemplated by a reasonable person familiar with the whole situation, * * * then it arises 'out of' the employment. * * * The causative danger must be peculiar to the work and not common to the neighborhood. * * * It need not have been foreseen or expected, but after the event it must appear to have had its origin in a risk connected with the employment, and to have flowed from that source as a rational consequence." An illustration will show how these phrases are applied. The janitor of a building is alone in the building. An old enemy who has not seen him for years, learns his whereabouts, comes into the building, shoots him in the leg, causing him to have it amputated. Is the master liable? It is an "accident," and clearly it arose "during the course of" employment, but did it arise "out of" his employment? Manifestly not. The guilty party would have shot the man had he met him in Central Park, or any other place. It was purely personal vengeance on his part which caused the act. The night watchman in a bank is shot by a robber at night in the bank, while on duty. May he recover from his master? Clearly he can. It is an "accident." It arose "during the course of" his employment, it arose "out of" his employment also, because the robber would not have shot him were he not in the bank as a watchman, standing between the robber and the accomplishment of his purpose, the securing of money from the bank.

THE RELATIONSHIP OF MASTER AND SERVANT AS RELATING TO OUTSIDE PARTIES.—If the relationship of master and servant exists, the question arises, is the master responsible for the torts committed by his servant, resulting in injury to third parties? It is, of course, essential that the wrongdoer must be the defendant's servant. It does not follow that a wrongdoer is the defendant's servant simply because of a certain relationship, as that of parent and child, husband and wife, or employer and employee. Within the last few years, a great number of automobile cases have been decided by the courts, and they are commonly spoken of as the "family automobile cases." To illustrate: I own a car which is used by the various members of my family. My son, while running the car, for his own pleasure, negligently runs over some one. Am I responsible? Granting the relationship of parent and child, that would not constitute, per se (of itself), the relationship of master and servant. The injured man would have to show more than I have indicated in order to entitle him to recover for my son's negligence. Were members of my family in the car, being taken out for a ride by my son, I would be liable. Again, my wife, in discharging a servant, assaults her. Should the mere fact of the relationship of husband and wife make me liable on the theory of master and servant? Clearly not. Again, I employ John Smith as my chauffeur. I never operate my car on Sunday. John Smith, who lives in the town adjoining mine, is moving, and asks if he may borrow my car over Sunday to assist in the moving operations. While using the car for that purpose, he negligently runs over some one. Am I liable? Clearly not, for, although the relationship of master and servant exists between me and my servant at the time he did the injury, he was not acting for me as a servant. What is the rule to be applied to answer such questions?

THE SERVANT MUST BE ENGAGED IN HIS MASTER'S BUSINESS.—It is clear from the foregoing that, in order to make the master liable, the servant must be engaged in his master's business, and he must be acting within the scope of his employment. The New York case of Rounds v. The Delaware, etc., Railroad, 64 N. Y. 129, states the general rule: "For the acts of the servant, within the general scope of his employment, while engaged in his master's business, and done with a view to the furtherance of that business and the master's interest, the master will be responsible whether the act be done negligently, wantonly, or even wilfully." The Court of Errors and Appeals of New Jersey recently said in Holler v. Sanford Ross, 68 N. J. Law, 324: "The Supreme Court of Connecticut states the rule applicable to this class of cases about as clearly as it can be done, when it says: 'For all acts done by a servant in obedience to the express orders or direction of the master, or in the execution of the master's business, within the scope of his employment, and for acts in any sense warranted by the express or implied authority conferred upon him, considering the nature of the service required, the instructions given and the circumstances under which the act is done, the master is responsible; for acts which are not within these conditions, the servant alone is responsible.'"

LIABILITY OF A PUBLIC AGENCY FOR THE NEGLIGENT ACTS OF ITS AGENTS.—It is an old saying that "the King can do no wrong." This principle of the English common law we have applied in this country, and the Federal Government cannot be sued unless it gives its consent. While the Court of Claims has been established, Congress has generally provided that suits may be brought against the Federal Government only in contract actions, and not in tort actions, so that ordinarily, if a person is injured through the negligence of an employee of the Federal Government, he may not recover against that Government. Thus, my only remedy in case of an injury, received through the negligent operation of an elevator in a post-office building owned by the Government, would be the passing of special legislation by Congress compensating me. I would have no right to sue the United States for such injury. The same general principles are applied to the State governments. In regard to cities, the rule may be generally stated to be that a municipality is not liable for the negligence of its servants in those departments operated by the municipality in its governmental activities, as distinguished from its administrative activities, in which case it is liable. Thus, a city is not responsible for the negligence of its policemen or its firemen, although injury results from their negligence, these departments being examples of governmental activities of a municipality, while the city would be liable, generally, for the negligence of the employees of its water department, this being an illustration of its administrative activities. It is also generally held that public charities, such as hospitals, and the like, are not liable for torts committed by their servants, provided they have used reasonable care in the selection of their servants.

INDEPENDENT CONTRACTORS.—A distinction must be made between one whom we call an independent contractor and a master. When A desires a particular piece of work done, he has two options as to doing it. He may either hire a workman to do it, retaining control of the workman, and telling him how he shall do it, or he may let the work by contract, simply stipulating that it shall be done in accordance with plans and specifications which his architect has drawn up. He retains no control over the contractor or over his method of work. His sole interest here is to have the piece of work turned over to him in its completed state. In the first case, we call the workman a servant; in the second case, he is an independent contractor. One who employs an independent contractor is not liable for the negligent acts of the contractor or his servants, except in a few special cases. In Berg v. Parsons, 156 N. Y. 109, the majority of the court states: "There are certain exceptional cases where a person employing a contractor is liable, which, briefly stated, are: Where the employer personally interferes with the work, and the acts performed by him occasion the injury; where the thing contracted to be done is unlawful; where the acts performed create a public nuisance; and where an employer is bound by a statute to do a thing efficiently and an injury results from its inefficiency." A few, but not many courts, add to this list one further fact, that the employer must use due care in the selection of a competent independent contractor, otherwise he is liable. This would seem eminently sound.

CHAPTER V
Partnership

RELATIONS ANALOGOUS TO PRINCIPAL AND AGENT.—There are a few relations, in the law, which are analogous to that of principal and agent. The one which we shall take up now is the relationship of a partner to a partnership, and also to the outside world. We shall consider in a subsequent chapter, the functions, duties and responsibilities of trustees, executors, and administrators.

THE IMPORTANCE OF PARTNERSHIP LAW.—There is a very common impression that partnership law is not as important now as formerly. This undoubtedly is true, as more and more large business enterprises are being conducted in the corporation form; but there is still a large amount of business done in the partnership form. What is most important, however, is the very informality of the type of business conducted under the partnership arrangement. Whether, in a given case, a partnership exists, becomes a vital question. Two friends, A and B, in an informal way, go into a business venture. The enterprise fails and A and B owe many debts. A has some property of his own; B has nothing. You are a creditor, but all your dealings have been with B. One simple point will show you whether your claim is worthless. If A and B were partners, you may hold A. If they were not partners, your claim probably never will be worth anything to you. The question, then, whether or not a certain relationship constitutes a partnership is a most important one, in the field of commercial law.

PARTNERSHIP DEFINED.—We shall have occasion, in the chapters on bills and notes, and personal property, to refer to the movement to codify certain branches of the law. This movement was begun by the Commissioners on Uniform Laws proposing the Uniform Negotiable Instruments Act, which has now been adopted in all of the States except Georgia. One of the most recent codifications is the Uniform Partnership Act which has been adopted in a number of the States, and which will undoubtedly follow the same course as the other acts drawn by the same Commissioners. We shall make frequent reference to the Uniform Partnership Act in this chapter. Although some of the writers on the law of partnership state that no satisfactory definition of the term partnership can be given, the Uniform Act defines it as follows: "A partnership is an association of two or more persons to carry on as co-owners a business for profit." It is undoubtedly true that even with this definition, a considerable amount of further explanation will be necessary to determine with any degree of certainty, just what is meant by partnership.

THE DIFFERENCE BETWEEN A PARTNERSHIP AND A CORPORATION.—While we may be anticipating our chapter on corporations, it is well, at the very outset, to understand the fundamental differences between a partnership and a corporation. We may mention six differences:

(1) When a partner dies, the partnership is automatically dissolved. If a partner sells or transfers his interest in the business, this works a dissolution of the firm. On the other hand, the situation is precisely the opposite in the case of a corporation. The death of a shareholder has no effect upon the corporation. In fact, if all of the shareholders of the United States Steel Corporation should die at once, the corporation would still exist. So also the transfer of stock from one owner to another has no effect upon the corporation's existence. Many thousand shares are dealt with on the exchange each day without the slightest effect upon any corporation.

(2) The doctrine of individual liability for the debts of a firm is a fundamental characteristic of partnership law. Each member of the firm is absolutely liable for all the debts of the firm. Thus, if the firm consists of A, B, and C, and the firm goes into bankruptcy and owes $50,000, and B and C are both individually worthless, and A has his own private fortune, A will be obliged to pay all of the debts, although, according to the arrangements that the partners made when forming the partnership, each was to share the profits and losses equally. Theoretically, A has the right to contribution from his fellow partners, and should they later acquire property, he will be able to enforce this right in a court of equity. In a corporation, a shareholder is liable only for the value of his share. If he subscribes to a share of stock, par value $100, and has paid only $50 on his subscription, and the corporation goes into bankruptcy, its receiver can compel him to pay the balance of his subscription, $50, but that would be the extent of his loss. If I buy a share of United States Steel Common, at $79, on the exchange, and the company goes into bankruptcy, my loss will be only $79. I would not be obliged to make up to the receiver the other twenty-one dollars. The only noteworthy exception to this rule as to the liability of a stockholder is in the case of a shareholder in a National bank, (this is true of some of the State banking laws also), where a shareholder is liable to an extra assessment equal to the par value of the stock he owns.

(3) In a partnership each member of the firm is a general agent for the partnership, and his acts bind the firm. In the case of a corporation, a shareholder, by virtue of the fact that he is a shareholder, has no power to bind the corporation. The position of a shareholder is very similar to that of a voter. The corporation is run by its board of directors. They are elected by the shareholders just as we elect a governor or president. If we are dissatisfied with the conduct of a governor or president, all we can do is to vote him out of office at the next election, except in unusual cases where a governor or president might be impeached. The same is true in the case of a board of directors.

(4) A partnership may be created by a formal contract, or a simple contract, in writing or by word of mouth; in fact it may be created in almost any way. A corporation, in order to do business, must comply with the corporation laws of the State in which it is incorporated. A regular formality must be observed. A certificate of incorporation must be filed, generally with the Secretary of State, and with the county clerk of the county in which the corporation's principal place of business is located in the State.

(5) A partnership may do anything that is legal and which the members decide to do. A corporation exists by virtue of a charter, granted by the State. The sum total of the powers given in that charter gives the total of all of the activities the corporation may undertake. Engagement in activities not authorized in the charter may result in the forfeiture of the charter by the State.

(6) In legal theory, a corporation is looked upon as a separate entity. Most States require at least three persons to incorporate. A, B and C form a corporation under the laws of the State of New York. There are then four legal persons in existence: A, B, and C, and this separate person, or legal entity, the Green Corporation, if that is the name given the company. In the case of a partnership, the law does not, as a rule, consider the partnership as an entity distinct and separate from the members who make up the firm. Of course, the business man does, in a way, look upon the partnership as a separate commercial entity. The very fact that the members of the firm are all general agents for the firm, and that the members are individually liable for all of the debts of the firm, shows that the law does not carry the entity theory into practice in partnerships as it does in corporations.

DIFFERENT KINDS OF PARTNERSHIP.—What we have said applies to the ordinary partnership. There are certain forms of partnership which we can only mention. One of them is the limited partnership. Limited partnerships are created under the law of the State in which the business is to be conducted and in a general way, these limited partnerships are a combination of the principles underlying ordinary partnerships and corporations. The members may limit their liability to a certain amount, and in that sense, the limited partnership is like a corporation. On the other hand, the general principles of partnership, as we shall discuss them, apply with almost equal force to the acts of a limited partnership. A person should not undertake to give an opinion as to a legal problem relating to a limited partnership until the law of the State in which the limited partnership is organized has been consulted.

JOINT STOCK COMPANIES.—Occasionally we meet with organizations—joint stock companies—which occupy a sort of "No-man's land" between partnerships and corporations. The joint stock company issues shares of stock the same as a corporation. These shares are listed on the stock exchange, as for example, the Adams Express Company. The joint stock company, however, carries with it the individual liability of the shareholders for the debts of the company, which is technically a partnership attribute. The New York Court of Appeals in People ex rel. Winchester v. Coleman, 133 N. Y. 279, has put it this way: "More or less, they crowd upon and overlap each other, but without losing their identity, and so, while we cannot say that a joint stock company is a corporation, we can say * * * that the joint stock company is a partnership with some of the powers of a corporation."

HOW TO DETERMINE WHETHER A PARTNERSHIP EXISTS.—In a case, not tried in court, the facts were: A Gloucester cod-fishing vessel made an unsuccessful fishing voyage. The sailors were to secure a certain portion of the profits of the voyage as their wages. When the ship returned to port, an attempt was made to collect bills incurred on the trip and to hold the seamen liable along with the owners of the vessel, as partners. It was contended that sharing in the profits made them partners. While this is true generally, this particular custom, whereby a laborer receives a certain portion of the profits of an undertaking as his wages, does not of itself constitute him a partner with the person operating the vessel. This point has been decided several times. Such questions as these arise and cause great difficulty in determining whether a partnership exists. At times it is very important, as in the case of the seamen, to know whether or not they can be made to assume the obligations pertaining to the partnership relations. While we cannot go into these relations in detail, the framers of the Uniform Partnership Act have laid down, with the utmost care, the rules which are to be used in determining whether a partnership exists or not. But, you say, why cannot the parties avoid all this difficulty by making a written agreement clearing up the entire matter? They could. It is the simplest matter in the world. But the trouble comes because a partnership arrangement is so easy to enter into, and requires so little formality, that it is taken for granted that it will come out satisfactorily, and the precautions which should be taken are sometimes forgotten. Hence, we have to have rules of interpretation to help us when the parties themselves have not taken the necessary precautions to make matters clear. These rules of interpretation are very clearly and very definitely laid down in the Uniform Partnership Act, in the following language:

(1) Except as provided by Section 16, persons who are not partners as to each other are not partners as to third persons.

(2) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property.

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived.

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise,

(b) As wages of an employee or rent to a landlord,

(c) As an annuity to a widow or representative of a deceased partner,

(d) As interest on a loan, though the amount of payment vary with the profits of the business,

(e) As the consideration for the sale of the good-will of a business or other property by installments or otherwise.

Section 16.—(Partner by estoppel.)—(1) When a person by words spoken or written or by conduct, represents himself, or consents to another representing him to any one, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner, he is liable to such person, whether the representation has or has not been made or communicated to such person * * *.

FOR WHAT PURPOSES MAY A PARTNERSHIP BE CREATED.—A partnership may be created to carry on any lawful business, and whatever the individuals may do lawfully as such, two or more may do together in a group as a partnership. Professional occupations may be carried on in the partnership form advantageously. This is one case where a partnership has an advantage over a corporation. A group of lawyers may form a partnership and do business under a partnership name. But a group of lawyers seldom or never form corporations to practice law. The reason for this is that the corporation is a separate entity, and the corporation as such cannot pass a bar examination and be admitted to the bar. In fact, in a few States, there are statutes prohibiting a corporation from practicing law. There is, therefore, very little advantage in creating a corporation which cannot itself do the thing for which it was created.

ILLEGAL OBJECT.—A partnership which is formed to carry on any illegal purpose is, of course, not recognized by law. Thus, if A, B, and C form a partnership to engage in the gambling business and they elect C as treasurer and have a successful business so that they have a large amount of money on hand, A and B may not be able to reap the profits of the venture. C has the money. The agreement was that all were to share equally, but C insists on keeping it all. The law will allow him to do so, because it is beneath the dignity of the court to order an accounting in a transaction where all parties are equally guilty. The maxim is "in pari delicto, condicio defendentis potior est", that is, where the parties are in equal fault, the position of the defendant is the stronger. C, the guilty party, has the money; he is the defendant, therefore, he keeps it.

WHO MAY BE PARTNERS.—At common law, a married woman was incapable of becoming a member of a partnership because of her general incapacity to enter a contract. Statutes removing the disability of married women have been passed in practically all the States, and a married woman is generally free to become a partner, except, and this is true in many States still, husband and wife may not become partners. An infant may be a member of a firm on the same general principles as applied to ordinary infant's contracts. His entering the partnership agreement is not void, but voidable. When he becomes of age, if he affirms the contract of partnership, he will be liable the same as an adult. He has, however, the right to disaffirm his partnership agreement within a reasonable time after becoming of age, and if he does so, he will be absolved from all personal liability for the debts of the firm. It is very generally held that a corporation may not enter into a copartnership with another corporation or an individual. The reason for this is a general rule of public policy that in a partnership the corporation would be bound by the acts of persons who are not its duly appointed agents and officers. There may be any number of members in a firm, such matters being left to the choice and wisdom of those operating the business.

DELECTUS PERSONARUM.—While the foregoing is true, one must not reach the conclusion that an objectionable person may be forced into a firm. I am a member of a firm of three persons. I decide to withdraw, and tell my two fellow partners that I have transferred all my interest in the firm to John Jones. He will take my place. My two fellow partners believe Jones to be a crook, and do not wish to be in partnership with him. They would not be obliged to accept him. In other words, the doctrine of delectus personarum, or the choice of the person, is strictly applied in partnership, because a partnership relation is a very confidential relationship. Ordinarily the business cannot be conducted satisfactorily unless all of the partners have the confidence of each other. It is for this reason, that we have the rule, heretofore referred to, that the sale by a partner of his interest in the business works a dissolution of the partnership. John Jones, who purchased my rights in the firm, could not compel the other members to take him in, but the firm would have to be wound up and he would simply be able to recover what my share of the assets was. It is true that Section 27 of the Act does read that a sale by a partner of his interest does not of itself work a dissolution, but the doctrine of delectus personarum is fully preserved. That section reads: (1) A conveyance by a partner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.

(2) In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners.

ARTICLES OF PARTNERSHIP.—We have learned that parties need not expressly declare themselves partners, or enter into an express contract, in order to become partners. So the framing of written partnership articles—a written contract of partnership—is not essential, though it is the ordinary and advisable course. We may note here a few rules governing the use and construction of such articles where they have been adopted. They should, of course, provide for as many contingencies as can be foreseen, such as the nature, name and place of business, when the relation is to commence and when to terminate, what capital shall be contributed by each, what the share of each in the profits and losses shall be, what the powers of the partners as between themselves shall be, whether the business shall be continued after the death of one or more of the partners and how it shall be wound up. But the important thing to note is, that if provision be not made, the general law, and particularly that part governing the powers and duties of partners to each other and to third persons, applies. In other words, the partners may, by their contract, determine what their rights as between themselves shall be; but if they do not, the rules of law will determine them. Thus they may determine that of two partners one shall have two-thirds and the other one-third of the profits; in the absence of such a clause the law determines the profits shall be divided equally. When articles have been once adopted they can be changed only by the consent of all the partners; this consent need not be formally expressed in words, but it may be implied from a long-continued course of conduct. The law provides no means to force a partner to live up to his contract except in a very few cases; the most it gives is a right of action for the breach caused by his failure to do as agreed.

FIRM NAME.—The adoption of a firm name is not an essential to a partnership, but is customary and advisable. The names of the partners may be combined, or a single name used, or a fictitious name, or any name, so long as the rights of other persons are not violated. In some States, notably New York, the use of the name of a person not a partner is forbidden, as is also the use of the expression "& Co.," unless a partner is represented by it. Ordinarily, contracts may be made in the firm name and by one partner, but contracts under seal should be made in the names of the partners "doing business as," etc., and cannot be made by one partner without authority from the others. Conveyances of real property should be made to or by the individual partners "doing business as," etc., for the law does not generally recognize the firm as a separate person or entity sufficiently to enable it as such to take or give a conveyance. If the deed ran to "John Doe & Co.," the title would be in John Doe only, though he would be said to hold it in trust for the firm, for if the partnership name is given as the grantee, the title goes only to those whose names appear, and if the partnership were doing business under a fictitious name, the deed would convey to no one. Whether land, the title to which is in the name of one partner, is held in trust by him as partnership property, is a question of intention, and that question is determined by asking with what money was the land bought, what use has it been put to, has it been carried on the books of the firm, with what money have the taxes, insurance, and other charges been paid, etc. If found to have been treated as partnership property, the fact that the title is in one person counts for little, as he will be said to hold it in trust for the firm; but the careful business man will avoid trouble by having the property conveyed to the firm in the manner indicated, if it is actually partnership property.

THE POWERS OF A PARTNER.—As a general agent, a partner has almost unlimited authority to bind the firm. Because of this, we have here one reason for not recommending the partnership form of doing business unless all the members of the firm have the utmost confidence in each other. These powers of the partners are so general that it is impossible for us to go into them in any detail. They are summarized in the most compact form in the Uniform Partnership Act. Sections 9 to 17 of that act are as follows:

9. (1) Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member, binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.

(2) An act of a partner, which is not apparently for the carrying on of the business of the partnership in the usual way, does not bind the partnership unless authorized by the other partners.

(3) Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to:

(a) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership,

(b) Dispose of the good-will of the business,

(c) Do any other act which would make it impossible to carry on the ordinary business of the partnership,

(d) Confess a judgment,

(e) Submit a partnership claim or liability to arbitration or reference.

(4) No act of a partner in contravention of a restriction on his authority shall bind the partnership to persons having knowledge of the restriction.

10. (1) Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership under the provisions of paragraph (1) of Section 9, or unless such property has been conveyed by the grantee, or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority.

(2) Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of paragraph (1) of Section 9.

(3) Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of paragraph (1) of Section 9, unless the purchaser or his assignee, is a holder for value, without knowledge.

(4) Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of paragraph (1) of Section 9.

(5) Where the title to real property is in the names of all the partners, a conveyance executed by all the partners passes all their rights in such property.

11. An admission or representation made by any partner concerning partnership affairs within the scope of his authority as conferred by this act is evidence against the partnership.