[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.