Cyclopedia of Commerce, Accountancy, Business Administration, v. 03 (of 10)
by American School of Correspondence · English · Gutenberg #46489 · 738,981 chars · public domain (US)
The Project Gutenberg eBook of Cyclopedia of Commerce, Accountancy, Business Administration, v. 03 (of 10)
This eBook is for the use of anyone anywhere in the United States and
most other parts of the world at no cost and with almost no restrictions
whatsoever. You may copy it, give it away or re-use it under the terms
of the Project Gutenberg License included with this eBook or online
at www.gutenberg.org. If you are not located in the United States,
you will have to check the laws of the country where you are located
before using this eBook.
Title: Cyclopedia of Commerce, Accountancy, Business Administration, v. 03 (of 10)
Author: American School of Correspondence
Release date: August 3, 2014 [eBook #46489]
Most recently updated: October 24, 2024
Language: English
Other information and formats: www.gutenberg.org/ebooks/46489
Credits: Giovanni Fini, Juliet Sutherland and the Online Distributed Proofreading Team
*** START OF THE PROJECT GUTENBERG EBOOK CYCLOPEDIA OF COMMERCE, ACCOUNTANCY, BUSINESS ADMINISTRATION, V. 03 (OF 10) ***
[Illustration]
Cyclopedia
_of_
Commerce, Accountancy,
Business Administration
VOLUME 3
_A General Reference Work on_
ACCOUNTING, AUDITING, BOOKKEEPING, COMMERCIAL LAW, BUSINESS
MANAGEMENT, ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION,
BANKING, ADVERTISING, SELLING, OFFICE AND FACTORY
RECORDS, COST KEEPING, SYSTEMATIZING, ETC.
_Prepared by a Corps of_
AUDITORS, ACCOUNTANTS, ATTORNEYS, AND SPECIALISTS IN BUSINESS
METHODS AND MANAGEMENT
_Illustrated with Over Two Thousand Engravings_
TEN VOLUMES
CHICAGO
AMERICAN TECHNICAL SOCIETY
1910
COPYRIGHT, 1909
BY
AMERICAN SCHOOL OF CORRESPONDENCE
COPYRIGHT, 1909
BY
AMERICAN TECHNICAL SOCIETY
Entered at Stationers' Hall, London
All Rights Reserved
Authors and Collaborators
JAMES BRAY GRIFFITH, _Managing Editor_
Head, Dept. of Commerce, Accountancy, and Business Administration,
American School of Correspondence.
ROBERT H. MONTGOMERY
Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
Accountants.
Editor of the American Edition of Dicksee's _Auditing_.
Formerly Lecturer on Auditing at the Evening School of Accounts and
Finance of the University of Pennsylvania, and the School of Commerce,
Accounts, and Finance of the New York University.
ARTHUR LOWES DICKINSON, F.C.A., C.P.A.
Of the Firms of Jones, Caesar, Dickinson, Wilmot & Company, Certified
Public Accountants, and Price, Waterhouse & Company, Chartered
Accountants.
WILLIAM M. LYBRAND, C.P.A.
Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
Accountants.
F. H. MACPHERSON, C.A., C.P.A.
Of the Firm of F. H. Macpherson & Co., Certified Public Accountants.
CHAS. A. SWEETLAND
Consulting Public Accountant.
Author of "Loose-Leaf Bookkeeping," and "Anti-Confusion Business
Methods."
E. C. LANDIS
Of the System Department, Burroughs Adding Machine Company.
HARRIS C. TROW, S.B.
_Editor-in-Chief_, Textbook Department, American School of
Correspondence.
CECIL B. SMEETON, F.I.A.
Public Accountant and Auditor.
President, Incorporated Accountants' Society of Illinois.
Fellow, Institute of Accounts, New York.
JOHN A. CHAMBERLAIN, A.B., LL.B.
Of the Cleveland Bar.
Lecturer on Suretyship, Western Reserve Law School.
Author of "Principles of Business Law."
HUGH WRIGHT
Auditor, Westlake Construction Company.
GLENN M. HOBBS, Ph.D.
Secretary, American School of Correspondence.
JESSIE M. SHEPHERD, A.B.
Associate Editor, Textbook Department, American School of
Correspondence.
GEORGE C. RUSSELL
Systematizer.
Formerly Manager, System Department, Elliott-Fisher Company.
OSCAR E. PERRIGO, M.E.
Specialist in Industrial Organization.
Author of "Machine-Shop Economics and Systems," etc.
DARWIN S. HATCH, B.S.
Assistant Editor, Textbook Department, American School of
Correspondence.
CHAS. E. HATHAWAY
Cost Expert.
Chief Accountant, Fore River Shipbuilding Co.
CHAS. WILBUR LEIGH, B.S.
Associate Professor of Mathematics, Armour Institute of Technology.
L. W. LEWIS
Advertising Manager, The McCaskey Register Co.
MARTIN W. RUSSELL
Registrar and Treasurer, American School of Correspondence.
HALBERT P. GILLETTE, C.E.
Managing Editor, _Engineering-Contracting_.
Author of "Handbook of Cost Data for Contractors and Engineers."
R. T. MILLER, JR., A.M., LL.B.
President, American School of Correspondence.
WILLIAM SCHUTTE
Manager of Advertising, National Cash Register Co.
E. ST. ELMO LEWIS
Advertising Manager, Burroughs Adding Machine Company.
Author of "The Credit Man and His Work" and "Financial Advertising."
RICHARD T. DANA
Consulting Engineer.
Chief Engineer, Construction Service Co.
P. H. BOGARDUS
Publicity Manager, American School of Correspondence.
WILLIAM G. NICHOLS
General Manufacturing Agent for the China Mfg. Co., The Webster Mfg.
Co., and the Pembroke Mills.
Author of "Cost Finding" and "Cotton Mills."
C. H. HUNTER
Advertising Manager, Elliott-Fisher Co.
FRANK C. MORSE
Filing Expert.
Secretary, Browne-Morse Co.
H. E. K'BERG
Expert on Loose-Leaf Systems.
Formerly Manager, Business Systems Department, Burroughs Adding
Machine Co.
EDWARD B. WAITE
Head, Instruction Department, American School of Correspondence.
Authorities Consulted
The editors have freely consulted the standard technical and business
literature of America and Europe in the preparation of these volumes.
They desire to express their indebtedness, particularly, to the
following eminent authorities, whose well-known treatises should be in
the library of everyone interested in modern business methods.
Grateful acknowledgment is made also of the valuable service rendered
by the many manufacturers and specialists in office and factory
methods, whose coˆperation has made it possible to include in these
volumes suitable illustrations of the latest equipment for office use;
as well as those financial, mercantile, and manufacturing concerns
who have supplied illustrations of offices, factories, shops, and
buildings, typical of the commercial and industrial life of America.
JOSEPH HARDCASTLE, C.P.A.
Formerly Professor of Principles and
Practice of Accounts, School of Commerce, Accounts, and Finance, New
York University.
Author of "Accounts of Executors and Testamentary Trustees."
HORACE LUCIAN ARNOLD
Specialist in Factory Organization and Accounting.
Author of "The Complete Cost Keeper," and "Factory Manager and
Accountant."
JOHN F. J. MULHALL, P.A.
Specialist in Corporation Accounts.
Author of "Quasi Public Corporation Accounting and Management."
SHERWIN CODY
Advertising and Sales Specialist.
Author of "How to Do Business by Letter," and "Art of Writing and
Speaking the English Language."
FREDERICK TIPSON, C.P.A.
Author of "Theory of Accounts."
CHARLES BUXTON GOING
Managing Editor of _The Engineering Magazine_.
Associate in Mechanical Engineering, Columbia University.
Corresponding Member, Canadian Mining Institute.
F. E. WEBNER
Public Accountant.
Specialist in Factory Accounting.
Contributor to The Engineering Press.
AMOS K. FISKE
Associate Editor of the _New York Journal of Commerce_.
Author of "The Modern Bank."
JOSEPH FRENCH JOHNSON
Dean of the New York University School of Commerce, Accounts, and
Finance.
Editor, _The Journal of Accountancy_.
Author of "Money, Exchange, and Banking."
M. U. OVERLAND
Of the New York Bar.
Author of "Classified Corporation Laws of All the States."
THOMAS CONYNGTON
Of the New York Bar.
Author of "Corporate Management," "Corporate Organization," "The
Modern Corporation," and "Partnership Relations."
THEOPHILUS PARSONS, LL.D.
Author of "The Laws of Business."
E. ST. ELMO LEWIS
Advertising Manager, Burroughs Adding Machine Company.
Formerly Manager of Publicity, National Cash Register Co.
Author of "The Credit Man and His Work," and "Financial Advertising."
T. E. YOUNG, B.A., F.R.A.S.
Ex-President of the Institute of Actuaries.
Member of the Actuary Society of America.
Author of "Insurance."
LAWRENCE R. DICKSEE, F.C.A.
Professor of Accounting at the University of Birmingham.
Author of "Advanced Accounting," "Auditing," "Bookkeeping for Company
Secretary," etc.
FRANCIS W. PIXLEY
Author of "Auditors, Their Duties and Responsibilities," and
"Accountancy."
CHARLES U. CARPENTER
General Manager, The Herring-Hall-Marvin Safe Co.
Formerly General Manager, National Cash Register Co.
Author of "Profit Making Management."
C. E. KNOEPPEL
Specialist in Cost Analysis and Factory Betterment.
Author of "Systematic Foundry Operation and Foundry Costing," "Maximum
Production through Organization and Supervision," and other papers.
HARRINGTON EMERSON, M.A.
Consulting Engineer.
Director of Organization and Betterment Work on the Santa Fe System.
Originator of the Emerson Efficiency System.
Author of "Efficiency as a Basis for Operation and Wages."
ELMER H. BEACH
Specialist in Accounting Methods.
Editor, _Beach's Magazine of Business_.
Founder of The Bookkeeper.
Editor of _The American Business and Accounting Encyclopedia_.
J. J. RAHILL, C.P.A.
Member, California Society of Public Accountants.
Author of "Corporation Accounting and Corporation Law."
FRANK BROOKER, C.P.A.
Ex-New York State Examiner of Certified Public Accountants.
Ex-President, American Association of Public Accountants.
Author of "American Accountants' Manual."
CLINTON E. WOODS, M.E.
Specialist in Industrial Organization.
Formerly Comptroller, Sears, Roebuck & Co.
Author of "Organizing a Factory," and "Woods' Reports."
CHARLES E. SPRAGUE, C.P.A.
President of the Union Dime Savings Bank, New York.
Author of "The Accountancy of Investment," "Extended Bond Tables," and
"Problems and Studies in the Accountancy of Investment."
CHARLES WALDO HASKINS, C.P.A., L.H.M.
Author of "Business Education and Accountancy."
JOHN J. CRAWFORD
Author of "Bank Directors, Their Powers, Duties, and Liabilities."
DR. F. A. CLEVELAND
Of the Wharton School of Finance, University of Pennsylvania.
Author of "Funds and Their Uses."
[Illustration: THE SUPREME COURT BUILDING AT SPRINGFIELD, ILL.]
Foreword
With the unprecedented increase in our commercial activities has come
a demand for better business methods. Methods which were adequate for
the business of a less active commercial era, have given way to systems
and labor-saving ideas in keeping with the financial and industrial
progress of the world.
Out of this progress has risen a new literature--the literature of
business. But with the rapid advancement in the science of business,
its literature can scarcely be said to have kept pace, at least, not to
the same extent as in other sciences and professions. Much excellent
material dealing with special phases of business activity has been
prepared, but this is so scattered that the student desiring to acquire
a comprehensive business library has found himself confronted by
serious difficulties. He has been obliged, to a great extent, to make
his selections blindly, resulting in many duplications of material
without securing needed information on important phases of the subject.
In the belief that a demand exists for a library which shall embrace
the best practice in all branches of business--from buying to selling,
from simple bookkeeping to the administration of the financial affairs
of a great corporation--these volumes have been prepared. Prepared
primarily for use as instruction books for the American School of
Correspondence, the material from which the Cyclopedia has been
compiled embraces the latest ideas with explanations of the most
approved methods of modern business.
Editors and writers have been selected because of their familiarity
with, and experience in handling various subjects pertaining to
Commerce, Accountancy, and Business Administration. Writers with
practical business experience have received preference over those with
theoretical training; practicability has been considered of greater
importance than literary excellence.
In addition to covering the entire general field of business, this
Cyclopedia contains much specialized information not heretofore
published in any form. This specialization is particularly apparent in
those sections which treat of accounting and methods of management for
Department Stores, Contractors, Publishers and Printers, Insurance, and
Real Estate. The value of this information will be recognized by every
student of business.
The principal value which is claimed for this Cyclopedia is as a
reference work, but, comprising as it does the material used by the
School in its correspondence courses, it is offered with the confident
expectation that it will prove of great value to the trained man who
desires to become conversant with phases of business practice with
which he is unfamiliar, and to those holding advanced clerical and
managerial positions.
In conclusion, grateful acknowledgment is made to authors and
collaborators, to whose hearty coˆperation the excellence of this work
is due.
Table of Contents
(For professional standing of authors, see list of Authors and
Collaborators in front of volume.)
VOLUME III
LAW OF CONTRACTS AND AGENCY _By John A. Chamberlain_ Page 11
Law in General--Contracts--Consideration--Revocation--Illegal
Contracts--Mistake--Assignments--Discharge of Contract--Warranty--
Recision--Remedies for Breach--Forms of Contracts--Appointment of
Agents--Sub-Agents--Factors--Brokers--Auctioneers--Real
Estate Brokers
LAW OF PARTNERSHIP AND CORPORATIONS _By John A. Chamberlain_ Page 77
Creation of Partnership--Agreements--Rights and Liabilities--
Change of Membership--Survivorship--Dissolution--Powers of
Corporations--Capital Stock--Calls and Assessments--Watered
Stock--Common and Preferred Stock--Dividends--Officers and Agents
LAW OF NEGOTIABLE INSTRUMENTS, BANKING, AND INSURANCE
_By John A. Chamberlain_ Page 112
Negotiability and Assignability--Law Merchant--Notes, Drafts,
Bills of Exchange, and Checks--Bonds--Indorsement--Forgery--
Fraud and Duress--Consideration--Defences--Dishonor and Protest--
Functions and Powers of Banks--Deposits--Loans and Credits--
Discount--Exchange--Interest--Insurance Contracts--Policies--
Suretyship--Subrogation--Indemnity
LAW OF SALES, MORTGAGES, AND CARRIERS _By John A. Chamberlain_ Page 179
Sale, Barter, and Bailment--When Title Passes--Effect of Fraud--
Warranties--Seller's Lien--Title to Property Bailed--Degree of
Care Required--Pledges--Collateral Securities--Redemption--
Mortgages--Form of Mortgages--Foreclosure--Title to Goods after
Delivery--Stoppage _in Transitu_--Interstate Commerce Act--
Passengers--Baggage
LAW OF REAL PROPERTY _By John A. Chamberlain_ Page 236
Crops and Emblements--Party Walls--Fixtures--Fences--Private
Ways and Highways--Varieties of Estates--Waste--Deeds--
Possession--Deeds and Mortgages--Transfer of Mortgages and
Mortgaged Premises--Satisfaction--Redemption--Foreclosure--
Parties to Trusts--Varieties of Trusts--Rights of Tenant--
Rent--Distress--Leases--Actions for Possession--Trade Marks
LAW OF WILLS AND LEGAL ACTIONS _By John A. Chamberlain_ Page 287
Parties and Terms in Wills--Publication--Revocation and
Alteration--Advancement, Abatement, and Ademption--Form of
Wills--Varieties of Courts--Legal Actions and Their Enforcement
INDEX Page 311
[Illustration: THE BUILDING OF THE LAW SCHOOL OF THE UNIVERSITY OF
CHICAGO]
COMMERCIAL LAW
PART I
LAW IN GENERAL
=1. Rights.= Men are endowed with certain individual rights. These
rights are principally of two classes, personal and property. Men have
the right to live in peace and quietude. In so far as it does not
interfere with the same privilege on the part of others they have the
right to be unmolested in the pursuit of happiness. They have the right
to defend themselves against the attacks of others, to satisfy bodily
hunger and thirst, and to preserve their bodies in health and strength.
Besides these personal rights, men have the right to acquire and
keep property. This right is also subject to the limitation of not
interfering with the same privilege on the part of others. Men have the
right to acquire property, both chattel and real. For the purpose of
rendering their existence and enjoyment secure, they have the right to
keep the title and possession of this property in themselves.
In primitive times, property rights were few. Personal rights were
recognized and enforced by might. As the requirements of civilized life
became more complex, property rights were needed and recognized. Rules
of conduct and rules for the holding and transfer of property were
recognized and enforced. Might ceased to be the principal method of
enforcing rights. Rules began to be recognized and enforced with regard
to persons and property. These rules are known as laws.
=2. Law.= Law may be defined to be a rule of human conduct. It may be
said to embrace all rules of human conduct recognized by courts of law.
Laws are necessary to enable men to enforce and enjoy their rights,
both personal and property. Customs of men become rules by which human
affairs are regulated. Men may disagree as to what their rights are, or
as to their exact scope or limitations. In this event, rules of conduct
or laws must determine their scope and limitations. Disputes among men
arise about their personal or property rights. The rules recognized by
the courts in settling these disputes are laws. These rules or laws
relate both to persons and property. A law which prohibits murder is a
rule by which the state protects the lives of its citizens; a law which
prohibits theft is a rule for the protection of property.
=3. Sources of Law.= Law is derived from the customs of the people and
from the written declarations or agreements of the people or their
representatives. The customs of the people, constituting a large
part of our law, are found principally in the decisions of courts.
Each state of this country prints and keeps a permanent record of
at least the most important decisions of its court of last resort.
Many decisions of lower courts are printed and preserved. Every law
library of importance has the printed reports of the supreme court
of each state of this country; as well as the reports of the higher
courts of most of the countries where the English language is spoken
or officially recognized. The reports of the higher courts of England,
Ireland, Canada, Australia, and of many of the island possessions
of this country and of England, are found in most law libraries.
The second source of law is the written declaration of the people
or their representatives. These declarations consist of legislative
acts, treaties and constitutions. In this country, legislative acts
may be either national or state. Many statutes are nothing more than
recognized customs enacted into written laws. Other statutes are
variations or restrictions of recognized customs. National legislative
acts are numbered consecutively, printed and bound into volumes
known as the _Federal Statutes_. Each state numbers its statutes
consecutively and prints and binds them into volumes known as the
_State Statutes_.
=4. Divisions of the Law.= There are two great divisions of the law,
_written_ and _unwritten_. The greater portion of the law consists of
the customs of the people, as evidenced and preserved by the written
decisions of the courts. These customs, to be recognized as law, need
not be found in written decisions, but the most important ones have
become embodied therein. New customs are necessary and are recognized
to meet new and changing conditions. These new customs are continually
adding to our unwritten law. While this great portion of the law
is called unwritten law, the greater portion of it actually is in
writing, and is preserved in permanent form by our court reports, both
national and state.
The second division of law is known as written law. It consists
of treaties, constitutions, and legislative acts. _Treaties_ are
international compacts. _Legislative acts_ are the laws passed by the
people or their representatives. In this country they consist of the
laws passed by the United States Congress, and by the representative
bodies of each state. _Constitutions_, in this country, consist of the
State Constitutions and the United States Constitution. In England the
constitution is not written, but is a part of the unwritten law of the
land.
=5. Classification of Law.= A number of useful classifications of the
law are recognized. Any classification is more or less arbitrary, and
no classification has been recognized universally.
Law may be classified as _public_, _administrative_, and _private_.
Public law embraces the law of nations, called _international law_;
the laws regulating the enforcement and recognition of constitutional
provisions, called _constitutional law_; and the laws protecting
citizens against the actions of dangerous characters, called _criminal
laws_.
The public as a unit is said to be interested in public law. Public
laws are recognized and enforced in theory, at least, for the benefit
of the public and not for any particular individual. For example, if
a murder is committed, the state through its officers prosecutes and
punishes the criminal on the theory that a wrong has been done the
state. The heirs or representatives of the person murdered can sue and
recover money compensation, called _damages_, from the murderer, but
the state punishes the criminal. This work does not treat of public law.
_Administrative law_, sometimes called _Law of Procedure_, embraces
the rules and regulations relating to the enforcement of personal and
property rights. The laws relating to courts, the method and manner
of starting legal actions, the trial of cases, and the rendering and
enforcement of judgments are common examples of Administrative Law.
_Private law_ embraces the _law of contracts_ and of _torts_.
Contracts consist of agreements of every nature. The great majority of
dealings of men are carried out by means of contracts. This is the
most important, as well as the most extensive subject known to the law.
Torts embrace all private wrongs not arising out of contracts. Any
injury inflicted by one person upon the person or property of another,
which is not a breach of contract, is a tort. Tort is the French word
for private wrong. If _A_ carelessly drives his automobile into _B_'s
wagon, he commits a tort. If _A_ carelessly drives his horse over _B_'s
field, he commits a tort. If _A_ wrongfully strikes _B_, he commits a
tort. Torts and crimes frequently over-lap. The same act may constitute
a tort and a crime. If _A_ drives his automobile faster than the laws
of the state or city permit, and while so doing runs over and injures
_B_, he commits both a tort and a crime. He is liable to the state for
imprisonment or fine for the crime, and he is liable to _B_ in money
for damages for the tort.
The same act may constitute a crime, a breach of contract, and a tort.
If _A_, engaged as a chauffeur to operate an automobile carefully
and skillfully, violates the speed law, and in so doing runs over
and injures _B_, he commits a crime and is liable to the state for
punishment or fine. He is also liable in damages to _B_ for the tort
committed, and is liable in damages to his employer for breach of
contract. This work has largely to do with the law of contracts and
torts.
The term _Commercial Law_, applied to this work, is a term used
arbitrarily to embrace the laws relating to commercial affairs. It has
no distinct place in the general classification of law.
CONTRACTS
=6. Contract, Defined and Discussed.= A contract has been defined to be
an agreement between two or more competent parties, enforceable in a
court of law, and based upon a sufficient consideration, to do or not
to do a particular thing.
The law relating to contracts is the most important, as well as the
most extensive, branch of commercial law. It touches, directly or
indirectly, most of the dealings of men. It is the legal basis of all
business transactions.
In the daily routine of their life, most families make many contracts.
By reading the morning paper left at his door, a person impliedly
agrees to pay the publisher the customary price. By ordering the daily
supply of groceries by telephone, the housewife impliedly contracts
to pay for their value, upon delivery, or at the customary time of
payment. By purchasing a number of car tickets from the street car
conductor, a person makes a contract. By ordering a lunch, a person
impliedly agrees to pay the customary price. In the more important
business transactions, formal contracts are written out and signed.
In these transactions the parties endeavor to define their duties and
obligations clearly and expressly, in order that they may understand
each other and in order that neither can dishonestly claim that the
contract contains a certain provision or condition. Contracts are legal
or illegal, void or voidable, depending upon their form and nature.
An understanding of the necessary elements of valid contract is the
foundation, to the understanding of commercial law.
=7. Offer, Acceptance and Agreement.= To constitute a transaction
a valid contract, there must be an offer on the one hand, and an
acceptance on the other. This necessitates at least two parties to
every contract. One must make a proposition, the other must accept it.
The acceptance must be of the exact terms of the offer, to constitute
a legal acceptance. If the attempted acceptance is not made in the
precise terms of the offer, it constitutes a counter offer, which,
to constitute a contract must, in turn, be accepted by the original
offeror.
If _A_ offers _B_ one hundred dollars for _B's_ horse, and _B_ in turn
agrees to take one hundred dollars, the transaction constitutes a
valid contract. If _A_ offers _B_ one hundred dollars for _B's_ horse,
and _B_ in turn offers to sell the horse for one hundred and twenty
dollars, the transaction does not constitute a contract, for the reason
that _A's_ offer has not been accepted. _B_, however, makes a counter
offer, which if not assented to by _A_, constitutes no contract. If,
however, _A_ agrees to accept _B's_ offer to sell the horse for one
hundred and twenty dollars, this constitutes a valid contract, in
which _B_ is the offeror and _A_ the acceptor. These counter offers
in response to offers may go on indefinitely without constituting
contracts. So long as the response to the offer varies the terms of
the offer, it constitutes a counter offer, and not an acceptance. To
constitute an acceptance, the exact terms of the offer must be agreed
to.
Courts lay down the principle that there must be a meeting of the
minds of the contracting parties, to constitute the transaction a valid
contract. This means that the offer must be accepted in its precise
terms. The minds of the contracting parties cannot meet, unless the
acceptance is of the exact terms of the offer. This principle is
sometimes called _mutuality_. An acceptance must be communicated to
the offeror. A mere mental operation, or an attempted acceptance, not
communicated to the offeror, does not constitute a legal acceptance.
The offer, or acceptance, may be in the form of an act as well as by
verbal or written communication. If a person orders a barrel of flour
of his grocer, the order constitutes the offer, and the delivery of
the flour and the receipt of same by the purchaser, constitutes the
acceptance. The purchaser is bound to pay the market price for the
flour, regardless of the fact that the price has not been mentioned.
An offer can be recalled at any time before acceptance. To recall
an offer, the offeror must communicate his intention so to do, to
the acceptor before acceptance. Agreements to hold offers open for
a stipulated time are recognized. These options are, in themselves
contracts, and to be binding must contain all the essential elements of
a contract.
An offer which has been accepted constitutes an _agreement_. An
agreement, as the word suggests, means a meeting of the minds of two or
more parties. The word is frequently used as synonymous with contract,
but it is merely an element of a contract. While there must be an
agreement in every contract, an agreement of itself does not constitute
a contract. There may be an agreement between persons under legal age,
but this agreement does not constitute a contract.
Besides an agreement, or meeting of the minds, a contract must have
competent parties, a legal valuable consideration, and a lawful object.
These are often called the elements of a contract.
=8. Parties to a Contract.= A contract must have at least two competent
parties. Each party to a contract may consist of one or more persons.
To be competent to make a contract, a party must be of legal age.
Legal age is twenty-one years for males, and ordinarily, eighteen for
females. Legal age is fixed by statutes of the different states. These
statutes differ somewhat as to the legal age of females. Some fix it
at twenty-one, others at eighteen, and some even younger than eighteen,
in case of marriage. Intoxicated persons, insane persons and idiots are
not competent to make contracts. Artificial persons or corporations can
make contracts within the scope of the powers given them by the state.
A person who does not voluntarily consent to the terms of a contract is
not a party to it. Where fraud or duress is used in obtaining a party's
consent to a contract, the contract is at least voidable. It is not
enforceable if the defrauded party objects on that ground.
=9. Consideration.= Consideration may be _good_ or _valuable_. Good
consideration consists of love and affection existing between near
relations. Good consideration is a sufficient consideration to support
a deed given by one relative to another. But this is the only kind of
contract supported by a good consideration.
Valuable consideration has been defined to consist of some right,
interest, profit or benefit, accruing to the promisor, or some
forbearance, detriment, loss or responsibility, given, suffered or
undertaken by the party, to whom the promise is given. In short it is a
benefit to the promisor, or a detriment to the promisee. All contracts,
with the exception of sealed instruments, must be supported by a
valuable consideration. Sealed instruments, except where abrogated by
statute, import a consideration.
_A_ promises to sell his watch to _B_ for ten dollars. _B_ accepts
the offer by offering to pay _A_ ten dollars. There is a valuable
consideration, consisting of _B's_ promise to pay _A_ ten dollars.
_A_ promises _B_ two dollars if _B_ will guard _A's_ house for two
hours. There may be no actual benefit resulting to _A_, since it may
have been unnecessary to have the house guarded. But if _B_ guards
the house for two hours, _A_ is legally bound to pay him the contract
price of two dollars. The valuable consideration is the detriment or
responsibility of _B_ in guarding the house for two hours.
Mutual promises constitute a valuable consideration. If _A_ promises
_B_ two dollars if _B_ will work for him next Thursday, and _B_
promises _A_ to work for him next Thursday, the contract is mutual, and
is supported by a valuable consideration. The consideration consists of
the promise on the part of each of the contracting parties.
A past consideration will not support a contract. By a past
consideration, is meant a benefit received in the past, for which no
legal liability was incurred or exists. _A_ gives _B_, his son, five
hundred dollars. One year later, in consideration of the past gift,
_B_ promises to construct a dam for _A_. The consideration is past and
does not support the attempted contract.
A consideration, to be valuable and sufficient to support a contract,
need not be adequate. A mutual promise, no matter how slight or
trivial, or the payment of anything valuable to the promisor, is
sufficient. Sometimes the inadequacy of the consideration tends to
prove fraud in the making of the contract. When it is sought to avoid
a contract on the ground of fraud, the inadequacy of the consideration
may be considered in connection with the question of fraud. When fraud
does not enter into the question, adequacy of the consideration is not
questioned.
_A_ sells _B_ one hundred acres of land. The deed recites a
consideration of one dollar. The deed of transfer is good and the
smallness of the sum named does not affect the contract.
A promise to do something which one is already legally bound to do does
not constitute a valuable consideration to a contract. _A_ owes _B_
one hundred dollars upon a promissory note. The note is past due and
_A_ fails to pay it. _A_ promises to pay the note within ten days, on
condition that _B_ promise to give _A_ a barrel of apples. _B_ agrees.
_A_ cannot compel _B_ to deliver the barrel of apples, nor has _A_ any
defense to the payment of the promissory note, since his promise to pay
the note was a promise to do something he was already bound to do.
An illegal consideration does not support a contract. Any consideration
contrary to established law is illegal. _A_ promising to pay _B_ one
thousand dollars if _B_ will burn _C's_ barn is an example of illegal
consideration.
=10. Express and Implied Contracts.= Some contracts expressly set
forth the exact terms and conditions to be performed by both the
contracting parties. For example, _A_ makes a contract with _B_, by the
terms of which, _B_ is to construct a house for _A_. The contract is
carefully prepared in writing, _B_ is to receive five thousand dollars
($5,000.00) when the house is completed, and the contract contains
provisions as to the details of the work and materials. Such a contract
is called an _express contract_ by reason of the terms having been
expressly agreed upon by the parties. A contract need not be in writing
to be express. The parties may enter into an express contract orally as
well. Few contracts are made, however, in which some things are not
implied. For example, in the contract for the building of a house it
is practically impossible, or at least, is impracticable, to set forth
in exact detail all the duties of the builder. For example, it would
be unnecessary to give the size of the nails and number or quantity of
same to be used. The contract impliedly requires the builders to use
the proper size and quantity. A contract, however, in which the parties
endeavor to set forth the principal things to be done, is known as an
express contract.
An _implied contract_ is one in which the parties do not expressly
agree upon some of the important terms. _A_, a contractor, orders
of _B_ one thousand feet (1,000 ft.) of No. 1 white pine ship lap
siding. The price is not mentioned. _B_ delivers the lumber and _A_ by
implication is obliged to pay _B_ the reasonable value thereof. The
greater portion of business contracts are implied. An implied contract
should not be confused with uncertain contracts. Uncertain contracts
are void by reason of their uncertainty. _A_ offers _B_ one thousand
dollars for five acres of land. _B_ accepts the offer. In case the
parties had no particular five acres of land in mind, the contract is
void by reason of this uncertainty. The parties' minds did not meet on
the question of what particular piece of land was to be transferred. In
most implied contracts the article to be delivered is a part of a large
quantity, and the particular part does not matter. Articles ordered
from stock, such as groceries, shingles, slate, cement and lumber are
common examples of this principal.
=11. Unilateral and Bilateral, Executory and Executed Contracts.= The
mutuality or meeting of the minds, constituting one of the essential
elements of the contract, may result from an express promise for
a promise, or from an act performed in response to a promise. _A_
promises to sell his automobile to _B_ on the following day for five
thousand dollars ($5,000.00). _B_ promises to pay _A_ five thousand
dollars ($5,000.00) the following day. The mutuality consists of the
mutual promises of _A_ and _B_. Such contracts are known in law as
_bilateral_ contracts.
_A_ promises to pay _B_ one thousand dollars ($1,000.00) if _B_ will
move his house to the rear of _A's_ lot. _B_, without promising to
do so, moves the house. This act on the part of _B_ constitutes the
acceptance of the contract and completes the mutuality. Such contracts
are known in law as _unilateral_ contracts.
A contract to be performed in the future is known as an _executory_
contract. _A_ promises to pay _B_ seventy-five dollars, if he will
work on _A's_ farm during the month of August of the following year.
_B_ accepts _A's_ offer and promises to work for _A_ as proposed. The
contract is to be performed at a subsequent date, and constitutes an
executory contract.
An _executed_ contract is one which is performed. _A_ promises to sell
his bicycle to _B_ for fifty dollars ($50.00); _B_ pays the fifty
dollars ($50.00) to _A_ and receives the bicycle. This contract is
executed.
A contract may be executed as to one party and executory as to the
other. If _A_ agrees to sell and deliver his team of horses to _B_ for
five hundred dollars ($500.00) and _B_ pays _A_ five hundred dollars
($500.00) but _A_ does not deliver the team to _B_, the contract is
executed as to _B_ and executory as to _A_.
=12. Contracts of Infants.= A person under legal age is known in law as
an infant. The legal age is fixed by statute in the different states.
In most states this age is twenty-one for males and eighteen for
females. In some states the legal age for females is under eighteen in
case of marriage.
An infant's contracts are voidable. Voidable does not mean that the
contract is illegal. It is not contrary to law for an infant to make
contracts. He may lawfully make them. The law will not compel him to
carry them out. He may carry them out voluntarily if he chooses.
A competent party, contracting with an infant cannot avoid the contract
on the general ground of the infancy of the other party to the
contract. The infant, however, may avoid the contract by reason thereof.
An infant may ratify his contract after becoming of legal age. This
ratification is effected by the infant's accepting benefits under
the contract after attaining his majority. Ratification may also be
effected by an infant after he has reached his majority by promising to
carry out the contract. To have such a promise amount to a ratification
the infant must make the promise with knowledge that he may avoid the
contract if he chooses.
An infant is liable on his contracts for necessaries. _Necessaries_
is a variable term, depending upon the social position of the infant.
Those articles essential to the health and sometimes to the comfort
of the infant are considered necessaries. Food and clothing are the
most common examples. A person selling an infant necessaries, cannot
recover in excess of their reasonable value regardless of the contract
price, and cannot recover at all, if the infant is already supplied.
Most courts hold that a party selling necessaries to an infant must
determine at his peril that the infant is not supplied. Articles which
would be luxuries for one infant, might be necessaries for an infant
accustomed to wealth.
An infant is not entitled to his wages unless he has been emancipated.
The father or guardian is entitled to the wages. Emancipation may be by
written declaration to that effect, on the part of the father. It may
also be implied from the refusal or failure on the part of the father
to treat the infant as his child.
=13. Novation and Contracts for the Benefit of Third Persons.= If _A_
owes _B_ one hundred dollars ($100.00) and _B_ owes _C_ one hundred
dollars ($100.00), the three parties may agree that _A_ may pay _C_ one
hundred dollars ($100.00), discharging the indebtedness of both _A_ and
_B_. This contract is valid in law, and is called _novation_.
Much of our common or unwritten law was taken from the common law
of England. The common law of England did not permit a third party,
for whose benefit a contract was made, to enforce the contract. For
example, if _A_ and _B_ enter into a contract by which _A_ is to
pay _C_ some money, _C_ cannot enforce the contract. This kind of a
contract is commonly known as a contract for the benefit of a third
person. With a few exceptions, the states of this country refuse to
follow the English doctrine. The general American doctrine is that a
third party may enforce a contract made for his benefit. For example,
_A_, a furniture dealer was indebted to _B_ for a bill of goods; _C_
purchased _A's_ business, and in a formal written contract, as part of
the consideration, agreed to pay _B_ the amount of _A's_ bill. After
the transfer of the business, _A_ became insolvent and _B_, learning of
the contract between _A_ and _C_, sued _C_ thereon and was permitted
to recover. The general American doctrine will not permit two parties,
making a contract for the benefit of a third, to rescind or avoid
the contract after the third party has been notified of it, and has
assented thereto. Of course, two parties cannot bind a third party to
perform any condition of a contract without his consent. This would
violate some of the fundamental principles of contracts. There would be
no consent, no meeting of the minds, and sometimes no consideration.
=14. Contracts of Insane Persons, Idiots, and Drunkards.= An insane
person, or one that does not understand the nature of the contract
in question, is not bound by his contracts. He may avoid them. Like
an infant, he may ratify them when he becomes sane, if he chooses.
Statutes of all the states provide for the determination of insanity
by judicial decree. Such a judicial determination is presumed to give
notice to all. An idiot's contracts are the same as an insane person's.
A drunkard can avoid a contract made while he was intoxicated, and if
the drunkenness amounts to insanity, it is regarded in law as such.
Contracts made by a drunkard when not drunk, or by a lunatic during a
lucid interval are valid and binding.
=15. Contracts of Married Women.= At common law, upon marriage, the
wife lost her legal identity in her husband. Her estate became his,
her personal property became his, and she could not thereafter enter
into any legal obligation. The statutes of the states generally at the
present time permit a married woman to contract as independently as a
man, relative to her separate estate. In some states there are a few
limitations, such as contracting directly with her husband or as surety
for her husband.
=16. Custom and Usage as Part of a Contract.= Parties may enter into
any contracts they choose, so long as the terms are legal. If parties
expressly agree, either orally or verbally, on the precise terms of a
contract, these terms cannot be varied by usage or custom. Usage and
custom may be used, however, to explain the intent of the parties.
Merchants and traders recognize various trade customs, without which
it would be impossible to interpret their contracts. For example,
_A_ ordered five thousand barrels of cement of _B_, at eighty-five
cents a barrel, to be delivered in sacks F. O. B. Mill. In a suit for
the purchase price, the court permitted _B_ to show that there was a
well-known custom in the cement trade to add to the invoices forty
cents per barrel for sacks, making the invoice selling price of the
cement and sacks one dollar and twenty-five cents ($1.25) per barrel.
To constitute a part of the contract, usage and custom must be of such
a general nature as to be considered within the contemplation of the
parties.
=17. Contracts in Writing.= Parties may make contracts verbally, as
well as in writing. A contract is not illegal because it is verbal. It
is good business policy to make important contracts in writing. Their
terms are easily proven. There is not the temptation to attempt to vary
the terms. Parties cannot claim they did not understand each other. It
may be laid down as a general rule that oral contracts are as legal
as written ones. By the term, _legal_ is meant that the law does not
prohibit them. Parties may lawfully make oral contracts, and carry them
out if they choose. Some contracts, however, are not enforceable at law
unless in writing. These contracts are legal. Parties may lawfully make
them and voluntarily carry them out, but they cannot invoke the aid of
the law in enforcing their terms.
=18. Statute of Frauds.= The class of contracts, required by law to be
in writing in order that they be enforceable, is said to be within the
Statute of Frauds.
The Statute of Frauds originated in England in 1677. It was passed
for the purpose of preventing frauds and perjuries. It required that
certain important contracts must be made in writing, in order to be
enforceable at law. The purpose of the statute was to remove the
temptation of fraud and perjury in connection with the making and
enforcing of certain contracts. Two sections of the English statute
apply especially to contracts; the fourth and the seventeenth. The
fourth section is as follows:
"No action shall be brought whereby to charge any executor or
administrator, upon any special promise to answer damages out of
his own estate; or whereby to charge the defendant upon any special
promise, to answer for the debt, default, or miscarriage of another
person; or to charge any person upon any agreement made upon
consideration of marriage; or any contract or sale of lands, tenements
or hereditaments, or any interest in or concerning them; 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 other
person thereunto by him lawfully authorized."
The seventeenth section of the English Statute of Frauds is as follows:
"No contract for the sale of any goods, wares, or merchandise for the
price of ten pounds sterling or upwards, shall be allowed to be good
except the buyer shall accept part of the goods so sold, and actually
receive the same, or give something in earnest to bind the bargain,
or in part payment, or some note or memorandum in writing of the said
bargain, be made and signed by the parties to be charged by such
contract or their agents thereunto lawfully authorized."
The English Statute of Frauds has been enacted in substance in all the
states. Reduced to single propositions the statute provides:
1. That an executor or administrator shall not be bound by contract to
pay damages out of his own estate, unless the contract be in writing.
For example, _A_ is executor of _B's_ estate. _C_ is a creditor of
_B_. _A_ orally promises _C_ to pay _B's_ debt. This contract is not
enforceable because not in writing.
2. A party promising to answer for the debt, default or miscarriage of
another, shall not be bound unless the contract is in writing.
For example, if _A_ owes _B_ $100 and _C_ promises _B_ to pay _A's_
debt, the contract is not enforceable if not in writing. This clause of
the statute is discussed more at length in the chapter on suretyship.
3. A contract made in consideration of marriage is not enforceable
unless made in writing.
For example, _A_ orally promised _B_ that if he would marry her, she
would convey to him her farm. _B_ married _A_, but could not enforce
the contract. A promise to marry is not within this section of the
statute.
4. Any contract or sale of lands must be in writing to be enforceable.
For example, _A_ orally promises _B_ to sell his house and lot for ten
thousand dollars ($10,000.00). The contract is not enforceable. Most of
the states do not require that leases of less than a year's duration be
in writing, to be enforceable.
5. An agreement, not to be performed within the space of one year, must
be in writing to be enforceable.
For example, _A_ orally promises to work for _B_ as sales agent for
three years. This contract is not enforceable.
6. No contract for the sale of goods the price of which exceeds fifty
dollars ($50.00) shall be enforceable unless made in writing.
This provision of the English Statute has not been reÎnacted by all
the states. About half the states do not require that contracts for
the sale of personal property shall be in writing, regardless of the
price involved. Some of the states fix the price as high as two hundred
dollars ($200.00) and others, as low as thirty dollars ($30.00).
The details of the entire contract need not be in writing to satisfy
the provisions of the statute. A memorandum embodying the substance of
the agreement, showing the consideration, and signed by the party to be
bound, or by his authorized agent, is sufficient.
Contracts called _specialties_, have to be in writing, regardless of
the Statute of Frauds. The most common examples are bills and notes,
drafts and checks. These special contracts are made to circulate as
money, and must be reduced to writing to be enforceable. There can be
no such thing as an oral check, or draft, or promissory note. The oral
contract for which they are given may be enforced, if not within the
provisions of the Statute of Frauds.
=19. Contracts by Correspondence and Telegraph.= Parties need not meet
personally to enter into contracts. They may legally make them by
telegraph or by letter.
It is well settled by the courts that a party may make an offer by
letter, and that in so doing he impliedly gives the party addressed,
the right to accept by letter. In law, the contract is complete the
moment the letter of acceptance is mailed, regardless of its ever being
received.
The offeror may stipulate in his offer by letter, that the contract
shall not be made until he is in receipt of a reply. In this event, the
acceptor's letter must actually be received by the offerer, before the
contract is complete. But if no such stipulation is made, the contract
is complete when the letter of acceptance is mailed.
If no time for acceptance is stipulated in the offerer's letter, the
acceptor has a reasonable time in which to accept. What is a reasonable
time, depends upon the nature of the transaction, and the circumstances
surrounding it. If the offeror stipulates in his letter that the offer
must be accepted by any stipulated time, the offer, of itself, lapses
at the expiration of that time. If _A_ mails a letter to _B_, offering
to sell one hundred bushels of wheat for one hundred dollars ($100.00),
and the following day _B_ mails a letter, properly addressed, postage
prepaid, to _A_, accepting the offer, and the letter is lost, the
contract is complete and _B_ may recover from _A_ thereon.
If _A_, by letter offers to sell _B_ one hundred bushels of wheat for
one hundred dollars ($100.00), the offer to remain open until Thursday,
and _B_ mails his letter of acceptance Wednesday, and the letter is
lost, the contract is binding and _A_ is liable thereon. If _A_ by
letter offers to sell _B_ one hundred bushels of wheat for one hundred
dollars ($100.00), the offer to be accepted upon receipt of _B's_
reply, and _B's_ reply is lost in the mails, there is no contract.
=20. Revocation.= It is a well recognized principle of contracts that
an offer may be revoked, or withdrawn, at any time before acceptance.
In case of revocation by mail, however, the letter of revocation
must be received by the acceptor, before he has mailed his letter of
acceptance. For example, _A_ mails _B_ a letter offering to sell _B_
one hundred bushels of wheat for one hundred dollars ($100.00). _B_
mails his letter of acceptance. By the next mail _B_ receives a letter
of revocation. The contract is valid since the letter of revocation was
not received, until after the letter of acceptance was mailed.
The only offers that cannot be withdrawn at any time before acceptance,
are what are known in law as _options_. Options are contracts to
keep an offer open for a stipulated length of time. They require
a consideration, an agreement and all the elements of an ordinary
contract. They are contracts. _A_ agrees by letter to sell _B_ one
hundred bushels of wheat, and to keep the offer open three days. On
the second day, and before _B_ has mailed his acceptance, _B_ receives
a letter from _A_, by which _A_ withdraws his offer. _B_ cannot now
accept _A's_ offer, since there was no consideration for _A's_ promise
to keep the offer open three days.
_A_ writes _B_, offering to sell him one hundred bushels of wheat for
one hundred dollars ($100.00), and to keep the offer open for ten days.
_B_ writes _A_ that he will give him $2.00 if he will keep the offer
open ten days. _A_ accepts the offer. On the sixth day _B_ receives
a letter from _A_ revoking the offer to sell, and on the following
day _B_ mails his letter of acceptance. There is a valid contract
in this case, since _B_ had a contract with _A_ based on a valuable
consideration to keep the offer open ten days.
Contracts by telegraph are analogous in principle to contracts by
letter. An offer by telegraph impliedly authorizes the receiver to
accept by telegraph and the offer is accepted when the reply message is
deposited with the operator. If lost, or not sent, the contract is not
affected in the least.
=21. Contracts under Seal.= Formerly, at common law, contracts under
seal were frequent. At the present time few contracts are made under
seal. Originally a seal was an impression made in wax placed on
a written document. Sealed instruments differ from other written
instruments in that they import a consideration. At common law, no
consideration need be proven to a sealed instrument. Formerly, private
seals were in common use. Later, a scroll made with the pen or a line
or any mark designated as a seal was sufficient.
Private seals have been abolished by statute in many of the states, so
that their use is now limited. The modern tendency is not to use sealed
instruments, or when used, to regard them as different in no respect
from other contracts.
=22. Sunday Contracts.= All the states of this country have statutes
prohibiting the transaction of business on Sunday. These statutes are
based on "the Lord's Day Act" of England. The English statute provides
that persons shall not do or exercise any worldly labor, business or
work of their ordinary callings, upon the Lord's Day, or any part
thereof, works of necessity and charity only excepted.
While the statutes of the different states differ in details, they
are based upon the English statutes. Under the English statute, it
is difficult to determine in many cases what constitute "works of
necessity and charity." The duties of clergymen, physicians and of
nurses clearly are covered. It is sometimes stated that a person cannot
make contracts, within the ordinary scope of his customary business, on
Sunday. This is true, if it does not relate to charity or necessity.
Deeds, notes and ordinary contracts, made and delivered on Sunday are
void. Subscriptions for church funds may legally be made on Sunday.
=23. Illegal Contracts.= A contract prohibited by law, or made for the
purpose of doing something prohibited by law, is illegal, and void. If
_A_ promises _B_ one hundred dollars ($100.00) if _B_ will poison _C's_
horse, the contract is contrary to law and illegal. If _B_ poisons
_C's_ horse, he cannot recover the one hundred dollars ($100.00) from
_A_.
Contracts which are against public policy are illegal and void. Public
policy means the public welfare. Marriage brokerage contracts and
contracts in restraint of trade come within this provision. Lobbying
contracts, contracts to influence votes, and for railroad rebates are
against public policy and void.
=24. Wagering or Gambling Contracts.= In England, at common law,
wagering or gambling contracts were valid. Gambling contracts were
recognized as legal by some of the states at one time. At the present
time, by statute the states declare gambling contracts illegal and void.
A contract for the sale of goods, to be delivered in the future, even
though the seller does not have possession of the goods at the time the
contract of sale is made, but expects to purchase them from a third
person, is not regarded as a gambling contract, and is valid.
Contracts for the purchase of stocks or goods in which there is no
expectation to deliver, but simply an agreement to pay the difference
in price at a certain date according to the state of the market, are
gambling contracts, and void.
=25. Fraud and Duress.= Fraud may be said to be misrepresentation of a
material fact, known by the party making the misrepresentation to be
false, and made for the purpose of influencing the other party to the
contract, and acted upon by the other party to his detriment.
For example, _A_ offers to sell _B_ a horse for two hundred and fifty
dollars ($250.00). He tells _B_ the horse is sound, knowing that
the horse has a disease which renders him worthless. He makes the
representation of soundness for the purpose of inducing _B_ to buy. _B_
relies upon the representation, purchases the horse, and afterwards
discovers the worthless condition of the horse. _B_ can return the
horse and recover the purchase price. This is known as rescinding a
contract on the ground of fraud.
A fraudulent contract is not void, but voidable. The defrauded party
may avoid the contract if he chooses, but the contract itself, is not
without effect, simply by reason of the fraud.
A mere failure to disclose facts or conditions, if not accompanied by
active measures to distract the defrauded party's attention from the
thing to be concealed, ordinarily does not amount to fraud.
If one party by means of threatened or actual violence compels another
to enter into a contract, or to part with something of value, the
contract is said to have been obtained by duress. Such contracts may be
avoided by the injured party, who may recover what he has lost.
_A_, a police officer, wrongfully arrests and imprisons _B_ and
releases him only after _B_ has signed a promissory note for one
hundred dollars ($100.00). _A_ cannot recover on the note.
_A_, who is superior in physical strength to _B_, by threats of
personal violence, compels _B_ to admit that he is indebted to _A_ for
one hundred dollars ($100.00), which _B_ pays _A_. _B_ may recover the
money from _A_. The contract is voidable on account of duress.
=26. Mistake.= One of the essential elements of a contract is that
there must be a meeting of the minds of the contracting parties. If
there is a mutual mistake on the part of the contracting parties, their
minds do not meet and no contract results. _A_ offers to sell _B_ his
farm for five thousand dollars ($5,000.00). _A_ has two farms. _A_ has
one in mind, and _B_ the other. Their minds do not meet and there is no
contract.
A mistake as to the legal effect of a contract does not avoid it. This
is known as a mistake of law.
A mistake on the part of one of the parties only, ordinarily does not
avoid the contract.
=27. Impossible Contracts.= Parties may enter into any kind of a
contract they choose, so long as the provisions and conditions are
legal. As a general rule, a party is liable in damages to the other
party, for failure to observe and carry out the terms of his contract.
There is, however, a class of contracts, known in law as impossible
contracts. Many contracts are made upon the assumption that the persons
making the contract, or the particular thing under consideration will
continue to exist until the contract is performed.
_A_ agrees to paint a picture for _B_, for one thousand dollars
($1,000). _A_ fails in health or dies. _A_ or his estate, is not
responsible in damages to _B_, since the contract contemplated _A's_
remaining in health and life.
_A_ agrees to make _B_ a chair out of a particular piece of walnut
lumber. The lumber is destroyed by fire through no fault of _A_. _A_
is not liable in damages, since the parties contemplated the continued
existence of the lumber. If, however, _A_ contracts to build _B_ a
walnut chair within ten days for fifty dollars ($50.00) and his factory
and walnut lumber are destroyed by fire, _A_ is answerable to _B_ in
damages, for failure to deliver the chair. He has entered into a lawful
contract, and has not excepted liability on account of fire.
A contract for personal services is rendered of no effect by the
failure of health, or by death of the party, who is to perform the
services. Where, however, the contract provides for the doing of a
certain specific thing, not to be performed by a certain person, and
not depending upon the continued existence of a certain thing, the
parties are bound to perform, regardless of accident.
Floods, earthquakes or lightning do not excuse performance. These
accidents are known in law as _Acts of God_. (See _Acts of God_ chapter
on Carriers.) Acts of God do not excuse performance unless expressly
provided against in the contract.
A law changed after the contract is made, making it unlawful to perform
the contract, excuses performance.
Strikes do not render it impossible to perform contracts, within
contemplation of the law. If a party desires to become exempt from
performance by reason of strikes, he must put such a provision in his
contract.
If the party to the contract, to whom the performance is due, renders
performance impossible for the other party, the latter is excused on
the ground of impossibility. For example, _A_ contracts to do the
wood finishing on _B's_ house within six months, _B_ to construct the
masonry work. _B_ fails to construct the masonry work; this exempts _A_
from liability.
=28. Conflict of Laws.= The laws of different states differ in some
particulars. Where this difference affects the interpretation or
enforcement of a contract, the doctrine of conflict of law applies.
If a contract is valid in the state where made, it is usually valid
everywhere. This rule is subject to the limitation that a state will
not enforce a contract clearly against the policy of its own laws. If a
contract is made in one state, to be performed in another, the laws of
the latter apply. Otherwise, the laws of the state where the contract
is made apply. The laws relating merely to the court procedure or the
method of enforcing a contract, belong to the state called upon to
enforce the contract, and, even though the laws of the state where the
contract was made differ, the former will apply.
The laws of New York permit an express company to limit its liability
for loss of goods to fifty dollars ($50.00), if so stipulated in the
bill of lading, in case no valuation is fixed by the shipper. The laws
of Ohio do not permit an express company to limit its liability in this
way. _A_, in New York, shipped goods valued at four hundred dollars
($400.00) to _B_, in Cleveland. _A_ placed no valuation on the goods
and accepted a receipt limiting the liability of the express company
for loss of the goods, to fifty dollars ($50.00). The goods were lost.
_B_ sued the express company in Ohio for the value of the goods. The
court held that the law of Ohio held, since, by the terms of the
contract, the goods were to be delivered in Ohio.
=29. Assignments of Contracts.= By assignment of a contract, is meant
the transfer of one's property rights in the contract. One cannot
assign his duties under a contract. For example, _A_ contracts with
_B_ to have the latter build him a house, for five thousand dollars
($5,000.00). _B_ cannot transfer to another, the obligation on his
part to construct the house. _B_, may, however, transfer to another,
his right to recover the money for the house. _A_ may also transfer to
another, his right to have the house constructed.
Contracts for personal service such as the painting of a picture, or
the writing of a book, cannot be assigned. In such cases the personal
work of a particular person is contracted for and cannot be transferred.
An assignment of a contract is a contract for the sale of a property
benefit of a contract. The assignment must contain all the elements
of a simple contract. The assignor of a contract can transfer only
such property rights as he possesses. The other party to the contract
retains any defense against the assignee, which he had against the
assignor. _A_ agrees to build a house for _B_, for five thousand
dollars ($5,000.00), according to certain plans. _A_ constructs the
house with variations, subjecting him to a reduction in price of five
hundred dollars ($500.00). _A_ assigns his rights in the contract to
_C_ and _C_ can compel _A_ to pay him only four thousand five hundred
dollars ($4,500.00). The defense of _B_ against _A_ is good against
_A's_ assignee, _C_.
Upon assigning a contract, the assignor or assignee must notify the
other party to the contract, of the assignment, else payment to the
assignor will discharge the other party. For example, _A_ owes _B_ one
hundred dollars ($100.00). _B_ assigns the claim to _C_. _C_ does not
notify _A_ of the assignment and _A_ pays _B_. _B_ is insolvent and _C_
cannot recover from him. _C_ cannot recover from _A_, since _A_ has
received no notice of the assignment.
The following is a recognized legal form of assignment.
For valuable consideration, I hereby assign all my right, title and
interest in the annexed (account, contract, or whatever the instrument
may be) to______
_____________________
Signature of assignor.
Date_____________
=30. Joint and Several Liability in Contracts.= If _A_ makes a contract
with _B_, only two parties are bound by the contract and are liable
for its breach. If _A_ and _B_ contract with _C_ and _D_, four parties
are bound and are liable. _A_ and _B_ may be liable as one party to
_C_ and _D_, or they may be liable as two parties to _C_ and _D_. If
the contract shows by its terms that _A_ and _B_ contract as a unit,
and not as separate individuals, their contract is said to be _joint_.
If the terms of the contract show that _A_ and _B_ intend to contract
as individuals, as well as a unit, their contract is said to be
_joint_ and _several_. If the terms of the contract show that _A_ and
_B_ intend to contract as individuals only, and not as a unit, their
liability is said to be _several_.
The importance of this distinction is that in case of a joint
obligation, all the joint obligors must be joined when sued, else the
case may be dismissed if objection is made; while in case of a joint
and several obligation, or of a several obligation, individual obligors
may be sued separately.
A promissory note reads, "We promise to pay" and is signed by _A_ and
_B_. This is a joint obligation, and in a suit thereon _A_ and _B_
must be joined, or the one sued may have the case dismissed, by reason
thereof. If, however, judgment is rendered against both, and they
hold no joint property, the creditor may enforce his judgment against
either. This is known in law as, _liability in solido_. A promissory
note reads, "We or either of us jointly and severally promise to pay,"
and is signed by _A_ and _B_. _A_ and _B_ are severally, as well as
jointly liable, and may be sued separately.
Where two or more parties sign a contract, binding themselves to do
one thing of a series of things, the law presumes the obligation to
be joint. If the language used shows, that the parties singly, or
individually bind themselves to do the thing, or series of things in
common, the contract is several, as well as joint. _A_ owes _B_ three
hundred dollars ($300.00) upon a promissory note. _C_, _D_ and _E_ sign
the following guaranty:
If _A_ fails to pay the note when due, _C_ individually promises to pay
_B_ one hundred dollars ($100.00), _D_ individually promises to pay _B_
one hundred dollars ($100.00), _E_ individually promises to pay _B_ one
hundred dollars ($100.00).
As to each other _C_, _D_ and _E_, are severally liable. As to
_B_,--_C_, _D_ and _E_ respectively are jointly and severally liable,
with _A_ for one hundred dollars ($100.00) each.
=31. Discharge of Contract by Performance and Tender.= A contract
is terminated, when the parties thereto perform its provisions. The
liability of parties ceases by performance of the provisions of the
contract. _A_ promises to construct a house for _B_, according to
certain specifications, within a year. _B_ promises to pay _A_ five
thousand dollars ($5,000.00), upon completion of the house according
to contract. _A_, within a year, constructs the house according to
the plans and specifications. _A's_ obligation is at an end. _B's_
obligation still requires him to pay _A_ five thousand dollars
($5,000.00), and he is liable to a suit for this amount until it
is paid. When _B_ pays _A_ five thousand dollars ($5,000.00), his
obligation and the contract are terminated, as to both parties.
Tender of payment is equivalent in law to payment. By _tender_ is meant
an offer to pay in recognized legal money. _A_ has an option for the
purchase of a house of _B_, for five thousand dollars ($5,000.00). _B_
desires to have the option lapse, having obtained a better offer. If
_A_ offers _B_ legal tender before the option expires, the contract is
complete in law.
United States statutes stipulate what constitute legal tender. These
statutes provide that the following shall constitute legal tender:
1. Gold coin.
2. Silver dollars.
3. Subsidary silver coin up to ten dollars.
4. Nickels and pennies not exceeding twenty-five cents.
5. United States notes, except for duties on imports, and interest on
public debts.
Silver certificates, bank notes and private checks are not legal
tender.
=32. Discharge of Contract by Subsequent Agreement.= Contracts may be
terminated by another contract, made after the contract in question has
been entered into. For example, _A_ promises to construct, within one
year, a house according to certain plans, for _B_. _B_ promises to pay
_A_ five thousand dollars ($5,000.00), upon completion of the house.
_A_ completes the excavation of the cellar and _B_ fails in business,
and desires not to have the house constructed. He offers _A_ five
hundred dollars ($500.00), for the work already done, and to release
him from his obligation. _A_ accepts _B's_ proposition. The original
contract has been terminated by the subsequent one.
=33. Warranty and Remedies for Breach of Warranty.= A _warranty_ is
a contract collateral to the principal contract, by which a party to
a contract specifically covenants certain things. Warranties apply
especially to sales of personal property. (See _warranty_ under Sales
of Personal Property.) _A_ promises to build a house for _B_ and
warrants the paint to stand untarnished and uncracked for one year. The
covenant on _A's_ part relating to the paint is a warranty.
Breach of warranty ordinarily does not entitle the other party to
rescind the contract. That is, it does not permit him to refuse to
carry out his part of the contract, but entitles him to bring an action
for damages, for its breach.
=34. Recission and Discharge of Contracts by Breach.= If a party fails
or refuses to carry out a provision of a contract, he is said to have
committed a _breach of contract_. When one party to a contract commits
a breach, the other party may accept the breach and sue for damages, or
he may refuse to accept the breach and wait until the time for complete
performance arrives, and then, if the other party has not performed,
sue for damages.
When a party to a contract commits a breach, and notifies the other
party of his refusal further to carry out the contract, the other
party cannot increase the defaulting party's damages by continuing
performance thereafter. For example, _A_ contracts with _B_ to have
a fence finished and erected around _A's_ house. After _B_ has half
of the fence manufactured and erected, _A_ refuses to go on with the
contract. _B_ cannot increase the damages by manufacturing and erecting
the balance of the fence. The reason for this is that it would not
benefit _B_ at all, but would merely injure _A_. _B_ is entitled to
recover his profit for the entire job, when _A_ breaks the contract.
He could recover no more by manufacturing and erecting the balance of
the fence.
The law does not recognize trivial things. A party cannot claim breach
of contract for failure of the opposite party to a contract, to perform
an unimportant thing. The law recognizes substantial performance as
actual performance. This does not mean that a party cannot put such
terms in a contract as he chooses, but means that, in the absence of
any provisions of the contract to the contrary, a party is not presumed
by law to contract for trivial things. Time of performance is an
illustration of this principle. _A_ contracts with _B_ for the building
of a house. _B_ promises to complete it in one year. If completed
in one year and a day, there is a substantial performance, unless
the contract expressly shows that the precise day of performance was
regarded as important.
Where contracts provide for separate performances, a failure or refusal
to fulfil one performance will not always amount to a refusal or
failure to perform the balance. _A_ agrees to ship _B_ five thousand
barrels of cement, in car load lots of one hundred and fifty barrels
each to be shipped each week. _B_ receives and refuses to pay for the
first car. This may not amount to a breach of the entire contract, so
as to justify _A_ in refusing to ship the balance. The tendency of
American courts, however, is to treat this as as one contract; that is
to treat the promises as dependent, and not independent.
The acceptance by one party, of a breach of contract made by the other,
and the refusal on the part of the former further to carry out the
contract, is known in law as _recission_. To rescind a contract, a
party must return what he has received thereunder, called putting the
other party _in statu quo_. He must also accept the breach promptly.
For example, _A_ promises to sell _B_ three horses to be delivered one
each day, upon the three following days. _A_ delivers one and fails to
deliver the second. To rescind the contract, _B_ must return promptly
to _A_ the horse already delivered. He may then sue _A_ for damages
suffered. If _B_ does not promptly return the horse to _A_, he must
permit _A_ to go on with the contract, waiving the delay, or pay for
the horse already delivered, less damages for _A's_ breach of contract.
=35. Discharge by Bankruptcy.= By a United States' statute, certain
persons may become bankrupts and thereby be discharged from their
obligations. By the terms of this act, the bankrupt's property is
turned over to an officer, called a trustee in bankruptcy who disposes
of it, and distributes it _pro rata_ among the bankrupt's creditors.
Any person except a corporation, who owes debts, may become a voluntary
bankrupt.
The United States statute further provides that certain persons may
be declared bankrupts at the instance of their creditors. The United
States statute provides that:
"Any natural person, except a wage earner, or a person engaged
chiefly in farming or the tillage of the soil, any unincorporated
company and any corporation engaged principally in manufacturing,
trading, printing, publishing, mining or mercantile pursuits, owing
debts to the amount of one thousand dollars ($1,000.00) or over, may
be adjudged an involuntary bankrupt, upon default, or on impartial
trial and shall be subject to the provisions and entitled to the
benefits of this act. Private bankers, but not national banks or
banks incorporated under state or territorial laws may be adjudged
involuntary bankrupts."
Any of the above enumerated parties may be made an involuntary bankrupt
at the instance of creditors if he has committed an act of bankruptcy.
The bankruptcy statute defines an act of bankruptcy as follows:
"Acts of bankruptcy by a person shall consist of his having (1)
conveyed, transferred concealed or removed, or permitted to be
concealed or removed, any part of his property with intent to hinder,
delay or defraud his creditors or any of them; (2) transferred, while
insolvent any portion of his property to one or more of his creditors
with intent to prefer such creditors over his other creditors; or
(3) suffered or permitted, while insolvent, any creditor to obtain
a preference through legal proceedings and not having at least five
days before a sale or final disposition of any property affected by
such preference vacated or discharged such preference; or (4) made
a general assignment for the benefit of his creditors, or being
insolvent, applied for a receiver or trustee for his property, or
because of insolvency a receiver or trustee has been put in charge
of his property under the laws of a state, of a territory, or of the
United States; or (5) admitted in writing his inability to pay his
debts, and his willingness to be adjudged a bankrupt on that ground."
Bankruptcy discharges a bankrupt from his contracts.
=36. Remedies for Breach of Contract.= Originally, at common law, there
was no power given a party to a contract, to compel the other party
specifically to perform the provisions of the contract. For example,
_A_ promises to pay _B_ one thousand dollars ($1,000.00) for one
thousand bushels of wheat, to be delivered within ten days. _B_ fails
and refuses to deliver the wheat. _A_ could not at common law, and
cannot under the present rules of law, compel _B_ to deliver the wheat.
_A's_ remedy is an action for damages. _A_ may go into the market at
the time and place of delivery, provided for in the contract, and
purchase one thousand bushels of wheat of the quality provided for in
the contract, and collect as damages from _B_ the advance in price, if
any, together with expenses connected therewith. If _A_ is obliged to
pay one thousand five hundred dollars ($1,500.00) for the wheat, which
by the terms of the contract, he had purchased for one thousand dollars
($1,000.00) from _B_, he may recover five hundred dollars ($500.00)
damages from _B_. If _A_ succeeds in obtaining the wheat for nine
hundred dollars ($900.00), he can only recover nominal damages from
_B_, commonly five cents, for breach of contract. In case _A_ obtains
the wheat for nine hundred dollars ($900.00), _B_ cannot recover one
hundred dollars ($100.00) from _A_, since he has violated the contract,
and cannot take advantage of his own wrong.
Parties frequently fix the amount of damages for a possible breach at
the time the contract is made. This is known in law as _liquidated_
damages. If reasonably compensatory, the courts will recognize and
enforce liquidated damages; if clearly unreasonable they are regarded
as penal, and the courts will not enforce them. For example, _A_
agrees to construct a rolling mill for _B_, for fifty thousand dollars
($50,000.00), and to complete the structure within one year, and to pay
damages of two hundred dollars ($200.00) per day, for each and every
day consumed, in excess of a year in finishing the structure. If this
is a reasonable loss to _B_, for the failure to have the use of the
mill, the courts will enforce the provisions; otherwise they will remit
the excess over the fair value of _B's_ loss.
=37. Equity and Specific Performance.= Originally, at common law in
England, the king and his subordinates heard suits. Certain specified
actions or remedies, only, were allowed. It was soon observed that many
complaints were made, and disputes arose, which did not come within
the scope of these common law actions. The king appointed a chancellor
to assist him. It was the duty of the chancellor to hear disputes, not
within the scope of the recognized common law action, and to determine
and decide these upon equitable principles. This court became known
as the court of _chancery_, or court of _equity_. A regular system of
courts of chancery grew up in England, with fixed rules of procedure
and of recovery. This country has Courts of Equity. In many states,
the same judge sits as a court of law, and of equity. Equity does not
hear cases where there is a complete and adequate remedy at law. Equity
courts have a judge only, and no jury. Courts of equity sometimes
specifically enforce contracts in case there is no adequate remedy
at law. For example, _A_ purchases a lot of _B_ in a particularly
desirable locality. There is no other vacant lot near it. In case _B_,
refuses to carry out his contract, by conveying this lot to _A_, equity
will compel _B_ to convey the lot to _A_. Here _A_ has no adequate
remedy at law. Money damages will not enable him to procure what he
contracted for.
Specific performance is rarely granted in case of sales of personal or
chattel property. There are a few exceptions. If _A_ purchases "Maud
S." from _B_ for ten thousand dollars ($10,000.00), "Maud S." being a
two minute race horse, purchased for breeding purposes, and _B_ refuses
to deliver her, a court of equity might grant specific performance.
Money damages might not enable _A_ to purchase a similar horse. The
same principle applies in case of purchases of rare works of art.
While a contract for personal services cannot be specifically enforced
by a court of equity, some relief may be granted by injunction. For
example, _A_, an actress, agrees to perform for one year for _B_ and
later refuses. While a court manifestly cannot compel _A_ to perform
for _B_, it will by injunction prevent her performing for others.
=38. Forms of Contracts.= The following is a form of simple contract.
Chicago, Ill., June 23, 1909.
Contract entered into this.... day of........ 1909, by and between
_A_, the first party, and _B_, the second party.
In consideration of the promises hereinafter made by the second party,
the first party agrees........ (here state first party agreement).
In consideration of the promises of the first party, the second party
agrees........ (here state agreement of second party).
Signed............. First Party.
Signed............. Second Party.
The following is a form of a formal contract.
Articles of agreement entered into in New York City this.......day
of.... 190-by and between _A_, hereinafter designated as the first
party, and _B_, hereinafter designated as the second party.
Whereas, the first party is a wholesale dry goods merchant having
a place of business in New York City, and is desirous of employing
a traveling salesman, and whereas, the second party is a traveling
salesman having had ten years' experience in the dry goods business,
now, therefore in consideration of the promises hereinafter made by
the second party the first party agrees,
First. To pay the second party the sum of $2400 in installments of
$200 payable each month for a period of 12 months.
Second. To pay the second party's traveling expenses not to exceed
$50.00 per week, to be mailed weekly as ordered by second party.
Third. To furnish second party a full line of samples.
In consideration of the promises of the first party the second party
agrees,
First. To devote his entire time and attention to the business of
selling goods of the first party.
Second. To furnish lists of customers called upon each day, said lists
to be mailed to said first party, New York address, each evening.
Third. To waive his right to any salary in excess of his traveling
expenses if his sales do not average $5000 per week.
In witness whereof the parties have affixed their names and seals in
duplicate the day and year above written.
.............First Party.
.............Second Party.
PRINCIPAL AND AGENT
=39. In General.= _Agency_ is the term applied to the legal relation
existing between persons who transact business or perform duties
through representatives. Few duties are performed, and few business
transactions are completed solely through the personal efforts of the
interested parties. Most business dealings are completed in part,
at least, by representatives or agents. Much important business is
transacted by corporations. Corporations must act through agents.
They have no identity apart from officers and agents. Individuals, as
well as the smaller business concerns, perform many of their duties
and make many of their contracts through representatives or agents.
The law relating to agency, next to the law of contracts is probably
the broadest as well as the most important branch of commercial law.
Its application is almost universal. A distinction is sometimes drawn
between representatives appointed to make contracts with third persons,
and representatives appointed to perform menial or mechanical work, by
calling the one class, agents, and the other servants. There is little
reason for any such distinction. The same rules of law apply to both
agents and servants. The principal distinction is in the nature of the
service, which need not be considered in discussing the general legal
principles.
The party appointing another to represent him in his relation to third
persons is called the _principal_. The person appointed to act as a
representative is called the _agent_. The legal relationship existing
between the principal and the agent, and the principal, agent and third
person, constitutes the _law of agency_. If a dry goods merchant, _A_,
employs _B_, a traveling salesman, to sell his goods, and _B_ sells
goods to _C_, _A_ is the principal, _B_ the agent, and _C_, the third
person contracting with _A_, through _A's_ agent _B_.
=40. Who May be a Principal.= A principal is one who appoints an agent.
_A_, employs _B_ to deliver goods; _A_ is principal and _B_ agent. Any
person, natural or otherwise, competent to enter into a contract, may
enter into a contract through an agent. There is one possible exception
to this rule. It is a well recognized rule of law that an infant cannot
appoint an agent. An infant may enter into a contract which is not void
at law, but which is merely voidable. (See subject, "Infant" in Chapter
on Contracts.) That is, an infant may lawfully make and carry out a
contract. The law does not prohibit it. But the law will not compel
an infant to carry out his contracts, except for necessaries. When it
comes to the appointment of an agent, however, the law refuses to give
an infant this power. By an infant is meant a person under legal age.
Any person of legal capacity may appoint an agent. In other words,
a person may do through an agent the things he, himself, may do. An
insane person, an idiot or a drunken person cannot appoint an agent.
A corporation may do business through agents, limited only by its
corporate capacity. A partnership may do business through agents,
limited only by the purposes for which the partnership is formed.
=41. Who May be an Agent.= Any one, except a very young child and
persons whose interests are opposed to those of the principal, may
act as agent. A child may be employed to deliver goods, and thus make
and complete contracts for his principal. Persons of unsound mind may
serve as agents. Persons who cannot act as principal, through lack of
capacity to contract, may act as agent for others. For example, _A_,
fourteen years old, cannot be bound by a contract with _B_ for the
purchase of one hundred bushels of wheat, but _A_ may be employed
as agent by _C_, a competent person, to purchase of _B_ one hundred
bushels of wheat.
A person whose interests are opposed to those of his principal is
disqualified from acting as agent. That is, a person cannot be agent
for both parties to the same transaction. For example, if _A_ is
employed as traveling salesman by _B_ to sell goods, he cannot serve as
agent for _C_ in the purchase of goods from _B_ without the knowledge
and consent of both _B_ and _C_.
Artificial persons, such as partnerships and corporations, may act
as agents. It is usually held that children under seven years of age
cannot act as agents, by reason of tender age.
=42. How Agents May be Appointed.= Agents may be appointed by any act
of the principal which shows that it is the principal's will that the
agent shall act as the principal's representative.
Agents may be appointed by oral statement, by written document,
by conduct on the part of the principal, or by ratification of an
unauthorized act.
Most agencies are created by oral authority. Any word by which the will
of the principal is manifested is sufficient. _A_ tells _B_ to order a
barrel of flour from _C_. This constitutes _B_ an agent for _A_. _B's_
asking _A_ if he shall order a barrel of flour from _C_, to which _A_
nods, constitutes _B_, _A's_ agent. _A_ writes to _B_ and requests
him to order a carload of flour from _C_. This constitutes _B_, _A's_
agent. _B_, without any authority from _A_, orders a car load of flour
from _C_, which _A_ accepts, and for which he promises to pay. This
constitutes _B_, _A's_ agent by ratification.
Some few contracts of agency must be in writing. _A_ employs _B_ to act
as his salesman for a period of two years. As between _A_ and _B_, the
contract is not enforceable, by reason of the _Statute of Frauds_ (see
Statute of Frauds, chapter on Contracts). But as between _A_ and third
parties dealt with by _B_ as agent, _A_ cannot refute the agency.
Some contracts which must be made in writing, such as land contracts
require the agent's authority to be in writing.
If a person knowingly permits another to act as his agent, he cannot
afterwards repudiate the agency. For example, _A_ stands by and watches
_B_ sell _A's_ horse to _C_. Although _B_ had no authority to make the
sale, _A_, by his conduct, cannot claim there was no agency.
An agent's assertion of agency does not of itself constitute an agency.
If _A_, without _B's_ knowledge, claims to _C_ to have authority to
sell _B's_ horse and does attempt the sale, title to the horse does
not pass to _C_, because _A_ had no authority to make the sale. A mere
declaration of authority on the part of the agent without the knowledge
or consent of the principal does not create an agency.
=43. Purposes for Which an Agency May be Created.= With the exception
of fulfilling contracts for personal services, a person may do, through
an agent, anything he may lawfully do by himself. For example, _A_
employs _B_, an artist of fame, to paint a picture. Manifestly _B_
cannot employ a student or another artist to paint the picture. _A_
contracted for _B's_ personal skill and work, and cannot be made to
accept the work of another. In the majority of business transactions,
however, the personal element does not enter. The thing to be done,
or the article to be furnished, is the feature of most contracts. By
whom the thing is done, or by whom the article is furnished, does
not matter. For example, _A_ purchases one hundred bushels of wheat
from _B_. _B_ delivers the wheat through his agent. Ordinarily _A_
cannot, nor does he wish to complain. _A_ contracts with _B_ to have
_B_ furnish him an oak chair of given dimensions. _B_ employs _C_ to
make and deliver the chair. _A_ cannot complain so long as the chair
corresponds to the terms of the contract.
A party cannot do through another what he himself cannot lawfully do.
For example, a party cannot employ an agent to purchase votes for him.
Neither can a person lawfully corrupt legislators by means of an agent,
nor lawfully commit a crime by means of an agent.
=44. Ratification of Agency.= Where a person assumes to act as an agent
for another without authority, or in performing an agency, exceeds his
authority, he does not bind the person for whom he assumes to act,
unless such person subsequently, with knowledge of the fact, consents
to be bound thereby. Such assent is known in law as _ratification_.
A person cannot ratify an act which he, himself, has no power to
perform. For example, _A_, pretending to act for _B_, offers _C_, a
legislator, one hundred dollars ($100.00) to vote against a certain
measure. _B_ cannot ratify this act, since he himself cannot lawfully
perform it. If however, _A_, knowing that _B_ desires a certain rare
picture, finds it and orders it in _B's_ name, _B_ may ratify the act
by accepting and paying for the picture.
[Illustration: MAIN READING ROOM, U.S. CONGRESSIONAL LIBRARY,
WASHINGTON, D. C.
In Center of Central Circular Desk, is the Housing for the
Book-Handling Machinery. Card Catalogue in Foreground. View Facing
Entrance. The Corinthian Order has been Used.]
Much discussion has arisen as to the ability of a person to ratify a
forgery of a negotiable instrument. The courts differ on this question.
It is, however settled that in case of a forgery, if the alleged
principal fails to deny the signature when the paper is presented
to him, or by remaining silent, induces another to purchase it, or
to injure his position by reason thereof, the alleged principal is
estopped from further denying the authenticity of the signature, and
may be compelled to pay the instrument. For example, _A_ forges _B's_
name to a promissory note payable to _C_. _C_ presents the note to _B_
for payment. _B_ may refuse to pay the note by reason of forgery. If,
however, _A_ forges _B's_ name to a note, payable to _C_, and _D_ shows
_B_ the note, saying that he is about to purchase it if it is genuine,
and _B_ remains silent and permits _D_ to buy the note, _B's_ silence
amounts to a ratification of the forgery and he must pay the note to
_D_.
When an alleged principal's attention is called to the fact that an
alleged agent has assumed to act as his agent, he must choose between
repudiating the act and accepting it. This choice is known in law as
the principal's _right of election_.
=45. Classification of Agents.= Agents are usually classified as
_universal_, _general_ or _special_. By universal agent is meant
an agent empowered to represent his principal in every capacity. A
principal could have only one universal agent. In business affairs, a
universal agency is seldom, if ever, found. It is useful, however, as
a classification to show the different kinds of agents, depending upon
the degree of their authority.
A general agent is one authorized to perform all the duties of his
principal of a certain kind. _A_, an insurance company, appoints _B_
its sole agent to solicit insurance in the city of Boston. _B_ is a
general agent for the purpose of soliciting insurance in the city of
Boston. General agencies are common in business practice.
A special agent is one authorized to act for his principal in a
particular matter or transaction. For example, _A_ employs _B_, an
attorney, to try a certain law suit. _B_ is a special agent.
In practice it is not always easy to determine whether an agent is a
general or a special one. A principal does not always limit his agent's
powers by actual authority conferred upon the agent. His intention
and his instructions to the agent may limit the latter's authority,
but third persons may rely upon the apparent authority of the agent,
rather than the actual. For example, _A_ employs _B_ as a traveling
salesman to sell dry goods. He instructs _B_ not to sell any bills less
than five hundred dollars ($500.00) in amount. _B_ sells _C_ a bill
amounting to four hundred dollars ($400.00), _C_ does not know of the
limitation of _B's_ authority. _A_ is bound by _B's_ sales to _C_. _C_
has the right to rely upon _B's_ apparent authority. _A_ has given _B_
actual authority to sell goods, and this authority carries with it the
implied or apparent authority to sell in any reasonable amounts.
Actual authority to do certain things carries with it the right to
do those things which impliedly, or from custom or usage apparently
accompany the authority conferred.
Third persons dealing with an agent must, on the other hand, ascertain
at their peril that an agent has the authority claimed. For example,
if _A_, without authority, claims to be agent for _B_, and sells an
order of goods to _C_, and collects from _C_ a certain amount, when
in fact he is not the agent of _B_, _C_ has no contract with _B_. A
third person dealing with an agent must ascertain at his peril, that
the alleged agent has authority from his principal to act as agent in
a certain capacity. When this is ascertained, the third person has a
right to treat the agent as having the authority to do all the things
necessarily or customarily belonging to his agency.
=46. Duties of Principal to Agent.= The relation of a principal to his
agent arises out of a contract, express or implied. The contract may
expressly provide that the agent is to receive a specified sum for his
services. In this event, the principal is legally liable to pay this
amount to his agent. The principal may have a defense to his contract,
the same as to any contract. But if the agent has performed his
contract of agency, he can enforce payment therefor. For example, _A_
employs _B_ to sell furniture for a compensation of one hundred dollars
($100.00) per month and expenses, the contract to cover a period of
twelve months. When _B_ performs this service, he may, by legal action,
compel _B_ to pay him one thousand two hundred dollars ($1,200.00).
If _B_ fails to work for _A_ as provided for by the terms of the
contract, and at the expiration of six months enters _C's_ employ, in
most jurisdictions, he can recover nothing from _A_, since he has not
fulfilled his contract. In some jurisdictions, he may recover from _A_
the value of his services, less the damages _A_ has suffered by reason
of breach of contract.
Many agencies are created without any express provision as to
compensation. In this event, a contract relation exists, as much as
in the former case. There is an implied contract that the agent shall
receive a reasonable compensation for his services. For example,
_A_, a contractor, requests _B_, a teamster, to haul stone for the
construction of a bridge. _B_ works for _A_ a week, nothing having been
said as to compensation. _B_ can recover from _A_ the reasonable and
customary value of his services.
There is also a duty on the part of the principal to protect his agent
against unnecessary risks of injury. There is a duty on the part of a
master to protect his servant. An agent or servant assumes the risks
which naturally belong to the kind of work in which he is engaged. For
example, _A_ employs _B_ to work in a saw mill. _B_ assumes the risks
incident to the employment. If a log accidentally rolls on him, _A_ is
not liable in damages, or if _B_ carelessly cuts his hand on the saw,
_A_ is not responsible. But if the boiler explodes through carelessness
of _A_, or if the saw flies to pieces on account of wear, and injures
_B_, _A_ is liable.
It is said that a principal or master is obliged to furnish his agent
or servant with a reasonably safe place in which to work, and with
reasonably safe tools and instruments with which to work. If the
principal negligently fails to these things, and the servant is injured
without negligence and carelessness on his part, the principal is
liable to him in damages for any injuries.
=47. Duties and Liabilities of Principal to Third Persons.= When a
person employs another to act for him, he is liable to third persons
for the acts performed by the agent, so long as the agent acts within
his authority. If _A_ appoints _B_ his agent to purchase live stock,
_A_ must pay third persons for the live stock purchased in his name by
_B_. A person employing another to act as his agent is responsible to
third persons for acts performed by the agent, which are within the
apparent authority of the agent, as well as for the acts which are
within the actual authority. If _A_ appoints _B_ his agent to purchase
live stock and instructs him to purchase only hogs, but limits his
authority to pay over five cents per pound, and _B_ purchases at five
and a half cents from _C_, who does not know of this limitation, _A_
is bound by the contract. In giving an agent authority to do certain
things, the agency carries with it the customary or implied authority
to perform those acts incident to the general character of the agency.
Thus, authority to purchase usually carries with it authority to fix
the price. This is especially true of authority to sell.
Notice to an agent is notice to a principal. If an agent is authorized
to sell goods, and in making a sale, is notified by the purchaser that
the goods are purchased conditionally, in the absence of any special
instruction limiting the power of the agent to sell conditionally,
brought to the attention of the purchaser, the principal will be bound
by the condition.
A principal is liable to third persons for his agent's torts or
wrongful acts. If _A_ directs his agent _B_ to destroy _C's_ property,
_A_ is liable to _C_ for the damage done. A principal is not only
liable to third persons for the damages done under his express
direction by his agent, but he is also liable for the acts carelessly
done by the agent in the course of his employment. A street car company
employs _B_ as motorman. _B_, carelessly and negligently, while
operating a car runs over _C_. _A_ is liable for _B's_ negligent act. A
principal, however, is not liable for the wrongful acts of his agent,
performed outside of his employment. _A_, a street car company, employs
_B_ as conductor; _C_, standing on the street insults _B_. _B_ stops
his car, gets off and assaults and injures _C_. _A_ is not liable,
since _B_ did not commit the act complained of while in the course of
his employment, but went outside the course of his employment and acted
on his own behalf.
=48. Duties and Liabilities of Agent to Principal.= An agent must obey
the instructions of his principal. If he disobeys his instructions,
he is liable to his principal for losses sustained. For example, if
_A_ employs _B_ to sell flour at four dollars ($4.00) per barrel and
_B_ sells one hundred barrels at three dollars and seventy-five cents
($3.75), he must respond in damages to _A_ for twenty-five cents a
barrel. If, however, a discretion is given the agent, and he makes a
reasonable mistake in using his discretion, he is not liable. If his
instructions are not clear, and he carries out what he thinks are his
instructions, which prove not to be the desire or intention of his
principal, he is not liable.
An agent must account to his principal for money collected, and
for moneys or property coming into his possession by reason of his
agency. If he deposits money in his own name and it is lost through
a bank failure, he is responsible to his principal. If he carefully
deposits it in the name of his principal and the bank fails, he is not
responsible.
An agent must act carefully in the performance of his principal's work,
or as it is usually said, he must not act carelessly or negligently.
He must act as a reasonably prudent man would act, under similar
circumstances, or be liable to his principal in damages.
An agent must be loyal to his principal's interests. He cannot act
secretly for another. He cannot act secretly as agent for both parties
to a transaction. If he makes profits in his agency dealings, he must
account for them to his principal. _A_ employs _B_ to sell Christmas
novelties. _B_, shortly before Christmas receives a large order from
_C_, who offers _B_ one hundred dollars ($100.00) in excess of the
regular price, if the goods arrive the following day. _B_ succeeds in
having the goods reach _C_ the following day. _B_ must account for the
extra one hundred dollars ($100.00) to _A_, his principal.
An agent must faithfully carry out his agency. He is responsible for
failure to act loyally. _A_ employs _B_ to sell butter. _B_ obtains an
offer from _C_, a rival butter manufacturer, to commence work for him
on commission two weeks hence. _B_ tells his customers not to purchase
for two weeks, at which time he can make them a better price. _B_ is
liable to _A_ in damages for this act of disloyalty. He has broken his
contract.
An agent, who is employed to perform personal services, cannot transfer
his responsibility or agency to another.
One who agrees to act as agent for another without compensation,
cannot be forced to fulfil his agency. He is not liable in damages to
his principal for failure to act, but if he chooses to act without
compensation, he is liable if he acts with great negligence. If _A_
requests _B_ to drive his horse home and _B_ drives the horse and
leaves him without tying him, and the horse runs away and destroys the
carriage and ruins himself, _B_ is liable for gross negligence.
=49. Rights and Liabilities of Agent to Third Persons.= An agent
acting within the scope of his authority, in making contracts with
third persons, binds his principal by the contract, but does not bind
himself. _A_ is authorized by _B_ to purchase a horse. A purchases a
horse from _C_, notifying _C_ that he is purchasing as agent for _B_.
_C_ must look to _B_ for the purchase price, since _A_ acted solely as
agent and is not personally liable under the contract.
If an agent, intending to act as agent, makes a contract in his own
name, without informing the third party with whom he is dealing, of the
agency, he binds himself. Under these circumstances, he usually binds
his principal also. This question is discussed more at length under the
title "Undisclosed Principal." If _A_ is employed by _B_ to purchase
a horse, and _A_ purchases a horse from _C_ for two hundred dollars
($200.00), without telling _C_ of the agency, the purchase price to be
paid the following day, _A_ binds himself personally to pay _C_ the two
hundred dollars ($200.00) and _C_ is not obliged to look to _B_ for
payment.
If an agent, honestly believing he has authority to act as agent when
he has not, makes a contract as agent for his supposed principal, he
binds himself personally and not his principal. _A_ writes to _B_,
"Purchase for me _C's_ bay team, if same can be secured for two hundred
and fifty dollars ($250.00), half payable in six months." _B_ reads the
letter and purchases the team in the name of _A_ for two hundred and
fifty dollars cash ($250.00), overlooking the condition in _A's_ letter
that half was to be paid in six months. _B_ binds himself to _C_ and
does not bind _A_.
When an agent falsely or fraudulently represents himself as agent, he
binds himself and not his alleged principal.
If an agent, honestly believing he has authority to act, does not
have such authority, but discloses all the facts connected with his
authority, to the third person with whom he is dealing, he is not
personally bound. _A_, having previously acted as agent for _B_, in
purchasing onions by the crate, receives the following wire from _B_,
"Purchase one hundred crates, ship at once." _A_, supposing this
refers to the purchase of onions, shows the telegram to _C_, and
tells him that in the only other transaction in which he acted for
_B_ he purchased onions, and that he supposes this wire refers to
onions. He purchases one hundred crates of onions from _C_, and later
discovers that _B_ intended turnips, instead of onions. _A_ is not
bound personally. He has acted honestly and revealed all the facts in
his possession to _C_, who must act at his risk as to _A's_ actual
authority.
=50. Undisclosed Principal.= A principal, whose agent deals with
a third person for his benefit, without disclosing the name of his
principal, or perhaps without disclosing the fact of agency, is said to
be an _undisclosed principal_. For example, _A_ employs _B_ to purchase
one hundred crates of oranges. _B_ purchases the oranges from _C_ for
_A_ in his own name, not telling _C_ that the purchase is made for _A_.
In this case, _A_ is an undisclosed principal.
As a general rule an undisclosed principal, when discovered, is liable
upon the contract of his agent.
In case of an undisclosed principal, the agent is liable personally as
well as the undisclosed principal. If _A_ instructs _B_ to purchase
for him five cars of coal, and _B_ purchases the coal of _C_ in his
own name, without disclosing the fact of his agency, _B_ is personally
liable to _C_ for the purchase price.
The undisclosed principal is not liable to a third party if the third
party with full knowledge of the agency, elects to hold the agent. If
_A_ employs _B_ to purchase goods for him, and _B_ purchases the goods
in his own name from _C_, and _C_, before payment, learning that the
goods were purchased for _A_, elects to hold the agent _B_, by suing
him for the purchase price, or by doing or saying anything that shows
his determination to hold the agent, rather than the principal, he
cannot thereafter hold _A_.
The undisclosed principal may enforce against third persons the
contract of his agent. If _A_ employs _B_ to purchase goods from _C_
and _B_ makes the purchase in his own name for future delivery, _A_ may
compel _C_ to deliver the goods to him. This rule applies in all cases
where the third party is not injured by its application.
The liability of an undisclosed principal to third persons, upon
contracts made by an agent in the agent's name, is subject to the
further exception, that when the third party has led the undisclosed
principal to believe that he is looking to the agent alone for
fulfillment of the contract, and relying upon such conduct the
undisclosed principal settles with the agent, he is no longer liable to
the third party. In this event the third person is said to be estopped
from the right to sue the undisclosed principal. This rule is based
upon equitable reasons. There can be no such thing as undisclosed
principal in case of a negotiable instrument. No one is liable on a
negotiable instrument, such as a note, draft, or check, except the
maker, indorser, drawer or acceptor.
=51. Apparent Authority of Agent.= While it is true that an agent
must have authority from his principal, before he can bind his
principal in the capacity of agent, and while it is equally true
that third persons, in dealing with agents, must determine at their
peril that the agent has actually received authority to act for his
principal, a third party has the right to rely upon the implied and
customary powers accompanying an actual authority conferred upon an
agent. Few contracts are made express in all their terms. Language is
not susceptible of such nicety. In the express or implied contracts
used in creating agencies, many things are implied. A third person
dealing with an agent, is not limited by the actual authority conferred
upon the agent by his principal, if the character of the authority
apparently confers other customary or implied powers. Third persons
are said to have the right to rely upon the apparent rather than upon
the actual authority of the agent. This does not mean that an agent
can create an agency and bind his principal without having received
any authority from his principal to act as agent, but means that where
an authority of a certain character has been conferred upon an agent,
third parties dealing with the agent, have a right to rely upon the
apparent or customary powers conferred, rather than upon any secret
or unexpected limitations upon such authority. For example, an agent
has authority to sell silk goods and to make exchanges in silk. This
authority is printed on the order sheets furnished the agent. The agent
exhibits these order sheets to the customer and exchanges are made. The
principal cannot claim that the agent had authority to exchange only
goods of the principal's manufacture. The authority conferred upon the
agent to make exchanges, apparently was to make exchanges of any silks.
The principal cannot complain if third parties rely upon the apparent
authority.
=52. Secret Instructions.= So long as the agency is legal, a
principal may create an agency of as limited an extent, or of as broad
a nature as he desires. So long as the limitations which the principal
places upon his agent's authority are not of a nature to mislead
third persons, the agent cannot bind his principal by exceeding these
limitations. But if a principal confers an authority upon an agent
which impliedly embraces a number of powers, the principal cannot limit
these powers by secret instructions. The limitations upon an agent's
apparent authority must be brought to the attention of the third
party. For example, _A_, a wholesale dry goods dealer, may employ _B_,
a salesman, to take written orders only. If _B_ attempts to take oral
orders, the principal, _A_, will not be bound thereby. But if _A_ gives
_B_ authority to take written orders only, and secretly instructs _B_
to take no order less than fifty dollars ($50.00) in amount, or in
excess of two thousand dollars ($2,000.00), and _B_ takes _C's_ order
for forty-five dollars ($45.00), _C_ not knowing of this limitation,
_A_ is bound. If, however, _A_ instructs _B_ to take only written
orders, and in amounts ranging only from fifty dollars ($50.00) to
two thousand dollars ($2,000.00), and prints these conditions plainly
upon the order blank, _C_, in signing one of these order blanks for
forty-five dollars ($45.00), does not bind _A_. In this case, _A_ has
placed the limitation of _B's_ authority in _C's_ possession.
=53. Wrongful Acts of Agent.= An agent is personally responsible for
wrongful acts committed. The fact that he acts in a representative
capacity, does not excuse him from committing wrongs, nor does it
relieve him from personal liability therefor. The principal, as well
as the agent, is liable for the wrong committed, if authorized. If _A_
instructs his agent, _B_, to sell goods by fraudulent representations
and _B_, by means of said fraud, sells goods to _C_, _B_ personally, as
well as _A_ is liable to _C_, for the wrongful act. In the language of
the courts, an agent is liable to third parties for _malfeasance_, but
not for _misfeasance_. That is, an agent is liable to a third party for
wrongful acts done, but is not liable to third parties for mere failure
to observe the terms of his agency. In the latter case, he is liable to
his principal only.
=54. Delegation of Authority and Subagents.= Where personal judgment
and discretion are required of an agent, he cannot transfer his duties
to another, without the consent of his principal. _A_, a wholesale dry
goods merchant, employs _B_, an experienced traveling salesman, to sell
goods. _B_, by his contract, is bound to give his personal skill to _A_
and cannot employ _C_ to act as salesman for him. _A_ presumptively
employs _B_ to use his own skill and judgment. _B_ is not permitted to
delegate his authority to another.
Where, however, mere mechanical or ministerial work is to be performed
the agent is permitted to employ others to assist him, or to perform
the work. For example, _A_ employs _B_, an expressman, to carry his
trunk to the depot. _B_ may employ a boy to assist him in performing
the work, or may employ another to perform the work. Usage and custom
have much to do in determining whether or not an agent is permitted to
delegate his authority. The performance of a mere ministerial duty may
be delegated. _A_ employs _B_ to act as stenographer in reporting the
trial of a case. When it comes to writing out the testimony, _B_ may
perform the task himself, or delegate it to another.
When an agent employs a subordinate, or delegates his authority to
another on his own responsibility, the agent stands as principal
for the sub-agent, and the original principal is not responsible to
third persons for the acts of the sub-agent. If, however, the agent
is authorized by the principal to appoint a sub-agent, the agent is
bound only to exercise care in the selection of such sub-agent, and
the original principal is liable to third persons for his acts. The
sub-agent is answerable to the principal, and not to the agent for his
acts. For example, _A_, a florist, employs _B_ to deliver a box of
flowers. _B_ employs _C_. The nature of the duty is such that _B_ may
delegate it. But if _C_ is negligent in the performance of the work,
_B_ is liable to _A_ for the negligence, for the reason that _A_ did
not expressly or impliedly direct _B_ to employ another.
_A_, in Chicago, deposits for collection, a check drawn on a New York
bank. _A_ knows that it is the custom of bankers to employ other banks
for the purpose of making collections. If the Chicago bank uses due
care in selecting another bank to assist in making the collection,
and this bank makes the collection and fails before the Chicago bank
receives the money, _A_ must stand the loss, and not the Chicago bank.
_A_ authorized the employment of a sub-agent. There is some conflict of
authority on the legal question involved in the above example.
=55. Agent's Authority to Collect.= An agent authorized to solicit
orders is not thereby authorized to make collections on such orders.
If, however, the agent is entrusted with the goods, and delivers them
at the time the sale is made, he is authorized to receive payment
therefor.
An agent authorized to sell, is not authorized to exchange or trade
goods. He is authorized to make sales for cash only. If he accepts
checks, or sells on credit, he is personally liable for losses. There
is a tendency at present to permit the agent to accept checks in
payment. The custom of making payment by check is so well recognized
in many lines of business, that in some transactions it impliedly gives
an agent this authority. This was not formerly the rule, and is still
disputed by many courts.
=56. Agent's Signature to Written Instruments.= The proper method
for an agent to employ in signing a written instrument, as agent, is
to describe himself as agent for his principal in the body of the
instrument, and then sign his principal's name at the end thereof, by
himself as agent. For example, if _A_, is agent for _B_ in making a
contract of sale, the body of the instrument should state that "_B_ by
_A_, his agent, agrees," and the signature should be
(_B_..............)
(by _A_, his agent)
If the contract is merely signed "_A_, agent," the agent probably binds
himself only. This is especially true in case of sealed instruments,
such as deeds. In case of promissory notes, an agent who has authority
to make such instruments, may make them in the name of his principal
without using his own name at all. The more common form, however, is
to sign the principal's name, per the agent as agent, or to sign the
agent's name as agent for the principal, giving the principal's name.
The mere signing of the agent's name as agent is a mere description,
and probably binds the agent and not the principal. For example, if _A_
is agent and _B_ the principal, a promissory note executed by the agent
should be signed
(_B_..............)
(by _A_, his agent)
A simple contract should state in the the body of the instrument that
_A_, as agent for _B_, is making the contract, and the contract should
be signed
(_B_..............)
(by _A_, his agent)
or _A_, agent for _B_. A promissory note or simple contract made and
signed in the name of the principal, the agent's name not appearing,
is probably binding, but it is not good business practice. The exact
condition of affairs should be shown, and the name of the agent, as
well as that of the principal, should appear in the document.
=57. Authority of Agent to Warrant.= As to whether or not an agent
authorized to sell personal property has implied authority to warrant
its quality, is not uniformly settled. If there is any rule on the
question, it probably is controlled by usage and custom. If there is a
general well known custom to warrant a particular article, the agent
has implied authority to warrant the quality of the article sold. If
no such usage or custom exists, or if the usage or custom is purely
local and not general in its application, the agent has no authority
to warrant the quality of the goods sold. It must be remembered that
a principal is bound by the general character of authority he confers
upon his agent, by the agent's apparent authority rather than by the
actual authority, unless the latter is actually brought to the notice
of third parties. It has been held that an agent authorized to sell a
horse is authorized to warrant the soundness of the horse, and that
an agent authorized to sell reapers is authorized to warrant their
durability and fitness. It was held that a principal, who authorized an
agent to sell goods at a certain price, did not authorize the agent to
warrant to third persons that his principal would not sell to others at
a less price.
=58. Factors.= A factor, usually called a commission man or
consignee, is an agent entrusted with possession of his principal's
goods, and ordinarily empowered to sell in his own name. Like any
agent who has possession of his principal's goods with power to sell,
a factor has power to collect. He differs from a broker in that he has
possession of the goods of his principal, and is authorized to sell in
his own name, rather than in the name of his principal.
In the absence of contrary custom or express direction, a factor may
sell on credit. A factor, until instructed otherwise, may use his
discretion as to the time and price of sales, and is entitled to deduct
his commission based upon custom in the absence of special contract.
A factor may sue the purchaser in his own name, for the purchase
price. The principal may sue in his own name also. Persons dealing
with factors may hold the principal responsible for the contracts and
representations of the factor, the same as any undisclosed principal.
Factors are also personally liable to third persons for their contracts.
A factor must account to his principal for money collected, less his
commission and expenses. He is not obliged to keep such money separate
from his own, but he must keep accurate account of same, and remit
promptly when it is due, according to custom or special contact.
=59. Brokers.= A broker differs primarily from a factor in that
ordinarily he does not have possession of the article dealt in, and
acts in the name of his principal rather than in his own name. There
are many kinds of brokers engaged in common business life. Some of
these are insurance brokers, pawnbrokers, bill and note brokers, and
merchandise brokers. In the absence or special authority, a broker does
not have authority to collect.
=60. Auctioneers.= An auctioneer is a special kind of agent employed
to dispose of goods to the highest bidder at a public sale.
Some states provide by statute that auctioneers must be licensed, and
that they may charge only certain fees. Most licensed auctioneers are
required to give bond. In the absence of statutory regulations, any
person competent to perform the duties of an auctioneer may so act. An
auctioneer differs from an ordinary agent in that, in some respects, he
is agent for both seller and purchaser. He is agent for the seller in
offering the goods for sale, and in obtaining bids. When the highest
bid is received, however, and the hammer falls, he is deemed to be
agent for the purchaser, with authority to complete the sale in the
purchaser's name. If the contract of sale is within the Statute of
Frauds and required to be in writing, the auctioneer has the authority
of the purchaser to sign his name to a memorandum of sale, either by
himself or through his clerk. The bidder is bound by this contract,
made in his presence at the time and place of the sale.
The owner may fix such reasonable terms as he chooses, and the
auctioneer must follow out the terms made by the owner. If an owner
advertises the terms of the sale, bidders are deemed to have notice
of these terms. These terms cannot be varied by the auctioneer. If,
however, the owner publishes no special terms of sale, the auctioneer
has implied authority to fix customary and reasonable terms. Bidders
have the right to rely on such terms and the principal is bound by them.
In the absence of special instructions to the contrary, an auctioneer
must sell for cash. He has possession of the goods, consequently has
implied authority to receive payment of the price. He has no implied
authority to warrant the goods. He cannot bid in his own interest. If
bidders fraudulently combine not to bid against each other, for the
purpose of obtaining the goods at a cheap price, no title passes to the
highest bidder, by reason of the fraud.
So long as the auctioneer acts within his authority and reveals the
name of his principal, he incurs no personal liability. But if he
exceeds his authority in making a sale he is liable in damages to his
principal. If he does not reveal the name of his principal to bidders,
he is liable personally to them.
An auctioneer is entitled to recover from his principal the amount of
his compensation, including disbursements and expenses incurred in
the sale, care and preservation of the property. He is said to have a
_lien_ on the goods or proceeds of the sale, for his compensation. By
this is meant that he has a right to retain possession of the goods
until his compensation is paid, or in the case of sale, to deduct his
charges from the proceeds of the sale.
When authorized to sell goods on credit, in case payments are not made
when due, the auctioneer may sue in his own name. He may also sue in
his own name for wrongful acts of third parties, whereby the goods are
injured. The principal also may bring this action in his own name. The
principal is liable for the acts of his auctioneer, committed within
the actual or apparent scope of the latter's authority.
=61. Del Credere Agency.= An agent authorized to sell is not
permitted to sell on credit, unless expressly so authorized or unless
the custom or usage of the particular kind of agency impliedly carries
with it this power.
Some agents are, by their contracts of agency, authorized to sell on
credit, on condition that they guarantee to save their principals from
losses resulting therefrom. Such an agency is called a _del credere_
commission, and the agent is called a _del credere_ agent. This term
means that in consideration of the agreed commission or salary paid the
agent, the latter agrees to pay to the principal, when due, the sums
which third parties, who buy the principal's goods from the agent, fail
to pay.
This agreement to indemnify the principal against losses on credits
made by the agent, is regarded as an original promise on the part of
the agent, and not a promise to pay the debt of another. By reason of
this attitude on the part of the courts in interpreting this contract
as an original promise on the part of the _del credere_ agent to
pay his own debt, and not the debt of another, the contract does not
have to be in writing. (See Statute of Frauds.) For example, _A_, a
manufacturer of farm machinery, employs _B_ as agent to sell farm
machinery on credit, on condition that _B_ personally guarantees the
sales. _B_ sells a mowing machine to _C_, to be paid for within ninety
days. _C_ fails to make payment. _A_ may sue and recover the amount of
the purchase price from _B_.
=62. Real Estate Brokers.= A real estate broker is one employed to
make contracts involving the sale or leasing of real property. The sale
of lots, of houses and lots, and farms are common examples.
A real estate broker is seldom authorized to do more than find a
purchaser or tenant, not being authorized to make the lease or
contract of sale. By reason of this limitation generally placed on a
real estate broker's authority, many disputes arise over real estate
brokers' rights to compensation. A principal may enter into any kind
of contract he desires with a real estate broker, and is liable when
the broker has performed his contract, and not before. The difficulty
is in determining when the broker has substantially performed his
contract. If _A_ hires _B_ to procure a purchaser for his house and
lot, and agrees to pay him 2% of the selling price when he obtains the
signature of a financially responsible purchaser to a contract of sale,
_B_ is not entitled to his commission until he obtains such a party's
signature to a contract. The fact that _A_ has entered into this
contract with _B_, does not, in the absence of an express stipulation
to the contrary, prevent _A_ from selling the property himself, or from
employing as many other brokers as he pleases to attempt to make the
sale.
Most brokers, however, are employed on certain terms to obtain a
purchaser or tenant. If the agent succeeds in obtaining such a
purchaser or tenant, the principal must pay the broker the agreed
compensation. The owner cannot act unfairly by the broker. If the
broker obtains a tenant or purchaser by seeking him out, and by
interesting him in the property, the owner cannot avoid the payment of
commission by discharging the broker and completing the deal himself.
In the absence of an express agreement to give the broker a certain
fixed time in which to make the sale or find a tenant, the owner may
discharge the agent at any time he sees fit, just as the agent may
cease his efforts at any time he chooses. The owner cannot discharge
the agent just as the latter is completing the sale, in order to
take advantage of the agent's efforts, without paying him the agreed
compensation. The agent, in this event is held substantially to have
performed his contract. Contracts with real estate brokers should
be carefully drawn, and should contain express stipulations as to
the powers and limitation of the broker's authority. The temptation
is great on the part of both parties to claim that the sale was, or
was not made, through the efforts of the broker. The contract of
a real estate broker differs not at all from any other contract.
The conditions are such, however, that the agreement is frequently
indefinite, and it is difficult to determine when a substantial
performance has been made.
In the absence of any agreed compensation, the real estate broker is
entitled to receive the customary fees. In the absence of any custom
regulating the commission, he is entitled to receive a reasonable
compensation.
A real estate broker is not permitted to represent both parties, or
to receive compensation from both parties. If a broker is promised
compensation from the purchaser which he agrees to accept, without the
consent of the owner, he cannot receive compensation from either party.
=63. Termination of Agency.= If an agent performs the terms of his
agency, the agency is said to be terminated by performance. He ceases
to be agent, by reason of having performed his contract.
If an agent is employed to act as agent for a specified time, the lapse
of the stipulated time, of itself, terminates the agency.
An agency is a contract, express or implied, and it may be terminated
at any time by any act of the parties thereto showing such to be their
intention. There is one exception to this rule, and that is, that an
agency coupled with an interest cannot be terminated by an act of one
of the parties. This exception is discussed in a separate section.
Where an agency is terminated by failure or refusal of the principal,
or agent to carry out his terms of the contract, the defaulting party
is liable in damages to the other party. This does not prevent the
termination of the agency however.
[Illustration: A CORNER IN THE NEW YORK OFFICE OF THE H. W.
JOHNS-MANVILLE CO.]
Where an agency is terminated by the failure or refusal of either party
to observe the conditions of the contract of agency, the agency still
subsists on the part of third persons, who have dealt with the agent,
and who have not received notice of the termination. Upon revoking the
agent's authority, the principal must notify third persons, who have
dealt with the agent, or who have knowledge of the agency contract,
and who would be likely to continue to deal with him as agent. If the
principal does not give third parties such notice, he is still liable
to them on contracts subsequently made by the agent in the principal's
name. For example, if _A_, a wholesale druggist, employs _B_ to sell
goods for one year and _C_ knows of the contract, and at the expiration
of six months, _A_ discharges _B_ for failure to give him his exclusive
time, _A_ must notify _C_ of _B's_ discharge, else _B_ can still bind
_A_ by making contracts with _C_.
=64. Revocation of Agency by Operation of Law.= When one of the
parties to an agency contract dies, becomes insane or bankrupt, the
agency is said to terminate _by operation of law_. When the principal
dies, the agency terminates. Death of itself, constitutes notice to
third persons of the termination of the agency. This is true of all
agencies except those coupled with an interest, discussed in another
section. If any agent and a third person innocently make a contract in
the name of the principal after the death of the principal, and without
notice of the principal's death, the contract is not enforceable
against the principal's estate. Death of the principal revokes the
agency. Death of the agent also revokes the agency.
Insanity of the agent, or of the principal terminates an agency not
coupled with an interest. It is regarded the same as death of one of
the parties.
An agency is terminated by the bankruptcy of either principal or agent.
Mere insolvency on the part of the principal or agent does not, of
itself, terminate the agency, but bankruptcy, voluntary or involuntary,
terminates it, and is of itself, notice to third persons. An innocent
third person who has parted with his money on a contract made with
the agent after the agency has been terminated by reason of insanity,
or bankruptcy of the principal, may not enforce his contract, but may
recover his money. Injury or disability of an agent, rendering it
impossible for him to carry out the terms of the agency, terminates the
agency.
=65. Agency Coupled with an Interest.= An agency coupled with
an interest cannot be terminated by attempted revocation of the
principal, nor is it terminated by death, insanity or bankruptcy of the
principal or agent.
If the agent has an interest in the subject of the agency outside his
interest in his compensation, he is said to have an agency coupled
with an interest. Such an agency is irrevocable. _A_ pays _B_ one
thousand dollars ($1,000.00) for one eighth interest in a patent, and
in consideration of this purchase is given the agency to sell the
patented article for a fixed commission. This constitutes an agency
coupled with an interest, and is not revoked by an attempted revocation
of the principal or by the principal's death. _A_ is indebted to _B_,
his attorney, for one hundred dollars ($100.00). _A_ gives _B_ a note
for one hundred and fifty dollars ($150.00) to collect, agreeing to
pay him 10% of the amount collected, and to permit him to deduct the
one hundred dollars ($100.00) indebtedness. This constitutes an agency
coupled with an interest, and cannot be revoked by _A_.
To constitute an agency coupled with an interest, the interest must
be coupled with the subject matter of the agency, and not merely with
the compensation the agent is to receive. For example, if _A_ sends
his attorney, _B_, a note to collect, agreeing to give _B_ 25% of the
amount collected, this does not constitute an agency coupled with an
interest, and may be revoked at any time by _A_.
QUIZ QUESTIONS
LAW IN GENERAL
1. How many classes of rights are there?
2. Name them.
3. How did men derive these rights?
4. What limitations, if any, are there to rights?
5. Have property rights always been recognized?
6. _A_ finds a watch in the street and, without making any attempt to
find the owner, keeps it. Is the right of possession in _A_?
7. In primitive times were personal or property rights more generally
recognized?
8. How were rights originally enforced?
9. How are rights enforced at present?
10. How did laws originate?
11. Define _law_.
12. What does law embrace?
13. What connection have laws with courts of justice?
14. What connection, if any, have customs to laws?
15. What is the purpose of law?
16. What class of laws is enforced for the benefit of the state?
17. _A_ steals _B's_ horse. _B_, by proper legal action, recovers
possession of the horse. Is the law enabling _B_ to recover the
horse a law for protection of citizens, or for the protection of
property?
18. What are the sources of law?
19. Do decisions of courts form any part of law? If so, what?
20. What are the New York State Reports?
21. What are the Philippine Island Reports?
22. Is the treaty existing between the United States and Japan, law? If
so what kind of law?
23. Define statutes. How are statutes enacted?
24. To what classification of law do statutes belong?
25. Is the English Constitution written or unwritten law?
26. Do customs and statutes bear any relation to each other?
27. How is the record of the state statutes kept?
28. What are the general divisions of law?
29. Is any part of the unwritten law written?
30. Is all unwritten law written?
31. Is any written law unwritten?
32. Is unwritten law stable?
33. How, if at all, can the written law of a state or country be
changed?
34. Are treaties unwritten law? How, if at all, are the records of
Congress kept?
35. Give a general classification of law.
36. Is there a universally recognized classification of law?
37. Define _administrative law_ and give an example.
38. Define _public law_ and give an example.
39. Define _private law_. Classify private law.
40. Define _constitutional law_.
41. Define _criminal law_ and give an example.
42. Can the heir or personal representative of a murdered man ever
recover money compensation for the murder?
43. If so, is it by means of private or public law?
44. Is a criminal tried and punished by private or by public law?
45. Define _law of procedure_ and give an example.
46. What do contracts embrace?
47. What does the word _tort_ mean?
48. Give an example of a tort.
49. Does the same act ever constitute a breach of contract, a tort, and
a crime?
50. Define _commercial law_.
CONTRACTS
1. Define _contract_.
2. Give an example of a business transaction which constitutes a
contract.
3. What is the purpose of putting important contracts in writing?
4. What is meant by _offer_?
5. Give an example of offer.
6. A coat marked $25 is placed by a merchant in a window. Does this
constitute an offer?
7. An advertisement is put in a paper advertising chairs for $7.00
each. Does this constitute an offer?
8. What is an _agreement_?
9. Is an agreement a contract?
10. Give an example of an agreement.
11. What is meant by _acceptance_?
12. Give an example of a contract having no acceptance.
13. _A_ offers to sell _B_ his watch for $10.00. _B_ offers _A_ $8.00.
Is there an acceptance? Is there a contract in the above case?
14. What is a _counter offer_? Give an example of a counter offer.
15. What is meant by the term _meeting of the minds_?
16. Give an example of an acceptance not of the exact terms of the
offer.
17. What is meant by _mutuality_?
18. Distinguish _meeting of the minds_ and _mutuality_.
19. May there be an acceptance of a contract by an act? If the above
question is answered in the affirmative, give an example.
20. Must an acceptance be communicated to the offer?
21. _A_ writes _B_, "I will sell you my horse for $150. If I do not
hear from you to the contrary by Thursday noon I will consider the
horse yours." _B_ does not reply. After Thursday noon, to whom
does the horse belong?
22. Define _option_. Give an example of an option.
23. Does an option require a consideration to render it valid?
24. What is an _element_ of a contract?
25. Give the elements of a contract.
26. How many parties to every contract?
27. What is meant by _legal age_?
28. _A_, a male, sixteen years old, contracts with _B_, a female,
eighteen years old. Can _B_ avoid the contract on the ground of
the infancy of _A_?
29. Is fraud or duress a defense to a contract?
30. How many kinds of consideration are there?
31. Is a good consideration sufficient to support a contract?
32. Define _valuable consideration_.
33. Give an example of a contract which may be supported by a good
consideration.
34. What is meant by a _sealed instrument_?
35. Is something beneficial to the promisee a sufficient consideration
to a contract?
36. _A_ promises _B_ to pay him $100 if _B_ will promise to work for
him for one month. _B_ promises. Is there a consideration to this
contract? If so, what is it?
37. Define _mutual promise_.
38. Is a mutual promise a valuable consideration? Give an example of
mutual promise.
39. Define _past consideration_. Give an example of past consideration.
40. Does a past consideration support a contract?
41. What is meant by _adequate consideration_?
42. Does a consideration have to be adequate to support a contract?
43. May adequacy of consideration be considered in determining whether
or not fraud was used in procuring a contract?
44. Give an example of a promise to do something one is already bound
to do.
45. Is a promise to do something one is already bound to do a
sufficient consideration to support a contract?
46. Give an example of illegal consideration.
47. Does an illegal consideration support a contract?
48. Do all the terms of a contract have to be express?
49. Define _express contract_.
50. A housewife orders a sack of flour from her grocer by telephone.
The flour is delivered and accepted by her. Is this an implied contract?
51. Give an example of an express contract.
52. Do any contracts have every term expressly set forth?
53. Define _implied contract_.
54. Are uncertain contracts void or voidable? Give an example of an
uncertain contract.
55. Give the distinction between _unilateral_ and _bilateral_ contracts.
56. _A_ promises to sell his dog to _B_ if _B_ will promise to pay him
$5.00 the following day. _B_ promises to pay _A_ $5.00 the
following day. Is this contract unilateral or bilateral?
57. _A_ promises to pay _B_ $100 if _B_ will dig a well for _A_. _B_
digs the well. Is the contract unilateral or bilateral?
58. Distinguish _executory_ and _executed_ contracts.
59. _A_ promises to pay _B_ $5,000 if _B_ will deliver to him a deed of
his farm. _B_ delivers the deed. Is the contract executed or
executory?
60. Is the above contract executed as to _A_? Is it executory as to _B_?
61. Are infants bound by their contracts? Define _infant_.
62. Are infants' contracts void?
63. Distinguish _void_ and _voidable_.
64. Can a competent party contracting with an infant avoid the contract
on the ground of infancy of the other party?
65. Can an infant ratify a contract after becoming of legal age?
66. Explain how, if at all, an infant may ratify his contracts.
67. Define the term _necessaries_.
68. _A_, an infant, has not sufficient clothing. _B_, a merchant, sells
him a coat worth $7.00, for $14.00. Can _B_ recover anything from
_A_? If so, how much?
69. Is an infant entitled to receive his wages?
70. What is meant by _emancipation of an infant_? Is emancipation of an
infant ever implied?
71. What is meant by _novation_? Give an example of novation.
72. Are contracts made for the benefit of a third person enforceable by
such third person?
73. Are contracts of an insane person enforceable?
74. Are contracts of insane persons, intoxicated persons, and idiots
void or voidable?
75. _A_, while intoxicated, purchased a coat from _B_ for $10.00. The
following day, when sober, _A_ promises to pay for the coat. Can
_B_ enforce the contract?
76. Can an insane person make a valid contract during a lucid interval?
77. Can married women enter into contracts?
78. Do custom and usage ever enter into a contract?
79. _A_ purchases forty barrels of yellow grease from _B_, like sample
furnished. The grease arrives, ranging in color from white to black.
_B_ offers to show a custom among grease dealers, known to _A_, that
a composite sample is used in selling grease. Can he show this
custom as part of the contract?
80. Are oral contracts ever valid? Why, if at all, do some contracts
have to be in writing?
81. What is meant by the _statute of frauds_?
82. When and where did this statute originate? What was the purpose of
this statute?
83. Does the statute serve any useful purpose at the present time?
84. Do the states of this country have a _statute of frauds_, or is it
a part of their unwritten law?
85. By the terms of the _statute of frauds_ what contracts must be in
writing?
86. Are contracts covered by the Statute of Frauds illegal if not in
writing?
87. _A_ orally promises _B_ to work for him for two years for the
consideration of $2,000. Can either party enforce the contract?
88. What is meant by the term _specialty_? Are specialties included in
the Statute of Frauds?
89. Can you make an oral promissory note?
90. Can contracts be made by letter and telegraph?
91. _A_, by letter, offers _B_ $1,000 for _B's_ team of horses. _B_
mails a letter of acceptance which is lost in the mails. Is there
a valid contract?
92. _A_, by letter, offers _B_ $10 for a harness. By the following
mail, _A_ writes revoking the offer. _B_ receives the letter of
revocation five minutes after mailing his acceptance. Is the
contract revoked?
93. _A_, by letter, offers _B_ $1,000 for his racing horse and says,
"I will consider my offer accepted upon receipt of your reply."
_B's_ letter of acceptance is lost in the mail. Is there a valid
contract?
94. _A_ wires _B_ that he will pay him $100 per share for his
Pennsylvania Railroad stock. _B_ hands his telegram of acceptance
to the telegraph operator who fails to send it. The following day
_A_ wires a revocation of his offer. Is there a valid contract?
95. Does a revocation by wire or letter have to be received to be
effected?
96. Does an acceptance by wire or letter have to be received by the
offerer to constitute a valid acceptance?
97. In what respect do sealed instruments differ from ordinary
contracts?
98. At present what constitutes a seal?
99. At present is it the tendency of the law to favor sealed
instruments?
100. Are Sunday contracts void or voidable?
101. What makes Sunday contracts unenforceable?
102. What was _The Lord's Day Act_ of England?
103. What is meant by works of charity and necessity?
104. _A_ makes and delivers a promissory note to _B_ for $100 on
Sunday. Is the note enforceable?
105. What makes a contract illegal?
106. Are illegal contracts void or voidable? Give an example of an
illegal contract?
107. What is a gambling contract?
108. Are gambling contracts void?
109. Why are gambling contracts illegal?
110. Define _fraud_.
111. Is a false representation made during the formation of a contract
known by both parties to be false, a defense to the contract?
112. Give an example of a false misrepresentation which will serve to
avoid a contract?
113. Can there be duress without personal violence? Define _duress_.
114. Give an example of duress.
115. Do duress and fraud render a contract void or voidable?
116. Define _mistake_ in connection with making a contract. Define
_mistake of fact_.
117. Define _mistake of law_.
118. Does mistake of one party to a contract avoid the contract?
119. Does mistake of law avoid a contract?
120. Does mutual mistake render a contract void or voidable?
121. What is meant by a _contract impossible of performance_? Give an
example of a contract impossible of performance.
122. _A_, on April 4, enters into a contract dated April 2, by which he
promises to deliver to _B_ within twenty-four hours, five tons
of coal. Is _A_ liable on this contract?
123. Do floods, earthquakes, or lightning preventing performance excuse
performance?
124. Is a party to a contract excused from performance by reason of a
strike?
125. May a party to a contract stipulate against strikes and Acts of
God in such a manner as to avoid liability therefor?
126. If a party to a contract renders performance impossible can he
force performance?
127. What is meant by _conflict of law_?
128. Does the law of the place where a contract is made, or the law of
the place where the contract is enforced, prevail?
129. If a contract is made in one place, to be performed in another,
the law of which place prevails in the interpretation of the
contract?
130. What is meant by _assignment_ of a contract?
131. _A_, a singer, contracts to sing at _B's_ opera house for one
week. Can _A_ assign her contract to _C_, another singer? Can _B_
assign his contract to _D_?
132. What is meant by _giving notice of assignment_?
133. Is an assignment a contract?
134. What are the elements of a valid assignment?
135. Does an assignment require a consideration?
136. Write an assignment of a simple contract.
137. Define _several liability_.
138. Can a party be jointly and severally liable on the same contract?
139. If two parties are jointly liable on a contract can one of them be
sued thereon without the other?
140. If two parties are severally liable on the same contract, can both
be sued together thereon?
141. Define liability _in solido_. Give an example of liability _in
solido_.
142. How may a contract be discharged by performance? Give an example
of a contract discharged by performance.
143. What is meant by _tender_? What constitutes legal tender?
144. Does United States statute or a state statute make certain money
legal tender?
145. What kinds of money constitute legal tender?
146. _A_ owes _B_ $5.00. He tenders him the amount in nickels. Is the
tender good?
147. _A_ owes _B_ $500.00. He tenders him a certified check for the
amount. Is the tender good?
148. Can a contract be discharged by a subsequent agreement?
149. _A_ agrees to dig a well for _B_ for $10.00. Before _A_ starts
work, _B_ changes his mind, and offers _A_ $1.00 in settlement.
Is the contract discharged if _A_ accepts the $1.00?
150. Define _warranty_.
151. Give an example of warranty to a contract. 152. Does breach of
warranty discharge the contract?
153. Does breach of warranty give rise to an action for damages?
154. Define _rescission_.
155. Give an example of rescission.
156. Define _statu quo_.
157. Define _breach of contract_.
158. Give an example of breach of contract.
159. In case of breach of contract must the other party wait until the
time for performing the entire contract elapses, or may he sue
at once?
160. Define _bankruptcy_.
161. By what kind of law is bankruptcy regulated?
162. Does bankruptcy discharge a contract?
163. Define _voluntary bankruptcy_.
164. Who may become a voluntary bankrupt?
165. Define involuntary bankruptcy. Who may become an involuntary
bankrupt?
166. Define _act of bankruptcy_.
167. Enumerate acts of bankruptcy.
168. At common law could one party to a contract compel another to
perform it specifically? Under present law can a contract for
sale of personal property be enforced specifically?
169. What is the measure of damages for failure to deliver merchandise
under a contract of sale?
170. How did the court of equity originate?
171. Are juries used in courts of equity?
172. What classes of cases are tried in equity?
173. Does a court of equity have jurisdiction of a case where there is
a plain and adequate remedy at law?
174. With what kind of contracts is equity especially concerned?
175. Give an example of a contract which may be enforced specifically
by a court of equity.
176. Write a form for a simple contract between _A_ and _B_ for the
sale of a horse.
PRINCIPAL AND AGENT
1. What is meant by the term _agency_?
2. Give an example of a transaction completed by an agent.
3. Is there a limitation upon the kinds of business which may be
transacted by an agent?
4. Distinguish principal and agent from master and servant.
5. Define and give an example of _principal_.
6. Define and give an example of _agent_.
7. Define and give an example of _agency_.
8. Define _infant_.
9. Is a married woman seventeen years of age an infant?
10. May an infant be a principal?
11. Define and distinguish _void_ and _voidable contracts_.
12. May an idiot, insane, or drunken person act as principal?
13. May a corporation or partnership transact business through agents?
14. May a child eight years of age act as agent?
15. In general, what persons may act as agents?
16. May a person act as agent who is not capable of acting for himself?
17. May a person whose interests are opposed to those of his principal
act as agent?
18. May corporations or partnerships serve as agents?
19. Must an agent's authority to act as agent be in writing?
20. May an agent be appointed or authorized to act by implied contract?
21. Define and give an example of _implied contract_.
22. What is meant by _ratifying an act of an agent_.
23. Give an example of a principal's ratification of an unauthorized
act of an agent.
24. Give an example of a contract of agency which must be in writing.
25. Why must some contracts be in writing?
26. What are the principal provisions of the Statute of Frauds?
27. Must contracts of agency authorizing an agent to complete a land
transfer be in writing?
28. Must a contract authorizing an agent to procure a purchaser for a
house and lot be in writing?
29. Can a third party rely upon the statements of an agent that he has
authority to act as agent?
30. May a person do through an agent anything which he may lawfully do
by himself?
31. _A_ employs _B_ to purchase votes for an act pending in a state
legislature. Is _A_ or _B_, or both, guilty of a crime?
32. _A_ employs _B_ to paint a picture, and _B_ employs _C_ to paint
the picture. Must _A_ accept the work of _C_?
33. What things are necessary to enable a person to ratify the acts of
an alleged agent?
34. May a forgery be ratified?
35. Give a classification of agents.
36. _A_ is employed to deliver a package for _B_. What kind of an agent
is _B_?
37. Give an example of a universal agent.
38. Enumerate the duties a principal owes his agent.
39. _A_ employs _B_ to work in his garden. _B_ works for ten days, no
compensation having been agreed upon. How much, if anything, can
_B_ recover from _A_?
40. If an agent abandons his agency before the time of his agency
expires, can he recover anything for work performed? If so,
how much?
41. What duty, if any, does a principal owe to his servant as to
furnishing a safe place in which to work?
42. What rules, if any, does a servant assume?
43. In general, what are the liabilities of a principal to third
persons who deal with an agent?
44. Is a principal liable to a third person who has dealt with an
agent, who acted within the apparent but not the actual scope
of his authority?
45. Is a principal liable to third persons for lots committed by an
agent within the scope of the agent's authority?
46. Give an example of a lot or private wrong committed by an agent
while acting for his principal, for which the principal is not
liable.
47. Enumerate, in general, the duties an agent owes his principal.
48. Is an agent liable to his principal for mistakes of judgment or
discretion?
49. Is an agent who acts without compensation ever liable to his
principal for negligence? If so, give an example.
50. Enumerate, in general, the liabilities of an agent to third persons
with whom he deals.
51. _A_, an agent for _B_, sells goods to _C_, in his own name. _C_
afterwards discovers that _A_ is agent for _B_. Can _C_ hold _A_?
52. If an agent procures a contract for his principal by means of fraud
is the agent liable personally on this contract?
53. If an agent, believing he has authority to act as an agent, where
in fact he does not, reveals all the facts of his agency to a third
party with whom he is dealing, is he liable personally to such
third party if it turns out that he acted without authority?
54. Define and give an example of _undisclosed principal_.
55. Is an undisclosed principal when discovered, liable for the acts of
his agent?
56. Is an agent of an undisclosed principal personally liable to
third persons for acts of agency after the undisclosed principal is
discovered?
57. May there be an undisclosed principal to a negotiable instrument?
58. What is meant by _apparent authority_ of an agent as distinguished
from _actual authority_?
59. Give an example of an agency where the apparent authority of the
agent conflicts with the actual authority.
60. If an agent appears to have authority to act for another, but in
fact never received any authority, can third persons rely upon his
apparent authority?
61. Do customary powers belonging to an agent come within the meaning
of apparent authority?
62. May a principal limit an agent's apparent authority by printing
limitations in the agent's order sheet and in making contracts with
third persons? If so, give an example.
63. Define and give an example of _secret instructions_.
64. Can a principal evade responsibility to third persons by secret
instructions given to an agent?
65. If a third party dealing with an agent knows of the secret
instructions, is he bound by them?
66. Define and give an example of _sub-agent_.
67. Is a sub-agent responsible to the agent?
68. Is an agent ever responsible for the acts of a sub-agent?
69. What matters, if any, may an agent delegate?
70. Define and give examples of _mechanical_ and _ministerial duties_.
71. Distinguish an agency requiring personal skill, discretion,
and judgment, from one requiring the performance of ministerial or
mechanical duties.
72. When, if at all, is an agent authorized to collect?
73. Is an agent authorized to sell goods, always authorized to collect
for them?
74. Is an agent authorized to collect, authorized to take checks?
75. How should an agent authorized to sign a written instrument for his
principal, sign?
76. May an agent authorized to sign a promissory note for his
principal, sign his principal's name without his own?
77. An agent authorized to sign a written contract for his principal
signs his own name followed by the word, _agent_; _e.g._,
"_A, Agent._" Is the principal bound?
78. When, if at all, is an agent authorized to warrant the quality of
personal property sold?
79. Define _warranty_.
80. Give an example of an agent who is impliedly authorized to warrant.
81. Do usage and custom have anything to do with the agent's implied
authority to warrant?
82. Define _factor_, and give an example.
83. Do factors have possession of the goods?
84. Do factors have implied authority to collect?
85. Do factors have the right to sell goods in their own name?
86. Is a commission merchant a factor?
87. Define _broker_.
88. Distinguish _broker_ and _factor_.
89. Give an example of broker.
90. Is a real estate agent a broker, or a factor?
91. In what respect, if any, does an auctioneer differ from an ordinary
agent?
92. What is meant by _licensed auctioneers_?
93. Are auctioneers' fees ever regulated by statute?
94. What is meant by _auctioneer's lien_?
95. When, if at all, may an auctioneer sell on credit?
96. May an auctioneer make his own terms of sale? Are all third persons
bound by the terms advertised?
97. Define and give an example of _del credere_ agent.
98. Must a _del credere_ agent receive a separate consideration for his
guaranty?
99. When is a real estate agent entitled to receive his commission?
100. Does the contract of a real estate broker differ from the contract
of any other agent?
101. How may an agency be terminated?
102. Give an example of an agency terminated by lapse of time, and of
one terminated by act of parties.
103. May all agencies be terminated at the will of the parties?
104. What is meant by _notice to third persons of termination of an
agency_, and when, if at all, is this notice necessary?
105. Explain _termination of agency by operation of law_.
106. In case of termination of agency by death of principal must third
parties be notified?
107. Does injury or liability of an agent ever terminate an agency? If
so, under what circumstances?
108. Define _agency coupled with an interest_.
109. Is an agency coupled with an interest revocable at the will of
either party?
110. _A_ employs an agent at a salary of one hundred dollars per month,
promising him 1% commission in addition, on all orders taken in
excess of $1,000 per week. Is this an agency coupled with an
interest?
111. Give an example of an agency coupled with an interest.
[Illustration: CHAMBER OF COMMERCE, CHICAGO, ILL.]
COMMERCIAL LAW
PART II
PARTNERSHIP
=66. In General.= A party may trade and enter into contracts by
himself, or he may associate with himself others. A person is not
obliged by law to transact business solely by himself. He is permitted,
for the purpose of having labor, capital and skill joined in one
enterprise, to combine with others. Where a person joins with himself
one or more persons for the purpose of transacting business as a unit,
the firm composed of the two or more persons thus joined is called a
_partnership_.
A partnership may be defined to be a contract between two or more
persons, by which their labor, skill or property is joined in an
enterprise for common profit, and in which each partner may act as
principal. The principal features of a partnership are, the right
of each partner to act as principal for the other partner, and the
individual liability of each partner for the acts of the partnership.
_A_ and _B_ agree to combine their efforts in operating a tea and
coffee store. Each may bind the other by contract, made within the
scope of the business, and each is liable individually to pay the debts
incurred by the partnership.
=67. How a Partnership is Created.= A partnership is created by
a contract. This contract may be oral, express or implied. Many
partnerships are created by carefully drawn, written instruments, in
which the rights and duties of each party are set forth in detail;
while others are made by oral agreement. Any contract of importance
should, for the purpose of having a record of the exact understanding
of the parties, be made in writing. As between themselves, parties
cannot be partners except such was their intention. Sometimes, parties
are considered partners as to third persons, with whom they deal, and
are liable as partners, where there is no intent to form a partnership,
and when none exists as between themselves. This relationship, called
_partnership by estoppel_, is based on equitable reasons and is
discussed more at length under a separate section. As between the
partners themselves, to constitute a partnership, there must be a
contract to that effect. This requires an assent on the part of all
the parties, based upon a valid consideration. Parties may enter into
an agreement to enter into a partnership at a future time. In this
event, the partnership does not exist as such until the time provided
for in the contract arrives, and until the conditions of the executory
agreement have been complied with.
A partnership may be created for any lawful purpose. If the partnership
contract is procured through fraud or misrepresentation, it may be
avoided by reason thereof.
=68.= _Who May be Partners._ Any person competent to contract on his
own behalf may enter into a contract. (See "Competency of Parties,"
chapter on Contracts.) An infant, or person under legal age, may enter
into a partnership contract the same as he may enter into any other
contract. The law does not prohibit it. But contracts by infants are
voidable. They may be renounced by the infant at his pleasure. For
example, if _A_, of legal age, enters into a partnership contract with
_B_, seventeen years of age, _B_ may renounce his obligation to _A_ at
any time he pleases, before he has reached legal age. _A_, however,
cannot renounce his partnership contract on account of the infancy of
_B_. _B_ may ratify his contract after becoming of legal age. If _B_,
after becoming of legal age, refuses to continue the partnership, and
refuses to carry out his partnership agreement, he is deemed in law to
have renounced his partnership, and is not liable for the obligation of
the partnership. If, however, after reaching legal age, _B_ continues
the partnership relationship for an appreciable length of time, he
is deemed in law to have ratified the agreement, and is thereafter
liable thereon. _B_ may not only renounce the partnership agreement
as to his partner, _A_ but also as to third persons dealing with
the partnership. _A_, however, is responsible individually upon the
partnership contracts with third persons, and cannot take advantage of
_B's_ infancy. It is no defense for him.
Drunken persons, insane persons, and idiots cannot enter into
partnership agreements. A married woman could not enter into contracts
at common law, but by statute is now permitted to make contracts, with
a few minor limitations, such as acting as surety for her husband, or
making contracts with her husband.
=69. Partnership Name.= The members of a partnership may use any name
they desire, so long as the name does not interfere with the fixed
rights of others. The members of a partnership may use the name of one
of the partners, or the combined names of all, or of a part of the
partners, or a name separate and distinct from the names of any of the
partners. For example, if _A_, _B_, and _C_ form a partnership, they
may use as a partnership name, "The _A_ Co.," "The _A_, _B_, Co.,"
"The _A_, _B_, _C_ Co.," "The _X_ Co.," or any fictitious name they
may determine upon. Some states provide by statute, that a partnership
using a name not revealing the individual members of a partnership,
must, in order to sue in the partnership name, file with a county
official the names of the members composing the firm. Other states by
statute prohibit the use of fictitious names.
A partnership cannot be bound by any other name than its own. Where a
partnership has adopted a firm name, contracts made in the name of one
of the individual members do not bind the partnership. A partnership
may change its firm name. This may be done by agreement, express or
implied. If the members of a partnership do not expressly agree to
change the name, but a new name is used by one or more of the members,
and the change is acquiesced in by the other members, they are deemed
in law to have agreed to the new name. A partnership may use two firm
names. This sometimes occurs when a firm has branches. One name is used
for one branch and another for the second branch. In this event the
partners are liable for contracts made in either name.
=70. Names Applied to Different Kinds of Partners.= Depending upon
the nature of their relationship to the partnership, partners are said
to be _secret_, _silent_, _ostensible_, _nominal_, or _dormant_.
A _secret partner_ is one who keeps the fact of his membership in
the partnership from the public. This does not enable him to escape
liability as a partner. He is in the position of an undisclosed
principal. (See "Undisclosed Principal," chapter on Agency.) So long
as a secret partner keeps the fact of his membership from the public,
of course he will not be sued as a member. But his liability exists in
spite of this secret, and when discovered his liability may be enforced.
A _silent partner_ is one who takes no active part in the operation
of the partnership business. His name may be known as a partner, or
not. He is not necessarily a secret partner. He may be well known as
a member of the partnership, but if he takes no active part in the
management, he is said to be a silent partner. A silent partner is
individually liable for the obligations of the partnership, the same as
any partner.
An _ostensible partner_ is one who permits himself to be held out or
represented as a partner, when in fact he is not a partner. He is
responsible as a partner to third persons who deal with the firm, and
to whom he has been held out as a partner. For example, _A_ and _B_
trade as the Rodway Co., _A_ in company with _C_, tries to buy goods
of _D_. _D_ knows _C_ but does not know _A_ and _B_. _A_ with _C's_
consent, tells _D_ that _C_ is a member of the Rodway Co. _C_ is liable
as an ostensible partner. More commonly the ostensible partner permits
his name to be used as a part of the partnership name when in fact he
is not a member of the partnership. If _A_ and _B_ form a partnership
and with _C's_ consent use the name, "_A_ _B_ and _C_ Co.," _C_ is
liable on the partnership obligations, in spite of the fact that as
between himself and _A_ and _B_, he is not a partner. If a partner is
advertised to third parties as such, without his knowledge or consent,
he is an ostensible partner, but is not liable as a partner.
A _nominal partner_ is one who permits his name to be used as a
member of the partnership without being a member of the partnership.
Ordinarily he is paid something for the use of his name, but does not
have a share in the profits. A nominal partner is liable to third
persons as a partner, but as to the other partners, he does not have
the rights or liabilities of a partner.
The term, _dormant partner_, is sometimes used synonymously with secret
partner. Technically, it means that the partner is both unknown and
silent. It combines the elements of a secret and a silent partner.
The terms, _general_ and _special_ partner, are commonly used. By
general partner, is meant the one who shares equally in the profits
and losses of the partnership transactions. The term, special partner,
means that the partner, as between the other partners, does not share
equally in the profits, nor is he responsible to the other partners for
an equal share of the losses. As to third persons, the terms general
and special partners have no significance; for example, if _A_, _B_ and
_C_ enter into a partnership, _A_ and _B_ each to furnish two fifths of
the capital, and each to have two fifths of the profits, and _C_ is to
furnish one fifth of the capital, and receive one fifth of the profits,
_A_ and _B_ are general partners and _C_ is a special partner. As to
third persons dealing with the partnership _A_, _B_ and _C_, each are
individually liable.
=71. Partnership Agreements as between Partners.= In considering the
question as to whether a partnership exists, it must be regarded from
two points. First, is there a partnership as between partners; second,
is there a partnership as to third persons? A partnership may exist as
between the partners themselves. When a partnership exists between the
partners themselves, there can be no question about its existing as to
third persons.
As between the partners themselves, a partnership cannot exist unless
there is a contract express or implied, by which they mutually agree
or consent to the partnership. If _A_ and _B_ agree, either orally or
in writing, to engage in a partnership enterprise, and do so engage
in a joint business, a partnership exists between them. If _A_ trades
alone as the "_A_ Co." and, desiring to obtain credit from _B_, tells
_B_ that _C_ is a member of the _A_ Co., even though _C_ ratifies the
unauthorized act of _A_, by stating to _B_ that he is a member of the
_A_ Co., this does not constitute him as a partner to _A_. As to _B_,
however, he is a partner and is liable as such. As to _A_, he is not a
partner, and is not entitled to a share in the profits. If the intent
of the parties to form a partnership, is clear, from their express
agreement, or from an agreement implied from their acts or conduct,
a partnership, without question, exists between them. Many business
arrangements are made by which property, skill, or labor is combined
under peculiar arrangements, as to the division of profits and losses,
making it difficult to tell whether a partnership exists. It is not
essential that the word, "partnership," be used to have an agreement
constitute a partnership. If it is the intent of the parties thereto
to create a partnership, one exists regardless of the term used. An
agreement to share losses, or to share profits in an enterprise,
is some evidence of a partnership, but is not sufficient of itself
to constitute a partnership. _A_ and _B_ may agree each to furnish
his own tools in drilling an oil well, and if a profit is made, to
divide the profits, and if a loss is sustained to bear the loss out
of their individual funds. These facts, do not show an intent to form
a partnership, and do not make _A_ and _B_ partners as to themselves.
If, however, _A_ and _B_ contribute one hundred dollars ($100.00) each
to a partnership fund, and combine the tools possessed by each toward
a partnership fund, and agree to share equally the profits and losses,
the intention is clear that a partnership is intended, and these facts
constitute _A_ and _B_ partners.
=72. Partnership as to Third Parties.= Where a partnership exists
as between the partners themselves there is no question about its
existing as to third persons dealing with the partnership as such. A
party cannot hold himself out to the world as a partner, and by means
of a private arrangement with his apparent partners, evade liability
as a partner. It is generally conceded that a secret arrangement made
between partners that one shall not be liable as a partner, if made
known to a third person dealing with the partnership, will relieve the
apparent partner from liability to such third person. For example, if
_A_ and _B_ are doing business as the "_A B_ Co.," and _A_ lends his
name to the company for a fixed consideration, _B_ receives all the
profits and is liable for all the debts. If _C_ deals with the "_A B_
Co.," not knowing of the private contract between _A_ and _B_, _A_ is
liable individually upon the contract. If, however, _C_ at the time he
deals with the "_A B_ Co.," is informed of the actual connection of _A_
with the company, he cannot hold _A_ liable as a partner.
If a third person extends credit to one of the partners, knowing that
the purchase is for the benefit of the partnership, he can hold liable,
only the party to whom he extended credit. If, however, he sells to one
of the partners, not knowing that he is a partner of a firm, and the
firm gets the benefit of the purchase, the firm is liable for the debt.
A partnership, like a principal in agency, is liable for the torts
or private wrongs of the individual partners, committed in the
course of the partnership business. If _A_, a member of the _A B_
Co. partnership, uses fraud in purchasing goods, the _A B_ Co., is
liable for the fraud. If _A_, a member of the _A B_ Co., gas fitters,
carelessly connect a gas burner, thereby causing an explosion, and
injury to _C_, the _A B_ Co., is liable for the injury.
=73. Powers and Property of a Partnership.= A partnership has the
power to transact business in its firm name. Unless prohibited by
statute, it may sue and be sued in its firm name, regardless of the
names of the individual partners.
Each member of a partnership is regarded as an agent of all the other
members of the partnership, with authority to bind the partnership
by any contract made within the scope of the partnership business.
A partner may deal individually in matters outside the scope of the
partnership business. For example, _A_, _B_ and _C_ form a partnership
for the purpose of buying, selling and leasing real estate. _A_, _B_
and _C_ are authorized to act for each other, in doing all the things
reasonably connected with the transaction of real estate business. If
_A_ orders groceries in the firm name, his partners may deny and avoid
the obligation, on the ground that is is not within the scope of the
partnership affairs. The grocer selling _A_ groceries in the firm name
cannot claim that _B_ and _C_ authorized _A_ to buy groceries. The
purchase is clearly outside the real estate business. If, however, _A_
purchases a house and lot in the firm name and uses it personally, the
seller can hold the partnership for the purchase price. A partnership
is empowered to sign notes, only when necessary to the transaction of
the partnership business. Partnerships may hold the title to personal
property in the name of the firm. This does not prevent the individual
members from holding property individually at the same time. As between
the partners themselves, only that personal property mutually agreed
to belong to the partnership is partnership funds. Even as to third
persons dealing with the partnership, the actual agreement of the
individual members as to what is, and what is not partnership funds
governs, except in the case of fraud. A partnership cannot represent
that it owns certain property, or that certain purchases are made
for the partnership for the purpose of obtaining credit, and then
claim that it is owned by an individual member. Property purchased by
partnership funds, or improved with partnership funds, belongs to the
partnership. Real estate purchased with partnership funds is regarded
as belonging to the firm, even though title is held in the name of one
of the partners. The partner in whose name the property is held is said
to be the legal owner, but the partnership is the equitable owner. Firm
creditors may subject it to pay firm obligations.
=74. Liability of Persons Held Out as Partners.= If a person permits
himself to be held out as a partner, he will be bound as a partner, as
to third persons dealing with the partnership with this in view. It
matters not that the party held out as a partner is not a partner in
fact. The real relation will protect the apparent partner, as against
the other partners, but not as against third parties who deal with the
firm, relying upon his being a partner. What amounts to being held
out as a partner is a question of fact, which must be determined by
the circumstances surrounding each particular case. If _A_, without
authority of _B_, tells _C_ that _B_ is his partner in the shoe
business and that they are trading as the "_A B_ Co.," and _C_ sells
them an order of shoes, without investigating whether _B_ actually
is a partner, _B_ is not liable as a partner for the obligation. The
authority to hold a person out as a partner must come from the partner
so held out. It may come from his assent or his neglect in denying the
relationship when he learns that he is being advertised as a partner.
For example, suppose _A_ borrows five hundred dollars ($500.00) of _B_
and promises to give _B_ a one-half interest in his grocery business,
if _B_ so desires, on condition that _B_ spend his afternoons working
in the store, and _B_, not considering himself a partner, permits _C_
to tell third persons that he is a partner. As a result, _B_ cannot
deny partnership liability as against third persons who consider him a
partner in dealing with the partnership.
=75. Duties and Liabilities of Partners as to Each Other.= The
relation of partners to each other is a contract relation. Each partner
must carry out the terms of the contract. Ordinarily, partnerships
require the devotion of the entire time and attention of each partner
to the partnership business. Partners are not permitted to engage in
any business for themselves which will interfere with the partnership
business, or take their time and attention away from the partnership
business. Each partner owes that duty of fidelity to the other members
of the partnership. A partner as an individual may deal with the firm,
and may act as agent for others in dealing with the firm, if it is with
the consent and knowledge of the other partners. A partner cannot sell
his interest in the firm to another, and have the new partner take
his place as a member of the partnership, without the consent of the
other partners. In any event, the withdrawal of one partner and the
substitution of another dissolves the old partnership and establishes a
new partnership. One partner may assign or transfer his interest in a
partnership but this dissolves the partnership, and gives the purchaser
the right to his seller's interest in the funds of the partnership. It
gives the purchaser no right to participate in the management of the
business.
If by the terms of a partnership agreement, the partnership is to
subsist for a specified length of time, and one partner withdraws or
refuses to continue, he is liable in damages to the other partners,
for breach of contract. If the partnership is organized without regard
to any specified duration, a partner may withdraw at will, and thus
dissolve the partnership. Partners must devote their entire time and
attention to the business, unless the partnership agreement provides
otherwise. Each partner is entitled to an equal share of the profits.
If one partner deals unfairly with another, the latter cannot bring an
ordinary suit at law for recovery of the amount due him, or for his
damages, but he must bring a suit in equity, setting up the facts, and
must demand an accounting. The court will then determine the rights of
the partners. If a partnership is dissolved, and the partners expressly
agree that a certain sum is owing by one partner to another, the latter
may sue the former for this amount, in an ordinary action at law.
=76. Liability of Partnership to Third Persons.= A partnership
is liable as such, upon its contracts to third persons. This means
that the obligation is in the nature of a joint one against all the
partners, and not a several one against the individual partners. There
is an individual liability of each partner, called a liability of each
partner in solido. This liability is discussed in this section under
the title, "Liability of Individual Members of a Partnership." A third
person, in commencing a suit against a partnership, must sue all the
partners, or be subject to the risk of having the case dismissed at the
objection of the one sued. All the property of a partnership may be
subjected to the payment of partnership obligations.
=77. Liability of Individual Members of a Partnership for Partnership
Obligations.= While a suit brought against one partner for a
partnership debt may be dismissed if objected to by the partner sued,
if not objected to, and judgment is taken, it may be enforced against
the individual assets of the partner sued. In this event, in most
jurisdictions, the other partners are discharged from liability. If the
partnership is sued either in the partnership name, or in the name of
all the individual partners, the individual members are still liable in
solido for the debt. By _in solido_ is meant, _liable for the whole_.
If one partner is compelled to pay all or more than his proportion of a
partnership debt, he may recover the excess of his share, ratably from
the other partners.
A member of a partnership may have partnership assets and individual
assets. A creditor of the partnership may satisfy his claim out of the
firm assets, or out of a partner's individual assets, except where
there are individual creditors. In the latter event, the partnership
creditors cannot subject individual partners assets to the disadvantage
of the individual creditors. On the other hand, individual creditors
cannot subject a partner's share in the partnership assets to the
disadvantage of partnership creditors. This means that in case of
insolvency of either a partner or of the partnership, firm creditors
must first exhaust firm assets, and take the balance of individual
assets after individual creditors have been satisfied. It means,
further, that individual creditors must satisfy their debts out of
individual partner's assets, and can only subject the balance of firm
assets after firm creditors have been satisfied. If there are no
partnership assets at all, and no solvent partners, firm creditors are
treated on the same basis as individual creditors, and the individual
assets of the partners are divided _pro rata_ among partnership and
individual creditors alike.
=78. Change of Membership.= A partnership depends for its existence
upon the continuation of the same membership. If one partner withdraws,
the partnership is, by that act, dissolved. If a new member is
admitted, the partnership is dissolved and a new one created. A partner
cannot escape his liability as a partner by withdrawing from the
partnership. By this act, he terminates the partnership, and no further
liabilities can be created against him except as to those persons
having no notice of his withdrawal; but he is still liable for the old
partnership debts. A substituted partner is not liable for the debts
incurred before he enters the firm, unless he expressly assumes such
debts. If he expressly assumes them, this does not relieve the outgoing
partner from liability, unless this is assented to by partnership
creditors. If it is borne in mind that a change in membership dissolves
a partnership, and any partnership that exists thereafter is separate
and distinct from the old one, and dates from the withdrawal of the
retiring partner, or admission of the new partner, the individual
liability of the partners is easily determined. For example, if _A_,
_B_ and _C_ are partners in a dry goods business, and _B_ withdraws,
_B_ is still personally liable for the debts of the _A B C_ Co. The
partnership ceases at the time of his withdrawal. If _A_ sells his
interest to _D_, who becomes a member with the consent of _B_ and
_C_, _A_ is still liable to creditors who became creditors before
_A's_ withdrawal. _D_ is not liable for the debts incurred before his
admission as a partner, unless he expressly so agrees.
=79. Death of a Partner.= The death of a partner terminates the
partnership. The remaining partners may agree to continue the
partnership, which amounts to the formation of a new partnership. In
case of death of one partner, title to the partnership property is in
the surviving partners. They must collect the assets and may sue on
firm obligations. They cannot, as survivors, continue the business
further than is necessary to wind up the affairs of the partnership.
They must first pay all firm obligations, and distribute the proceeds
among themselves and the representatives of the deceased partner.
=80. Survivorship.= Survivorship is the term applied to the relation
to the partnership of the remaining partners, after a dissolution. The
partners remaining after a dissolution are known as _survivors_. The
title to the partnership property vests in the survivors, and they must
collect the assets, pay the liabilities and distribute the proceeds
among themselves and the representatives of the other partners. By
statute, in some states, surviving partners are permitted to purchase
firm assets at a fair appraised valuation. Surviving partners have the
right to retain possession of the partnership property, and to do those
things necessary to wind up the affairs of the partnership. They are
not permitted to divide any firm assets among themselves, until all
firm debts are paid. If _A_, _B_ and _C_ are partners in the grocery
business, and _C_ dies, the title to the property rests in _A_ and _B_,
who have the authority to sue for the debts owing, and may be sued
for the debts owed by the firm. They have the right to draw checks on
the firm checking account, but no right to incur further obligations.
In the absence of special statute, they have no right to purchase the
business for themselves, and if they choose to continue it, they do so
at their own individual risk, and must account for all profits made.
=81. Dissolution of Partnerships.= A partnership may be dissolved
by lapse of time. If a partnership is entered into under an express
agreement that it is to subsist for a certain length of time, lapse
of the stipulated period works a dissolution. A partnership may be
dissolved by mutual agreement of the partners. A partnership may also
be dissolved by any change of membership, whether it be the withdrawal
of a member, admission of a new member, or death of a member.
Bankruptcy of a member, or bankruptcy of the partnership itself, works
a dissolution. If one party violates his duties as a partner, or if for
any reason, the partnership ceases as a result of a decree of court,
there is a dissolution.
=82. Notice of Dissolution.= Persons who deal with a partnership
through one of the partners, or through an authorized agent, have
the right to assume that the partnership will continue to exist. If
a partnership is dissolved by lapse of time, by mutual agreement, or
by withdrawal or entrance of another partner, notice must be given of
such change, to protect the members of the former partnership against
contracts of third persons, made subsequently to the dissolution.
Business people, who have had former dealings with the partnership,
must receive actual notice. These notices may be sent by mail, or
delivered orally, or in writing. A public announcement in a newspaper
is sufficient to protect former partners against contracts subsequently
made by persons who have not previously dealt with the firm. In case of
dissolution of a partnership by operation of law, such as by death of a
member, bankruptcy, or decree of court, no notice is necessary. The act
which causes the dissolution is deemed to be notice to everyone.
=83. Distribution of Firm and Individual Assets after Dissolution.=
As a general rule, firm creditors are entitled to firm assets. The
balance goes to individual partners. Individual creditors are entitled
to individual assets. The balance goes to firm creditors. If, however,
the partnership is insolvent as a firm, and there is no living solvent
partner, in the distribution of firm assets, firm creditors are treated
the same as individual creditors. Firm real estate may be subjected by
firm creditors to the payment of their claims. After firm creditors
are satisfied, firm real estate is treated as the real estate of the
individual members, and descends to the heirs of the partners, and does
not pass as personal property to their personal representatives.
=84. Limited Partnership.= Most states by statute permit limited
partnerships to be formed. In general, a limited partnership differs
from an ordinary partnership in that some of the members, called
special partners, are not individually liable for the obligations of
the partnership. The statutes of the different states differ somewhat
as to the purposes for which a limited partnership may be formed.
In general, however, a limited partnership may be formed to carry
on any business except banking and insurance. A limited partnership
must have at least one general partner who is individually liable for
the obligations of the partnership. The special partners contribute
certain fixed sums, which must be paid before the partnership starts
business, and beyond which the special partners are not liable.
Generally, special partners are not permitted to manage the business.
A limited partnership is generally required to file with a public
officer a certificate showing its membership, the purpose for which
it is organized, the number of shares held by special partners, the
assets, the total capital, and the names of the general partners. The
purpose of a limited partnership is to enable persons to invest a
certain amount of capital in an enterprise without being individually
responsible beyond the amount actually invested. Limited partnerships
are now largely supplanted by corporations.
=85. Form of Partnership Agreement.=
Articles of agreement entered into at Chicago, Ill., this ... day of
... 1909, by and between _A_, hereinafter designated as the first
party, and _B_, hereinafter designated as the second party, both of
Chicago, Ill. Witnesseth that:
1. Said parties agree to enter into a partnership for the purpose
of engaging in and carrying on a general hardware business in
the city of _Chicago_ under the name of _Cook County Hardware
Co._
2. The first party agrees to furnish his stock of goods, now
located at his present hardware store in _Chicago_, and said
second party agrees to contribute _$5,000.00_ in cash
immediately upon the signing of the agreement, said stock of
goods, and said _$5,000.00_, to constitute the joint capital
of the partnership.
3. Said parties agree to devote their entire time and attention
to the interests of the partnership business.
4. Said parties agree to share equally the losses and expenses of
said partnership, and at the expiration of each month, to
divide equally the net profits reserving a fund sufficient to
keep the original capital intact.
5. Said parties agree that the partnership shall continue as long
as the partners shall mutually so desire. In the event of
either party's desiring to withdraw, said parties agree that
each shall choose one arbitrator, the two thus chosen to
select a third, who shall appraise the assets of the firm,
and divide them into parts, which division shall be accepted
as final by the parties hereto. And each party agrees to
accept the portion allotted to him by said arbitrators. In
witness whereof, the parties hereto have set their hands the
day and year above written.
Signed
A.......................
B.......................
Signed in the presence of
C.......................
D.......................
CORPORATIONS
=86.Nature of a Corporation.= A corporation has been defined to
be "a collection of many individuals into one body, under a specific
denomination having perpetual succession, under an artificial form
and vested by the policy of the law, with the capacity of acting in
several respects as an individual." In other words _corporation_ is the
name applied to an association of persons authorized by law to create,
by mutual contribution, a common fund for the purpose of transacting
business without rendering the individual members personally liable
for the debts of the association, beyond a certain amount. The object
is to permit persons to obtain the advantage of large combinations of
capital without involving, beyond certain limits, the private property
of the individuals composing it. A corporation is an artificial person
having an existence in many respects separate and apart from the
members composing it. While it can only transact business by means of
agents, the obligations created are the obligations of the artificial
person, the corporation. The common fund or capital of the corporation,
is the only property that can be subjected in payment of the debts.
The individual property of the members is not the property of the
corporation.
[Illustration: UNITED STATES PATENT OFFICE, WASHINGTON. D. C.]
=87.Corporations Distinguished from Partnerships.= A partnership
may be created by mutual consent of the parties desiring to engage
in that joint enterprise. The only limitation is that the enterprise
must be for a lawful purpose. A person may form a partnership for
the transaction of any kind of business which he may transact as an
individual. A corporation, on the other hand, must have permission
from the government to transact business. This permission is called
its _franchise_. Corporations cannot be formed for every purpose. That
is, individuals are permitted to engage in lines of business denied to
corporations. A corporation is an artificial person, regarded in law
as distinct from the individuals composing it. A partnership is not
distinct from the individuals composing it, and the individual members
are personally liable for the debts of the partnership. A corporation
has a continuous existence; it continues to live regardless of death
of some of its members, or regardless of a change of membership.
A partnership ceases to exist upon the death of a member, or by a
change of membership. A corporation's members do not have the right,
as such, to act as agents of the corporation for the purpose of
transacting business. The agents of the corporation are appointed in
a manner prescribed by law, and by the rules of the corporation. In a
partnership, each member is the recognized and authorized agent of the
partnership. Each member may bind the partnership by any contract made
within the scope of the partnership business. For example, if _A_ and
_B_ form a partnership for the purpose of selling real estate, either
_A_ or _B_ by reason of the partnership agreement, is authorized to
sell real estate in the name of the firm. If _A_, _B_, _C_, _D_, and
_E_ are stockholders in the _X_ Co. neither _A_, _B_, _C_, _D_ or _E_
is entitled, by reason of his being a stockholder, to make contracts
for the corporation. A board of directors must be elected by the
stockholders, who in turn elect officers, and appoint agents authorized
to transac
Showing first 200,000 characters. Full text: gutenberg.org/ebooks/46489