Cyclopedia of Commerce, Accountancy, Business Administration, v. 3

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Title: Cyclopedia of Commerce, Accountancy, Business Administration, v. 3
Author: Various
Language: English
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[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.

AUDITORS, ACCOUNTANTS, ATTORNEYS, AND SPECIALISTS IN BUSINESS
METHODS AND MANAGEMENT

_Illustrated with Over Two Thousand Engravings_

TEN VOLUMES

CHICAGO
AMERICAN TECHNICAL SOCIETY
1910

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 coöperation 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 coöperation 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 reënacted by all
the states. About half the states do not require that contracts for
the sale of personal property shall be in writing, regardless of the
price involved. Some of the states fix the price as high as two hundred
dollars ($200.00) and others, as low as thirty dollars ($30.00).

The details of the entire contract need not be in writing to satisfy
the provisions of the statute. A memorandum embodying the substance of
the agreement, showing the consideration, and signed by the party to be
bound, or by his authorized agent, is sufficient.

Contracts called _specialties_, have to be in writing, regardless of
the Statute of Frauds. The most common examples are bills and notes,
drafts and checks. These special contracts are made to circulate as
money, and must be reduced to writing to be enforceable. There can be
no such thing as an oral check, or draft, or promissory note. The oral
contract for which they are given may be enforced, if not within the
provisions of the Statute of Frauds.

=19. Contracts by Correspondence and Telegraph.= Parties need not meet
personally to enter into contracts. They may legally make them by
telegraph or by letter.

It is well settled by the courts that a party may make an offer by
letter, and that in so doing he impliedly gives the party addressed,
the right to accept by letter. In law, the contract is complete the
moment the letter of acceptance is mailed, regardless of its ever being
received.

The offeror may stipulate in his offer by letter, that the contract
shall not be made until he is in receipt of a reply. In this event, the
acceptor's letter must actually be received by the offerer, before the
contract is complete. But if no such stipulation is made, the contract
is complete when the letter of acceptance is mailed.

If no time for acceptance is stipulated in the offerer's letter, the
acceptor has a reasonable time in which to accept. What is a reasonable
time, depends upon the nature of the transaction, and the circumstances
surrounding it. If the offeror stipulates in his letter that the offer
must be accepted by any stipulated time, the offer, of itself, lapses
at the expiration of that time. If _A_ mails a letter to _B_, offering
to sell one hundred bushels of wheat for one hundred dollars ($100.00),
and the following day _B_ mails a letter, properly addressed, postage
prepaid, to _A_, accepting the offer, and the letter is lost, the
contract is complete and _B_ may recover from _A_ thereon.

If _A_, by letter offers to sell _B_ one hundred bushels of wheat for
one hundred dollars ($100.00), the offer to remain open until Thursday,
and _B_ mails his letter of acceptance Wednesday, and the letter is
lost, the contract is binding and _A_ is liable thereon. If _A_ by
letter offers to sell _B_ one hundred bushels of wheat for one hundred
dollars ($100.00), the offer to be accepted upon receipt of _B's_
reply, and _B's_ reply is lost in the mails, there is no contract.

=20. Revocation.= It is a well recognized principle of contracts that
an offer may be revoked, or withdrawn, at any time before acceptance.
In case of revocation by mail, however, the letter of revocation
must be received by the acceptor, before he has mailed his letter of
acceptance. For example, _A_ mails _B_ a letter offering to sell _B_
one hundred bushels of wheat for one hundred dollars ($100.00). _B_
mails his letter of acceptance. By the next mail _B_ receives a letter
of revocation. The contract is valid since the letter of revocation was
not received, until after the letter of acceptance was mailed.

The only offers that cannot be withdrawn at any time before acceptance,
are what are known in law as _options_. Options are contracts to
keep an offer open for a stipulated length of time. They require
a consideration, an agreement and all the elements of an ordinary
contract. They are contracts. _A_ agrees by letter to sell _B_ one
hundred bushels of wheat, and to keep the offer open three days. On
the second day, and before _B_ has mailed his acceptance, _B_ receives
a letter from _A_, by which _A_ withdraws his offer. _B_ cannot now
accept _A's_ offer, since there was no consideration for _A's_ promise
to keep the offer open three days.

_A_ writes _B_, offering to sell him one hundred bushels of wheat for
one hundred dollars ($100.00), and to keep the offer open for ten days.
_B_ writes _A_ that he will give him $2.00 if he will keep the offer
open ten days. _A_ accepts the offer. On the sixth day _B_ receives
a letter from _A_ revoking the offer to sell, and on the following
day _B_ mails his letter of acceptance. There is a valid contract
in this case, since _B_ had a contract with _A_ based on a valuable
consideration to keep the offer open ten days.

Contracts by telegraph are analogous in principle to contracts by
letter. An offer by telegraph impliedly authorizes the receiver to
accept by telegraph and the offer is accepted when the reply message is
deposited with the operator. If lost, or not sent, the contract is not
affected in the least.

=21. Contracts under Seal.= Formerly, at common law, contracts under
seal were frequent. At the present time few contracts are made under
seal. Originally a seal was an impression made in wax placed on
a written document. Sealed instruments differ from other written
instruments in that they import a consideration. At common law, no
consideration need be proven to a sealed instrument. Formerly, private
seals were in common use. Later, a scroll made with the pen or a line
or any mark designated as a seal was sufficient.

Private seals have been abolished by statute in many of the states, so
that their use is now limited. The modern tendency is not to use sealed
instruments, or when used, to regard them as different in no respect
from other contracts.

=22. Sunday Contracts.= All the states of this country have statutes
prohibiting the transaction of business on Sunday. These statutes are
based on "the Lord's Day Act" of England. The English statute provides
that persons shall not do or exercise any worldly labor, business or
work of their ordinary callings, upon the Lord's Day, or any part
thereof, works of necessity and charity only excepted.

While the statutes of the different states differ in details, they
are based upon the English statutes. Under the English statute, it
is difficult to determine in many cases what constitute "works of
necessity and charity." The duties of clergymen, physicians and of
nurses clearly are covered. It is sometimes stated that a person cannot
make contracts, within the ordinary scope of his customary business, on
Sunday. This is true, if it does not relate to charity or necessity.
Deeds, notes and ordinary contracts, made and delivered on Sunday are
void. Subscriptions for church funds may legally be made on Sunday.

=23. Illegal Contracts.= A contract prohibited by law, or made for the
purpose of doing something prohibited by law, is illegal, and void. If
_A_ promises _B_ one hundred dollars ($100.00) if _B_ will poison _C's_
horse, the contract is contrary to law and illegal. If _B_ poisons
_C's_ horse, he cannot recover the one hundred dollars ($100.00) from
_A_.

Contracts which are against public policy are illegal and void. Public
policy means the public welfare. Marriage brokerage contracts and
contracts in restraint of trade come within this provision. Lobbying
contracts, contracts to influence votes, and for railroad rebates are
against public policy and void.

=24. Wagering or Gambling Contracts.= In England, at common law,
wagering or gambling contracts were valid. Gambling contracts were
recognized as legal by some of the states at one time. At the present
time, by statute the states declare gambling contracts illegal and void.

A contract for the sale of goods, to be delivered in the future, even
though the seller does not have possession of the goods at the time the
contract of sale is made, but expects to purchase them from a third
person, is not regarded as a gambling contract, and is valid.

Contracts for the purchase of stocks or goods in which there is no
expectation to deliver, but simply an agreement to pay the difference
in price at a certain date according to the state of the market, are
gambling contracts, and void.

=25. Fraud and Duress.= Fraud may be said to be misrepresentation of a
material fact, known by the party making the misrepresentation to be
false, and made for the purpose of influencing the other party to the
contract, and acted upon by the other party to his detriment.

For example, _A_ offers to sell _B_ a horse for two hundred and fifty
dollars ($250.00). He tells _B_ the horse is sound, knowing that
the horse has a disease which renders him worthless. He makes the
representation of soundness for the purpose of inducing _B_ to buy. _B_
relies upon the representation, purchases the horse, and afterwards
discovers the worthless condition of the horse. _B_ can return the
horse and recover the purchase price. This is known as rescinding a
contract on the ground of fraud.

A fraudulent contract is not void, but voidable. The defrauded party
may avoid the contract if he chooses, but the contract itself, is not
without effect, simply by reason of the fraud.

A mere failure to disclose facts or conditions, if not accompanied by
active measures to distract the defrauded party's attention from the
thing to be concealed, ordinarily does not amount to fraud.

If one party by means of threatened or actual violence compels another
to enter into a contract, or to part with something of value, the
contract is said to have been obtained by duress. Such contracts may be
avoided by the injured party, who may recover what he has lost.

_A_, a police officer, wrongfully arrests and imprisons _B_ and
releases him only after _B_ has signed a promissory note for one
hundred dollars ($100.00). _A_ cannot recover on the note.

_A_, who is superior in physical strength to _B_, by threats of
personal violence, compels _B_ to admit that he is indebted to _A_ for
one hundred dollars ($100.00), which _B_ pays _A_. _B_ may recover the
money from _A_. The contract is voidable on account of duress.

=26. Mistake.= One of the essential elements of a contract is that
there must be a meeting of the minds of the contracting parties. If
there is a mutual mistake on the part of the contracting parties, their
minds do not meet and no contract results. _A_ offers to sell _B_ his
farm for five thousand dollars ($5,000.00). _A_ has two farms. _A_ has
one in mind, and _B_ the other. Their minds do not meet and there is no
contract.

A mistake as to the legal effect of a contract does not avoid it. This
is known as a mistake of law.

A mistake on the part of one of the parties only, ordinarily does not
avoid the contract.

=27. Impossible Contracts.= Parties may enter into any kind of a
contract they choose, so long as the provisions and conditions are
legal. As a general rule, a party is liable in damages to the other
party, for failure to observe and carry out the terms of his contract.
There is, however, a class of contracts, known in law as impossible
contracts. Many contracts are made upon the assumption that the persons
making the contract, or the particular thing under consideration will
continue to exist until the contract is performed.

_A_ agrees to paint a picture for _B_, for one thousand dollars
($1,000). _A_ fails in health or dies. _A_ or his estate, is not
responsible in damages to _B_, since the contract contemplated _A's_
remaining in health and life.

_A_ agrees to make _B_ a chair out of a particular piece of walnut
lumber. The lumber is destroyed by fire through no fault of _A_. _A_
is not liable in damages, since the parties contemplated the continued
existence of the lumber. If, however, _A_ contracts to build _B_ a
walnut chair within ten days for fifty dollars ($50.00) and his factory
and walnut lumber are destroyed by fire, _A_ is answerable to _B_ in
damages, for failure to deliver the chair. He has entered into a lawful
contract, and has not excepted liability on account of fire.

A contract for personal services is rendered of no effect by the
failure of health, or by death of the party, who is to perform the
services. Where, however, the contract provides for the doing of a
certain specific thing, not to be performed by a certain person, and
not depending upon the continued existence of a certain thing, the
parties are bound to perform, regardless of accident.

Floods, earthquakes or lightning do not excuse performance. These
accidents are known in law as _Acts of God_. (See _Acts of God_ chapter
on Carriers.) Acts of God do not excuse performance unless expressly
provided against in the contract.

A law changed after the contract is made, making it unlawful to perform
the contract, excuses performance.

Strikes do not render it impossible to perform contracts, within
contemplation of the law. If a party desires to become exempt from
performance by reason of strikes, he must put such a provision in his
contract.

If the party to the contract, to whom the performance is due, renders
performance impossible for the other party, the latter is excused on
the ground of impossibility. For example, _A_ contracts to do the
wood finishing on _B's_ house within six months, _B_ to construct the
masonry work. _B_ fails to construct the masonry work; this exempts _A_
from liability.

=28. Conflict of Laws.= The laws of different states differ in some
particulars. Where this difference affects the interpretation or
enforcement of a contract, the doctrine of conflict of law applies.
If a contract is valid in the state where made, it is usually valid
everywhere. This rule is subject to the limitation that a state will
not enforce a contract clearly against the policy of its own laws. If a
contract is made in one state, to be performed in another, the laws of
the latter apply. Otherwise, the laws of the state where the contract
is made apply. The laws relating merely to the court procedure or the
method of enforcing a contract, belong to the state called upon to
enforce the contract, and, even though the laws of the state where the
contract was made differ, the former will apply.

The laws of New York permit an express company to limit its liability
for loss of goods to fifty dollars ($50.00), if so stipulated in the
bill of lading, in case no valuation is fixed by the shipper. The laws
of Ohio do not permit an express company to limit its liability in this
way. _A_, in New York, shipped goods valued at four hundred dollars
($400.00) to _B_, in Cleveland. _A_ placed no valuation on the goods
and accepted a receipt limiting the liability of the express company
for loss of the goods, to fifty dollars ($50.00). The goods were lost.
_B_ sued the express company in Ohio for the value of the goods. The
court held that the law of Ohio held, since, by the terms of the
contract, the goods were to be delivered in Ohio.

=29. Assignments of Contracts.= By assignment of a contract, is meant
the transfer of one's property rights in the contract. One cannot
assign his duties under a contract. For example, _A_ contracts with
_B_ to have the latter build him a house, for five thousand dollars
($5,000.00). _B_ cannot transfer to another, the obligation on his
part to construct the house. _B_, may, however, transfer to another,
his right to recover the money for the house. _A_ may also transfer to
another, his right to have the house constructed.

Contracts for personal service such as the painting of a picture, or
the writing of a book, cannot be assigned. In such cases the personal
work of a particular person is contracted for and cannot be transferred.

An assignment of a contract is a contract for the sale of a property
benefit of a contract. The assignment must contain all the elements
of a simple contract. The assignor of a contract can transfer only
such property rights as he possesses. The other party to the contract
retains any defense against the assignee, which he had against the
assignor. _A_ agrees to build a house for _B_, for five thousand
dollars ($5,000.00), according to certain plans. _A_ constructs the
house with variations, subjecting him to a reduction in price of five
hundred dollars ($500.00). _A_ assigns his rights in the contract to
_C_ and _C_ can compel _A_ to pay him only four thousand five hundred
dollars ($4,500.00). The defense of _B_ against _A_ is good against
_A's_ assignee, _C_.

Upon assigning a contract, the assignor or assignee must notify the
other party to the contract, of the assignment, else payment to the
assignor will discharge the other party. For example, _A_ owes _B_ one
hundred dollars ($100.00). _B_ assigns the claim to _C_. _C_ does not
notify _A_ of the assignment and _A_ pays _B_. _B_ is insolvent and _C_
cannot recover from him. _C_ cannot recover from _A_, since _A_ has
received no notice of the assignment.

The following is a recognized legal form of assignment.

For valuable consideration, I hereby assign all my right, title and
interest in the annexed (account, contract, or whatever the instrument
may be) to______

_____________________
Signature of assignor.

Date_____________

=30. Joint and Several Liability in Contracts.= If _A_ makes a contract
with _B_, only two parties are bound by the contract and are liable
for its breach. If _A_ and _B_ contract with _C_ and _D_, four parties
are bound and are liable. _A_ and _B_ may be liable as one party to
_C_ and _D_, or they may be liable as two parties to _C_ and _D_. If
the contract shows by its terms that _A_ and _B_ contract as a unit,
and not as separate individuals, their contract is said to be _joint_.
If the terms of the contract show that _A_ and _B_ intend to contract
as individuals, as well as a unit, their contract is said to be
_joint_ and _several_. If the terms of the contract show that _A_ and
_B_ intend to contract as individuals only, and not as a unit, their
liability is said to be _several_.

The importance of this distinction is that in case of a joint
obligation, all the joint obligors must be joined when sued, else the
case may be dismissed if objection is made; while in case of a joint
and several obligation, or of a several obligation, individual obligors
may be sued separately.

A promissory note reads, "We promise to pay" and is signed by _A_ and
_B_. This is a joint obligation, and in a suit thereon _A_ and _B_
must be joined, or the one sued may have the case dismissed, by reason
thereof. If, however, judgment is rendered against both, and they
hold no joint property, the creditor may enforce his judgment against
either. This is known in law as, _liability in solido_. A promissory
note reads, "We or either of us jointly and severally promise to pay,"
and is signed by _A_ and _B_. _A_ and _B_ are severally, as well as
jointly liable, and may be sued separately.

Where two or more parties sign a contract, binding themselves to do
one thing of a series of things, the law presumes the obligation to
be joint. If the language used shows, that the parties singly, or
individually bind themselves to do the thing, or series of things in
common, the contract is several, as well as joint. _A_ owes _B_ three
hundred dollars ($300.00) upon a promissory note. _C_, _D_ and _E_ sign
the following guaranty:

If _A_ fails to pay the note when due, _C_ individually promises to pay
_B_ one hundred dollars ($100.00), _D_ individually promises to pay _B_
one hundred dollars ($100.00), _E_ individually promises to pay _B_ one
hundred dollars ($100.00).

As to each other _C_, _D_ and _E_, are severally liable. As to
_B_,--_C_, _D_ and _E_ respectively are jointly and severally liable,
with _A_ for one hundred dollars ($100.00) each.

=31. Discharge of Contract by Performance and Tender.= A contract
is terminated, when the parties thereto perform its provisions. The
liability of parties ceases by performance of the provisions of the
contract. _A_ promises to construct a house for _B_, according to
certain specifications, within a year. _B_ promises to pay _A_ five
thousand dollars ($5,000.00), upon completion of the house according
to contract. _A_, within a year, constructs the house according to
the plans and specifications. _A's_ obligation is at an end. _B's_
obligation still requires him to pay _A_ five thousand dollars
($5,000.00), and he is liable to a suit for this amount until it
is paid. When _B_ pays _A_ five thousand dollars ($5,000.00), his
obligation and the contract are terminated, as to both parties.

Tender of payment is equivalent in law to payment. By _tender_ is meant
an offer to pay in recognized legal money. _A_ has an option for the
purchase of a house of _B_, for five thousand dollars ($5,000.00). _B_
desires to have the option lapse, having obtained a better offer. If
_A_ offers _B_ legal tender before the option expires, the contract is
complete in law.

United States statutes stipulate what constitute legal tender. These
statutes provide that the following shall constitute legal tender:

1. Gold coin.

2. Silver dollars.

3. Subsidary silver coin up to ten dollars.

4. Nickels and pennies not exceeding twenty-five cents.

5. United States notes, except for duties on imports, and interest on
public debts.

Silver certificates, bank notes and private checks are not legal
tender.

=32. Discharge of Contract by Subsequent Agreement.= Contracts may be
terminated by another contract, made after the contract in question has
been entered into. For example, _A_ promises to construct, within one
year, a house according to certain plans, for _B_. _B_ promises to pay
_A_ five thousand dollars ($5,000.00), upon completion of the house.
_A_ completes the excavation of the cellar and _B_ fails in business,
and desires not to have the house constructed. He offers _A_ five
hundred dollars ($500.00), for the work already done, and to release
him from his obligation. _A_ accepts _B's_ proposition. The original
contract has been terminated by the subsequent one.

=33. Warranty and Remedies for Breach of Warranty.= A _warranty_ is
a contract collateral to the principal contract, by which a party to
a contract specifically covenants certain things. Warranties apply
especially to sales of personal property. (See _warranty_ under Sales
of Personal Property.) _A_ promises to build a house for _B_ and
warrants the paint to stand untarnished and uncracked for one year. The
covenant on _A's_ part relating to the paint is a warranty.

Breach of warranty ordinarily does not entitle the other party to
rescind the contract. That is, it does not permit him to refuse to
carry out his part of the contract, but entitles him to bring an action
for damages, for its breach.

=34. Recission and Discharge of Contracts by Breach.= If a party fails
or refuses to carry out a provision of a contract, he is said to have
committed a _breach of contract_. When one party to a contract commits
a breach, the other party may accept the breach and sue for damages, or
he may refuse to accept the breach and wait until the time for complete
performance arrives, and then, if the other party has not performed,
sue for damages.

When a party to a contract commits a breach, and notifies the other
party of his refusal further to carry out the contract, the other
party cannot increase the defaulting party's damages by continuing
performance thereafter. For example, _A_ contracts with _B_ to have
a fence finished and erected around _A's_ house. After _B_ has half
of the fence manufactured and erected, _A_ refuses to go on with the
contract. _B_ cannot increase the damages by manufacturing and erecting
the balance of the fence. The reason for this is that it would not
benefit _B_ at all, but would merely injure _A_. _B_ is entitled to
recover his profit for the entire job, when _A_ breaks the contract.
He could recover no more by manufacturing and erecting the balance of
the fence.

The law does not recognize trivial things. A party cannot claim breach
of contract for failure of the opposite party to a contract, to perform
an unimportant thing. The law recognizes substantial performance as
actual performance. This does not mean that a party cannot put such
terms in a contract as he chooses, but means that, in the absence of
any provisions of the contract to the contrary, a party is not presumed
by law to contract for trivial things. Time of performance is an
illustration of this principle. _A_ contracts with _B_ for the building
of a house. _B_ promises to complete it in one year. If completed
in one year and a day, there is a substantial performance, unless
the contract expressly shows that the precise day of performance was
regarded as important.

Where contracts provide for separate performances, a failure or refusal
to fulfil one performance will not always amount to a refusal or
failure to perform the balance. _A_ agrees to ship _B_ five thousand
barrels of cement, in car load lots of one hundred and fifty barrels
each to be shipped each week. _B_ receives and refuses to pay for the
first car. This may not amount to a breach of the entire contract, so
as to justify _A_ in refusing to ship the balance. The tendency of
American courts, however, is to treat this as as one contract; that is
to treat the promises as dependent, and not independent.

The acceptance by one party, of a breach of contract made by the other,
and the refusal on the part of the former further to carry out the
contract, is known in law as _recission_. To rescind a contract, a
party must return what he has received thereunder, called putting the
other party _in statu quo_. He must also accept the breach promptly.
For example, _A_ promises to sell _B_ three horses to be delivered one
each day, upon the three following days. _A_ delivers one and fails to
deliver the second. To rescind the contract, _B_ must return promptly
to _A_ the horse already delivered. He may then sue _A_ for damages
suffered. If _B_ does not promptly return the horse to _A_, he must
permit _A_ to go on with the contract, waiving the delay, or pay for
the horse already delivered, less damages for _A's_ breach of contract.

=35. Discharge by Bankruptcy.= By a United States' statute, certain
persons may become bankrupts and thereby be discharged from their
obligations. By the terms of this act, the bankrupt's property is
turned over to an officer, called a trustee in bankruptcy who disposes
of it, and distributes it _pro rata_ among the bankrupt's creditors.
Any person except a corporation, who owes debts, may become a voluntary
bankrupt.

The United States statute further provides that certain persons may
be declared bankrupts at the instance of their creditors. The United
States statute provides that:

"Any natural person, except a wage earner, or a person engaged
chiefly in farming or the tillage of the soil, any unincorporated
company and any corporation engaged principally in manufacturing,
trading, printing, publishing, mining or mercantile pursuits, owing
debts to the amount of one thousand dollars ($1,000.00) or over, may
be adjudged an involuntary bankrupt, upon default, or on impartial
trial and shall be subject to the provisions and entitled to the
benefits of this act. Private bankers, but not national banks or
banks incorporated under state or territorial laws may be adjudged
involuntary bankrupts."

Any of the above enumerated parties may be made an involuntary bankrupt
at the instance of creditors if he has committed an act of bankruptcy.

The bankruptcy statute defines an act of bankruptcy as follows:

"Acts of bankruptcy by a person shall consist of his having (1)
conveyed, transferred concealed or removed, or permitted to be
concealed or removed, any part of his property with intent to hinder,
delay or defraud his creditors or any of them; (2) transferred, while
insolvent any portion of his property to one or more of his creditors
with intent to prefer such creditors over his other creditors; or
(3) suffered or permitted, while insolvent, any creditor to obtain
a preference through legal proceedings and not having at least five
days before a sale or final disposition of any property affected by
such preference vacated or discharged such preference; or (4) made
a general assignment for the benefit of his creditors, or being
insolvent, applied for a receiver or trustee for his property, or
because of insolvency a receiver or trustee has been put in charge
of his property under the laws of a state, of a territory, or of the
United States; or (5) admitted in writing his inability to pay his
debts, and his willingness to be adjudged a bankrupt on that ground."

Bankruptcy discharges a bankrupt from his contracts.

=36. Remedies for Breach of Contract.= Originally, at common law, there
was no power given a party to a contract, to compel the other party
specifically to perform the provisions of the contract. For example,
_A_ promises to pay _B_ one thousand dollars ($1,000.00) for one
thousand bushels of wheat, to be delivered within ten days. _B_ fails
and refuses to deliver the wheat. _A_ could not at common law, and
cannot under the present rules of law, compel _B_ to deliver the wheat.
_A's_ remedy is an action for damages. _A_ may go into the market at
the time and place of delivery, provided for in the contract, and
purchase one thousand bushels of wheat of the quality provided for in
the contract, and collect as damages from _B_ the advance in price, if
any, together with expenses connected therewith. If _A_ is obliged to
pay one thousand five hundred dollars ($1,500.00) for the wheat, which
by the terms of the contract, he had purchased for one thousand dollars
($1,000.00) from _B_, he may recover five hundred dollars ($500.00)
damages from _B_. If _A_ succeeds in obtaining the wheat for nine
hundred dollars ($900.00), he can only recover nominal damages from
_B_, commonly five cents, for breach of contract. In case _A_ obtains
the wheat for nine hundred dollars ($900.00), _B_ cannot recover one
hundred dollars ($100.00) from _A_, since he has violated the contract,
and cannot take advantage of his own wrong.

Parties frequently fix the amount of damages for a possible breach at
the time the contract is made. This is known in law as _liquidated_
damages. If reasonably compensatory, the courts will recognize and
enforce liquidated damages; if clearly unreasonable they are regarded
as penal, and the courts will not enforce them. For example, _A_
agrees to construct a rolling mill for _B_, for fifty thousand dollars
($50,000.00), and to complete the structure within one year, and to pay
damages of two hundred dollars ($200.00) per day, for each and every
day consumed, in excess of a year in finishing the structure. If this
is a reasonable loss to _B_, for the failure to have the use of the
mill, the courts will enforce the provisions; otherwise they will remit
the excess over the fair value of _B's_ loss.

=37. Equity and Specific Performance.= Originally, at common law in
England, the king and his subordinates heard suits. Certain specified
actions or remedies, only, were allowed. It was soon observed that many
complaints were made, and disputes arose, which did not come within
the scope of these common law actions. The king appointed a chancellor
to assist him. It was the duty of the chancellor to hear disputes, not
within the scope of the recognized common law action, and to determine
and decide these upon equitable principles. This court became known
as the court of _chancery_, or court of _equity_. A regular system of
courts of chancery grew up in England, with fixed rules of procedure
and of recovery. This country has Courts of Equity. In many states,
the same judge sits as a court of law, and of equity. Equity does not
hear cases where there is a complete and adequate remedy at law. Equity
courts have a judge only, and no jury. Courts of equity sometimes
specifically enforce contracts in case there is no adequate remedy
at law. For example, _A_ purchases a lot of _B_ in a particularly
desirable locality. There is no other vacant lot near it. In case _B_,
refuses to carry out his contract, by conveying this lot to _A_, equity
will compel _B_ to convey the lot to _A_. Here _A_ has no adequate
remedy at law. Money damages will not enable him to procure what he
contracted for.

Specific performance is rarely granted in case of sales of personal or
chattel property. There are a few exceptions. If _A_ purchases "Maud
S." from _B_ for ten thousand dollars ($10,000.00), "Maud S." being a
two minute race horse, purchased for breeding purposes, and _B_ refuses
to deliver her, a court of equity might grant specific performance.
Money damages might not enable _A_ to purchase a similar horse. The
same principle applies in case of purchases of rare works of art.

While a contract for personal services cannot be specifically enforced
by a court of equity, some relief may be granted by injunction. For
example, _A_, an actress, agrees to perform for one year for _B_ and
later refuses. While a court manifestly cannot compel _A_ to perform
for _B_, it will by injunction prevent her performing for others.

=38. Forms of Contracts.= The following is a form of simple contract.

Chicago, Ill., June 23, 1909.

Contract entered into this.... day of........ 1909, by and between
_A_, the first party, and _B_, the second party.

In consideration of the promises hereinafter made by the second party,
the first party agrees........ (here state first party agreement).

In consideration of the promises of the first party, the second party
agrees........ (here state agreement of second party).

Signed............. First Party.
Signed............. Second Party.

The following is a form of a formal contract.

Articles of agreement entered into in New York City this.......day
of.... 190-by and between _A_, hereinafter designated as the first
party, and _B_, hereinafter designated as the second party.

Whereas, the first party is a wholesale dry goods merchant having
a place of business in New York City, and is desirous of employing
a traveling salesman, and whereas, the second party is a traveling
salesman having had ten years' experience in the dry goods business,
now, therefore in consideration of the promises hereinafter made by
the second party the first party agrees,

First. To pay the second party the sum of $2400 in installments of
$200 payable each month for a period of 12 months.

Second. To pay the second party's traveling expenses not to exceed
$50.00 per week, to be mailed weekly as ordered by second party.

Third. To furnish second party a full line of samples.

In consideration of the promises of the first party the second party
agrees,

First. To devote his entire time and attention to the business of
selling goods of the first party.

Second. To furnish lists of customers called upon each day, said lists
to be mailed to said first party, New York address, each evening.

Third. To waive his right to any salary in excess of his traveling
expenses if his sales do not average $5000 per week.

In witness whereof the parties have affixed their names and seals in
duplicate the day and year above written.

.............First Party.
.............Second Party.

PRINCIPAL AND AGENT

=39. In General.= _Agency_ is the term applied to the legal relation
existing between persons who transact business or perform duties
through representatives. Few duties are performed, and few business
transactions are completed solely through the personal efforts of the
interested parties. Most business dealings are completed in part,
at least, by representatives or agents. Much important business is
transacted by corporations. Corporations must act through agents.
They have no identity apart from officers and agents. Individuals, as
well as the smaller business concerns, perform many of their duties
and make many of their contracts through representatives or agents.
The law relating to agency, next to the law of contracts is probably
the broadest as well as the most important branch of commercial law.
Its application is almost universal. A distinction is sometimes drawn
between representatives appointed to make contracts with third persons,
and representatives appointed to perform menial or mechanical work, by
calling the one class, agents, and the other servants. There is little
reason for any such distinction. The same rules of law apply to both
agents and servants. The principal distinction is in the nature of the
service, which need not be considered in discussing the general legal
principles.

The party appointing another to represent him in his relation to third
persons is called the _principal_. The person appointed to act as a
representative is called the _agent_. The legal relationship existing
between the principal and the agent, and the principal, agent and third
person, constitutes the _law of agency_. If a dry goods merchant, _A_,
employs _B_, a traveling salesman, to sell his goods, and _B_ sells
goods to _C_, _A_ is the principal, _B_ the agent, and _C_, the third
person contracting with _A_, through _A's_ agent _B_.

=40. Who May be a Principal.= A principal is one who appoints an agent.
_A_, employs _B_ to deliver goods; _A_ is principal and _B_ agent. Any
person, natural or otherwise, competent to enter into a contract, may
enter into a contract through an agent. There is one possible exception
to this rule. It is a well recognized rule of law that an infant cannot
appoint an agent. An infant may enter into a contract which is not void
at law, but which is merely voidable. (See subject, "Infant" in Chapter
on Contracts.) That is, an infant may lawfully make and carry out a
contract. The law does not prohibit it. But the law will not compel
an infant to carry out his contracts, except for necessaries. When it
comes to the appointment of an agent, however, the law refuses to give
an infant this power. By an infant is meant a person under legal age.

Any person of legal capacity may appoint an agent. In other words,
a person may do through an agent the things he, himself, may do. An
insane person, an idiot or a drunken person cannot appoint an agent.
A corporation may do business through agents, limited only by its
corporate capacity. A partnership may do business through agents,
limited only by the purposes for which the partnership is formed.

=41. Who May be an Agent.= Any one, except a very young child and
persons whose interests are opposed to those of the principal, may
act as agent. A child may be employed to deliver goods, and thus make
and complete contracts for his principal. Persons of unsound mind may
serve as agents. Persons who cannot act as principal, through lack of
capacity to contract, may act as agent for others. For example, _A_,
fourteen years old, cannot be bound by a contract with _B_ for the
purchase of one hundred bushels of wheat, but _A_ may be employed
as agent by _C_, a competent person, to purchase of _B_ one hundred
bushels of wheat.

A person whose interests are opposed to those of his principal is
disqualified from acting as agent. That is, a person cannot be agent
for both parties to the same transaction. For example, if _A_ is
employed as traveling salesman by _B_ to sell goods, he cannot serve as
agent for _C_ in the purchase of goods from _B_ without the knowledge
and consent of both _B_ and _C_.

Artificial persons, such as partnerships and corporations, may act
as agents. It is usually held that children under seven years of age
cannot act as agents, by reason of tender age.

=42. How Agents May be Appointed.= Agents may be appointed by any act
of the principal which shows that it is the principal's will that the
agent shall act as the principal's representative.

Agents may be appointed by oral statement, by written document,
by conduct on the part of the principal, or by ratification of an
unauthorized act.

Most agencies are created by oral authority. Any word by which the will
of the principal is manifested is sufficient. _A_ tells _B_ to order a
barrel of flour from _C_. This constitutes _B_ an agent for _A_. _B's_
asking _A_ if he shall order a barrel of flour from _C_, to which _A_
nods, constitutes _B_, _A's_ agent. _A_ writes to _B_ and requests
him to order a carload of flour from _C_. This constitutes _B_, _A's_
agent. _B_, without any authority from _A_, orders a car load of flour
from _C_, which _A_ accepts, and for which he promises to pay. This
constitutes _B_, _A's_ agent by ratification.

Some few contracts of agency must be in writing. _A_ employs _B_ to act
as his salesman for a period of two years. As between _A_ and _B_, the
contract is not enforceable, by reason of the _Statute of Frauds_ (see
Statute of Frauds, chapter on Contracts). But as between _A_ and third
parties dealt with by _B_ as agent, _A_ cannot refute the agency.

Some contracts which must be made in writing, such as land contracts
require the agent's authority to be in writing.

If a person knowingly permits another to act as his agent, he cannot
afterwards repudiate the agency. For example, _A_ stands by and watches
_B_ sell _A's_ horse to _C_. Although _B_ had no authority to make the
sale, _A_, by his conduct, cannot claim there was no agency.

An agent's assertion of agency does not of itself constitute an agency.
If _A_, without _B's_ knowledge, claims to _C_ to have authority to
sell _B's_ horse and does attempt the sale, title to the horse does
not pass to _C_, because _A_ had no authority to make the sale. A mere
declaration of authority on the part of the agent without the knowledge
or consent of the principal does not create an agency.

=43. Purposes for Which an Agency May be Created.= With the exception
of fulfilling contracts for personal services, a person may do, through
an agent, anything he may lawfully do by himself. For example, _A_
employs _B_, an artist of fame, to paint a picture. Manifestly _B_
cannot employ a student or another artist to paint the picture. _A_
contracted for _B's_ personal skill and work, and cannot be made to
accept the work of another. In the majority of business transactions,
however, the personal element does not enter. The thing to be done,
or the article to be furnished, is the feature of most contracts. By
whom the thing is done, or by whom the article is furnished, does
not matter. For example, _A_ purchases one hundred bushels of wheat
from _B_. _B_ delivers the wheat through his agent. Ordinarily _A_
cannot, nor does he wish to complain. _A_ contracts with _B_ to have
_B_ furnish him an oak chair of given dimensions. _B_ employs _C_ to
make and deliver the chair. _A_ cannot complain so long as the chair
corresponds to the terms of the contract.

A party cannot do through another what he himself cannot lawfully do.
For example, a party cannot employ an agent to purchase votes for him.
Neither can a person lawfully corrupt legislators by means of an agent,
nor lawfully commit a crime by means of an agent.

=44. Ratification of Agency.= Where a person assumes to act as an agent
for another without authority, or in performing an agency, exceeds his
authority, he does not bind the person for whom he assumes to act,
unless such person subsequently, with knowledge of the fact, consents
to be bound thereby. Such assent is known in law as _ratification_.

A person cannot ratify an act which he, himself, has no power to
perform. For example, _A_, pretending to act for _B_, offers _C_, a
legislator, one hundred dollars ($100.00) to vote against a certain
measure. _B_ cannot ratify this act, since he himself cannot lawfully
perform it. If however, _A_, knowing that _B_ desires a certain rare
picture, finds it and orders it in _B's_ name, _B_ may ratify the act
by accepting and paying for the picture.

[Illustration: MAIN READING ROOM, U.S. CONGRESSIONAL LIBRARY,
WASHINGTON, D. C.

In Center of Central Circular Desk, is the Housing for the
Book-Handling Machinery. Card Catalogue in Foreground. View Facing
Entrance. The Corinthian Order has been Used.]

Much discussion has arisen as to the ability of a person to ratify a
forgery of a negotiable instrument. The courts differ on this question.
It is, however settled that in case of a forgery, if the alleged
principal fails to deny the signature when the paper is presented
to him, or by remaining silent, induces another to purchase it, or
to injure his position by reason thereof, the alleged principal is
estopped from further denying the authenticity of the signature, and
may be compelled to pay the instrument. For example, _A_ forges _B's_
name to a promissory note payable to _C_. _C_ presents the note to _B_
for payment. _B_ may refuse to pay the note by reason of forgery. If,
however, _A_ forges _B's_ name to a note, payable to _C_, and _D_ shows
_B_ the note, saying that he is about to purchase it if it is genuine,
and _B_ remains silent and permits _D_ to buy the note, _B's_ silence
amounts to a ratification of the forgery and he must pay the note to
_D_.

When an alleged principal's attention is called to the fact that an
alleged agent has assumed to act as his agent, he must choose between
repudiating the act and accepting it. This choice is known in law as
the principal's _right of election_.

=45. Classification of Agents.= Agents are usually classified as
_universal_, _general_ or _special_. By universal agent is meant
an agent empowered to represent his principal in every capacity. A
principal could have only one universal agent. In business affairs, a
universal agency is seldom, if ever, found. It is useful, however, as
a classification to show the different kinds of agents, depending upon
the degree of their authority.

A general agent is one authorized to perform all the duties of his
principal of a certain kind. _A_, an insurance company, appoints _B_
its sole agent to solicit insurance in the city of Boston. _B_ is a
general agent for the purpose of soliciting insurance in the city of
Boston. General agencies are common in business practice.

A special agent is one authorized to act for his principal in a
particular matter or transaction. For example, _A_ employs _B_, an
attorney, to try a certain law suit. _B_ is a special agent.

In practice it is not always easy to determine whether an agent is a
general or a special one. A principal does not always limit his agent's
powers by actual authority conferred upon the agent. His intention
and his instructions to the agent may limit the latter's authority,
but third persons may rely upon the apparent authority of the agent,
rather than the actual. For example, _A_ employs _B_ as a traveling
salesman to sell dry goods. He instructs _B_ not to sell any bills less
than five hundred dollars ($500.00) in amount. _B_ sells _C_ a bill
amounting to four hundred dollars ($400.00), _C_ does not know of the
limitation of _B's_ authority. _A_ is bound by _B's_ sales to _C_. _C_
has the right to rely upon _B's_ apparent authority. _A_ has given _B_
actual authority to sell goods, and this authority carries with it the
implied or apparent authority to sell in any reasonable amounts.

Actual authority to do certain things carries with it the right to
do those things which impliedly, or from custom or usage apparently
accompany the authority conferred.

Third persons dealing with an agent must, on the other hand, ascertain
at their peril that an agent has the authority claimed. For example,
if _A_, without authority, claims to be agent for _B_, and sells an
order of goods to _C_, and collects from _C_ a certain amount, when
in fact he is not the agent of _B_, _C_ has no contract with _B_. A
third person dealing with an agent must ascertain at his peril, that
the alleged agent has authority from his principal to act as agent in
a certain capacity. When this is ascertained, the third person has a
right to treat the agent as having the authority to do all the things
necessarily or customarily belonging to his agency.

=46. Duties of Principal to Agent.= The relation of a principal to his
agent arises out of a contract, express or implied. The contract may
expressly provide that the agent is to receive a specified sum for his
services. In this event, the principal is legally liable to pay this
amount to his agent. The principal may have a defense to his contract,
the same as to any contract. But if the agent has performed his
contract of agency, he can enforce payment therefor. For example, _A_
employs _B_ to sell furniture for a compensation of one hundred dollars
($100.00) per month and expenses, the contract to cover a period of
twelve months. When _B_ performs this service, he may, by legal action,
compel _B_ to pay him one thousand two hundred dollars ($1,200.00).
If _B_ fails to work for _A_ as provided for by the terms of the
contract, and at the expiration of six months enters _C's_ employ, in
most jurisdictions, he can recover nothing from _A_, since he has not
fulfilled his contract. In some jurisdictions, he may recover from _A_
the value of his services, less the damages _A_ has suffered by reason
of breach of contract.

Many agencies are created without any express provision as to
compensation. In this event, a contract relation exists, as much as
in the former case. There is an implied contract that the agent shall
receive a reasonable compensation for his services. For example,
_A_, a contractor, requests _B_, a teamster, to haul stone for the
construction of a bridge. _B_ works for _A_ a week, nothing having been
said as to compensation. _B_ can recover from _A_ the reasonable and
customary value of his services.

There is also a duty on the part of the principal to protect his agent
against unnecessary risks of injury. There is a duty on the part of a
master to protect his servant. An agent or servant assumes the risks
which naturally belong to the kind of work in which he is engaged. For
example, _A_ employs _B_ to work in a saw mill. _B_ assumes the risks
incident to the employment. If a log accidentally rolls on him, _A_ is
not liable in damages, or if _B_ carelessly cuts his hand on the saw,
_A_ is not responsible. But if the boiler explodes through carelessness
of _A_, or if the saw flies to pieces on account of wear, and injures
_B_, _A_ is liable.

It is said that a principal or master is obliged to furnish his agent
or servant with a reasonably safe place in which to work, and with
reasonably safe tools and instruments with which to work. If the
principal negligently fails to these things, and the servant is injured
without negligence and carelessness on his part, the principal is
liable to him in damages for any injuries.

=47. Duties and Liabilities of Principal to Third Persons.= When a
person employs another to act for him, he is liable to third persons
for the acts performed by the agent, so long as the agent acts within
his authority. If _A_ appoints _B_ his agent to purchase live stock,
_A_ must pay third persons for the live stock purchased in his name by
_B_. A person employing another to act as his agent is responsible to
third persons for acts performed by the agent, which are within the
apparent authority of the agent, as well as for the acts which are
within the actual authority. If _A_ appoints _B_ his agent to purchase
live stock and instructs him to purchase only hogs, but limits his
authority to pay over five cents per pound, and _B_ purchases at five
and a half cents from _C_, who does not know of this limitation, _A_
is bound by the contract. In giving an agent authority to do certain
things, the agency carries with it the customary or implied authority
to perform those acts incident to the general character of the agency.
Thus, authority to purchase usually carries with it authority to fix
the price. This is especially true of authority to sell.

Notice to an agent is notice to a principal. If an agent is authorized
to sell goods, and in making a sale, is notified by the purchaser that
the goods are purchased conditionally, in the absence of any special
instruction limiting the power of the agent to sell conditionally,
brought to the attention of the purchaser, the principal will be bound
by the condition.

A principal is liable to third persons for his agent's torts or
wrongful acts. If _A_ directs his agent _B_ to destroy _C's_ property,
_A_ is liable to _C_ for the damage done. A principal is not only
liable to third persons for the damages done under his express
direction by his agent, but he is also liable for the acts carelessly
done by the agent in the course of his employment. A street car company
employs _B_ as motorman. _B_, carelessly and negligently, while
operating a car runs over _C_. _A_ is liable for _B's_ negligent act. A
principal, however, is not liable for the wrongful acts of his agent,
performed outside of his employment. _A_, a street car company, employs
_B_ as conductor; _C_, standing on the street insults _B_. _B_ stops
his car, gets off and assaults and injures _C_. _A_ is not liable,
since _B_ did not commit the act complained of while in the course of
his employment, but went outside the course of his employment and acted
on his own behalf.

=48. Duties and Liabilities of Agent to Principal.= An agent must obey
the instructions of his principal. If he disobeys his instructions,
he is liable to his principal for losses sustained. For example, if
_A_ employs _B_ to sell flour at four dollars ($4.00) per barrel and
_B_ sells one hundred barrels at three dollars and seventy-five cents
($3.75), he must respond in damages to _A_ for twenty-five cents a
barrel. If, however, a discretion is given the agent, and he makes a
reasonable mistake in using his discretion, he is not liable. If his
instructions are not clear, and he carries out what he thinks are his
instructions, which prove not to be the desire or intention of his
principal, he is not liable.

An agent must account to his principal for money collected, and
for moneys or property coming into his possession by reason of his
agency. If he deposits money in his own name and it is lost through
a bank failure, he is responsible to his principal. If he carefully
deposits it in the name of his principal and the bank fails, he is not
responsible.

An agent must act carefully in the performance of his principal's work,
or as it is usually said, he must not act carelessly or negligently.
He must act as a reasonably prudent man would act, under similar
circumstances, or be liable to his principal in damages.

An agent must be loyal to his principal's interests. He cannot act
secretly for another. He cannot act secretly as agent for both parties
to a transaction. If he makes profits in his agency dealings, he must
account for them to his principal. _A_ employs _B_ to sell Christmas
novelties. _B_, shortly before Christmas receives a large order from
_C_, who offers _B_ one hundred dollars ($100.00) in excess of the
regular price, if the goods arrive the following day. _B_ succeeds in
having the goods reach _C_ the following day. _B_ must account for the
extra one hundred dollars ($100.00) to _A_, his principal.

An agent must faithfully carry out his agency. He is responsible for
failure to act loyally. _A_ employs _B_ to sell butter. _B_ obtains an
offer from _C_, a rival butter manufacturer, to commence work for him
on commission two weeks hence. _B_ tells his customers not to purchase
for two weeks, at which time he can make them a better price. _B_ is
liable to _A_ in damages for this act of disloyalty. He has broken his
contract.

An agent, who is employed to perform personal services, cannot transfer
his responsibility or agency to another.

One who agrees to act as agent for another without compensation,
cannot be forced to fulfil his agency. He is not liable in damages to
his principal for failure to act, but if he chooses to act without
compensation, he is liable if he acts with great negligence. If _A_
requests _B_ to drive his horse home and _B_ drives the horse and
leaves him without tying him, and the horse runs away and destroys the
carriage and ruins himself, _B_ is liable for gross negligence.

=49. Rights and Liabilities of Agent to Third Persons.= An agent
acting within the scope of his authority, in making contracts with
third persons, binds his principal by the contract, but does not bind
himself. _A_ is authorized by _B_ to purchase a horse. A purchases a
horse from _C_, notifying _C_ that he is purchasing as agent for _B_.
_C_ must look to _B_ for the purchase price, since _A_ acted solely as
agent and is not personally liable under the contract.

If an agent, intending to act as agent, makes a contract in his own
name, without informing the third party with whom he is dealing, of the
agency, he binds himself. Under these circumstances, he usually binds
his principal also. This question is discussed more at length under the
title "Undisclosed Principal." If _A_ is employed by _B_ to purchase
a horse, and _A_ purchases a horse from _C_ for two hundred dollars
($200.00), without telling _C_ of the agency, the purchase price to be
paid the following day, _A_ binds himself personally to pay _C_ the two
hundred dollars ($200.00) and _C_ is not obliged to look to _B_ for
payment.

If an agent, honestly believing he has authority to act as agent when
he has not, makes a contract as agent for his supposed principal, he
binds himself personally and not his principal. _A_ writes to _B_,
"Purchase for me _C's_ bay team, if same can be secured for two hundred
and fifty dollars ($250.00), half payable in six months." _B_ reads the
letter and purchases the team in the name of _A_ for two hundred and
fifty dollars cash ($250.00), overlooking the condition in _A's_ letter
that half was to be paid in six months. _B_ binds himself to _C_ and
does not bind _A_.

When an agent falsely or fraudulently represents himself as agent, he
binds himself and not his alleged principal.

If an agent, honestly believing he has authority to act, does not
have such authority, but discloses all the facts connected with his
authority, to the third person with whom he is dealing, he is not
personally bound. _A_, having previously acted as agent for _B_, in
purchasing onions by the crate, receives the following wire from _B_,
"Purchase one hundred crates, ship at once." _A_, supposing this
refers to the purchase of onions, shows the telegram to _C_, and
tells him that in the only other transaction in which he acted for
_B_ he purchased onions, and that he supposes this wire refers to
onions. He purchases one hundred crates of onions from _C_, and later
discovers that _B_ intended turnips, instead of onions. _A_ is not
bound personally. He has acted honestly and revealed all the facts in
his possession to _C_, who must act at his risk as to _A's_ actual
authority.

=50. Undisclosed Principal.= A principal, whose agent deals with
a third person for his benefit, without disclosing the name of his
principal, or perhaps without disclosing the fact of agency, is said to
be an _undisclosed principal_. For example, _A_ employs _B_ to purchase
one hundred crates of oranges. _B_ purchases the oranges from _C_ for
_A_ in his own name, not telling _C_ that the purchase is made for _A_.
In this case, _A_ is an undisclosed principal.

As a general rule an undisclosed principal, when discovered, is liable
upon the contract of his agent.

In case of an undisclosed principal, the agent is liable personally as
well as the undisclosed principal. If _A_ instructs _B_ to purchase
for him five cars of coal, and _B_ purchases the coal of _C_ in his
own name, without disclosing the fact of his agency, _B_ is personally
liable to _C_ for the purchase price.

The undisclosed principal is not liable to a third party if the third
party with full knowledge of the agency, elects to hold the agent. If
_A_ employs _B_ to purchase goods for him, and _B_ purchases the goods
in his own name from _C_, and _C_, before payment, learning that the
goods were purchased for _A_, elects to hold the agent _B_, by suing
him for the purchase price, or by doing or saying anything that shows
his determination to hold the agent, rather than the principal, he
cannot thereafter hold _A_.

The undisclosed principal may enforce against third persons the
contract of his agent. If _A_ employs _B_ to purchase goods from _C_
and _B_ makes the purchase in his own name for future delivery, _A_ may
compel _C_ to deliver the goods to him. This rule applies in all cases
where the third party is not injured by its application.

The liability of an undisclosed principal to third persons, upon
contracts made by an agent in the agent's name, is subject to the
further exception, that when the third party has led the undisclosed
principal to believe that he is looking to the agent alone for
fulfillment of the contract, and relying upon such conduct the
undisclosed principal settles with the agent, he is no longer liable to
the third party. In this event the third person is said to be estopped
from the right to sue the undisclosed principal. This rule is based
upon equitable reasons. There can be no such thing as undisclosed
principal in case of a negotiable instrument. No one is liable on a
negotiable instrument, such as a note, draft, or check, except the
maker, indorser, drawer or acceptor.

=51. Apparent Authority of Agent.= While it is true that an agent
must have authority from his principal, before he can bind his
principal in the capacity of agent, and while it is equally true
that third persons, in dealing with agents, must determine at their
peril that the agent has actually received authority to act for his
principal, a third party has the right to rely upon the implied and
customary powers accompanying an actual authority conferred upon an
agent. Few contracts are made express in all their terms. Language is
not susceptible of such nicety. In the express or implied contracts
used in creating agencies, many things are implied. A third person
dealing with an agent, is not limited by the actual authority conferred
upon the agent by his principal, if the character of the authority
apparently confers other customary or implied powers. Third persons
are said to have the right to rely upon the apparent rather than upon
the actual authority of the agent. This does not mean that an agent
can create an agency and bind his principal without having received
any authority from his principal to act as agent, but means that where
an authority of a certain character has been conferred upon an agent,
third parties dealing with the agent, have a right to rely upon the
apparent or customary powers conferred, rather than upon any secret
or unexpected limitations upon such authority. For example, an agent
has authority to sell silk goods and to make exchanges in silk. This
authority is printed on the order sheets furnished the agent. The agent
exhibits these order sheets to the customer and exchanges are made. The
principal cannot claim that the agent had authority to exchange only
goods of the principal's manufacture. The authority conferred upon the
agent to make exchanges, apparently was to make exchanges of any silks.
The principal cannot complain if third parties rely upon the apparent
authority.

=52. Secret Instructions.= So long as the agency is legal, a
principal may create an agency of as limited an extent, or of as broad
a nature as he desires. So long as the limitations which the principal
places upon his agent's authority are not of a nature to mislead
third persons, the agent cannot bind his principal by exceeding these
limitations. But if a principal confers an authority upon an agent
which impliedly embraces a number of powers, the principal cannot limit
these powers by secret instructions. The limitations upon an agent's
apparent authority must be brought to the attention of the third
party. For example, _A_, a wholesale dry goods dealer, may employ _B_,
a salesman, to take written orders only. If _B_ attempts to take oral
orders, the principal, _A_, will not be bound thereby. But if _A_ gives
_B_ authority to take written orders only, and secretly instructs _B_
to take no order less than fifty dollars ($50.00) in amount, or in
excess of two thousand dollars ($2,000.00), and _B_ takes _C's_ order
for forty-five dollars ($45.00), _C_ not knowing of this limitation,
_A_ is bound. If, however, _A_ instructs _B_ to take only written
orders, and in amounts ranging only from fifty dollars ($50.00) to
two thousand dollars ($2,000.00), and prints these conditions plainly
upon the order blank, _C_, in signing one of these order blanks for
forty-five dollars ($45.00), does not bind _A_. In this case, _A_ has
placed the limitation of _B's_ authority in _C's_ possession.

=53. Wrongful Acts of Agent.= An agent is personally responsible for
wrongful acts committed. The fact that he acts in a representative
capacity, does not excuse him from committing wrongs, nor does it
relieve him from personal liability therefor. The principal, as well
as the agent, is liable for the wrong committed, if authorized. If _A_
instructs his agent, _B_, to sell goods by fraudulent representations
and _B_, by means of said fraud, sells goods to _C_, _B_ personally, as
well as _A_ is liable to _C_, for the wrongful act. In the language of
the courts, an agent is liable to third parties for _malfeasance_, but
not for _misfeasance_. That is, an agent is liable to a third party for
wrongful acts done, but is not liable to third parties for mere failure
to observe the terms of his agency. In the latter case, he is liable to
his principal only.

=54. Delegation of Authority and Subagents.= Where personal judgment
and discretion are required of an agent, he cannot transfer his duties
to another, without the consent of his principal. _A_, a wholesale dry
goods merchant, employs _B_, an experienced traveling salesman, to sell
goods. _B_, by his contract, is bound to give his personal skill to _A_
and cannot employ _C_ to act as salesman for him. _A_ presumptively
employs _B_ to use his own skill and judgment. _B_ is not permitted to
delegate his authority to another.

Where, however, mere mechanical or ministerial work is to be performed
the agent is permitted to employ others to assist him, or to perform
the work. For example, _A_ employs _B_, an expressman, to carry his
trunk to the depot. _B_ may employ a boy to assist him in performing
the work, or may employ another to perform the work. Usage and custom
have much to do in determining whether or not an agent is permitted to
delegate his authority. The performance of a mere ministerial duty may
be delegated. _A_ employs _B_ to act as stenographer in reporting the
trial of a case. When it comes to writing out the testimony, _B_ may
perform the task himself, or delegate it to another.

When an agent employs a subordinate, or delegates his authority to
another on his own responsibility, the agent stands as principal
for the sub-agent, and the original principal is not responsible to
third persons for the acts of the sub-agent. If, however, the agent
is authorized by the principal to appoint a sub-agent, the agent is
bound only to exercise care in the selection of such sub-agent, and
the original principal is liable to third persons for his acts. The
sub-agent is answerable to the principal, and not to the agent for his
acts. For example, _A_, a florist, employs _B_ to deliver a box of
flowers. _B_ employs _C_. The nature of the duty is such that _B_ may
delegate it. But if _C_ is negligent in the performance of the work,
_B_ is liable to _A_ for the negligence, for the reason that _A_ did
not expressly or impliedly direct _B_ to employ another.

_A_, in Chicago, deposits for collection, a check drawn on a New York
bank. _A_ knows that it is the custom of bankers to employ other banks
for the purpose of making collections. If the Chicago bank uses due
care in selecting another bank to assist in making the collection,
and this bank makes the collection and fails before the Chicago bank
receives the money, _A_ must stand the loss, and not the Chicago bank.
_A_ authorized the employment of a sub-agent. There is some conflict of
authority on the legal question involved in the above example.

=55. Agent's Authority to Collect.= An agent authorized to solicit
orders is not thereby authorized to make collections on such orders.
If, however, the agent is entrusted with the goods, and delivers them
at the time the sale is made, he is authorized to receive payment
therefor.

An agent authorized to sell, is not authorized to exchange or trade
goods. He is authorized to make sales for cash only. If he accepts
checks, or sells on credit, he is personally liable for losses. There
is a tendency at present to permit the agent to accept checks in
payment. The custom of making payment by check is so well recognized
in many lines of business, that in some transactions it impliedly gives
an agent this authority. This was not formerly the rule, and is still
disputed by many courts.

=56. Agent's Signature to Written Instruments.= The proper method
for an agent to employ in signing a written instrument, as agent, is
to describe himself as agent for his principal in the body of the
instrument, and then sign his principal's name at the end thereof, by
himself as agent. For example, if _A_, is agent for _B_ in making a
contract of sale, the body of the instrument should state that "_B_ by
_A_, his agent, agrees," and the signature should be

(_B_..............)
(by _A_, his agent)

If the contract is merely signed "_A_, agent," the agent probably binds
himself only. This is especially true in case of sealed instruments,
such as deeds. In case of promissory notes, an agent who has authority
to make such instruments, may make them in the name of his principal
without using his own name at all. The more common form, however, is
to sign the principal's name, per the agent as agent, or to sign the
agent's name as agent for the principal, giving the principal's name.
The mere signing of the agent's name as agent is a mere description,
and probably binds the agent and not the principal. For example, if _A_
is agent and _B_ the principal, a promissory note executed by the agent
should be signed

(_B_..............)
(by _A_, his agent)

A simple contract should state in the the body of the instrument that
_A_, as agent for _B_, is making the contract, and the contract should
be signed

(_B_..............)
(by _A_, his agent)

or _A_, agent for _B_. A promissory note or simple contract made and
signed in the name of the principal, the agent's name not appearing,
is probably binding, but it is not good business practice. The exact
condition of affairs should be shown, and the name of the agent, as
well as that of the principal, should appear in the document.

=57. Authority of Agent to Warrant.= As to whether or not an agent
authorized to sell personal property has implied authority to warrant
its quality, is not uniformly settled. If there is any rule on the
question, it probably is controlled by usage and custom. If there is a
general well known custom to warrant a particular article, the agent
has implied authority to warrant the quality of the article sold. If
no such usage or custom exists, or if the usage or custom is purely
local and not general in its application, the agent has no authority
to warrant the quality of the goods sold. It must be remembered that
a principal is bound by the general character of authority he confers
upon his agent, by the agent's apparent authority rather than by the
actual authority, unless the latter is actually brought to the notice
of third parties. It has been held that an agent authorized to sell a
horse is authorized to warrant the soundness of the horse, and that
an agent authorized to sell reapers is authorized to warrant their
durability and fitness. It was held that a principal, who authorized an
agent to sell goods at a certain price, did not authorize the agent to
warrant to third persons that his principal would not sell to others at
a less price.

=58. Factors.= A factor, usually called a commission man or
consignee, is an agent entrusted with possession of his principal's
goods, and ordinarily empowered to sell in his own name. Like any
agent who has possession of his principal's goods with power to sell,
a factor has power to collect. He differs from a broker in that he has
possession of the goods of his principal, and is authorized to sell in
his own name, rather than in the name of his principal.

In the absence of contrary custom or express direction, a factor may
sell on credit. A factor, until instructed otherwise, may use his
discretion as to the time and price of sales, and is entitled to deduct
his commission based upon custom in the absence of special contract.

A factor may sue the purchaser in his own name, for the purchase
price. The principal may sue in his own name also. Persons dealing
with factors may hold the principal responsible for the contracts and
representations of the factor, the same as any undisclosed principal.
Factors are also personally liable to third persons for their contracts.

A factor must account to his principal for money collected, less his
commission and expenses. He is not obliged to keep such money separate
from his own, but he must keep accurate account of same, and remit
promptly when it is due, according to custom or special contact.

=59. Brokers.= A broker differs primarily from a factor in that
ordinarily he does not have possession of the article dealt in, and
acts in the name of his principal rather than in his own name. There
are many kinds of brokers engaged in common business life. Some of
these are insurance brokers, pawnbrokers, bill and note brokers, and
merchandise brokers. In the absence or special authority, a broker does
not have authority to collect.

=60. Auctioneers.= An auctioneer is a special kind of agent employed
to dispose of goods to the highest bidder at a public sale.

Some states provide by statute that auctioneers must be licensed, and
that they may charge only certain fees. Most licensed auctioneers are
required to give bond. In the absence of statutory regulations, any
person competent to perform the duties of an auctioneer may so act. An
auctioneer differs from an ordinary agent in that, in some respects, he
is agent for both seller and purchaser. He is agent for the seller in
offering the goods for sale, and in obtaining bids. When the highest
bid is received, however, and the hammer falls, he is deemed to be
agent for the purchaser, with authority to complete the sale in the
purchaser's name. If the contract of sale is within the Statute of
Frauds and required to be in writing, the auctioneer has the authority
of the purchaser to sign his name to a memorandum of sale, either by
himself or through his clerk. The bidder is bound by this contract,
made in his presence at the time and place of the sale.

The owner may fix such reasonable terms as he chooses, and the
auctioneer must follow out the terms made by the owner. If an owner
advertises the terms of the sale, bidders are deemed to have notice
of these terms. These terms cannot be varied by the auctioneer. If,
however, the owner publishes no special terms of sale, the auctioneer
has implied authority to fix customary and reasonable terms. Bidders
have the right to rely on such terms and the principal is bound by them.

In the absence of special instructions to the contrary, an auctioneer
must sell for cash. He has possession of the goods, consequently has
implied authority to receive payment of the price. He has no implied
authority to warrant the goods. He cannot bid in his own interest. If
bidders fraudulently combine not to bid against each other, for the
purpose of obtaining the goods at a cheap price, no title passes to the
highest bidder, by reason of the fraud.

So long as the auctioneer acts within his authority and reveals the
name of his principal, he incurs no personal liability. But if he
exceeds his authority in making a sale he is liable in damages to his
principal. If he does not reveal the name of his principal to bidders,
he is liable personally to them.

An auctioneer is entitled to recover from his principal the amount of
his compensation, including disbursements and expenses incurred in
the sale, care and preservation of the property. He is said to have a
_lien_ on the goods or proceeds of the sale, for his compensation. By
this is meant that he has a right to retain possession of the goods
until his compensation is paid, or in the case of sale, to deduct his
charges from the proceeds of the sale.

When authorized to sell goods on credit, in case payments are not made
when due, the auctioneer may sue in his own name. He may also sue in
his own name for wrongful acts of third parties, whereby the goods are
injured. The principal also may bring this action in his own name. The
principal is liable for the acts of his auctioneer, committed within
the actual or apparent scope of the latter's authority.

=61. Del Credere Agency.= An agent authorized to sell is not
permitted to sell on credit, unless expressly so authorized or unless
the custom or usage of the particular kind of agency impliedly carries
with it this power.

Some agents are, by their contracts of agency, authorized to sell on
credit, on condition that they guarantee to save their principals from
losses resulting therefrom. Such an agency is called a _del credere_
commission, and the agent is called a _del credere_ agent. This term
means that in consideration of the agreed commission or salary paid the
agent, the latter agrees to pay to the principal, when due, the sums
which third parties, who buy the principal's goods from the agent, fail
to pay.

This agreement to indemnify the principal against losses on credits
made by the agent, is regarded as an original promise on the part of
the agent, and not a promise to pay the debt of another. By reason of
this attitude on the part of the courts in interpreting this contract
as an original promise on the part of the _del credere_ agent to
pay his own debt, and not the debt of another, the contract does not
have to be in writing. (See Statute of Frauds.) For example, _A_, a
manufacturer of farm machinery, employs _B_ as agent to sell farm
machinery on credit, on condition that _B_ personally guarantees the
sales. _B_ sells a mowing machine to _C_, to be paid for within ninety
days. _C_ fails to make payment. _A_ may sue and recover the amount of
the purchase price from _B_.

=62. Real Estate Brokers.= A real estate broker is one employed to
make contracts involving the sale or leasing of real property. The sale
of lots, of houses and lots, and farms are common examples.

A real estate broker is seldom authorized to do more than find a
purchaser or tenant, not being authorized to make the lease or
contract of sale. By reason of this limitation generally placed on a
real estate broker's authority, many disputes arise over real estate
brokers' rights to compensation. A principal may enter into any kind
of contract he desires with a real estate broker, and is liable when
the broker has performed his contract, and not before. The difficulty
is in determining when the broker has substantially performed his
contract. If _A_ hires _B_ to procure a purchaser for his house and
lot, and agrees to pay him 2% of the selling price when he obtains the
signature of a financially responsible purchaser to a contract of sale,
_B_ is not entitled to his commission until he obtains such a party's
signature to a contract. The fact that _A_ has entered into this
contract with _B_, does not, in the absence of an express stipulation
to the contrary, prevent _A_ from selling the property himself, or from
employing as many other brokers as he pleases to attempt to make the
sale.

Most brokers, however, are employed on certain terms to obtain a
purchaser or tenant. If the agent succeeds in obtaining such a
purchaser or tenant, the principal must pay the broker the agreed
compensation. The owner cannot act unfairly by the broker. If the
broker obtains a tenant or purchaser by seeking him out, and by
interesting him in the property, the owner cannot avoid the payment of
commission by discharging the broker and completing the deal himself.
In the absence of an express agreement to give the broker a certain
fixed time in which to make the sale or find a tenant, the owner may
discharge the agent at any time he sees fit, just as the agent may
cease his efforts at any time he chooses. The owner cannot discharge
the agent just as the latter is completing the sale, in order to
take advantage of the agent's efforts, without paying him the agreed
compensation. The agent, in this event is held substantially to have
performed his contract. Contracts with real estate brokers should
be carefully drawn, and should contain express stipulations as to
the powers and limitation of the broker's authority. The temptation
is great on the part of both parties to claim that the sale was, or
was not made, through the efforts of the broker. The contract of
a real estate broker differs not at all from any other contract.
The conditions are such, however, that the agreement is frequently
indefinite, and it is difficult to determine when a substantial
performance has been made.

In the absence of any agreed compensation, the real estate broker is
entitled to receive the customary fees. In the absence of any custom
regulating the commission, he is entitled to receive a reasonable
compensation.

A real estate broker is not permitted to represent both parties, or
to receive compensation from both parties. If a broker is promised
compensation from the purchaser which he agrees to accept, without the
consent of the owner, he cannot receive compensation from either party.

=63. Termination of Agency.= If an agent performs the terms of his
agency, the agency is said to be terminated by performance. He ceases
to be agent, by reason of having performed his contract.

If an agent is employed to act as agent for a specified time, the lapse
of the stipulated time, of itself, terminates the agency.

An agency is a contract, express or implied, and it may be terminated
at any time by any act of the parties thereto showing such to be their
intention. There is one exception to this rule, and that is, that an
agency coupled with an interest cannot be terminated by an act of one
of the parties. This exception is discussed in a separate section.

Where an agency is terminated by failure or refusal of the principal,
or agent to carry out his terms of the contract, the defaulting party
is liable in damages to the other party. This does not prevent the
termination of the agency however.

[Illustration: A CORNER IN THE NEW YORK OFFICE OF THE H. W.
JOHNS-MANVILLE CO.]

Where an agency is terminated by the failure or refusal of either party
to observe the conditions of the contract of agency, the agency still
subsists on the part of third persons, who have dealt with the agent,
and who have not received notice of the termination. Upon revoking the
agent's authority, the principal must notify third persons, who have
dealt with the agent, or who have knowledge of the agency contract,
and who would be likely to continue to deal with him as agent. If the
principal does not give third parties such notice, he is still liable
to them on contracts subsequently made by the agent in the principal's
name. For example, if _A_, a wholesale druggist, employs _B_ to sell
goods for one year and _C_ knows of the contract, and at the expiration
of six months, _A_ discharges _B_ for failure to give him his exclusive
time, _A_ must notify _C_ of _B's_ discharge, else _B_ can still bind
_A_ by making contracts with _C_.

=64. Revocation of Agency by Operation of Law.= When one of the
parties to an agency contract dies, becomes insane or bankrupt, the
agency is said to terminate _by operation of law_. When the principal
dies, the agency terminates. Death of itself, constitutes notice to
third persons of the termination of the agency. This is true of all
agencies except those coupled with an interest, discussed in another
section. If any agent and a third person innocently make a contract in
the name of the principal after the death of the principal, and without
notice of the principal's death, the contract is not enforceable
against the principal's estate. Death of the principal revokes the
agency. Death of the agent also revokes the agency.

Insanity of the agent, or of the principal terminates an agency not
coupled with an interest. It is regarded the same as death of one of
the parties.

An agency is terminated by the bankruptcy of either principal or agent.
Mere insolvency on the part of the principal or agent does not, of
itself, terminate the agency, but bankruptcy, voluntary or involuntary,
terminates it, and is of itself, notice to third persons. An innocent
third person who has parted with his money on a contract made with
the agent after the agency has been terminated by reason of insanity,
or bankruptcy of the principal, may not enforce his contract, but may
recover his money. Injury or disability of an agent, rendering it
impossible for him to carry out the terms of the agency, terminates the
agency.

=65. Agency Coupled with an Interest.= An agency coupled with
an interest cannot be terminated by attempted revocation of the
principal, nor is it terminated by death, insanity or bankruptcy of the
principal or agent.

If the agent has an interest in the subject of the agency outside his
interest in his compensation, he is said to have an agency coupled
with an interest. Such an agency is irrevocable. _A_ pays _B_ one
thousand dollars ($1,000.00) for one eighth interest in a patent, and
in consideration of this purchase is given the agency to sell the
patented article for a fixed commission. This constitutes an agency
coupled with an interest, and is not revoked by an attempted revocation
of the principal or by the principal's death. _A_ is indebted to _B_,
his attorney, for one hundred dollars ($100.00). _A_ gives _B_ a note
for one hundred and fifty dollars ($150.00) to collect, agreeing to
pay him 10% of the amount collected, and to permit him to deduct the
one hundred dollars ($100.00) indebtedness. This constitutes an agency
coupled with an interest, and cannot be revoked by _A_.

To constitute an agency coupled with an interest, the interest must
be coupled with the subject matter of the agency, and not merely with
the compensation the agent is to receive. For example, if _A_ sends
his attorney, _B_, a note to collect, agreeing to give _B_ 25% of the
amount collected, this does not constitute an agency coupled with an
interest, and may be revoked at any time by _A_.

QUIZ QUESTIONS

LAW IN GENERAL

1. How many classes of rights are there?

2. Name them.

3. How did men derive these rights?

4. What limitations, if any, are there to rights?

5. Have property rights always been recognized?

6. _A_ finds a watch in the street and, without making any attempt to
find the owner, keeps it. Is the right of possession in _A_?

7. In primitive times were personal or property rights more generally
recognized?

8. How were rights originally enforced?

9. How are rights enforced at present?

10. How did laws originate?

11. Define _law_.

12. What does law embrace?

13. What connection have laws with courts of justice?

14. What connection, if any, have customs to laws?

15. What is the purpose of law?

16. What class of laws is enforced for the benefit of the state?

17. _A_ steals _B's_ horse. _B_, by proper legal action, recovers
possession of the horse. Is the law enabling _B_ to recover the
horse a law for protection of citizens, or for the protection of
property?

18. What are the sources of law?

19. Do decisions of courts form any part of law? If so, what?

20. What are the New York State Reports?

21. What are the Philippine Island Reports?

22. Is the treaty existing between the United States and Japan, law? If
so what kind of law?

23. Define statutes. How are statutes enacted?

24. To what classification of law do statutes belong?

25. Is the English Constitution written or unwritten law?

26. Do customs and statutes bear any relation to each other?

27. How is the record of the state statutes kept?

28. What are the general divisions of law?

29. Is any part of the unwritten law written?

30. Is all unwritten law written?

31. Is any written law unwritten?

32. Is unwritten law stable?

33. How, if at all, can the written law of a state or country be
changed?

34. Are treaties unwritten law? How, if at all, are the records of
Congress kept?

35. Give a general classification of law.

36. Is there a universally recognized classification of law?

37. Define _administrative law_ and give an example.

38. Define _public law_ and give an example.

39. Define _private law_. Classify private law.

40. Define _constitutional law_.

41. Define _criminal law_ and give an example.

42. Can the heir or personal representative of a murdered man ever
recover money compensation for the murder?

43. If so, is it by means of private or public law?

44. Is a criminal tried and punished by private or by public law?

45. Define _law of procedure_ and give an example.

46. What do contracts embrace?

47. What does the word _tort_ mean?

48. Give an example of a tort.

49. Does the same act ever constitute a breach of contract, a tort, and
a crime?

50. Define _commercial law_.

CONTRACTS

1. Define _contract_.

2. Give an example of a business transaction which constitutes a
contract.

3. What is the purpose of putting important contracts in writing?

4. What is meant by _offer_?

5. Give an example of offer.

6. A coat marked $25 is placed by a merchant in a window. Does this
constitute an offer?

7. An advertisement is put in a paper advertising chairs for $7.00
each. Does this constitute an offer?

8. What is an _agreement_?

9. Is an agreement a contract?

10. Give an example of an agreement.

11. What is meant by _acceptance_?

12. Give an example of a contract having no acceptance.

13. _A_ offers to sell _B_ his watch for $10.00. _B_ offers _A_ $8.00.
Is there an acceptance? Is there a contract in the above case?

14. What is a _counter offer_? Give an example of a counter offer.

15. What is meant by the term _meeting of the minds_?

16. Give an example of an acceptance not of the exact terms of the
offer.

17. What is meant by _mutuality_?

18. Distinguish _meeting of the minds_ and _mutuality_.

19. May there be an acceptance of a contract by an act? If the above
question is answered in the affirmative, give an example.

20. Must an acceptance be communicated to the offer?

21. _A_ writes _B_, "I will sell you my horse for $150. If I do not
hear from you to the contrary by Thursday noon I will consider the
horse yours." _B_ does not reply. After Thursday noon, to whom
does the horse belong?

22. Define _option_. Give an example of an option.

23. Does an option require a consideration to render it valid?

24. What is an _element_ of a contract?

25. Give the elements of a contract.

26. How many parties to every contract?

27. What is meant by _legal age_?

28. _A_, a male, sixteen years old, contracts with _B_, a female,
eighteen years old. Can _B_ avoid the contract on the ground of
the infancy of _A_?

29. Is fraud or duress a defense to a contract?

30. How many kinds of consideration are there?

31. Is a good consideration sufficient to support a contract?

32. Define _valuable consideration_.

33. Give an example of a contract which may be supported by a good
consideration.

34. What is meant by a _sealed instrument_?

35. Is something beneficial to the promisee a sufficient consideration
to a contract?

36. _A_ promises _B_ to pay him $100 if _B_ will promise to work for
him for one month. _B_ promises. Is there a consideration to this
contract? If so, what is it?

37. Define _mutual promise_.

38. Is a mutual promise a valuable consideration? Give an example of
mutual promise.

39. Define _past consideration_. Give an example of past consideration.

40. Does a past consideration support a contract?

41. What is meant by _adequate consideration_?

42. Does a consideration have to be adequate to support a contract?

43. May adequacy of consideration be considered in determining whether
or not fraud was used in procuring a contract?

44. Give an example of a promise to do something one is already bound
to do.

45. Is a promise to do something one is already bound to do a
sufficient consideration to support a contract?

46. Give an example of illegal consideration.

47. Does an illegal consideration support a contract?

48. Do all the terms of a contract have to be express?

49. Define _express contract_.

50. A housewife orders a sack of flour from her grocer by telephone.
The flour is delivered and accepted by her. Is this an implied contract?

51. Give an example of an express contract.

52. Do any contracts have every term expressly set forth?

53. Define _implied contract_.

54. Are uncertain contracts void or voidable? Give an example of an
uncertain contract.

55. Give the distinction between _unilateral_ and _bilateral_ contracts.

56. _A_ promises to sell his dog to _B_ if _B_ will promise to pay him
$5.00 the following day. _B_ promises to pay _A_ $5.00 the
following day. Is this contract unilateral or bilateral?

57. _A_ promises to pay _B_ $100 if _B_ will dig a well for _A_. _B_
digs the well. Is the contract unilateral or bilateral?

58. Distinguish _executory_ and _executed_ contracts.

59. _A_ promises to pay _B_ $5,000 if _B_ will deliver to him a deed of
his farm. _B_ delivers the deed. Is the contract executed or
executory?

60. Is the above contract executed as to _A_? Is it executory as to _B_?

61. Are infants bound by their contracts? Define _infant_.

62. Are infants' contracts void?

63. Distinguish _void_ and _voidable_.

64. Can a competent party contracting with an infant avoid the contract
on the ground of infancy of the other party?

65. Can an infant ratify a contract after becoming of legal age?

66. Explain how, if at all, an infant may ratify his contracts.

67. Define the term _necessaries_.

68. _A_, an infant, has not sufficient clothing. _B_, a merchant, sells
him a coat worth $7.00, for $14.00. Can _B_ recover anything from
_A_? If so, how much?

69. Is an infant entitled to receive his wages?

70. What is meant by _emancipation of an infant_? Is emancipation of an
infant ever implied?

71. What is meant by _novation_? Give an example of novation.

72. Are contracts made for the benefit of a third person enforceable by
such third person?

73. Are contracts of an insane person enforceable?

74. Are contracts of insane persons, intoxicated persons, and idiots
void or voidable?

75. _A_, while intoxicated, purchased a coat from _B_ for $10.00. The
following day, when sober, _A_ promises to pay for the coat. Can
_B_ enforce the contract?

76. Can an insane person make a valid contract during a lucid interval?

77. Can married women enter into contracts?

78. Do custom and usage ever enter into a contract?

79. _A_ purchases forty barrels of yellow grease from _B_, like sample
furnished. The grease arrives, ranging in color from white to black.
_B_ offers to show a custom among grease dealers, known to _A_, that
a composite sample is used in selling grease. Can he show this
custom as part of the contract?

80. Are oral contracts ever valid? Why, if at all, do some contracts
have to be in writing?

81. What is meant by the _statute of frauds_?

82. When and where did this statute originate? What was the purpose of
this statute?

83. Does the statute serve any useful purpose at the present time?

84. Do the states of this country have a _statute of frauds_, or is it
a part of their unwritten law?

85. By the terms of the _statute of frauds_ what contracts must be in
writing?

86. Are contracts covered by the Statute of Frauds illegal if not in
writing?

87. _A_ orally promises _B_ to work for him for two years for the
consideration of $2,000. Can either party enforce the contract?

88. What is meant by the term _specialty_? Are specialties included in
the Statute of Frauds?

89. Can you make an oral promissory note?

90. Can contracts be made by letter and telegraph?

91. _A_, by letter, offers _B_ $1,000 for _B's_ team of horses. _B_
mails a letter of acceptance which is lost in the mails. Is there
a valid contract?

92. _A_, by letter, offers _B_ $10 for a harness. By the following
mail, _A_ writes revoking the offer. _B_ receives the letter of
revocation five minutes after mailing his acceptance. Is the
contract revoked?

93. _A_, by letter, offers _B_ $1,000 for his racing horse and says,
"I will consider my offer accepted upon receipt of your reply."
_B's_ letter of acceptance is lost in the mail. Is there a valid
contract?

94. _A_ wires _B_ that he will pay him $100 per share for his
Pennsylvania Railroad stock. _B_ hands his telegram of acceptance
to the telegraph operator who fails to send it. The following day
_A_ wires a revocation of his offer. Is there a valid contract?

95. Does a revocation by wire or letter have to be received to be
effected?

96. Does an acceptance by wire or letter have to be received by the
offerer to constitute a valid acceptance?

97. In what respect do sealed instruments differ from ordinary
contracts?

98. At present what constitutes a seal?

99. At present is it the tendency of the law to favor sealed
instruments?

100. Are Sunday contracts void or voidable?

101. What makes Sunday contracts unenforceable?

102. What was _The Lord's Day Act_ of England?

103. What is meant by works of charity and necessity?

104. _A_ makes and delivers a promissory note to _B_ for $100 on
Sunday. Is the note enforceable?

105. What makes a contract illegal?

106. Are illegal contracts void or voidable? Give an example of an
illegal contract?

107. What is a gambling contract?

108. Are gambling contracts void?

109. Why are gambling contracts illegal?

110. Define _fraud_.

111. Is a false representation made during the formation of a contract
known by both parties to be false, a defense to the contract?

112. Give an example of a false misrepresentation which will serve to
avoid a contract?

113. Can there be duress without personal violence? Define _duress_.

114. Give an example of duress.

115. Do duress and fraud render a contract void or voidable?

116. Define _mistake_ in connection with making a contract. Define
_mistake of fact_.

117. Define _mistake of law_.

118. Does mistake of one party to a contract avoid the contract?

119. Does mistake of law avoid a contract?

120. Does mutual mistake render a contract void or voidable?

121. What is meant by a _contract impossible of performance_? Give an
example of a contract impossible of performance.

122. _A_, on April 4, enters into a contract dated April 2, by which he
promises to deliver to _B_ within twenty-four hours, five tons
of coal. Is _A_ liable on this contract?

123. Do floods, earthquakes, or lightning preventing performance excuse
performance?

124. Is a party to a contract excused from performance by reason of a
strike?

125. May a party to a contract stipulate against strikes and Acts of
God in such a manner as to avoid liability therefor?

126. If a party to a contract renders performance impossible can he
force performance?

127. What is meant by _conflict of law_?

128. Does the law of the place where a contract is made, or the law of
the place where the contract is enforced, prevail?

129. If a contract is made in one place, to be performed in another,
the law of which place prevails in the interpretation of the
contract?

130. What is meant by _assignment_ of a contract?

131. _A_, a singer, contracts to sing at _B's_ opera house for one
week. Can _A_ assign her contract to _C_, another singer? Can _B_
assign his contract to _D_?

132. What is meant by _giving notice of assignment_?

133. Is an assignment a contract?

134. What are the elements of a valid assignment?

135. Does an assignment require a consideration?

136. Write an assignment of a simple contract.

137. Define _several liability_.

138. Can a party be jointly and severally liable on the same contract?

139. If two parties are jointly liable on a contract can one of them be
sued thereon without the other?

140. If two parties are severally liable on the same contract, can both
be sued together thereon?

141. Define liability _in solido_. Give an example of liability _in
solido_.

142. How may a contract be discharged by performance? Give an example
of a contract discharged by performance.

143. What is meant by _tender_? What constitutes legal tender?

144. Does United States statute or a state statute make certain money
legal tender?

145. What kinds of money constitute legal tender?

146. _A_ owes _B_ $5.00. He tenders him the amount in nickels. Is the
tender good?

147. _A_ owes _B_ $500.00. He tenders him a certified check for the
amount. Is the tender good?

148. Can a contract be discharged by a subsequent agreement?

149. _A_ agrees to dig a well for _B_ for $10.00. Before _A_ starts
work, _B_ changes his mind, and offers _A_ $1.00 in settlement.
Is the contract discharged if _A_ accepts the $1.00?

150. Define _warranty_.

151. Give an example of warranty to a contract. 152. Does breach of
warranty discharge the contract?

153. Does breach of warranty give rise to an action for damages?

154. Define _rescission_.

155. Give an example of rescission.

156. Define _statu quo_.

157. Define _breach of contract_.

158. Give an example of breach of contract.

159. In case of breach of contract must the other party wait until the
time for performing the entire contract elapses, or may he sue
at once?

160. Define _bankruptcy_.

161. By what kind of law is bankruptcy regulated?

162. Does bankruptcy discharge a contract?

163. Define _voluntary bankruptcy_.

164. Who may become a voluntary bankrupt?

165. Define involuntary bankruptcy. Who may become an involuntary
bankrupt?

166. Define _act of bankruptcy_.

167. Enumerate acts of bankruptcy.

168. At common law could one party to a contract compel another to
perform it specifically? Under present law can a contract for
sale of personal property be enforced specifically?

169. What is the measure of damages for failure to deliver merchandise
under a contract of sale?

170. How did the court of equity originate?

171. Are juries used in courts of equity?

172. What classes of cases are tried in equity?

173. Does a court of equity have jurisdiction of a case where there is
a plain and adequate remedy at law?

174. With what kind of contracts is equity especially concerned?

175. Give an example of a contract which may be enforced specifically
by a court of equity.

176. Write a form for a simple contract between _A_ and _B_ for the
sale of a horse.

PRINCIPAL AND AGENT

1. What is meant by the term _agency_?

2. Give an example of a transaction completed by an agent.

3. Is there a limitation upon the kinds of business which may be
transacted by an agent?

4. Distinguish principal and agent from master and servant.

5. Define and give an example of _principal_.

6. Define and give an example of _agent_.

7. Define and give an example of _agency_.

8. Define _infant_.

9. Is a married woman seventeen years of age an infant?

10. May an infant be a principal?

11. Define and distinguish _void_ and _voidable contracts_.

12. May an idiot, insane, or drunken person act as principal?

13. May a corporation or partnership transact business through agents?

14. May a child eight years of age act as agent?

15. In general, what persons may act as agents?

16. May a person act as agent who is not capable of acting for himself?

17. May a person whose interests are opposed to those of his principal
act as agent?

18. May corporations or partnerships serve as agents?

19. Must an agent's authority to act as agent be in writing?

20. May an agent be appointed or authorized to act by implied contract?

21. Define and give an example of _implied contract_.

22. What is meant by _ratifying an act of an agent_.

23. Give an example of a principal's ratification of an unauthorized
act of an agent.

24. Give an example of a contract of agency which must be in writing.

25. Why must some contracts be in writing?

26. What are the principal provisions of the Statute of Frauds?

27. Must contracts of agency authorizing an agent to complete a land
transfer be in writing?

28. Must a contract authorizing an agent to procure a purchaser for a
house and lot be in writing?

29. Can a third party rely upon the statements of an agent that he has
authority to act as agent?

30. May a person do through an agent anything which he may lawfully do
by himself?

31. _A_ employs _B_ to purchase votes for an act pending in a state
legislature. Is _A_ or _B_, or both, guilty of a crime?

32. _A_ employs _B_ to paint a picture, and _B_ employs _C_ to paint
the picture. Must _A_ accept the work of _C_?

33. What things are necessary to enable a person to ratify the acts of
an alleged agent?

34. May a forgery be ratified?

35. Give a classification of agents.

36. _A_ is employed to deliver a package for _B_. What kind of an agent
is _B_?

37. Give an example of a universal agent.

38. Enumerate the duties a principal owes his agent.

39. _A_ employs _B_ to work in his garden. _B_ works for ten days, no
compensation having been agreed upon. How much, if anything, can
_B_ recover from _A_?

40. If an agent abandons his agency before the time of his agency
expires, can he recover anything for work performed? If so,
how much?

41. What duty, if any, does a principal owe to his servant as to
furnishing a safe place in which to work?

42. What rules, if any, does a servant assume?

43. In general, what are the liabilities of a principal to third
persons who deal with an agent?

44. Is a principal liable to a third person who has dealt with an
agent, who acted within the apparent but not the actual scope
of his authority?

45. Is a principal liable to third persons for lots committed by an
agent within the scope of the agent's authority?

46. Give an example of a lot or private wrong committed by an agent
while acting for his principal, for which the principal is not
liable.

47. Enumerate, in general, the duties an agent owes his principal.

48. Is an agent liable to his principal for mistakes of judgment or
discretion?

49. Is an agent who acts without compensation ever liable to his
principal for negligence? If so, give an example.

50. Enumerate, in general, the liabilities of an agent to third persons
with whom he deals.

51. _A_, an agent for _B_, sells goods to _C_, in his own name. _C_
afterwards discovers that _A_ is agent for _B_. Can _C_ hold _A_?

52. If an agent procures a contract for his principal by means of fraud
is the agent liable personally on this contract?

53. If an agent, believing he has authority to act as an agent, where
in fact he does not, reveals all the facts of his agency to a third
party with whom he is dealing, is he liable personally to such
third party if it turns out that he acted without authority?

54. Define and give an example of _undisclosed principal_.

55. Is an undisclosed principal when discovered, liable for the acts of
his agent?

56. Is an agent of an undisclosed principal personally liable to
third persons for acts of agency after the undisclosed principal is
discovered?

57. May there be an undisclosed principal to a negotiable instrument?

58. What is meant by _apparent authority_ of an agent as distinguished
from _actual authority_?

59. Give an example of an agency where the apparent authority of the
agent conflicts with the actual authority.

60. If an agent appears to have authority to act for another, but in
fact never received any authority, can third persons rely upon his
apparent authority?

61. Do customary powers belonging to an agent come within the meaning
of apparent authority?

62. May a principal limit an agent's apparent authority by printing
limitations in the agent's order sheet and in making contracts with
third persons? If so, give an example.

63. Define and give an example of _secret instructions_.

64. Can a principal evade responsibility to third persons by secret
instructions given to an agent?

65. If a third party dealing with an agent knows of the secret
instructions, is he bound by them?

66. Define and give an example of _sub-agent_.

67. Is a sub-agent responsible to the agent?

68. Is an agent ever responsible for the acts of a sub-agent?

69. What matters, if any, may an agent delegate?

70. Define and give examples of _mechanical_ and _ministerial duties_.

71. Distinguish an agency requiring personal skill, discretion,
and judgment, from one requiring the performance of ministerial or
mechanical duties.

72. When, if at all, is an agent authorized to collect?

73. Is an agent authorized to sell goods, always authorized to collect
for them?

74. Is an agent authorized to collect, authorized to take checks?

75. How should an agent authorized to sign a written instrument for his
principal, sign?

76. May an agent authorized to sign a promissory note for his
principal, sign his principal's name without his own?

77. An agent authorized to sign a written contract for his principal
signs his own name followed by the word, _agent_; _e.g._,
"_A, Agent._" Is the principal bound?

78. When, if at all, is an agent authorized to warrant the quality of
personal property sold?

79. Define _warranty_.

80. Give an example of an agent who is impliedly authorized to warrant.

81. Do usage and custom have anything to do with the agent's implied
authority to warrant?

82. Define _factor_, and give an example.

83. Do factors have possession of the goods?

84. Do factors have implied authority to collect?

85. Do factors have the right to sell goods in their own name?

86. Is a commission merchant a factor?

87. Define _broker_.

88. Distinguish _broker_ and _factor_.

89. Give an example of broker.

90. Is a real estate agent a broker, or a factor?

91. In what respect, if any, does an auctioneer differ from an ordinary
agent?

92. What is meant by _licensed auctioneers_?

93. Are auctioneers' fees ever regulated by statute?

94. What is meant by _auctioneer's lien_?

95. When, if at all, may an auctioneer sell on credit?

96. May an auctioneer make his own terms of sale? Are all third persons
bound by the terms advertised?

97. Define and give an example of _del credere_ agent.

98. Must a _del credere_ agent receive a separate consideration for his
guaranty?

99. When is a real estate agent entitled to receive his commission?

100. Does the contract of a real estate broker differ from the contract
of any other agent?

101. How may an agency be terminated?

102. Give an example of an agency terminated by lapse of time, and of
one terminated by act of parties.

103. May all agencies be terminated at the will of the parties?

104. What is meant by _notice to third persons of termination of an
agency_, and when, if at all, is this notice necessary?

105. Explain _termination of agency by operation of law_.

106. In case of termination of agency by death of principal must third
parties be notified?

107. Does injury or liability of an agent ever terminate an agency? If
so, under what circumstances?

108. Define _agency coupled with an interest_.

109. Is an agency coupled with an interest revocable at the will of
either party?

110. _A_ employs an agent at a salary of one hundred dollars per month,
promising him 1% commission in addition, on all orders taken in
excess of $1,000 per week. Is this an agency coupled with an
interest?

111. Give an example of an agency coupled with an interest.

[Illustration: CHAMBER OF COMMERCE, CHICAGO, ILL.]

COMMERCIAL LAW

PART II

PARTNERSHIP

=66. In General.= A party may trade and enter into contracts by
himself, or he may associate with himself others. A person is not
obliged by law to transact business solely by himself. He is permitted,
for the purpose of having labor, capital and skill joined in one
enterprise, to combine with others. Where a person joins with himself
one or more persons for the purpose of transacting business as a unit,
the firm composed of the two or more persons thus joined is called a
_partnership_.

A partnership may be defined to be a contract between two or more
persons, by which their labor, skill or property is joined in an
enterprise for common profit, and in which each partner may act as
principal. The principal features of a partnership are, the right
of each partner to act as principal for the other partner, and the
individual liability of each partner for the acts of the partnership.
_A_ and _B_ agree to combine their efforts in operating a tea and
coffee store. Each may bind the other by contract, made within the
scope of the business, and each is liable individually to pay the debts
incurred by the partnership.

=67. How a Partnership is Created.= A partnership is created by
a contract. This contract may be oral, express or implied. Many
partnerships are created by carefully drawn, written instruments, in
which the rights and duties of each party are set forth in detail;
while others are made by oral agreement. Any contract of importance
should, for the purpose of having a record of the exact understanding
of the parties, be made in writing. As between themselves, parties
cannot be partners except such was their intention. Sometimes, parties
are considered partners as to third persons, with whom they deal, and
are liable as partners, where there is no intent to form a partnership,
and when none exists as between themselves. This relationship, called
_partnership by estoppel_, is based on equitable reasons and is
discussed more at length under a separate section. As between the
partners themselves, to constitute a partnership, there must be a
contract to that effect. This requires an assent on the part of all
the parties, based upon a valid consideration. Parties may enter into
an agreement to enter into a partnership at a future time. In this
event, the partnership does not exist as such until the time provided
for in the contract arrives, and until the conditions of the executory
agreement have been complied with.

A partnership may be created for any lawful purpose. If the partnership
contract is procured through fraud or misrepresentation, it may be
avoided by reason thereof.

=68.= _Who May be Partners._ Any person competent to contract on his
own behalf may enter into a contract. (See "Competency of Parties,"
chapter on Contracts.) An infant, or person under legal age, may enter
into a partnership contract the same as he may enter into any other
contract. The law does not prohibit it. But contracts by infants are
voidable. They may be renounced by the infant at his pleasure. For
example, if _A_, of legal age, enters into a partnership contract with
_B_, seventeen years of age, _B_ may renounce his obligation to _A_ at
any time he pleases, before he has reached legal age. _A_, however,
cannot renounce his partnership contract on account of the infancy of
_B_. _B_ may ratify his contract after becoming of legal age. If _B_,
after becoming of legal age, refuses to continue the partnership, and
refuses to carry out his partnership agreement, he is deemed in law to
have renounced his partnership, and is not liable for the obligation of
the partnership. If, however, after reaching legal age, _B_ continues
the partnership relationship for an appreciable length of time, he
is deemed in law to have ratified the agreement, and is thereafter
liable thereon. _B_ may not only renounce the partnership agreement
as to his partner, _A_ but also as to third persons dealing with
the partnership. _A_, however, is responsible individually upon the
partnership contracts with third persons, and cannot take advantage of
_B's_ infancy. It is no defense for him.

Drunken persons, insane persons, and idiots cannot enter into
partnership agreements. A married woman could not enter into contracts
at common law, but by statute is now permitted to make contracts, with
a few minor limitations, such as acting as surety for her husband, or
making contracts with her husband.

=69. Partnership Name.= The members of a partnership may use any name
they desire, so long as the name does not interfere with the fixed
rights of others. The members of a partnership may use the name of one
of the partners, or the combined names of all, or of a part of the
partners, or a name separate and distinct from the names of any of the
partners. For example, if _A_, _B_, and _C_ form a partnership, they
may use as a partnership name, "The _A_ Co.," "The _A_, _B_, Co.,"
"The _A_, _B_, _C_ Co.," "The _X_ Co.," or any fictitious name they
may determine upon. Some states provide by statute, that a partnership
using a name not revealing the individual members of a partnership,
must, in order to sue in the partnership name, file with a county
official the names of the members composing the firm. Other states by
statute prohibit the use of fictitious names.

A partnership cannot be bound by any other name than its own. Where a
partnership has adopted a firm name, contracts made in the name of one
of the individual members do not bind the partnership. A partnership
may change its firm name. This may be done by agreement, express or
implied. If the members of a partnership do not expressly agree to
change the name, but a new name is used by one or more of the members,
and the change is acquiesced in by the other members, they are deemed
in law to have agreed to the new name. A partnership may use two firm
names. This sometimes occurs when a firm has branches. One name is used
for one branch and another for the second branch. In this event the
partners are liable for contracts made in either name.

=70. Names Applied to Different Kinds of Partners.= Depending upon
the nature of their relationship to the partnership, partners are said
to be _secret_, _silent_, _ostensible_, _nominal_, or _dormant_.

A _secret partner_ is one who keeps the fact of his membership in
the partnership from the public. This does not enable him to escape
liability as a partner. He is in the position of an undisclosed
principal. (See "Undisclosed Principal," chapter on Agency.) So long
as a secret partner keeps the fact of his membership from the public,
of course he will not be sued as a member. But his liability exists in
spite of this secret, and when discovered his liability may be enforced.

A _silent partner_ is one who takes no active part in the operation
of the partnership business. His name may be known as a partner, or
not. He is not necessarily a secret partner. He may be well known as
a member of the partnership, but if he takes no active part in the
management, he is said to be a silent partner. A silent partner is
individually liable for the obligations of the partnership, the same as
any partner.

An _ostensible partner_ is one who permits himself to be held out or
represented as a partner, when in fact he is not a partner. He is
responsible as a partner to third persons who deal with the firm, and
to whom he has been held out as a partner. For example, _A_ and _B_
trade as the Rodway Co., _A_ in company with _C_, tries to buy goods
of _D_. _D_ knows _C_ but does not know _A_ and _B_. _A_ with _C's_
consent, tells _D_ that _C_ is a member of the Rodway Co. _C_ is liable
as an ostensible partner. More commonly the ostensible partner permits
his name to be used as a part of the partnership name when in fact he
is not a member of the partnership. If _A_ and _B_ form a partnership
and with _C's_ consent use the name, "_A_ _B_ and _C_ Co.," _C_ is
liable on the partnership obligations, in spite of the fact that as
between himself and _A_ and _B_, he is not a partner. If a partner is
advertised to third parties as such, without his knowledge or consent,
he is an ostensible partner, but is not liable as a partner.

A _nominal partner_ is one who permits his name to be used as a
member of the partnership without being a member of the partnership.
Ordinarily he is paid something for the use of his name, but does not
have a share in the profits. A nominal partner is liable to third
persons as a partner, but as to the other partners, he does not have
the rights or liabilities of a partner.

The term, _dormant partner_, is sometimes used synonymously with secret
partner. Technically, it means that the partner is both unknown and
silent. It combines the elements of a secret and a silent partner.

The terms, _general_ and _special_ partner, are commonly used. By
general partner, is meant the one who shares equally in the profits
and losses of the partnership transactions. The term, special partner,
means that the partner, as between the other partners, does not share
equally in the profits, nor is he responsible to the other partners for
an equal share of the losses. As to third persons, the terms general
and special partners have no significance; for example, if _A_, _B_ and
_C_ enter into a partnership, _A_ and _B_ each to furnish two fifths of
the capital, and each to have two fifths of the profits, and _C_ is to
furnish one fifth of the capital, and receive one fifth of the profits,
_A_ and _B_ are general partners and _C_ is a special partner. As to
third persons dealing with the partnership _A_, _B_ and _C_, each are
individually liable.

=71. Partnership Agreements as between Partners.= In considering the
question as to whether a partnership exists, it must be regarded from
two points. First, is there a partnership as between partners; second,
is there a partnership as to third persons? A partnership may exist as
between the partners themselves. When a partnership exists between the
partners themselves, there can be no question about its existing as to
third persons.

As between the partners themselves, a partnership cannot exist unless
there is a contract express or implied, by which they mutually agree
or consent to the partnership. If _A_ and _B_ agree, either orally or
in writing, to engage in a partnership enterprise, and do so engage
in a joint business, a partnership exists between them. If _A_ trades
alone as the "_A_ Co." and, desiring to obtain credit from _B_, tells
_B_ that _C_ is a member of the _A_ Co., even though _C_ ratifies the
unauthorized act of _A_, by stating to _B_ that he is a member of the
_A_ Co., this does not constitute him as a partner to _A_. As to _B_,
however, he is a partner and is liable as such. As to _A_, he is not a
partner, and is not entitled to a share in the profits. If the intent
of the parties to form a partnership, is clear, from their express
agreement, or from an agreement implied from their acts or conduct,
a partnership, without question, exists between them. Many business
arrangements are made by which property, skill, or labor is combined
under peculiar arrangements, as to the division of profits and losses,
making it difficult to tell whether a partnership exists. It is not
essential that the word, "partnership," be used to have an agreement
constitute a partnership. If it is the intent of the parties thereto
to create a partnership, one exists regardless of the term used. An
agreement to share losses, or to share profits in an enterprise,
is some evidence of a partnership, but is not sufficient of itself
to constitute a partnership. _A_ and _B_ may agree each to furnish
his own tools in drilling an oil well, and if a profit is made, to
divide the profits, and if a loss is sustained to bear the loss out
of their individual funds. These facts, do not show an intent to form
a partnership, and do not make _A_ and _B_ partners as to themselves.
If, however, _A_ and _B_ contribute one hundred dollars ($100.00) each
to a partnership fund, and combine the tools possessed by each toward
a partnership fund, and agree to share equally the profits and losses,
the intention is clear that a partnership is intended, and these facts
constitute _A_ and _B_ partners.

=72. Partnership as to Third Parties.= Where a partnership exists
as between the partners themselves there is no question about its
existing as to third persons dealing with the partnership as such. A
party cannot hold himself out to the world as a partner, and by means
of a private arrangement with his apparent partners, evade liability
as a partner. It is generally conceded that a secret arrangement made
between partners that one shall not be liable as a partner, if made
known to a third person dealing with the partnership, will relieve the
apparent partner from liability to such third person. For example, if
_A_ and _B_ are doing business as the "_A B_ Co.," and _A_ lends his
name to the company for a fixed consideration, _B_ receives all the
profits and is liable for all the debts. If _C_ deals with the "_A B_
Co.," not knowing of the private contract between _A_ and _B_, _A_ is
liable individually upon the contract. If, however, _C_ at the time he
deals with the "_A B_ Co.," is informed of the actual connection of _A_
with the company, he cannot hold _A_ liable as a partner.

If a third person extends credit to one of the partners, knowing that
the purchase is for the benefit of the partnership, he can hold liable,
only the party to whom he extended credit. If, however, he sells to one
of the partners, not knowing that he is a partner of a firm, and the
firm gets the benefit of the purchase, the firm is liable for the debt.

A partnership, like a principal in agency, is liable for the torts
or private wrongs of the individual partners, committed in the
course of the partnership business. If _A_, a member of the _A B_
Co. partnership, uses fraud in purchasing goods, the _A B_ Co., is
liable for the fraud. If _A_, a member of the _A B_ Co., gas fitters,
carelessly connect a gas burner, thereby causing an explosion, and
injury to _C_, the _A B_ Co., is liable for the injury.

=73. Powers and Property of a Partnership.= A partnership has the
power to transact business in its firm name. Unless prohibited by
statute, it may sue and be sued in its firm name, regardless of the
names of the individual partners.

Each member of a partnership is regarded as an agent of all the other
members of the partnership, with authority to bind the partnership
by any contract made within the scope of the partnership business.
A partner may deal individually in matters outside the scope of the
partnership business. For example, _A_, _B_ and _C_ form a partnership
for the purpose of buying, selling and leasing real estate. _A_, _B_
and _C_ are authorized to act for each other, in doing all the things
reasonably connected with the transaction of real estate business. If
_A_ orders groceries in the firm name, his partners may deny and avoid
the obligation, on the ground that is is not within the scope of the
partnership affairs. The grocer selling _A_ groceries in the firm name
cannot claim that _B_ and _C_ authorized _A_ to buy groceries. The
purchase is clearly outside the real estate business. If, however, _A_
purchases a house and lot in the firm name and uses it personally, the
seller can hold the partnership for the purchase price. A partnership
is empowered to sign notes, only when necessary to the transaction of
the partnership business. Partnerships may hold the title to personal
property in the name of the firm. This does not prevent the individual
members from holding property individually at the same time. As between
the partners themselves, only that personal property mutually agreed
to belong to the partnership is partnership funds. Even as to third
persons dealing with the partnership, the actual agreement of the
individual members as to what is, and what is not partnership funds
governs, except in the case of fraud. A partnership cannot represent
that it owns certain property, or that certain purchases are made
for the partnership for the purpose of obtaining credit, and then
claim that it is owned by an individual member. Property purchased by
partnership funds, or improved with partnership funds, belongs to the
partnership. Real estate purchased with partnership funds is regarded
as belonging to the firm, even though title is held in the name of one
of the partners. The partner in whose name the property is held is said
to be the legal owner, but the partnership is the equitable owner. Firm
creditors may subject it to pay firm obligations.

=74. Liability of Persons Held Out as Partners.= If a person permits
himself to be held out as a partner, he will be bound as a partner, as
to third persons dealing with the partnership with this in view. It
matters not that the party held out as a partner is not a partner in
fact. The real relation will protect the apparent partner, as against
the other partners, but not as against third parties who deal with the
firm, relying upon his being a partner. What amounts to being held
out as a partner is a question of fact, which must be determined by
the circumstances surrounding each particular case. If _A_, without
authority of _B_, tells _C_ that _B_ is his partner in the shoe
business and that they are trading as the "_A B_ Co.," and _C_ sells
them an order of shoes, without investigating whether _B_ actually
is a partner, _B_ is not liable as a partner for the obligation. The
authority to hold a person out as a partner must come from the partner
so held out. It may come from his assent or his neglect in denying the
relationship when he learns that he is being advertised as a partner.
For example, suppose _A_ borrows five hundred dollars ($500.00) of _B_
and promises to give _B_ a one-half interest in his grocery business,
if _B_ so desires, on condition that _B_ spend his afternoons working
in the store, and _B_, not considering himself a partner, permits _C_
to tell third persons that he is a partner. As a result, _B_ cannot
deny partnership liability as against third persons who consider him a
partner in dealing with the partnership.

=75. Duties and Liabilities of Partners as to Each Other.= The
relation of partners to each other is a contract relation. Each partner
must carry out the terms of the contract. Ordinarily, partnerships
require the devotion of the entire time and attention of each partner
to the partnership business. Partners are not permitted to engage in
any business for themselves which will interfere with the partnership
business, or take their time and attention away from the partnership
business. Each partner owes that duty of fidelity to the other members
of the partnership. A partner as an individual may deal with the firm,
and may act as agent for others in dealing with the firm, if it is with
the consent and knowledge of the other partners. A partner cannot sell
his interest in the firm to another, and have the new partner take
his place as a member of the partnership, without the consent of the
other partners. In any event, the withdrawal of one partner and the
substitution of another dissolves the old partnership and establishes a
new partnership. One partner may assign or transfer his interest in a
partnership but this dissolves the partnership, and gives the purchaser
the right to his seller's interest in the funds of the partnership. It
gives the purchaser no right to participate in the management of the
business.

If by the terms of a partnership agreement, the partnership is to
subsist for a specified length of time, and one partner withdraws or
refuses to continue, he is liable in damages to the other partners,
for breach of contract. If the partnership is organized without regard
to any specified duration, a partner may withdraw at will, and thus
dissolve the partnership. Partners must devote their entire time and
attention to the business, unless the partnership agreement provides
otherwise. Each partner is entitled to an equal share of the profits.
If one partner deals unfairly with another, the latter cannot bring an
ordinary suit at law for recovery of the amount due him, or for his
damages, but he must bring a suit in equity, setting up the facts, and
must demand an accounting. The court will then determine the rights of
the partners. If a partnership is dissolved, and the partners expressly
agree that a certain sum is owing by one partner to another, the latter
may sue the former for this amount, in an ordinary action at law.

=76. Liability of Partnership to Third Persons.= A partnership
is liable as such, upon its contracts to third persons. This means
that the obligation is in the nature of a joint one against all the
partners, and not a several one against the individual partners. There
is an individual liability of each partner, called a liability of each
partner in solido. This liability is discussed in this section under
the title, "Liability of Individual Members of a Partnership." A third
person, in commencing a suit against a partnership, must sue all the
partners, or be subject to the risk of having the case dismissed at the
objection of the one sued. All the property of a partnership may be
subjected to the payment of partnership obligations.

=77. Liability of Individual Members of a Partnership for Partnership
Obligations.= While a suit brought against one partner for a
partnership debt may be dismissed if objected to by the partner sued,
if not objected to, and judgment is taken, it may be enforced against
the individual assets of the partner sued. In this event, in most
jurisdictions, the other partners are discharged from liability. If the
partnership is sued either in the partnership name, or in the name of
all the individual partners, the individual members are still liable in
solido for the debt. By _in solido_ is meant, _liable for the whole_.
If one partner is compelled to pay all or more than his proportion of a
partnership debt, he may recover the excess of his share, ratably from
the other partners.

A member of a partnership may have partnership assets and individual
assets. A creditor of the partnership may satisfy his claim out of the
firm assets, or out of a partner's individual assets, except where
there are individual creditors. In the latter event, the partnership
creditors cannot subject individual partners assets to the disadvantage
of the individual creditors. On the other hand, individual creditors
cannot subject a partner's share in the partnership assets to the
disadvantage of partnership creditors. This means that in case of
insolvency of either a partner or of the partnership, firm creditors
must first exhaust firm assets, and take the balance of individual
assets after individual creditors have been satisfied. It means,
further, that individual creditors must satisfy their debts out of
individual partner's assets, and can only subject the balance of firm
assets after firm creditors have been satisfied. If there are no
partnership assets at all, and no solvent partners, firm creditors are
treated on the same basis as individual creditors, and the individual
assets of the partners are divided _pro rata_ among partnership and
individual creditors alike.

=78. Change of Membership.= A partnership depends for its existence
upon the continuation of the same membership. If one partner withdraws,
the partnership is, by that act, dissolved. If a new member is
admitted, the partnership is dissolved and a new one created. A partner
cannot escape his liability as a partner by withdrawing from the
partnership. By this act, he terminates the partnership, and no further
liabilities can be created against him except as to those persons
having no notice of his withdrawal; but he is still liable for the old
partnership debts. A substituted partner is not liable for the debts
incurred before he enters the firm, unless he expressly assumes such
debts. If he expressly assumes them, this does not relieve the outgoing
partner from liability, unless this is assented to by partnership
creditors. If it is borne in mind that a change in membership dissolves
a partnership, and any partnership that exists thereafter is separate
and distinct from the old one, and dates from the withdrawal of the
retiring partner, or admission of the new partner, the individual
liability of the partners is easily determined. For example, if _A_,
_B_ and _C_ are partners in a dry goods business, and _B_ withdraws,
_B_ is still personally liable for the debts of the _A B C_ Co. The
partnership ceases at the time of his withdrawal. If _A_ sells his
interest to _D_, who becomes a member with the consent of _B_ and
_C_, _A_ is still liable to creditors who became creditors before
_A's_ withdrawal. _D_ is not liable for the debts incurred before his
admission as a partner, unless he expressly so agrees.

=79. Death of a Partner.= The death of a partner terminates the
partnership. The remaining partners may agree to continue the
partnership, which amounts to the formation of a new partnership. In
case of death of one partner, title to the partnership property is in
the surviving partners. They must collect the assets and may sue on
firm obligations. They cannot, as survivors, continue the business
further than is necessary to wind up the affairs of the partnership.
They must first pay all firm obligations, and distribute the proceeds
among themselves and the representatives of the deceased partner.

=80. Survivorship.= Survivorship is the term applied to the relation
to the partnership of the remaining partners, after a dissolution. The
partners remaining after a dissolution are known as _survivors_. The
title to the partnership property vests in the survivors, and they must
collect the assets, pay the liabilities and distribute the proceeds
among themselves and the representatives of the other partners. By
statute, in some states, surviving partners are permitted to purchase
firm assets at a fair appraised valuation. Surviving partners have the
right to retain possession of the partnership property, and to do those
things necessary to wind up the affairs of the partnership. They are
not permitted to divide any firm assets among themselves, until all
firm debts are paid. If _A_, _B_ and _C_ are partners in the grocery
business, and _C_ dies, the title to the property rests in _A_ and _B_,
who have the authority to sue for the debts owing, and may be sued
for the debts owed by the firm. They have the right to draw checks on
the firm checking account, but no right to incur further obligations.
In the absence of special statute, they have no right to purchase the
business for themselves, and if they choose to continue it, they do so
at their own individual risk, and must account for all profits made.

=81. Dissolution of Partnerships.= A partnership may be dissolved
by lapse of time. If a partnership is entered into under an express
agreement that it is to subsist for a certain length of time, lapse
of the stipulated period works a dissolution. A partnership may be
dissolved by mutual agreement of the partners. A partnership may also
be dissolved by any change of membership, whether it be the withdrawal
of a member, admission of a new member, or death of a member.
Bankruptcy of a member, or bankruptcy of the partnership itself, works
a dissolution. If one party violates his duties as a partner, or if for
any reason, the partnership ceases as a result of a decree of court,
there is a dissolution.

=82. Notice of Dissolution.= Persons who deal with a partnership
through one of the partners, or through an authorized agent, have
the right to assume that the partnership will continue to exist. If
a partnership is dissolved by lapse of time, by mutual agreement, or
by withdrawal or entrance of another partner, notice must be given of
such change, to protect the members of the former partnership against
contracts of third persons, made subsequently to the dissolution.
Business people, who have had former dealings with the partnership,
must receive actual notice. These notices may be sent by mail, or
delivered orally, or in writing. A public announcement in a newspaper
is sufficient to protect former partners against contracts subsequently
made by persons who have not previously dealt with the firm. In case of
dissolution of a partnership by operation of law, such as by death of a
member, bankruptcy, or decree of court, no notice is necessary. The act
which causes the dissolution is deemed to be notice to everyone.

=83. Distribution of Firm and Individual Assets after Dissolution.=
As a general rule, firm creditors are entitled to firm assets. The
balance goes to individual partners. Individual creditors are entitled
to individual assets. The balance goes to firm creditors. If, however,
the partnership is insolvent as a firm, and there is no living solvent
partner, in the distribution of firm assets, firm creditors are treated
the same as individual creditors. Firm real estate may be subjected by
firm creditors to the payment of their claims. After firm creditors
are satisfied, firm real estate is treated as the real estate of the
individual members, and descends to the heirs of the partners, and does
not pass as personal property to their personal representatives.

=84. Limited Partnership.= Most states by statute permit limited
partnerships to be formed. In general, a limited partnership differs
from an ordinary partnership in that some of the members, called
special partners, are not individually liable for the obligations of
the partnership. The statutes of the different states differ somewhat
as to the purposes for which a limited partnership may be formed.
In general, however, a limited partnership may be formed to carry
on any business except banking and insurance. A limited partnership
must have at least one general partner who is individually liable for
the obligations of the partnership. The special partners contribute
certain fixed sums, which must be paid before the partnership starts
business, and beyond which the special partners are not liable.
Generally, special partners are not permitted to manage the business.
A limited partnership is generally required to file with a public
officer a certificate showing its membership, the purpose for which
it is organized, the number of shares held by special partners, the
assets, the total capital, and the names of the general partners. The
purpose of a limited partnership is to enable persons to invest a
certain amount of capital in an enterprise without being individually
responsible beyond the amount actually invested. Limited partnerships
are now largely supplanted by corporations.

=85. Form of Partnership Agreement.=

Articles of agreement entered into at Chicago, Ill., this ... day of
... 1909, by and between _A_, hereinafter designated as the first
party, and _B_, hereinafter designated as the second party, both of
Chicago, Ill. Witnesseth that:

1. Said parties agree to enter into a partnership for the purpose
of engaging in and carrying on a general hardware business in
the city of _Chicago_ under the name of _Cook County Hardware
Co._

2. The first party agrees to furnish his stock of goods, now
located at his present hardware store in _Chicago_, and said
second party agrees to contribute _$5,000.00_ in cash
immediately upon the signing of the agreement, said stock of
goods, and said _$5,000.00_, to constitute the joint capital
of the partnership.

3. Said parties agree to devote their entire time and attention
to the interests of the partnership business.

4. Said parties agree to share equally the losses and expenses of
said partnership, and at the expiration of each month, to
divide equally the net profits reserving a fund sufficient to
keep the original capital intact.

5. Said parties agree that the partnership shall continue as long
as the partners shall mutually so desire. In the event of
either party's desiring to withdraw, said parties agree that
each shall choose one arbitrator, the two thus chosen to
select a third, who shall appraise the assets of the firm,
and divide them into parts, which division shall be accepted
as final by the parties hereto. And each party agrees to
accept the portion allotted to him by said arbitrators. In
witness whereof, the parties hereto have set their hands the
day and year above written.

Signed
A.......................
B.......................

Signed in the presence of
C.......................
D.......................

CORPORATIONS

=86.Nature of a Corporation.= A corporation has been defined to
be "a collection of many individuals into one body, under a specific
denomination having perpetual succession, under an artificial form
and vested by the policy of the law, with the capacity of acting in
several respects as an individual." In other words _corporation_ is the
name applied to an association of persons authorized by law to create,
by mutual contribution, a common fund for the purpose of transacting
business without rendering the individual members personally liable
for the debts of the association, beyond a certain amount. The object
is to permit persons to obtain the advantage of large combinations of
capital without involving, beyond certain limits, the private property
of the individuals composing it. A corporation is an artificial person
having an existence in many respects separate and apart from the
members composing it. While it can only transact business by means of
agents, the obligations created are the obligations of the artificial
person, the corporation. The common fund or capital of the corporation,
is the only property that can be subjected in payment of the debts.
The individual property of the members is not the property of the
corporation.

[Illustration: UNITED STATES PATENT OFFICE, WASHINGTON. D. C.]

=87.Corporations Distinguished from Partnerships.= A partnership
may be created by mutual consent of the parties desiring to engage
in that joint enterprise. The only limitation is that the enterprise
must be for a lawful purpose. A person may form a partnership for
the transaction of any kind of business which he may transact as an
individual. A corporation, on the other hand, must have permission
from the government to transact business. This permission is called
its _franchise_. Corporations cannot be formed for every purpose. That
is, individuals are permitted to engage in lines of business denied to
corporations. A corporation is an artificial person, regarded in law
as distinct from the individuals composing it. A partnership is not
distinct from the individuals composing it, and the individual members
are personally liable for the debts of the partnership. A corporation
has a continuous existence; it continues to live regardless of death
of some of its members, or regardless of a change of membership.
A partnership ceases to exist upon the death of a member, or by a
change of membership. A corporation's members do not have the right,
as such, to act as agents of the corporation for the purpose of
transacting business. The agents of the corporation are appointed in
a manner prescribed by law, and by the rules of the corporation. In a
partnership, each member is the recognized and authorized agent of the
partnership. Each member may bind the partnership by any contract made
within the scope of the partnership business. For example, if _A_ and
_B_ form a partnership for the purpose of selling real estate, either
_A_ or _B_ by reason of the partnership agreement, is authorized to
sell real estate in the name of the firm. If _A_, _B_, _C_, _D_, and
_E_ are stockholders in the _X_ Co. neither _A_, _B_, _C_, _D_ or _E_
is entitled, by reason of his being a stockholder, to make contracts
for the corporation. A board of directors must be elected by the
stockholders, who in turn elect officers, and appoint agents authorized
to transact the business of the corporation.

=88. Powers of a Corporation.= Corporations are not permitted, as such,
to transact business of every kind. A corporation is an artificial
being created by law. It can exist only for those purposes enumerated
by law. Corporations, as such, have well recognized, or distinguished,
powers or characteristics. The ordinary powers of a corporation are as
follows:

_First_--The power of perpetual succession.

_Second_--The right to sue and be sued, and to receive and grant in
their corporate name.

_Third_--The right to purchase and hold real estate and personal
property.

_Fourth_--The right to have a common seal.

_Fifth_--The right to make by-laws.

It was long ago decided that a franchise given by the government to a
corporation, cannot be revoked or changed by the government, unless
such a reservation is made by the government at the time the franchise
is granted. At present, such reservations are made in granting most
franchises, either by express reservation in the franchise itself, by
general statutory provision, or by constitutional limitations.

=89. Creation of Corporations.= A corporation cannot be organized
merely by agreement of the members. It must obtain permission of the
government, state or national, to operate as a corporation, before it
can lawfully exercise any corporate rights.

Originally, the right to become a corporation was granted by express
permission of the king. The franchise, or right granted, was called the
corporate charter. In this country, charters originally were granted
by special legislative grants. While the United States Constitution
does not expressly provide for the formation of national corporations,
Congress is deemed to have the right to create them for the purpose of
carrying out the express functions of the government, expressly granted
by the United States Constitution. For example, the Constitution
expressly grants the United States Congress the power to coin money and
regulate the value thereof, and to levy and collect taxes. It is given
no express power to organize national banks, but under the provisions
giving it power to make laws to carry into execution all of the powers
expressly granted, it is held to have the power to provide for the
organization of national banks.

Most corporations are organized under state laws. Originally, charters
were granted by special acts of the state legislatures. These charters
were decided to be contracts between the state and the corporation,
which could not be changed or revoked at the desire of the legislature.
At the present time, most states have general permissive statutes,
under which corporations may be organized. These statutes generally
reserve the right to the state, to revoke or change the charter at the
will of the legislature. Many states have constitutional provisions
limiting the power of the legislature to grant irrevocable charters.
The statutes of the different states vary somewhat as to the things
required of persons desiring to organize a corporation, but the primary
requirements are similar. In general, the following are the statutory
requirements of the states for the organization of a corporation.
The persons desiring to organize a corporation, not less than three
(some states require more), a majority of whom are citizens of the
state, must sign a paper, called the _articles of corporation_, which
contains the name of the proposed corporation, the place where it is
to be located, the purpose for which it is to be formed, and the place
where its principal business is to be transacted, the amount of its
capital stock, and the number of shares into which it is to be divided.
The articles of incorporation are sent to a designated state officer,
usually the Secretary of State. Upon the filing of the articles of
incorporation with the proper state officers, the incorporators may
open the books of the company, for stock subscriptions. The time
and place of opening the books is announced, usually by thirty days
advertising in a newspaper. A portion of the stock, usually ten
percent, must be paid at the time the subscription is made. When
the required portion of the authorized capital stock is subscribed,
by advertising notice, the stockholders may meet and elect a board
of directors. The board usually consists of from five to fifteen
directors. The directors are required to take an oath of office. Some
of the governing rules of the corporation, usually called by-laws or
regulations, are enacted by the stockholders. Some regulations may be
enacted by the board of directors. The board of directors may elect
the officers provided for by the regulations, and then proceed to
transact the business of the corporation. Corporations not for profit
may be organized. Such corporations are organized in the same manner
as corporations for profit, except that there is no capital stock,
and the directors are usually called trustees. Church and fraternal
organizations are common examples of corporations not for profit.

=90. Names of Corporations.= A corporation must of necessity have a
name by which it may be designated, and under which it can transact
business. The statutes of the different states generally provide
that the incorporators must designate the name which the corporation
is to use. One corporation is not permitted to use a name already
appropriated by another corporation. A corporation has no right to
use a name other than the one given it by its charter. A corporation
may prevent by injunction another organization from using a name
which interferes with its corporate name. This is subject to the
limitations that a corporation is not permitted to appropriate a name
descriptive of an article or place. For example, a storage company
was incorporated under the name of the "Fireproof Storage Co." An
individual with a fireproof building adopted the trade name "The Allen
Fireproof Storage Co." The former company was not permitted to enjoin
the latter from using the word _Fireproof_, in the name of his company,
since the word, _fireproof_, is descriptive of the kind of building
used in the business, and cannot be appropriated by any one company or
person. The states generally, by statute, provide a means by which a
corporation may change its name.

=91. Kinds of Corporations.= Corporations are usually classified as
public and private. Public corporations include those corporations
organized for the purpose of exercising public functions, and for
carrying out government purposes. An incorporated city or village is a
common example.

A private corporation is one organized for the private benefit of
its members. Private corporations are either corporations for profit
or corporations not for profit. Corporations for profit have a
capital stock, and are organized for the financial benefit of the
members. Ordinary trading or manufacturing corporations are examples.
Corporations not for profit have no capital stock, and are organized
for charitable or social purposes. Clubs, educational institutions, and
churches are common examples.

Corporations organized for private gain, and which serve some public
purpose, are sometimes classified as quasi-public corporations. Express
companies and telegraph and railway companies are common examples of
the class. These companies are strictly private corporations.

=92. When Corporate Existence Commences.= The states generally
provide by statute, for the organization of corporations. At present,
corporations seldom are created by special grant of the legislatures.
Most states, by constitutional provisions, limit the power of the
legislatures to create corporations by special act. Persons desiring to
organize a corporation, must comply with the general laws regulating
their formation. As was pointed out in the section on creation of
corporations, several steps must be taken to complete the organization
of a corporation. The question often arises as to when the legal
existence of a corporation commences. It is quite generally held that
a corporation's legal existence dates from the filing of the articles
of incorporation with the designated state office. After that time
the corporation cannot deny its legal existence. Neither can third
persons dealing with the corporation deny the legal existence of the
corporation. If the corporation fails to fulfil the remaining statutory
provisions relating to the completion of the corporation, the state,
through its officers, may revoke the corporation's right to continue
as a corporation. A corporation does not have the right to transact
business, until its organization is completed. It may have a legal
existence before that time.

=93. Estoppel from Denying Corporate Existence.= An association of
persons pretending, innocently or otherwise, to be a corporation, not
having complied with the legal requirements for creating a corporation,
is not permitted to deny its corporate existence, for the purpose
of avoiding its obligations. Such an association is liable as a
corporation for its obligations, and if there is no corporate property,
the members of the association are liable personally.

On the other hand, persons who deal with an association of persons
which claims either by name, or by express statement, to be a
corporation, cannot evade their liability to the association on the
ground that the corporation has not been legally organized.

As between the corporation and the state, which alone can give it power
to exist as a corporation, no valid corporation exists until all the
legal requirements are complied with. The state, through its proper
officers, may deny corporate right to any association of persons who
have not fully complied with the statutes regulating the creation of
corporations. To create a corporation by estoppel, there must be an
organization assuming to act as a corporation. If _A_ trades in his own
name, a person dealing with him cannot claim that _A_ is a corporation
by estoppel. But if _A_ trades as "The Cook County Lumber Co.," and
enters into a contract with _B_ in the name of The Cook County Lumber
Co., and signs his name as president of the company, he cannot deny
its corporate existence. If _B_ purchases material of The Cook County
Lumber Co., he cannot refuse to pay for it on the ground that The Cook
County Lumber Co., is not a legally incorporated company.

=94. Corporate Charter a Contract.= Originally in this country, the
right to exist as a corporation was granted by special act of the
legislature. It was early decided that this grant by a legislature
could not be revoked or changed by subsequent act of the legislature.
It was regarded as a contract. By reason of the fact that corporate
charters are contracts, giving corporations the right to a continuous
existence under the terms of the original grant, many states now have
constitutional provisions, limiting the right of legislatures to grant
irrevocable charters. Those states having no such constitutional
limitations, have a provision in their statutes authorizing the
creation of corporations, and providing that all corporate charters or
franchises be revocable or changeable at the will of the legislature.
At the present time in most, if not all of the states, a corporation
cannot obtain an irrevocable charter. Their charters are granted with
the reservation, or upon the condition, that the terms may be changed
or revoked at any time.

=95. De Facto Corporations.= In connection with corporations, the terms
_de facto_ and _de jure_ are often used. By _de jure_ corporation is
meant a corporation that has a perfectly legal existence; one that has
complied with all the laws relating to its creation; one that cannot
have its right to exist as a corporation denied by the state under
whose laws it was created, on the ground that it has not complied
with all the laws relating to its creation. By _de facto_ corporation
is meant a corporation that has performed some of the functions of a
corporation without having complied with all the legal requirements
relating to its incorporation. To constitute a corporation _de facto_,
it is usually conceded that there must have been laws under which the
pretended corporation might lawfully have been organized, followed by
some kind of an attempt to organize under these laws, and by a use of
corporate functions. As between the corporation and the state, the
state may stop the corporation from exercising corporate functions. As
between the corporation and third persons dealing with it as such, in
the absence of fraud, corporate existence of a _de facto_ corporation
cannot be denied.

=96. Promoters.= Persons who undertake the organization of corporations
are called _promoters_. The promoter of a corporation need not be
one of the incorporators, but he is the active man who engineers the
enterprise. He is the one who interests capital, who induces persons
to take the required amount of stock, who assembles the parties
desiring or induced to organize the corporation. In short, he is the
one who manages the organizing and starting of the corporation.
Oftimes much work must be done, many contracts made, and liabilities
incurred before a corporation has any legal existence. Just what
connection the promoter has with the corporation, whether he may bind
the future corporation, or make it liable for his acts of necessity,
or by adoption, is often a close question. It must be borne in mind
that before a corporation has a legal existence, it can incur no
obligations as a corporation. Before a corporation's legal existence
commences it can have no authorized agents. If _A_, knowing where
valuable undeveloped stone quarries are located, obtains options on
the lands, interests men of means to promise to take stock in a future
organization, performs all the preliminary work to the creation of a
corporation, organized for the purpose of purchasing and operating
said lands, and incurs debts in connection therewith in the name of
the proposed company, the corporation, when completed, cannot be
compelled to pay such obligations. It did not incur them. It had no
power to incur them since its legal existence did not commence until
a subsequent time. The obligation belongs to the promoter, or to
those persons, if any, who authorized him to incur the debts. If,
however, recurring to the former example, "The Cuyahoga Stone Co.," is
organized by _A_ to develop and operate such stone lands, and after
the organization is completed with full knowledge of the obligations
of _A_, it, as a corporation, agrees to pay said obligations, and
to purchase _A's_ options on the lands for a specified amount, the
obligations now become the obligations of the corporation. The
corporation may be sued thereon, and its property subjected. This is
called the adoption of a promoter's obligation by a corporation.

A corporation is liable on its express, as well as on its implied
contracts, and if it accepts valuable services of a promoter after it
becomes a corporation, it is liable on an implied contract to pay for
the same. Services rendered by a promoter for a future corporation
do not render a corporation liable therefor, unless adopted by
the corporation after its legal existence commences. The states
generally provide by statute, the time when a corporation's existence
commences. These statutes vary somewhat, but in general provide that
the corporation's existence commences when the proper articles of
incorporation are filed with the Secretary of State.

=97. Reorganization of Corporations.= The right to exist as a
corporation is a special privilege which cannot be sold or transferred
to another. Any property acquired by a corporation may be mortgaged,
sold or transferred at the will of the corporation. The right to exist
as a corporation, however, is a special privilege granted by the
state, and cannot be transferred. Any association of persons desiring
to exercise the rights and privileges of a corporation must obtain
such rights from the state. They cannot purchase such a right from an
existing corporation. Many of the states provide by statute for the
organization of a corporation by those persons purchasing the property
of public service corporations at a foreclosure sale. A common example
is in case of a foreclosure of a mortgage on a railway. Statutes of
some states provide that the purchasers of such property at foreclosure
sale may, and shall organize a corporation which shall carry out the
purposes of the original corporation.

Where a corporation is organized and purchases the assets of the former
corporation, the new corporation is not liable for the obligations of
the old. Sometimes the new corporation takes over the assets of the old
corporation, and expressly assumes the obligations of the old. In this
event, the new corporation is liable for its predecessor's debts. If
the new corporation, in purchasing the assets of the old, uses unfair
or fraudulent methods, the transfer will be set aside at the instance
of creditors of the old corporation, or the new corporation will be
deemed liable for the debts of the old corporation. In carrying out
reorganization schemes, a transfer of assets must be fair and _bonâ
fide_, or the sale will either be set aside as fraudulent, or the new
organization will be deemed a continuation of the old, and liable for
its debts.

=98. Consolidation of Corporations.= The right to exist as a
corporation does not carry with it the right to combine or consolidate
with other corporations. Where two or more corporations combine or
consolidate, the resulting corporation is distinct from the combining
corporations. The right to consolidate, like the right to exist as
a corporation, is a special privilege granted by the state. Consent
must be obtained from the state before a valid consolidation can be
made. Most states provide by statute for the consolidation of certain
corporations under certain prescribed conditions. Before a valid
consolidation can be effected, the provisions of these statutes must
be complied with. Some states require the payment of a consolidation
tax. Others require that parallel and competing railroads cannot
consolidate.

Unless the charter of the corporation permits of consolidation without
the consent of all the shareholders, and unless the shareholders have
by valid resolution given the directors the right to consolidate, a
consolidation cannot be made over the objection of any shareholder.
An attempted consolidation under these circumstances may be enjoined
by a dissenting stockholder, or if the consolidation is made over his
objection the resulting consolidated company is liable in damages to
him.

When a consolidation has been legally made, the consolidated company is
liable for the debts, and is entitled to the assets of the component
corporations.

=99. Meetings and Elections of Corporations.= A corporation transacts
its business through a board of managers. The shareholders or members
of the corporation do not transact the business of the corporation
directly, but through the governing board. In case of a corporation
having a capital stock, this governing board is called the board of
directors. In case the corporation has no capital stock, such as a
church or charitable organization, the governing board is called the
board of trustees. The charter, or statute under which corporations
are formed, usually provides for annual meetings for the election of
officers. If the corporation has no fixed place of meeting, notice
must be given each stockholder of the place of such meeting. A
corporation has no power to hold its meetings outside the state of its
organization. It may employ agents to represent the corporation outside
the state of its creation, but it should hold its corporate meetings
within the state. If the time of holding the election of officers is
fixed by statute, or by a regulation or by-laws of the corporation,
the meeting should be held at that time. If for any reason a corporate
election cannot, or is not held at the time designated, the old
directors hold over until the new board is regularly elected.

=100. Voting at Corporate Meetings, Quorum and Proxy.= Each shareholder
or stockholder of a corporation is entitled to vote at the corporate
meeting for the election of officers. Usually the vote is by shares.
Each shareholder is entitled to one vote for each share he holds.
Some states, by statute, limit the right of a single shareholder to
a certain number of votes. When this limitation is fixed, it usually
limits the shareholders to one vote regardless of the number of shares
held. Such a limitation, where found, is for the protection of small
shareholders. Corporations keep books in which are kept the names
of the shareholders. Only the persons whose names appear upon the
corporation's book as shareholders are entitled to vote.

Some states provide by statute for what is known as _cumulative
voting_. Instead of voting the number of shares he owns for each
director, by cumulative voting a stockholder is entitled to vote for
one director the number of shares he owns, multiplied by the number of
directors to be elected. This is sometimes called _ticket voting_. For
example, three directors are to be elected, and a shareholder holds ten
shares. He may have ten votes for each director, or thirty votes for
one director. This is for the protection of the small shareholder.

By _quorum_ is meant the number of votes required to constitute an
election. Sometimes a quorum is based upon a majority of the number
of shareholders present. In the absence of statute or corporate
regulations to the contrary, this rule applies. Statutes of some states
provide that a two thirds majority of the shares of the corporation
shall constitute a quorum.

Most states provide by statute for voting by _proxy_. This entitles one
shareholder to give another written authority to vote his shares at a
corporate meeting. This right does not exist in the absence of statute.
A proxy may be revoked at the will of the shareholder giving it.

=101. Stockholders of a Corporation.= The membership of a corporation
is made up of the stockholders or shareholders. A corporation for
profit is authorized by its charter to have a certain capitalization,
or the capitalization is the total amount of the shares authorized to
be issued. The charter usually requires that a certain percentage of
shares subscribed be paid in before the corporation is authorized to
elect directors. The charter usually provides that at least ten per
cent of the capitalization be subscribed, and at least ten per cent of
the amount subscribed be paid in, before directors can be elected. A
stockholder is liable to the corporation on his subscription and, in
the absence of any additional liability fixed by the charter, is not
liable for the debts of the corporation for any amount in addition.
Formerly some of the states provided by statute for double liability of
stockholders. In case of insolvency of the corporation, stockholders
could be required to contribute an amount equal to their subscription
in addition to paying their subscription in full. Stockholders' double
liability has been abolished by most states. At present a stockholder
can be compelled to pay the full amount of his stock subscription, and
no more.

Stockholders of national banks, corporations organized under United
States laws, are liable for double the amount of their stock. Those
persons are regarded as stockholders who appear as such on the books
of the company. A person may become a stockholder by purchasing stock
from the corporation, or by purchasing it from another stockholder. Any
person legally competent to contract may become a stockholder.

=102. Certificate of Stock.= Written certificates are usually furnished
shareholders, by corporations, as evidence of membership. These
certificates are made transferable, in order that they may be indorsed
by a shareholder, and made payable to a purchaser. When so indorsed,
the purchaser is entitled to have the shares transferred on the books
of the company, showing that he is a shareholder in the company. A
certificate of stock does not of itself constitute ownership. It is
merely evidence of ownership. A person may be a stockholder in a
corporation by making a valid subscription, and by paying for the same,
regardless of having received a certificate of stock. The following is
a common form of stock certificate:

The Consolidated Tack Co.
Cleveland, Ohio.

Incorporated under the laws of the state of Ohio.

No. 99 No. of shares -15-

Capital stock $1,000,000.00

This certifies that John Smith is the owner of fifteen shares of $100
each of the capital stock of The Consolidated Tack Co., transferable
only on the books of the company, in person or by attorney, upon
surrender of this certificate properly indorsed. In witness whereof
said corporation has caused this certificate to be signed by its duly
authorized officers, and to be sealed with the seal of the corporation.

At Cleveland, Ohio, this 1st day of October, A. D. 1909.

Jack Brown, Tom Jenkins,
Treasurer. President.

Corporate
Seal.

Blank for transfer, on back of certificate.

For value received................ hereby sell, assign and transfer
unto____________________ shares of the capital stock represented
by the within certificate, and do hereby irrevocably constitute and
appoint.............. to transfer the said stock on the books of the
within named corporation.

Dated................190..

___________________

In the presence of
______________________

=103. Directors of a Corporation.= The managing officers of a
corporation are called directors. They are the representatives elected
by the stockholders, or members of the corporation, to transact
the business of the corporation. While in the absence of statutory
regulations a director need not be a stockholder, practically all
states require directors to be stockholders.

Directors are authorized to act as agents for the corporation in the
management of the corporation's business. Their authority is limited
not only by the charter of the corporation, but by the regulations,
and by-laws of the corporation as well. The directors of a corporation
are not authorized by virtue of their office to dispose of the entire
assets of the corporation, neither can they transfer their right to
act as directors to others. They have the right to purchase property,
to sell and mortgage assets of the corporation within the limits
prescribed by the charter, regulations and by-laws of the corporation.

The directors of a corporation must act as a board. They are not
permitted to act by proxy. The majority of the entire number of
directors constitutes a quorum for the purpose of doing business.
They may employ agents to make and carry out contracts, and perform
ministerial acts of the corporation, but cannot delegate their
discretionary powers as directors. Unless provided otherwise by
statute, directors must hold their meetings within the state under
whose laws the corporation is created. Notice of the meeting giving
the place, time and purpose must be given to all the directors before
a valid meeting can be held. Directors, like agents, cannot act for
their own private interests if opposed to those of their corporation.
Directors who privately profit to the disadvantage of the corporation
are liable in damages for such acts to the corporation. It is
generally conceded that a director may contract with his corporation,
if no fraud is used, and if a quorum of directors without him consents.
Directors are liable to the corporation for their dishonesty or
negligence.

=104. By-Laws, Rules and Regulations of a Corporation.= The by-laws of
a corporation are the rules and regulations by which the corporation is
governed. Sometimes a distinction is drawn between the term _by-law_,
and the term _regulation_. For example, the statutes of some states
provide that the stockholders may pass regulations for the government
of the corporation relating to the time, place and manner of holding
corporate meetings, the number of stockholders that shall constitute
a quorum, the time and manner of electing directors, the duties and
compensation of officers, and the qualification of officers; while the
directors have the power to pass by-laws relating to the government of
the corporation, not inconsistent with the charter of the corporation
and the regulations. This distinction between regulations and by-laws
does not seem to be generally recognized. The entire government of
the corporation is generally included in the term by-laws. If the
charter does not provide otherwise, the by-laws shall be passed by the
stockholders rather than by the board of directors.

A resolution is not a by-law. By resolution is meant the recorded
and legally passed determination of a corporation to perform some
particular thing or item of business. A vote of a board of directors to
make certain bids on certain contracts is an example of a resolution.
By-laws must not be contrary to the corporation's charter, or to
general law. They are not presumed to be known by third persons, but if
third persons dealing with a corporation have actual knowledge of them,
they are bound by notice of their provisions.

=105. Capital Stock of Corporations.= The capitalization of a
corporation is the aggregate amount of stock it is authorized by its
charter to issue. If a corporation is authorized to issue one hundred
thousand dollars ($100,000.00) of stock, it is said to be capitalized
at one hundred thousand dollars ($100,000.00). This does not mean
that the corporation has property worth one hundred thousand dollars
($100,000.00). A corporation is usually authorized to elect directors
after one tenth of its stock has been subscribed, and after one tenth
of the amount subscribed is paid in. Thus, a corporation capitalized
at one hundred thousand dollars ($100,000.00), may elect directors and
start business with only one thousand dollars ($1,000.00) actually paid
in. The term, capital stock of a corporation, is used in many different
ways. It is commonly used to designate the capitalization. Sometimes
it is used to designate the amount actually subscribed. Strictly,
it probably means the money actually paid in on subscriptions. A
corporation's assets may be far in excess of its capitalization, or
far below its capitalization. It may have property worth five hundred
thousand dollars ($500,000.00) and be capitalized at one hundred
thousand dollars ($100,000.00) more or less, or it may be capitalized
at one hundred thousand dollars ($100,000.00) and have no assets.

=106. Payment of Shares of Stock.= It may be stated as a general rule
that a corporation has no authority to dispose of its stock for less
than par value. If a corporation is solvent, ordinarily no objection
is raised, but if the corporation becomes insolvent, creditors may
complain, and force, by proper legal action, the shareholders to pay
the difference between the face value of their stock and the amount
actually paid.

In the absence of a statute requiring stock subscriptions to be paid
in cash, there is nothing to prevent a corporation from accepting
property at a fair valuation in payment of stock. The rule is usually
stated to be, that shares of stock must be paid for in money or in
_money's worth_. Shares of stock may be paid for in _bonâ fide_
services. The rule by which purchasers of stock are compelled to pay
the full par value either in money or money's worth applies only to
those who purchase direct from the company, or who purchase from
stockholders with notice that the shares have not been fully paid for.
If the certificates of stock state that they are fully paid for and
the purchaser has no notice otherwise, or if the purchaser does not
know that the stock has not been paid for in full, he cannot be made to
suffer for the act of the corporation in unlawfully issuing the stock.

=107. Calls and Assessments.= An _assessment_ may be defined to be
a levy by a corporation upon a shareholder for an unpaid portion of
his stock subscription; a _call_ is a notice to a shareholder of
an assessment. Ordinarily, assessments may be made by call, at the
direction of the directors, until the entire par value of subscriptions
are paid in full. Stock cannot be assessed beyond its par value,
unless so provided for by the corporate charter, or unless the
subscriber so contracts.

=108. Watered Stock.= In case property or services are accepted in
payment for stock at an inflated valuation, or if stock is issued as
fully paid up when it is not, the stock is said to be _watered_. For
example, if _A_, a promoter of a corporation, turns over options to the
company, actually worth one thousand dollars ($1,000.00), and receives
stock in payment, the par value of which is five thousand dollars
($5,000.00), the stock is said to be watered, and the four thousand
dollars ($4,000.00) excess valuation is said to represent the amount of
water in the stock.

=109. Increasing or Decreasing Capitalization.= A corporation has
no power, by reason of being a corporation, to increase or decrease
its capitalization. The states generally provide by statute for the
increasing or decreasing of the capitalization. The corporation must
comply with these statutes, before its capitalization can be changed.
In case the capitalization is increased, the purchasers of such stock
are subjected to pay the full face value at the instance of creditors,
the same as purchasers of an original issue. That is, if a corporation
is unable to pay its debts, one who has purchased direct from the
company, shares of stock upon an increased capitalization, at a price
below par, may be compelled by creditors to pay the difference between
what he has actually paid and the par value. In case of an increase of
capitalization, the present stockholders, in the absence of express
statutory regulations to the contrary, are entitled to receive the
increased shares in proportion to their holdings. This is usually
called a _stock dividend_.

=110. Common and Preferred Stock.= Stock of a corporation may be of
two kinds, common and preferred. When stock is issued by a corporation
without any agreement to pay certain dividends out of the profits,
or to repay the original stock investments if the corporation ceases
doing business, in preference to other stock, it is called _common_
stock. Corporations are sometimes authorized by their charters to issue
what is called _preferred_ stock. That is, the corporation pledges to
pay a certain percent of its profits, as dividends to the preferred
stockholders, before paying anything to common stockholders. If the
corporation ceases doing business, preferred stockholders are first
paid the amount of their subscriptions, and if any balance remains, it
is paid to common stockholders. In the absence of statutory authority,
probably an existing corporation has the right to issue preferred
stock by the unanimous consent of all the common stockholders. This is
commonly done for the purpose of raising additional funds.

=111. Dividends.= _Dividends_ is the term applied to the money
distributed to shareholders, out of the profits of a corporation. The
directors are usually empowered to declare dividends. A stockholder
cannot compel the corporation to pay him a percentage of the profits
until a dividend has been declared. After a dividend has been
declared, it is regarded as a debt of the corporation in favor of the
shareholder. When a dividend has been declared at the discretion of
the board of directors, the preferred stockholders must first be paid
the amount of their preference, and the balance must be distributed
equally between the common stockholders. No partiality can be shown
stockholders. They must be treated alike. Dividends can be declared
only out of the profits, except when a corporation ceases doing
business, in which event the property of the corporation, after paying
liabilities, is distributed as dividends.

=112. Certificates of Stock not Negotiable Instruments.= A certificate
of stock is merely evidence that the holder is a member of the
corporation. A person may be a member of a corporation, and be entitled
to the rights of a stockholder, without having a certificate of stock.
Certificates are convenient as evidence of membership. Transfers
of stock are usually made by filling in a blank on the back of the
certificate for that purpose, by which the owner declares the transfer
to the purchaser, and designates the purchaser, or someone, his
attorney to present the certificate to the corporation, to have the
transfer registered on the books of the company. It is the usual custom
to surrender certificates to the purchaser. A corporation has a right
to rely upon its books, and if a person wrongfully or fraudulently
attempts to transfer a certificate of stock which he does not own, or
has no right to transfer, the purchaser takes no better title than
the seller had. In this particular, certificates of stock are not
negotiable instruments. Negotiable instruments are good for value in
the hands of innocent purchasers, who purchase before the instrument is
due. As between the parties themselves, a transfer of a certificate of
stock is good, but as to the corporation or creditors of the seller,
the transfer is not effectual until recorded on the books of the
corporation.

[Illustration: A CORNER IN THE SALES DEPARTMENT OF THE MICHIGAN STOVE
COMPANY, DETROIT, MICH.]

=113. Individual Liability of Stockholders for Debts of a Corporation.=
A corporation is an artificial person having an existence in law,
separate and apart from that of its members. Its profits cannot be
divided until the managing agents of the corporation so decree. Its
property does not belong to the members, but to the corporation itself.
At one time some states provided by statute for double liability of
stockholders. In case a corporation was unable to pay its debts,
creditors could compel stockholders to pay to the corporation an amount
equal to the par value of their stock, after paying the full face or
par value of their stock. Statutes providing for double liability have
quite generally been abrogated. At the present time, except in the case
of national banks, corporations organized under United States law,
few states provide for double liability of stockholders. If _A_ has
subscribed for ten shares of stock, the par value of each share being
one hundred dollars ($100.00), and pays one-half the amount of his
subscription to the company, in case of insolvency of the corporation,
creditors can force _A_ to pay the balance of his stock subscription,
or five hundred dollars ($500.00). Even though not insolvent, the
corporation can collect the balance of five hundred dollars ($500.00)
from _A_ by call and assessment, and can enforce collection by suit.
_A's_ subscription is a contract between himself, and the corporation.
Unlike partners, stockholders are not personally responsible for
the debts of the corporation of which they are members. In dealing
with partnerships, a person may rely upon the personal financial
worth of the individual members of the partnership. The property
of the individual members may be subjected to pay the debts of the
partnership. But in case of a party dealing with a corporation, he
cannot rely upon the personal worth or responsibility of the members
of the corporation, since the members individually are not liable for
the corporation's debts. The corporation is separate and distinct from
its members, and when the assets of the corporation are exhausted, the
property of the individual members is not liable.

=114. Officers and Agents of a Corporation.= A corporation is an
artificial person which must necessarily conduct its affairs through
agents. The managing board of a corporation having a capital stock
is usually called the board of directors. The managing board of a
corporation having no capital stock is usually called the board of
trustees. These managing boards are elected by the members of the
corporation. In case the corporation is one organized for profit, the
members are called stockholders or shareholders. The directors or
managing board, of a corporation may delegate the performance of what
are called ministerial duties. They may appoint officers and agents to
assist them in the performance of their duties of a certain character.
The officers of a corporation elected by the directors usually consist
of a _president_, _vice-president_, _secretary_ and _treasurer_. If a
corporation's business transactions are limited, practically the only
duty of the president is to preside at the meeting of the board of
directors. If the affairs of the corporation are many and complicated,
the president is usually intrusted with many duties. The board of
directors meets at stated times, authorizes and passes on certain
important matters, but the duty of carrying them into execution, and of
performing the routine work, falls on the president. In a corporation
of large affairs, the president may pay current bills, make purchases,
give notes, if necessary, make sales and give and take mortgages on
property. He is often given authority to act as general manager for the
corporation. In this event, he may perform all the duties connected
with the general operation of the business. The vice-president has
authority to perform the duties of the president during his absence or
disability. It is the duty of the secretary to keep the records of the
corporation. It is the duty of the treasurer to take care of the funds
of the corporation. The officers of a corporation are liable to the
corporation for breach of trust. They are personally liable to third
persons when they exceed their authority. A corporation, through its
properly appointed officers, as well as through its board of directors,
may appoint subordinate agents to perform work for the corporation. The
corporation is responsible for the acts of its agent, performed within
the real or apparent scope of the agent's authority.

=115. Execution of Contracts and Negotiable Instruments by a
Corporation.= A corporation can act only through its agents. The
agents authorized to act for a corporation are the board of directors,
the officers appointed by the board, or the officers. A corporation,
as one of its powers, has _the right to use_ a common seal. While a
corporation _commonly uses_ its seal in signing written instruments
of importance, for the purpose of showing authority of its agents to
enter into such contracts, a corporation need not use its seal except
in those cases when it is necessary that a natural person use a seal.
A corporation usually authorizes its officers to make contracts. A
president and secretary, acting together, have the right to make
contracts for their corporation, by reason of the general authority
conferred upon them by the board of directors. The proper signature of
a corporation to a written document is the name of the corporation,
followed by the signature of the president as its president, and by the
signature of the secretary as its secretary. For example, if the India
Rubber Company is to sign a contract, the proper signature is:

The India Rubber Co.,
By John Smith, its President.
By John Jones, its Secretary.

When the signature must be acknowledged before an officer authorized to
administer oaths, before it will be received for record, as in the case
of a deed, the officer authorized to sign the name of the corporation
to the deed may make the acknowledgment.

Negotiable instruments, such as promissory notes, drafts and checks,
should be signed with the corporate name by the proper officer, as its
officer. It is held, however, that by custom, a cashier of a bank may
make and indorse negotiable paper in his own name, merely adding the
designation _cashier_ to his signature, and by this means make the
paper that of the corporation, and not incur any personal liability
therefor. This is an exception to the general rule. Where a person
signs as agent, he should sign the name of his principal, by himself,
as agent. If he signs his own name, followed by the word, _agent_,
or _president_, or whatever his office may be, he binds himself
personally, and not his principal.

=116. Ultra Vires Acts.= A corporation by its charter is granted
certain privileges. It has a right to act within the terms of its
charter, but no right to go beyond the terms of its charter. If it
performs acts beyond the terms of its charter these acts are said to
be _ultra vires_. This does not mean that all the acts which may be
performed by a corporation must expressly be enumerated in its charter.
Corporations are created for certain purposes. They are permitted to
perform all the acts necessary, and incidental to the purpose of their
organization. The general laws under which a corporation is created
are a part of its charter. A corporation organized to do a general
banking business has no authority to sign bonds as surety for persons
or corporations. Attempts to perform such acts of suretyship are beyond
their power, and are _ultra vires_. _Ultra vires_ acts are unlawful,
and a single stockholder may prevent, by legal action, the officers
of a corporation from completing an _ultra vires_ contract. Third
persons are deemed to have notice of the limitation of the powers of
a corporation. They are not permitted to act in such a manner as to
benefit by _ultra vires_ acts, and then escape liability on the ground
that the obligation is _ultra vires_. If an _ultra vires_ contract is
wholly executory on both sides, neither party can enforce it, if the
other party complains by reason thereof. But one cannot accept benefits
thereunder, and refuse to carry out the contract on his part. He is
said to be estopped from so doing. The doctrine laid down by the last
statement is disputed in some jurisdictions.

=117. Rights and Liabilities of a Foreign Corporation.= Corporations
have no rights, as such, outside of the jurisdiction of the power
creating them. A corporation organized under the laws of one state
may be excluded from performing any of its corporate functions in
another state. States may permit foreign corporations to exercise their
function within their borders, if they so desire. But states cannot be
compelled to recognize the corporate rights of foreign corporations.
While the United States constitution provides that citizens of each
state shall be entitled to all the privileges and immunities of
citizens of the several states, a corporation is not a citizen within
the meaning of this provision. The United States Government may employ
or organize corporations to carry out its purposes. Such corporations
cannot be denied the right to exercise their functions by any state.
For example, the United States Constitution gives Congress the right to
regulate commerce with foreign nations, among the several states, and
with the Indian tribes. A corporation engaged in interstate commerce
cannot be excluded by any state, in the exercise of this function.
Outside these governmental agencies, each state has the right to
exclude a foreign corporation from exercising any of its corporate
functions within their jurisdictions. The states generally provide by
statute that foreign corporations may transact business within their
territory by filing with the Secretary of State a statement of their
capitalization, the amount actually paid in, the nature of their
business, and the names of their officers. Then, by paying a certain
tax, they are permitted to maintain an office and transact business
within the state thus granting them the privilege. The statutes of
the various states regulating foreign corporations commonly use the
term, "doing business." They prohibit foreign corporations from doing
business within their borders unless they comply with their statutes.
The term, "doing business," has been held to mean the maintaining an
office or place of business, or manufacturing plant within a state, and
does not prohibit a foreign corporation from selling goods by traveling
salesmen, or from making or suing on contracts.

=118. Liability of a Corporation for its Torts and Crimes.= A
corporation, as well as an individual, may commit torts and crimes. If
an agent, acting within the scope of his employment, defrauds another,
the corporation is liable in damages for his act. If, however, an
officer or agent goes outside his employment, and commits a wrong, it
is his own act, and he, personally, and not the corporation, is liable.
A corporation, as well as an individual, may commit a crime for which
it may be punished. It must, of course, commit the crime through its
officers and agents. If a corporation is guilty of criminal negligence
in failing to keep its works in repair, and persons are injured
thereby, it is subject to indictment and punishment. If a corporation
obstructs navigation or breaks the Sabbath, it is subject to criminal
action. The usual punishment for the crime of a corporation is the
payment of a fine, but the officers of a corporation may be imprisoned
as well.

=119. Dissolution of Corporations.= A corporation continues to exist
indefinitely, unless the period of its existence is limited by its
charter, unless its charter is revoked by the power that granted it,
or unless it voluntarily or by a decree of court ceases business. A
corporation may forfeit its right to continue as a corporation, if it
abuses its privileges, if it assumes to have powers and rights which
it does not have, or if it fails to exercise its corporate functions.
The latter is called _nonruser_. Most states provide by statute that
corporations shall not commence business until a certain portion of its
capital has been raised. If the corporation violates this provision
or any provision of the statutes regulating the completion of its
organization, its franchise may be revoked by the state. Most states
provide by statute, a means by which a corporation may wind up its
affairs. After paying its liabilities the balance of its assets may be
divided ratably among its stockholders.

NEGOTIABLE INSTRUMENTS

=120. In General.= By negotiable instruments are meant those written
instruments intended to circulate as money, which by their form and
nature are transferred by delivery or by indorsement and delivery. The
most common negotiable instruments are promissory notes, drafts and
checks. Negotiable instruments are much more commonly and extensively
used than money in the transaction of business. Their function is
to take the place of money. Their use arose out of the scarcity of
currency and facilitates the transaction of business. Their form and
nature make them more desirable and practical in many respects than
money itself. Negotiable instruments may readily be traced. They
may be drawn in any denomination to meet any emergency. They may be
indorsed in such a manner that only the person intended by the maker
to receive payment can receive payment thereon. Money, on the other
hand, has no particular identity. After payment it cannot be traced,
nor can mistakes in amount be corrected. If lost, payment thereon
cannot be stopped. If found or stolen, its possessor may receive the
benefit of it without question. Negotiable instruments were devised
to meet a broad and pressing demand. Usage and custom have given them
characteristics to meet this demand.

=121. Negotiability.= Negotiability is the power of a written
instrument to circulate as money. To be negotiable, an instrument must
contain language of negotiability. The common phrases of negotiability
are _Pay to the order of_, or _Pay to bearer_. Any draft, promissory
note, check, or bill of exchange containing the words, _pay to the
order of_, or _pay to bearer_ are known as negotiable instruments. If
a negotiable instrument is made payable to bearer, it is transferable
by delivery. The holder of it may pass it like money and the taker
is entitled to receive payment of it when it is due. A negotiable
instrument payable to the order of a designated person is payable upon
the indorsement and delivery of the person to whose order it is made
payable. For example, if a check is made payable to the order of John
Smith, and John Smith desires to transfer it to John Jones, he writes
his name, John Smith, on the back of the check, and delivers the check
to John Jones. By this act, John Jones becomes the owner of the check,
and may in turn transfer it, or cash it by presenting it to the bank on
which it is drawn. If a check is made payable to John Smith or bearer,
and if John Smith desires to transfer it to John Jones, he merely hands
John Jones the check. No indorsement is necessary.

=122. Negotiability Distinguished from Assignability.= An ordinary
contract or obligation not requiring personal services or discretion
may be transferred by oral or written contract of assignment. For
example, if _B_ purchases a barrel of flour from _A_, his grocer, to
be paid for in thirty days, _A_ may assign his claim against _B_ to
_C_. This may be accomplished by a verbal agreement to that effect
between _A_ and _C_, or _A_ may give _C_ a written statement to the
effect that he has transferred his claim against _B_ to _C_. When _B_
is notified of this assignment, he is obliged to pay _C_ the money.
If for any reason the flour was not accepted by _B_, or if _B_ has a
claim against _A_, _C_ can recover from _B_ only the amount _B_ owes
_A_. If _B_ owes _A_ nothing, on account of the flour being of poor
quality, and not accepted for that reason, or if _B_ has a claim for
an equal amount against _A_, _B_ can set up this defense against _C's_
claim, and _C_ can recover from _B_ only the amount that _A_ could
have recovered against _B_. In other words, in case of an assignment,
all defenses that were good against the assignor are good against the
assignee. In case of negotiable instruments, however, the transferee
who takes the instrument before maturity for value, and without notice
of any defenses, has the right to recover the full face value from the
maker, regardless of defenses the maker may have against the original
payee. In case of assignment, notice must be given the debtor to make
the title good in the purchaser. In case of negotiability, no notice to
the debtor is necessary.

A negotiable instrument may be assigned. A common example is the
delivery for value, of an instrument payable to order without
indorsement. The purchaser takes only the rights of a seller.

=123. Law Merchant.= The law relating to negotiable instruments is said
to be based upon the _Law Merchant_. By the Law Merchant, is meant the
rules and customs of merchants relating to bills and notes. At an early
time, various rules were recognized by the merchants trading between
different countries. Drafts or bills of exchange were given and passed
current as money, without notice to the debtor of the transfer. As
early as the year 1200, these customs of merchants were recognized in
England. At first, they were recognized only in connection with foreign
bills of exchange. By foreign bills of exchange are meant bills made
or drawn by persons of one country to be paid or accepted by persons
of another state or country. Originally, the rules were recognized by
merchants only. The courts of England recognized and enforced these
rules in actions brought on foreign bills of exchange. Gradually, these
rules were recognized and enforced by all the merchants of England.
They were applied to inland bills as well as to foreign. Some statutes
were passed, notably one making the rules of the Law Merchant apply to
promissory notes. This statute compelled the general recognition of
the Law Merchant. Gradually these rules were applied to all negotiable
instruments by whomever used. The customs which started between
merchants of foreign countries were held applicable to all persons,
and became the recognized law relating to negotiable instruments.
This country adopted these rules, together with the greater part of
the common law of England. At the present time, most of the states
have negotiable instrument codes. These codes, for the most part, are
statutory enactments of the well recognized rules of common law.

The advantage of the codes, however, is to settle disputed points by
express statutory enactment. The code must be interpreted by the well
settled and recognized principles of the common law. The difference
between the contract formed by negotiable instruments and ordinary
contracts is based upon the Law Merchant. These customs are as well
recognized, and are as much a part of the law as they were when
originally used by the merchants of the old world six or seven hundred
years ago.

=124. Promissory Notes.= One of the most common forms of negotiable
instruments is that of the promissory note. A common form of promissory
note is shown in Fig. 1.

A promissory note is not necessarily a negotiable instrument. It
depends upon whether it contains words of negotiability. If the
note contains the words, _or order_, or, _or bearer_, or words of
similar import, it is a negotiable instrument Otherwise it is not. To
constitute an instrument a promissory note, it must contain certain
elements. It must be signed by the party making or giving it, but it
is not necessary that the signature be in any particular place. Any
mark or designation intended as a signature, or by which the maker
can be identified, regardless of its position on the paper, is a
sufficient signature. The proper and usual method of signing negotiable
instruments is at the end thereof.

[Illustration: Fig. 1. Promissory Note.]

A promissory note must contain an unconditional promise to pay a
definite sum of money, at a certain time. If the promise to pay
is conditional, the instrument does not constitute a negotiable
instrument. The following instrument was sued upon:

Stratham, March, 28, 1846.

Due to order of Sophia Gordon, widow, ten thousand dollars to be paid
as wanted for her support. If no part is wanted it is not to be paid.

Stephen Scanmore.

Since this was not an unconditional promise to pay, the court held it
not to be a promissory note.

The time of payment of a promissory note must be certain, the amount
to be paid must be specified, and the instrument must be payable in
money. If the instrument is to be paid in anything other than money,
it is not a negotiable instrument. An instrument must be delivered,
before it has a legal existence as a promissory note. The essentials of
a promissory note are also essentials of any negotiable instrument. A
promissory note need not be dated, nor need it state that it is given
for a consideration. By its nature it imports a consideration. The
party signing the note is called the _maker_, the party to whom it
is made payable is called the _payee_. If the payee transfers it by
indorsement, he is called the _indorser_, and the person to whom he
transfers it is called the _indorsee_.

[Illustration: Fig. 2. Sight Draft.]

=125. Drafts and Bills of Exchange.= The term, draft, is commonly used
to designate an order from one bank or banks on another, as well as
orders on third persons. Orders drawn by one person on another, payable
to a third person, are known technically as bills of exchange. At
present, the terms, _draft_, and _bills of exchange_ are generally used
interchangeably. A draft or a bill of exchange is a written order drawn
by one person on another, payable to a third person, to the order of a
third person, to the drawer himself or his order, or to bearer.

[Illustration: Fig. 3. Sixty-Day Draft, Accepted.]

A common form of draft is shown in Fig. 2.

Bills of exchange or drafts are frequently made payable at a time
considerably in the future. Fig. 3 is a form of sixty-day draft. This
draft is presented to the drawee, J. H. Gotrochs, and if he accepts, he
writes, _accepted_, followed by his name, across the draft. His name
written on a draft is sufficient acceptance.

The party drawing a bill of exchange is called the _drawer_, the party
to whom it is made payable is called, the _drawee_ before acceptance,
and the _acceptor_ after acceptance. The drawee may accept by signing
the instrument, by stating his acceptance on a separate piece of paper,
by oral acceptance, or even by conduct making apparent his intention to
accept. After acceptance of a draft or bill of exchange, the acceptor
is liable to pay the bill according to its terms. He is in the position
of a maker of a promissory note.

[Illustration: Fig. 4. Certified Check.]

=126. Checks.= A check is an order drawn on a bank or banker. It
differs in some respects from an ordinary bill of exchange. It does not
have to be presented for acceptance. It is presented for payment. It
presupposes funds of the drawer in the hands of the bank or banker on
which it is drawn. It is payable at any time after the date fixed for
maturity. It need not be presented at maturity. The maker may recover
damages for failure to present promptly if he is damaged thereby. For
example, if _A_ gives _B_ his check on the _X_ bank, and between the
date for payment of the check and the time of presentment for payment
by _B_, the bank fails, _A_ may recover as damages from _B_, the amount
of his loss by reason of _B's_ failure to present the check promptly.
No days of grace are allowed in the payment of checks. In this
particular, they differ from ordinary bills of exchange.

=127. Certification of Checks.= By certification of a check is meant a
written acknowledgment on checks by an officer or authorized agent of
the bank that the check will be paid when presented. In Fig. 4 is shown
a common form of certification.

The words _accepted_ or _certified_, written on a check by an
authorized officer or agent of a bank constitute a certification. If
the _holder_ of a check has it certified he elects to hold the bank,
and thereby releases the maker and prior indorsers. If the _maker_
procures the certification he is still liable thereon. When a check
is certified, the bank charges it to the account of the maker, and it
then becomes a debt of the bank, regardless of whether or not the maker
has funds in the bank with which to meet it. This is the reason that
a maker and prior indorsers of a check are released from liability
thereon when a holder has it certified. By this act, the holder elects
to rely upon the bank, rather than upon maker or indorsers.

=128. Bonds.= Bonds may be defined to be the promissory notes of
corporations, private or governmental. They are made under the seal
of the corporation issuing them. At common law, a seal destroyed the
negotiability of an instrument. At the present time this is not true
of bonds. Private corporations often secure their bonds by a mortgage
on their entire property. This is accomplished by means of a mortgage
called a _trust deed_. The mortgage is given to a trust company, or an
individual, to be held for the common benefit of all the bond holders.
It is not practicable to give each bond holder a mortgage. This would
be inconvenient, and some bond holders could obtain preference over
others. But one trust deed, covering all the assets held by a trustee
for the benefit of all the bond holders, accomplishes the purpose.

Registered bonds are registered on the books of the corporation issuing
them, and in case of transfer the transfer is noted on the books of
the company. Other bonds contain coupons, or small promissory notes
for certain amounts representing the installments of interest payable
at certain times. These coupons may be cut from the bond and sold as
promissory notes, or they may be cut at maturity and returned for
payment.

+---------------------------------------------------------------------+
| |
| No. 1. $1000.00 |
| |
| United States of America, |
| State of Ohio. |
| |
| Village of X, Ohio, Improvement Bonds. |
| |
| Know all men by these presents that the village of X, in the |
| county of Cuyahoga and state of Ohio, acknowledges itself to owe, |
| and for value received hereby promises to pay to bearer, the sum |
| of $1000.00 in lawful money of the United States of America, on |
| the second day of January, 1920, together with interest thereon |
| at the rate of 5% per annum payable semi-annually on the second |
| day of July, and second day of January of each year, as evidenced |
| by the coupons hereto attached, until the principal sum is paid. |
| Both principal and interest are payable at the City Trust Co., |
| Cleveland, Ohio, on the presentation and surrender of this bond, |
| and the coupons hereto attached as they respectively mature. |
| |
| This bond is issued for the purpose of improving a street of the |
| village of X, from the C. B. Railway to Rocky River by constructing |
| and laying water mains with all necessary connections thereon, |
| under and by authority of Sections 1536-281, and Sec. 2835 of |
| the revised statutes of Ohio, and under and in accordance with |
| resolutions of the council of the village of X, Ohio, adopted Nov. |
| 4, 1908, and Dec. 2, 1908. |
| |
| It is hereby certified that all proceedings relating to this |
| bond have been in strict compliance with said laws, statutes and |
| resolutions, and all other statutes and laws relating thereto, and |
| that the faith, credit, and revenues, and all real and personal |
| property in the village of X, Ohio are hereby pledged for the |
| payment of principal and interest hereof at maturity. |
| |
| This bond is one of a series of bonds of like date and effect, but |
| of different amounts and maturities amounting in the aggregate to |
| $3700.00. |
| |
| In witness whereof, the village of X has caused this bond to be |
| signed by the mayor and clerk of said village, and the corporate |
| seal of said village to be hereunto affixed, and the facsimile |
| signature of the mayor and clerk of said village to be affixed to |
| the attached coupon this second day of January, 1909. |
| |
| D. B. X._______________________ |
| Mayor. |
| |
| [SEAL.] |
| |
| X. Y. Z._______________________ |
| Clerk. |
| |
+---------------------------------------------------------------------+

Form of Municipal Coupon Bond.

+------------------------------------------------------------------+
| |
| On the second day of July, On the second day of January, |
| 1909,the village of X promises 1910, the village of X promises |
| to paythe bearer at the City to pay the bearer at the City |
| Trust Co.,Cleveland, Ohio, Trust Co., Cleveland, Ohio, |
| twenty-fivedollars, being 6 twenty-five dollars, being 6 |
| months' intereston its bond. months' interest on its bond. |
| |
| No. 1 dated Jan. 2, 1909. No. 2 dated Jan. 2, 1909. |
| D. B. X.___________________ D. B. X.___________________ |
| Mayor. Mayor. |
| |
| X. Y. Z.___________________ X. Y. Z.___________________ |
| Clerk. Clerk. |
| |
| On the second day of July, On the second day of January, |
| 1909,the village of X promises 1910, the village of X promises |
| to paythe bearer at the City to pay the bearer at the City |
| Trust Co.,Cleveland, Ohio, Trust Co., Cleveland, Ohio, |
| twenty-fivedollars, being 6 twenty-five dollars, being 6 |
| months' intereston its bond. months' interest on its bond. |
| |
| No. 1 dated Jan. 2, 1909. No. 2 dated Jan. 2, 1909. |
| D. B. X.___________________ D. B. X.___________________ |
| Mayor. Mayor. |
| |
| X. Y. Z.___________________ X. Y. Z.___________________ |
| Clerk. Clerk. |
| |
+------------------------------------------------------------------+

Interest Coupons Attached to Municipal Bond.

Similar coupons follow for payment at intervals of 6 months until
maturity of bond in 1920.

=129. Collateral and Judgment Notes.= Banks frequently require
borrowers to sign collateral notes. These instruments are promissory
notes, with an added agreement to the effect that certain collateral
security is given the payee by the maker as security for the note. Such
security is usually certificates of stock, bonds, other promissory
notes, or chattel property. The collateral note contains a stipulation
that upon default, the payee may sell the collateral. The following is
a common form of collateral note used by banks:

$5,000.00 Cleveland, Ohio, Dec. 26, 1908.

Six months after date, I promise to pay to the order of the Fictitious
Bank at its banking rooms in Cleveland, Ohio, the sum of Five thousand
dollars for value received, with interest at the rate of 6% per
annum. I have deposited with said bank as collateral security for the
payment of this note the following property; 20 shares of stock of the
Columbia Sewing Machine Co., par value $100.00 each, 2 diamond rings,
1 warehouse receipt of the City Storage Co., covering household
furniture valued at $3,000.00. The value of this property is now
$5,600.00. It is agreed that the payee, or his assigns, may have the
right to call for additional security at any time it considers this
collateral security insufficient, and on failure of the maker of this
note to furnish additional security to satisfy the holder of this
note, the note may be deemed payable at once at the holder's option.
The holder shall also have power to accept substitutes for this
collateral. Should the maker violate any of the conditions of this
note, or fail to pay it when due, the holder shall have the power to
sell the collateral or any substitute given therefore, at private or
public sale, at any time without notice to anyone, and after deducting
all legal expenses connected with the sale, and after paying the note,
shall return the balance to the maker.

(Signed)
John Smith.

A judgment note contains a provision that upon default of payment,
any attorney at law may appear in court and take judgment thereon by
presenting the note, without observing the formalities of an ordinary
suit at law. This kind of a note is also called a _cognovit_ note. The
following is a common form of judgment note:

$100.00 Boston, Dec. 8, 1909.
One year after date, I promise to pay to the order of John Jones the
sum of one hundred dollars with interest at 6%, and I hereby authorize
any attorney at law in the United States to appear before any Justice
of the Peace, or in any court of record, after this note is due, and
waive the service of summons, and confess judgment against me in favor
of the holder of this note for the amount which shall then be due and
unpaid thereon, together with interest and costs.

(Signed)
Thos. Thomas.

=130. Certificates of Deposit.= It is customary for banks to issue
customer's receipts showing that a deposit of a certain amount has been
made by the customer, which will be held for payment of the receipt
upon presentation. These receipts ordinarily are made payable to the
customer's order, and circulate like money. They are, in effect, the
promissory notes of the bank issuing them. They differ from promissory
notes in that banks require a special deposit of its customers before
issuing them. Banks issuing such receipts are supposed to hold these
deposits as a special fund with which to pay the certificate when
presented. The following is a common form of certificate of deposit:

--THE PEOPLES BANK OF CHICAGO--

We hereby certify that John Jones has deposited $1,000.00 in this
bank, for which this certificate is issued, and which will be paid to
the order of John Jones in current funds of this bank when presented.

The Peoples Bank of Chicago,
June 23, 1909. By A. Z. Marshall, Cashier.

The payee of this certificate of deposit may indorse and transfer it.
The holder may collect the amount by presenting the certificate to the
bank.

=131. Requisites of Negotiable Instruments.= Certain elements are
recognized, by long usage, as being necessary to constitute an
instrument a valid negotiable instrument. The instrument must contain
words of negotiability, such as _or bearer_, _or order_, or words of
similar meaning. The instrument must contain a specific promise to
pay a certain sum of money at a definite time. The instrument must
designate an ascertainable person to whom, or to whose order the money
is payable. The instrument must be signed and delivered. It is not
necessary that a consideration be stated in the instrument, although
in a suit between the original parties, failure of consideration is
a defense. For example, if _A_ gives _B_ his promissory note for one
hundred dollars ($100.00) payable to _B's_ order, and _A_ received
no benefit for giving the note, if _B_ sues _A_ thereon, _A_ may
plead that he received no consideration for the note. This would be a
complete defense to _A_. If, however, _C_ purchased the note from _B_
before it was due, paying value for same, and having no notice of its
being given without consideration, _A_ could be compelled to pay it to
_C_ or his successors. It is not necessary that a negotiable instrument
be dated. It is proper, however, and good business policy to date all
negotiable instruments. The signature need not be at the bottom of the
instrument. This, however, is the proper place for the signature.

_I. O. U._ $500.00
(_Signed_) _John Jones_, is not a promissory note.

It is not a promise to pay at a definite time or to a definite person.
It is a mere acknowledgment of indebtedness.

=132. Parties to Negotiable Instruments.= By usage and custom, parties
to negotiable instruments are given certain well recognized names. The
name of the party to whom a promissory note is made payable is always
called the _payee_. When the payee transfers a negotiable instrument
by indorsement, he is called the _indorser_, and the party to whom he
indorses the note is called the _indorsee_. Indorsers and indorsees are
designated as _first_, _second_, _third_, etc., indorsers or indorsees
according to their position on the instrument.

The maker of a draft is called the _drawer_. The one to whom it is
given is called the _payee_. The one on whom it is drawn is called the
_drawee_. After acceptance, the drawee is called the _acceptor_. The
rights and liabilities of these parties are discussed under separate
sections.

=133. Rights and Liabilities of a Drawee.= The term, _draft_, is
sometimes used to designate orders made by one bank on another. For
example, _A_ in Cleveland, purchased of his Cleveland bank a New York
draft, or an order by the Cleveland bank on a New York bank, payable
to the order of _A_. Technically, orders on persons are _bills of
exchange_, but the term draft, has come to be applied both to orders
of one bank on another and to orders of one person on another. In this
work the term, _draft_ is applied to both kinds of orders. A drawer is
a person who makes a draft on another. It is usually payable to the
order of a third person. It may be made payable to the bearer or to
the order of the drawer, himself. A drawer enters into a conditional
contract. By becoming a drawer, he agrees to pay the bill of exchange
or draft, if the payee presents it without delay, and in case of
non-payment, or non-acceptance, if notice is promptly given him of this
fact. In case the draft is a foreign one, that is, made payable or to
be accepted, in a different state or country from which it is drawn,
it must be protested by the payee to enable him to hold the drawer.
A draft is protested by being presented by a notary public, who, by
formal written instrument, declares the refusal of the drawee to
accept. Protest is discussed more at length under a separate section.
In case these conditions are complied with, and the drawee does not
accept the bill or pay the bill after acceptance, the payee may hold
the drawer. After the formalities above enumerated are observed by the
payee or holders of a draft, if the draft is dishonored, that is, not
accepted, or paid by the drawee, the payee may sue the drawer, whose
liability is similar to that of the maker of a promissory note.

=134. Rights and Liabilities of Acceptor.= The person to whom a
draft is directed is called the drawee or acceptor. When a draft
is presented to the drawee, he may accept it by writing _accepted_
thereon, or he may accept by writing his consent in a separate
instrument, such as a letter, or by sending a telegram, or he may
accept orally or by his conduct. After a drawee has accepted a draft,
he is bound by its terms. He must pay the amount mentioned in the
draft. After acceptance, his liability is similar to that of the maker
of a promissory note. Sometimes an acceptor does not accept in the
exact terms of the draft. He may change the time or place of payment,
or attach conditions to the bill or draft. This amounts to a refusal
on his part to accept the bill, which will entitle the payee to refuse
the qualified acceptance and by giving proper notice to the drawer hold
the drawer by reason of non-acceptance by the drawee. If, however, the
payee chooses to accept the qualified acceptance of the drawee, he may
do so, but by this act he releases the drawer and all prior indorsers
from liability thereon.

=135. Rights and Liabilities of Maker.= _Maker_ is the term applied
to the person who originally makes and signs a promissory note. By
this act, he agrees to pay at maturity, to the original payee, or
to whomever the note has been indorsed or properly transferred, the
amount named in the note. The maker of a note is liable absolutely and
unconditionally. While it is customary for the holder of a note to
present it to the maker at maturity for payment, this is not necessary
unless a place of payment is stipulated in the note. The holder may
commence suit against the maker at maturity without presenting the
note for payment. If the note contains indorsements, the note must
be presented to the maker, and if payment is refused, to enable the
holder to hold the indorsers liable, notice of the fact must be given
the indorsers. If the note is payable at a particular place, as for
example, a bank, the holder must present the note at the bank at
maturity, or not be able to collect interest thereafter, if the maker
proves that he had funds there sufficient to pay the note at maturity.
If the maker has been damaged other than by loss of interest, by
failure to present a note at a bank when made payable, he may collect
damages therefor from the holder.

=136. Blank Indorsement.= A negotiable instrument, if payable to
bearer, may be transferred by delivery. If payable to the order of
the payee, it may be transferred by indorsement and delivery. By
indorsement is meant the writing the name of the payee upon the back
of the negotiable instrument. Indorsement may be made in various forms,
depending upon the purpose for which made, and the kind of liability
the indorser is willing to undertake, or the kind or degree of
liability which he wishes to avoid. The most common kind of indorsement
consists of the payee's writing his name only on the back of the
instrument. A negotiable instrument with blank indorsement is shown in
Fig. 5.

[Illustration: Fig. 5. Promissory Note with Blank Indorsement.]

If X. X. Crumby desires to transfer the note to anyone, he signs his
name on the back thereof, as indicated in the illustration. This is
called a blank indorsement, and makes the note payable to bearer. The
note now passes as currency without further indorsement. Subsequent
holders may indorse the note if they so desire, or are so required. If
the back of a negotiable instrument becomes filled with indorsements,
a paper may be attached to carry further indorsements. Such a paper is
called an _allonge_.

=137. Indorsement in Full.= A holder of a negotiable instrument, not
desiring to make it payable to bearer, may indorse it by making it
payable to some particular person or to the order of some particular
person, followed by his signature. This does not destroy the
negotiability of the instrument, but prevents anyone but the person to
whom it is indorsed, or such person's indorsees, from securing payment
of the instrument. This is not true if the instrument is payable to
bearer, or if it has been indorsed in blank. Such instruments are
payable to bearer, and circulate as money without requiring further
indorsement. If subsequently indorsed in full, only those subsequent
holders can hold the indorser in full, who can trace their title
through him.

[Illustration: Fig. 6. One Form of Indorsement in Full.]

[Illustration: Fig. 7. Another Form of Indorsement in Full.]

Fig. 6 is an indorsement in full of X. X. Crumby. By this indorsement,
only John Jones, the person to whom he indorses, may obtain payment of
the note. If John Jones indorses the note in blank, that is, signs his
name to it, the note becomes payable to bearer, and passes like money,
without further indorsements.

[Illustration: Fig. 8. Indorsement without Recourse.]

By the indorsement, Fig. 7 which is also an indorsement in full, X. X.
Crumby becomes liable as indorser to John Jones only, and not to anyone
to whom John Jones may indorse the paper. X. X. Crumby's indorsement
does not contain the words "or order." The face of the note, however,
contains the words "or order," which makes the note negotiable. X. X.
Crumby's indorsement to John Jones, although not containing words of
negotiability, does not destroy the negotiability of the note. John
Jones may indorse the note in blank, or in full. The only effect of X.
X. Crumby's omitting words of negotiability from his indorsement is to
limit his primary liability as an indorser to John Jones.

=138. Indorsement without Recourse.= Frequently, the holder of a
negotiable instrument is unwilling to assume any primary liability by
transferring a negotiable instrument which he possesses. He may desire
to transfer the right he has in the instrument, without becoming liable
thereon. He may do this by indorsing it without recourse.

[Illustration: Fig. 9. Indorsement for Collection and for Deposit.]

By either of the indorsements, (Fig. 8) the one in blank, or the one in
full, Jos. Rundy, transfers his interest in the note to John Jones,
and does not become liable thereon as an indorser. It is not quite
accurate to say that an indorser without recourse has _no liability_ as
an indorser. He _impliedly warrants_ the signatures preceding his own
to be _genuine_, and that the parties making them had legal capacity
to sign. The implied liabilities of an indorser are discussed under a
separate section.

[Illustration: Fig. 10. Promissory Note with Anomalous Indorser.]

=139. Indorsement for Collection or Deposit.= A holder of a negotiable
instrument may transfer it for the purpose of collection, thereby
making the transferee his agent, for the purpose of carrying out his
will, and thereby destroying the negotiability of the instrument.
This prevents another from taking the note free from the claim of the
original indorser.

Either of the indorsements in Fig. 9 destroys the further
negotiability of the note. The indorsers are authorized to collect the
note for Arthur Hinde. They are not authorized to transfer the note,
except for the purpose of collecting it for Arthur Hinde.

=140. Anomalous Indorser.= Sometimes, a party writes his name upon the
back of a negotiable instrument outside the chain of title. That is, he
writes his name thereon, before the payee indorses it. This is for the
purpose of adding security to the note.

In this case, Fig. 10, John Arthur signs the note outside the chain of
title. He places his name thereon for the purpose of adding security
thereto. He is liable on his indorsement to the _payee_, A. Aldrich,
and to the _indorsees_ of A. Aldrich. In some jurisdictions he is
liable as a guarantor, in some as a surety, but in most as an ordinary
indorser. The liability of a surety and guarantor is discussed in the
section on Suretyship.

=141. Liability of an Indorser.= By placing his name on the back of
a negotiable instrument for the purpose of passing title, a person
becomes liable on an implied contract. If his indorsement is in
blank, or payable to the order of the indorsee, he is liable to any
innocent purchaser for the value, without notice. If made payable to
a particular person, he is liable only to that person. The implied
liability of an indorser has been said to be as follows: "I hereby
agree by the acceptance by you of title to this paper, and the value
you confer upon me in exchange, to pay you, or any of your successors
in title, the amount of this instrument, providing you, or any of
your successors in title, present this note to the maker on the date
of maturity, and notify me without delay of his refusal to pay. And
I warrant that all the parties had proper capacity and authority to
sign, and that the obligation is binding upon each of them. And I will
respond to the obligations created by these warranties, even though you
do not demand payment of the maker at maturity or notify me of default."

=142. Forgery and Alteration of Negotiable Instruments.= An act by
which a negotiable instrument is materially and fraudulently changed
and passed or attempted to be passed, is a forgery. The act may consist
of fraudulently writing another's name on a negotiable instrument, or
changing a name already on a negotiable instrument, or changing the
figures, date, rate of interest, or in fact any act of counterfeiting
or materially altering a negotiable instrument. Forgery makes the
instrument void. The forger, or those who purchase from him, obtain no
rights against the party wronged. As to the party whose name or whose
instrument is forged, the instrument is void. For example, _A_ has
_B's_ valid note for one hundred dollars ($100.00) and changes the note
by erasing one hundred dollars ($100.00) and substituting five hundred
dollars ($500.00) and sells the note to _C_. _C_ can recover nothing
from _B_. _A_, by indorsing the note to _C_, warrants the genuineness
of the note and is liable on his indorsement to _C_. Neither _A_ nor
_C_ can recover even one hundred dollars ($100.00) from _B_. The
instrument has been rendered void by the forgery, and courts will
recognize no liability of _B_ thereon.

A negotiable instrument altered in any material respect is void. If
_fraudulently_ made, it is regarded as a forgery. If _innocently_ made,
the instrument is still void, but the wronged person is liable for the
original consideration. If _A_ gives _B_ his promissory note for one
hundred dollars ($100.00) with interest at 6%, and _B_ carelessly, but
not fraudulently, writes 8% thereon instead of 6%, _B_ cannot recover
on the note at all. But he can recover from _A_ one hundred dollars
($100.00) with interest at 6% on the debt for which the note was given.
Any alteration of a negotiable instrument which changes the liability
of the parties thereto, amounts to a material alteration. Changes in
the rate of interest, the name of an indorser, the date, the place,
time or manner of payment is a material alteration and renders the
instrument void. If the alteration is made by a stranger, a person
not a party to the instrument, it does not constitute a material
alteration. The instrument may be restored to its proper form and
recovery be had thereon.

=143. Fraud and Duress.= Fraud has been defined to be "a false
representation of a material fact, made with knowledge of its falsity
or in reckless disregard whether it be true or false, with the
intention that it should be relied upon by the complaining party, and
actually inducing him to rely and act upon it." Fraud is a defense to
a party to a negotiable instrument as against the person inducing it,
but not as against subsequent innocent purchasers. _A_ offers to sell
_B_ a diamond ring for five hundred dollars ($500.00) assuring him
that the diamond is genuine. Relying upon this false statement of _A_,
_B_ takes the ring and gives _A_ his promissory note for five hundred
dollars ($500.00) payable to _A's_ order. The ring proves to be paste.
_A_ cannot recover on the note from _B_. If, however, before it is due,
_A_ sells the note to _C_, who pays value for it without notice of the
fraud, _C_ can force _B_ to pay the note.

Duress is actual or threatened violence sufficient under the
circumstances to compel a person to act against his wishes. In
connection with negotiable instruments, duress is treated as the same
kind of a defense as fraud. It is a complete defense as against the
guilty party, but is not available as against an innocent purchaser.

=144. Lost or Stolen Negotiable Instruments.= The primary function of
negotiable instruments is to circulate like money. If a negotiable
instrument is indorsed in blank, or made payable to bearer, it may
circulate without further indorsement. If such a negotiable instrument
is lost or stolen, and purchased before maturity by an innocent party,
the maker is liable thereon. For example, if _A_ makes a promissory
note payable to bearer, and it is stolen by _B_ from _A's_ possession,
and sold for value to _C_, an innocent party, _C_ may collect the note
from _A_. If _A_ makes a promissory note payable to the order of _B_,
and _B_ indorses it in blank, that is, writes his name only, on the
back thereof, and it is stolen from _B's_ possession by _C_ and sold by
_C_ to _D_, who purchases it innocently and for value, _D_ may collect
the note from _A_. This is the principal distinction between negotiable
instruments and ordinary contracts. If the thief changes the instrument
in any material way, or is obliged to forge someone's name to pass it,
this constitutes a forgery and no recovery can be had thereon.

=145. Real and Personal Defenses to Negotiable Instruments.= Defenses
to negotiable instruments are usually classified as _real_ and
_personal_. If they are good only against a particular person, they
are said to be personal. If they are good as against everyone, they
are said to be real. If the instrument is forged, given by an infant,
a person under legal age, is illegal--for example given for a gambling
contract made illegal by statute--or has been materially altered, it
is void, regardless of who holds it. These defenses are called real
defenses. If the instrument is lost or stolen, and purchased by an
innocent party, if given by reason of duress or fraud, or if there is
no consideration, the defense is good only as against the guilty party.
These defenses are called personal defenses.

=146. Consideration.= A consideration is usually defined to be
something beneficial to the party making a promise, or something
detrimental to the party to whom a promise is made. Every ordinary
contract must be supported by a consideration. Negotiable instruments
differ from ordinary contracts in that they are made to circulate
like money. In order that they may circulate like money the maker
is not permitted in some instances, to assert that the instrument
lacks consideration. As between the immediate parties to a negotiable
instrument, there must be a consideration. The maker may successfully
defend against an action based thereon for this reason. If, however,
the instrument has passed before due, to an innocent purchaser
for value, the maker cannot refuse payment on the ground of no
consideration. In case of a negotiable instrument, consideration is
presumed. Consideration need not be stated in the instrument. It
amounts to a defense, only as between immediate parties. If _A_ gives
_B_ his promissory note payable to _B's_ order, with the understanding
that _B_ is not to use the note, but is to show it to _C_, his grocer,
for the purpose of obtaining credit, and _B_ endeavors to collect
the note from _A_, _A_ may successfully defend on the ground of no
consideration. If, however, _B_ sells the note to _D_ before it is due,
and for value, _D_, not knowing there is no consideration, can collect
the note from _A_.

=147. Presentment and Acceptance of Drafts.= Drafts payable at sight,
or after sight, must be presented to the drawee for acceptance. This is
for the reason that the time of payment of such drafts is uncertain.
If a draft of which presentment is necessary, is not presented for
acceptance, the drawer and indorsers are discharged. Presentment for
acceptance must be made to the acceptor within a reasonable time after
receipt by the payee or indorsee. What consitutes reasonable time
for presentment depends upon the circumstances connected with each
particular case. Presentment for acceptance is made by exhibiting the
bill for acceptance to the person upon whom is it drawn. Presentment
for acceptance may be made by the payee, or his indorsee, and may be
made to the drawee, his authorized agent or legal representative.
Presentment may be made either at the person's place of business, or at
his residence. If made at his place of business, it must be made during
business hours. It cannot lawfully be made after noon on Saturdays,
nor can it be made on Sundays or legal holidays. Acceptance may be
indicated by writing _accepted_ or words to that effect on the bill, by
a separate writing to that effect, or by oral agreement of the drawee.
If the bill contains a stipulation not requiring acceptance, this
is called _waiver of acceptance_, and the bill need not be presented
for acceptance. If acceptance is refused, or not made for any reason,
anyone may accept the bill. This is called acceptance for honor, or
acceptance _supra protest_. The liability of an acceptor for honor is
that if the bill is presented to the drawee at maturity for payment and
refused, and notice thereof given the acceptor for honor, the latter
will pay it.

A bill or draft payable at a definite time or date need not be
presented for acceptance. For example, if a bill is drawn payable
December 23, 1909, it need not be presented for acceptance. The time of
payment is certain, and if presented for payment on December 23, and
dishonored, notice of non-payment to the drawer and prior indorsers is
sufficient to enable the payee to hold them liable. If, however, the
bill is payable at sight, or three days after sight, or any time after
sight, it must be presented for acceptance to fix the date of maturity,
If a bill is not paid by the acceptor after acceptance, notice must be
given the drawer and prior indorsers by the holder, to enable him to
hold the drawer and prior indorsers liable. This is sufficient in case
of an inland bill. In case of a foreign bill, one drawn on a person, or
made payable to a person in another state or country from the drawee,
formal protest must be made in case of non-payment or non-acceptance.
Protest is a formal act of a notary public. This is explained under a
separate section.

=148. Time of Payment and Days of Grace.= A negotiable instrument
is payable at the time mentioned in the instrument. If a negotiable
instrument is payable a stipulated time after date, and the instrument
bears no date, its date is the time it was delivered. The term month,
is held to mean calendar month, and not a certain number of days. If a
note is dated February 6th, and is payable thirty days after date, it
matures March 6th. When a negotiable instrument is payable a specified
number of days after date, the time is counted by excluding the day on
which the instrument is given, and including the final day stipulated.
Negotiable instruments may be made payable on demand of the payee
or holder. Such paper is payable at the option of the holder. It is
sometimes called paper payable _on call_. Negotiable instruments may be
made payable on or before a certain day. These instruments are valid
negotiable instruments. They really mature at the day fixed in the
instrument, but may be paid at any time after delivery at the option
of the payee or holder. According to the Law Merchant, three days were
allowed the party liable on a bill or note to make payment, in addition
to the time fixed for payment. These were called _days of grace_.
In the majority of the states, days of grace have been abolished by
statute. When not abolished by statute, days of grace are still allowed.

=149. Innocent Purchaser for Value Without Notice.= The feature that
distinguishes negotiable instruments from ordinary contracts is that
negotiable instruments may be transferred in such a manner that the
transferee receives the instrument free from certain defenses which are
good against the transferror. For example, one who purchases another's
rights under an ordinary contract takes the exact position of the
transferror. Any defenses good against the seller are good against the
purchaser. However, a purchaser for value before maturity of negotiable
instrument, who has no notice of any defenses to the instrument, takes
it free from all but real defenses. Real defenses are _infancy of the
maker_, _forgery_, _material alteration_, and _illegality_. But such
a defense as fraud, want of consideration, duress, or any except a
real defense is not available against an innocent purchaser for value
without notice. An innocent purchaser for value without notice, of a
negotiable instrument, is also called a _bonâ fide_ holder, or a holder
in due course. A person who purchases a negotiable instrument showing
defects or defenses on its face, cannot claim to be a _bonâ fide_
holder. A person who purchases negotiable instruments after maturity,
takes them subject to all defenses good against the seller. Such a
purchaser is not a _bonâ fide_ holder.

=150. Presentment for Payment of Negotiable Instruments.= So far as
the maker or acceptor of negotiable instruments is concerned, in
the absence of a place for payment stipulated in the instrument, a
negotiable instrument does not have to be presented for payment. As
a matter of practice, however, negotiable instruments are presented
to the maker and acceptor at their places of business or at their
residences for payment at maturity. In order to hold indorsers,
however, a negotiable instrument must be presented to the maker or
acceptor at maturity, and, in case of failure to pay, notice must be
given indorsers, else they are relieved from liability. When a place
for payment is specified in a negotiable instrument, presentment at
that place is sufficient. When no place of payment is designated in the
instrument, presentment to the maker or acceptor personally, wherever
he may be found, or at his residence or place of business is sufficient.

=151. Notice of Dishonor and Protest.= When a negotiable instrument
has been presented to a maker or acceptor for payment, and payment has
been refused, the holder should notify the drawer, if the instrument
is a bill of exchange or draft, and the indorsers, no matter what the
form of the negotiable instrument, of the fact of dishonor. If such
notice is not given, the acceptor or indorsers are discharged from
liability. This notice should be given by the holder of the paper,
or his agent, within a reasonable length of time after dishonor. The
notice may be given by a verbal notification, by the delivery of
written message, or by mailing notice to the residence or place of
business of the indorsers or drawer. Everyone whom a holder desires
to hold liable, must be notified in case of dishonor. If a drawer
of a bill or an indorser of a note waives notice of dishonor by so
stipulating in the instrument, notice as to them is unnecessary. In
case of an inland bill, mere notice in writing mailed to their usual
address, or actual notice is sufficient. By inland bill is meant one
made payable, or to be accepted in the same state or country where
drawn. In case of a foreign bill of exchange, or one made payable, or
to be accepted, in a state or country other than where made or drawn,
notice of dishonor must be by protest. This is true of notice to the
drawer for failure of a drawee to accept, as well as for failure of an
acceptor to pay. Protest is a formal declaration of a notary public, an
officer recognized by all countries as authorized to administer oaths.
Technically, only bills of exchange need be protested. By practice,
however, promissory notes and checks are protested as well.

=152. Certificate of Protest.= The following is a common form of
protest:

State of Ohio }
Cuyahoga Co. } SS

I, John Arthur, a notary public, having been duly appointed and sworn,
and residing at Cleveland, Cuyahoga Co., Ohio, do certify that on
the 10th day of December 1909, I presented the annexed promissory
note for payment at the City Trust Co., where same is made payable,
and that I did this at the request of the State Trust Co., and that
payment was refused. I further certify that I did protest, and I do
now publicly protest against the maker, indorsers, and all others
concerned, for all costs and damages connected with the failure to
pay this instrument. I certify that I am not interested in any way in
this instrument. I further certify that I have this day deposited in
the Post Office at Cleveland, Ohio, notices of this protest, signed by
me as notary public, and addressed to the following persons. (Names
and addresses of persons connected with the instrument.) In testimony
whereof I have hereto affixed my signature and seal of my office, this
10th day of Dec., 1909.

John Arthur,
Notary Public.

Notary
Seal.

QUIZ QUESTIONS

PARTNERSHIPS

1. May a party do business under a name other than his own?

2. If a party uses a trade name does this constitute a partnership?

3. Define partnership, and give an example of an agreement constituting
a partnership.

4. How many persons may engage in a single partnership enterprise?

5. Give the principal features of the partnership relation.

6. How is a partnership created?

7. May partnerships be created by oral agreement? If so, give an
example of an oral partnership agreement.

8. Must any kind of partnership agreement be in writing? If so, give an
example.

9. What is meant by partnership by estoppel?

10. Give an example of an executory partnership agreement.

11. What classes of persons may legally become partners?

12. May an infant become a partner?

13. _A_, aged twenty-two years, enters into a partnership with _B_,
aged seventeen. May _A_ avoid a contract of the partnership made
with _C_, a third person, on account of the infancy of _B_?

14. Give an example of an infant ratifying a partnership agreement.

15. Can drunken or insane persons enter into partnerships?

16. What names are partners entitled to take as partnership names?

17. Can a partnership take the name of another partnership? If not, why
not?

18. Can a partnership take a name which does not suggest the name of
any of the partners interested?

19. Can a partnership ever have more than one name? If so, under what
circumstances?

20. Give, and define the names applied to different kinds of partners.

21. Distinguish _silent partners_ and _secret partners_.

22. May a partnership exist as between the partners, and not exist as
to third persons trading with the partnership?

23. May a partnership exist as to third persons dealing with an
apparent partnership, while none exists between the apparent
partners themselves? If so, give an example.

24. State what constitutes a partnership as to third persons dealing
with a partnership.

25. What are the powers of a partnership?

26. Of what may the property of a partnership consist?

27. May a partnership make and own promissory notes?

28. What constitutes holding a person out as a partner?

29. What is the liability of a person held out as a partner?

30. Can a person be liable as a partner who is held out as a partner
without his knowledge or consent?

31. What are the duties of partners to each other?

32. Can one partner sue his partner at law?

33. If one partner dishonestly takes possession of partnership assets,
how may his partner get legal relief?

34. What is meant by _joint liability_ of partners?

35. What is meant by _liability in solido_?

36. What is partnership liability to third persons?

37. Is the individual property of members of the partnership liable to
be subjected to the payment of partnership claims?

38. When, if at all, can the property of individual partners be
subjected to the payment of judgments against the partnership
before the property of the partnership has been exhausted?

39. What is the individual liability of the members of a partnership
for the partnership debts?

40. What effect, if any, does change of membership have upon a
partnership?

41. Does the addition of a new member dissolve a partnership?

42. Does withdrawal of a member discharge a partnership?

43. What effect, if any, does death of a partner have upon a
partnership?

44. Define _survivorship_.

45. What are the rights and duties of survivors of a partnership?

46. In what ways may a partnership be dissolved?

47. In what cases must notice of dissolution of partnership be given?

48. How, and to whom must notice of dissolution of partnership be given?

49. Upon dissolution of a partnership what part of the firm assets
belongs to firm creditors, and what part of individual assets
belongs to individual creditors?

50. In case a partnership is insolvent, and there is no living
solvent partner, what rights have firm creditors in the assets of
the individual partners as compared with individual creditors?

51. Define and describe _limited partnership_.

52. What is the principal distinction between limited and general
partnership?

53. Define _special partner_ as used in connection with limited
partnerships.

[Illustration: OFFICE BUILDING OF THE CHICAGO EDISON COMPANY, CHICAGO.
ILL.
Shepley, Rutan & Coolidge, Architects, Chicago. Two Lower Stories of
Pink Milford Granite, Polished; Upper Stories of the Same Granite, with
Ten-Cut Surface. Built in 1899, Note the Decorative Feature of the
Lighting in Lower and Upper Portion of Building.]

CORPORATIONS

1. Define _corporation_.

2. May an association of persons create a corporation by agreement?

3. Is a corporation a natural person?

4. How were corporations originally created?

5. How are corporations created at the present time?

6. Distinguish the creation of a corporation and the creation of a
partnership.

7. For what purpose may a corporation be created?

8. What is the franchise of a corporation?

9. Is a partnership distinct from the members composing it?

10. Is a corporation dissolved by a change of membership?

11. When does a partnership cease to exist?

12. Are the members of a corporation agents of the corporation?

13. Who are the authorized agents of a partnership?

14. What are the powers of a corporation?

15. Enumerate the ordinary powers of a corporation.

16. Is the charter of a corporation a contract?

17. May a charter of a corporation be revoked at the will of the
legislature that granted it?

18. How are corporations created?

19. What is meant by a _corporation's charter_?

20. What kinds of corporations, if any, may be organized under United
States laws?

21. By what authority are national banks organized?

22. Under what provisions are most corporations organized?

23. Under what conditions may corporate charters be revoked?

24. State briefly the necessary steps in organizing a corporation.

25. Must a corporation have a corporate name?

26. May a corporation change its name?

27. May two corporations use the same name?

28. May a corporation appropriate a name descriptive of an article
manufactured?

29. Give an example of a name a corporation is not permitted to
appropriate.

30. Classify corporations.

31. Define and distinguish _private corporations_ and _public
corporations_.

32. Give an example of a public corporation; a private corporation.

33. Is a street railway company a private or public corporation?

34. When does a corporation's existence commence?

35. What determines when a corporation's existence commences?

36. Define _estoppel_.

37. Give an example of a corporation estoppel from denying its
corporate existence.

38. Are third persons ever estopped from denying a corporation's legal
existence? If so, give an example.

39. Is a corporation's charter a contract?

40. If a corporation's charter is a contract, who are the contracting
parties?

41. At the present time can a corporation obtain an irrevocable charter?

42. Define _de facto corporation_.

43. Define _de jure corporation_.

44. Can a _de facto_ corporation avoid its liabilities on the ground of
incomplete organization?

45. Who can object to a _de facto_ corporation being incompletely
organized?

46. What is necessary to create a _de facto_ corporation?

47. Define _promoter_.

48. Is a promoter personally liable for the obligations made by himself
in connection with organizing a corporation?

49. Is a corporation responsible for the obligations created by its
promoter?

50. How, if at all, may a corporation adopt the obligations of its
promoters?

51. May a corporation be reorganized by consent of its members?

52. Is a reorganized corporation a new corporation, or a continuation
of the old corporation?

53. Is a reorganized corporation ever liable for the obligations of the
old corporation?

54. May a reorganized corporation ever escape the obligations of the
old corporation?

55. How, if at all, may corporations consolidate?

56. Is a consolidated corporation distinct from the corporation from
which it is formed?

57. May corporations consolidate by consent of the members of each?

58. Is a consolidated corporation liable for the debts of its component
corporations?

59. What is the _governing board_ of a corporation for profit called?

60. How are directors elected?

61. How, and under what circumstances and conditions may corporate
meetings be held?

62. Who are entitled to vote at corporate meetings?

63. May a member of a corporation ever have more than one vote?

64. What is meant by _cumulative voting_?

65. What is meant by _ticket voting_?

66. Define _quorum_.

67. What constitutes a quorum?

68. Must a member of a corporation be present to have his shares of
stock voted?

69. How, if at all, may a shareholder vote by proxy?

70. Who are members of a corporation?

71. Is a stockholder personally liable for the debts of the corporation?

72. What is the liability of a shareholder in a national bank?

73. What is meant by stockholder's double liability?

74. How may a person become a stockholder in a corporation?

75. What is a certificate of stock?

76. May a person become a stockholder without having a certificate of
stock?

77. May a person hold a certificate of stock and not be a stockholder?

78. Must directors of a corporation be stockholders?

79. How, if at all, is the authority of the board of directors limited?

80. What are the principal duties of directors?

81. May a board of directors dispose of the entire assets of the
corporation?

82. May directors act for their own private interests in dealing with
the corporation?

83. May a director ever contract with the corporation?

84. Define _by-laws_, _rules_, and _regulations_.

85. Distinguish by-laws and resolutions.

86. Define _capitalization_.

87. Distinguish capitalization from assets of a corporation.

88. Define _capital stock_.

89. May a corporation sell its shares for less than par?

90. Distinguish par value and face value of stock.

91. If a corporation sells a shareholder stock at 5% of its par value,
and the corporation is solvent, who, if any one, may object?

92. Must shares be paid for in money?

93. If a person purchases shares from a stockholder at less than par,
not knowing that the shares have not been paid for in full, is he
liable to the corporation for the balance of their par value?

94. Define _call_ and _assessment_.

95. May an assessment be made before a call?

96. May an assessment be made on stock paid for at par?

97. Define and give an example of _watered stock_.

98. Upon what authority may the capital stock of a corporation be
increased or decreased?

99. What is a _stock dividend_?

100. How many kinds of stock are there?

101. Define preferred stock, and distinguish it from common stock.

102. Do preferred stockholders have any advantage over common
stockholders when the affairs of the corporation are wound up,
and its assets distributed?

103. How may dividends be paid?

104. May a stockholder force the corporation to pay a dividend?

105. When, if at all, are dividends debts of the corporation?

106. Are certificates of stock negotiable instruments?

107. Distinguish certificates of stock from regular negotiable
instruments.

108. How are transfers of stock made by the corporation?

109. What, if any, is the individual liability of a stockholder for the
debts of the company?

110. What ownership, if any, does a stockholder have in the property of
the corporation?

111. Can a corporation transact business without the aid of officers
and agents?

112. How are the officers of a corporation appointed?

113. What are the usual officers of a corporation?

114. What are the duties of the president of a corporation?

115. May the officers of a corporation ever act without the express
authority of the board of directors?

116. What is the proper corporate signature to a contract?

117. What is the proper corporate signature to a negotiable instrument?

118. Can a corporation legally sign a contract without using its seal?

119. Define _ultra vires_.

120. Give an example of an _ultra vires act_.

121. Are third persons deemed to have notice of the powers and
limitations of a corporation.

122. Does a corporation have any rights outside the state of its
creator?

123. What kind of corporations, if any, are authorized by the United
States Constitution to transact business in any state?

124. What are the general provisions of the states regulating foreign
corporations?

125. Explain the meaning of the term _doing business_ as applied to
foreign corporations.

126. Is a corporation liable for its torts and crimes.

127. How, if at all, can a corporation be punished?

128. What is meant by _dissolution of a corporation_?

129. How can a corporation be dissolved?

130. Can a corporation be dissolved by consent of its members?

NEGOTIABLE INSTRUMENTS

1. Name some of the most common forms of negotiable instruments.

2. What is a _negotiable instrument_?

3. What advantages do negotiable instruments have over money for
commercial uses?

4. Define _negotiability_.

5. Are all promissory notes negotiable instruments?

6. What words are necessary to make an instrument negotiable?

7. May an instrument be negotiable without containing the words _or
order_, or _or bearer_?

8. What kind of negotiable instrument, if any, can be transferred
without indorsement?

9. Define _assignment_.

10. Can negotiable instruments be assigned?

11. Distinguish assignability from negotiability.

12. What is meant by the _law merchant_?

13. How do we happen to recognize the rules of the law merchant?

14. When was the law merchant first recognized in England?

15. To what classes of negotiable instruments were the rules of the law
merchant originally applied?

16. To what classes of negotiable instruments are the rules of the law
merchant now applied?

17. Define _promissory note_.

18. Name the parties to a promissory note.

19. Give the essential features of a promissory note.

20. Must a promissory note be dated?

21. Distinguish drafts and bills of exchange.

22. Give the names of the parties to a bill of exchange.

23. How is a bill of exchange accepted?

24. What is a _check_?

25. How does a check differ from a bill of exchange?

26. Are days of grace allowed in the payment of checks?

27. What is certification of a check?

28. What effect does certification of a check by the payee have upon
the maker?

29. Are bonds negotiable instruments?

30. What are _registered bonds_?

31. What are _coupon bonds_?

32. What are _trust deeds_?

33. What are _collateral notes_?

34. Are collateral notes negotiable?

35. By whom are collateral notes commonly used?

36. What is a _cognovit note_?

37. How does a cognovit note differ from an ordinary note?

38. Define _certificate of deposit_.

39. How does a certificate of deposit differ from a check?

40. Is a bank liable upon its certificates of deposit?

41. Give the requisites of a negotiable instrument.

42. Does every negotiable instrument require a payee?

43. May a negotiable instrument be signed by mark?

44. Is an "I. O. U." a negotiable instrument?

45. Name the necessary parties to a negotiable instrument.

46. How does a second indorser differ from a first indorser?

47. What is the liability of a drawer of a bill of exchange?

48. Distinguish _foreign bills of exchange_ and _inland bills of
exchange_.

49. What kinds of bills of exchange must be protested?

50. Distinguish between _drawee_ and _acceptor_.

51. What is the liability of an acceptor?

52. How may a bill of exchange be accepted?

53. What is a qualified acceptance?

54. In case of a qualified acceptance, if the acceptor fails to pay the
draft at maturity is the drawer liable?

55. What is the liability of a maker of a promissory note?

56. If a note is made payable at a bank, and is not presented at the
bank at maturity, is the maker discharged?

57. Define _indorsement_.

58. Define _blank indorsement_.

59. What is the difference as to transferability between a note payable
to bearer and one indorsed in blank?

60. Define _allonge_.

61. Define _indorsement_ in full.

62. Distinguish between the liability of one who indorses in blank and
one who indorses in full.

63. If a note indorsed in blank, is subsequently indorsed in full, can
it be transferred by delivery without the indorsement of the
indorsee in full?

64. Define and explain indorsement without recourse.

65. What is the liability, if any, of an indorser in full?

66. Does an indorsement for collection destroy the negotiability of a
note?

67. What is the purpose of an indorsement for collection?

68. Give an example of an anomalous indorser.

69. What is the difference between an anomalous indorser and an
indorser outside the chain of title.

70. In most jurisdictions what is the liability of an anomalous
indorser?

71. In general, what is the liability of an indorser?

72. Define _indorser_.

73. What are the warranties of an indorser?

74. Are the warranties of an indorser express or implied?

75. Define _forgery_.

76. Does forgery render a negotiable instrument void or voidable?

77. Distinguish between forgery and material alteration.

78. If a note is materially altered by a stranger is it void?

79. Define _fraud_.

80. Distinguish fraud and duress.

81. Are fraud and duress good defenses as against a _bonâ fide_ holder.

82. If a forged note is lost or stolen can it be collected?

83. If a note procured through fraud is lost or stolen can it be
collected by an innocent holder?

84. Define _real defense_ to a negotiable instrument.

85. What is meant by _personal defense_?

86. Enumerate the real defenses to a negotiable instrument.

87. Enumerate the personal defenses to a negotiable instrument.

88. Define _consideration_.

89. Must consideration be stated in a negotiable instrument?

90. What kind of drafts must be presented for acceptance?

91. How are drafts presented for acceptance?

92. What must a holder do if a draft is dishonored?

93. Define _protest_.

94. When must negotiable instruments be paid?

95. What are days of grace?

96. Do most jurisdictions recognize days of grace at the present time?

97. Define _innocent purchaser for value without notice_.

98. Define _bonâ fide holder_.

99. Define _holder in due course_.

100. Distinguish _bonâ fide_ holder and assignee of a negotiable
instrument.

101. Can a person be a _bonâ fide_ holder of a note who purchases it
after it is due?

102. For what purpose must a negotiable instrument be presented for
payment?

103. Can indorsers of a negotiable instrument be held if the note is
not presented for payment?

104. How is a negotiable instrument presented for payment?

105. Explain notice of dishonor.

106. What is the necessity of giving notice of dishonor?

107. How is notice of dishonor given?

108. What is a certificate of protest?

[Illustration: OFFICE OF PRESIDENT, AMERICAN SCHOOL OF CORRESPONDENCE,
CHICAGO, ILL.]

COMMERCIAL LAW

PART III

BANKING, LOANS, MONEY AND CREDITS

=153.Banks Defined and Classified.= A bank may be defined to be an
institution authorized to receive money for deposit, to make loans,
and to issue its promissory notes payable to bearer. A bank may have
any one, or all of the above enumerated powers. Some banks have powers
in addition to those above enumerated. In the absence of prohibiting
statute, any person may operate a private bank. The states generally
have statutes authorizing the creation and regulation of banks. At the
present time, most banks are incorporated companies.

As to the source of their existence, banks may be said to be _national_
and _state_. National banks are organized under United States statutes
regulating their creation and existence. National banks are discussed
more at length under a separate section. All banks other than national
are created under state laws, and are called state banks.

As to their nature, banks are generally divided into three kinds,
_banks of deposit_, _banks of circulation_ and _banks of discount_.
Banks authorized to receive money for safe keeping are banks of
deposit. Banks authorized to purchase commercial paper by charging
interest in advance are banks of discount. Banks authorized to issue
their own promissory notes payable to bearer, and actually issuing
such notes, are banks of circulation. A single bank may be a bank
of discount, of circulation, and of deposit, or it may be a bank of
discount, of circulation or of deposit. The ordinary savings bank is
a common example of a bank of deposit. A national bank issuing its
notes is a common example of a bank of circulation. A national bank
usually purchases notes for less than their face value, or makes loans
upon notes deducting its interest in advance, making it also a bank of
discount.

=154. Functions and Powers of Banks.= At the present time most banks
are incorporated companies. Their authority to exist is given them by
the state. Their powers are limited by the provisions of their charter.
This question is discussed at length in the section on _corporations_.
A bank cannot engage in business outside the provisions of its charter.
Incorporated banks are permitted to pass by-laws by which their
functions may the more readily be carried out, and by which the duties
of their agents are restricted or defined. Reasonable by-laws, if
brought to the notice of third persons, also well recognized customs
and usages, bind third persons in their dealing with banks. Ordinarily,
banks have the power to borrow money, but do not have the power to deal
in real estate. National banks have no power to loan money on real
estate, but they are permitted to take real estate mortgages to prevent
losses on loans already made. A bank may also purchase real estate
sufficient for the construction of a banking building. Banks have the
power to collect their own paper, and to act as agents for persons and
banks in collecting their paper. The ordinary functions and powers of
banks are discussed under separate sections.

=155. Deposits.= The primary function of a bank is to receive
money from third persons and to loan money to third persons. Money
received from third persons is money received on deposit. Banks
cannot be compelled to receive money for deposit from anyone. They
are permitted to exercise their discretion and reject such deposits
as they choose. The ordinary method of making deposits is by delivery
of currency consisting of gold, silver, copper, and nickel coin, bank
notes and checks to an agent of the bank. The agent authorized to
receive deposits is usually called the _receiving teller_. Deposits are
usually entered by the receiving teller in the customer's pass book. In
commercial banks, deposits are ordinarily withdrawn by check, without
presenting the pass book. Savings banks ordinarily do not permit their
customers to use checks, but require them to present their pass books
when drawing money. The amount withdrawn is entered in the pass book,
and the balance brought down. When money is deposited generally, the
bank has the right to mingle it with its own funds. It then becomes
the debtor of the depositor in the amount of the deposit. If a fund
is deposited with a bank for a special purpose, and the bank is so
notified, or if papers, such as securities, bonds and certificates of
stock are deposited for safe keeping only, they are known as _special
deposits_ and are not mingled with the general funds. Subject to
the reasonable rules of the bank, a general deposit is subject to
withdrawal at the will of the depositor.

=156. Checks.= A check is a written order upon a bank for the payment
of a specified sum of money payable upon demand. Commercial banks
generally do a checking business. Some banks, such as savings banks, do
not permit depositors to draw checks against their deposits. Savings
banks not doing a checking business, usually require their depositors
to present their pass books when drawing money. Even though written
orders are given to third persons, the pass book must be presented by
the third person to enable him to obtain the money on the order. In
case of banks which do a checking business, the depositor is permitted
to draw checks in any amount, payable to any person. The bank must
honor these checks so long as the maker's deposit is sufficient to
pay them, and the person presenting them is properly identified. Upon
payment of a check, the bank keeps it and deducts the amount from the
maker's deposit. These paid checks, or vouchers, are usually returned
by the bank to the customer, every thirty days, with a statement of his
account. The customer then examines these checks and compares them with
his books, and the bank's balance with his balance, for the purpose of
discovering errors.

A check is payable on demand and should be presented for payment within
a reasonable time after receipt. If the receiver lives in the same
place as the maker, the check should be presented during the business
hours of that day. If the receiver resides in a distant place, the
check should be presented as soon as possible under the circumstances.
As long as the bank has funds of the maker, it must honor his checks.
If the bank has some funds of the maker, but not sufficient to pay the
check presented, it should refuse to pay anything thereon. If the bank
refuses to honor a check when the maker has sufficient funds to meet
it, the bank is liable at the suit of the depositor, for any damages
suffered.

Receiving a check does not of itself extinguish the debt. The taker of
the check may present it for payment, and if payment is refused by the
bank, and the maker is notified promptly, the taker may sue the maker
on the check, or on the debt for which the check was given. Certified
checks are discussed under the section on _negotiable instruments_.

=157. Loans and Credits.= One of the primary functions of banks is to
make loans. Different kinds of banks are authorized to make different
kinds of loans. Savings banks generally are authorized to make loans on
real estate. National banks are not permitted to loan on real estate.
Banks ordinarily are permitted to discount notes. By discounting
promissory notes is meant purchasing them at a sum less than their face
value, partially, at least, on the credit of the seller. Banks are not
permitted to discount notes at usurious rates of interest. Banks are
restricted by their corporate charters as to the nature of the loans
they can make.

_Credit_ is the term applied to a present benefit obtained for an
agreement to do something in the future. A person's credit depends
largely upon his business reputation and assets. Companies called
mercantile agencies are organized for the sole purpose of furnishing
credit information. These companies publish books giving the trade
records and estimated assets of business men in the various cities and
towns of the different states. These books are sold to wholesalers,
or to anyone desiring credit information. Companies also employ men
to obtain and furnish special reports on people's assets and business
reputation. The bulk of business is done on credit. Compared with the
total amount of business transacted, a small amount is done for cash.
Credit is an important part of a business man's capital.

=158. Rights and Obligations of Banks in Case of Forged, Lost,
or Stolen Checks.= Forgery or material alteration of a negotiable
instrument renders it void. Banks are authorized by depositors drawing
checks to pay valid checks, but not forged ones. Ordinarily, a bank
must stand the loss if it pays a forged check. The only exception is
in case the depositor has so carelessly drawn the check that it can
be forged without the bank being able to discover the forgery by the
exercise of due care. Most jurisdictions also hold that a depositor
must examine his returned checks within a reasonable time after their
return by the bank. If a forgery is not reported within a reasonable
time after the return of the check by the bank, the check is presumed
to be genuine, and the depositor cannot thereafter complain. Where a
check is payable to bearer, or payable to order, and indorsed in blank
by the payee, making it payable to bearer, and is lost or stolen, an
innocent party purchasing it from the finder or thief gets good title
to it. Such paper circulates like money without further indorsement. A
bank in paying such a check to a _bona fide_ holder who takes it from
a thief or finder without notice of its having been lost or stolen, is
not liable to the maker for the loss.

[Illustration: DEPARTMENT OF RECORDS, AMERICAN SCHOOL OF
CORRESPONDENCE]

=159. National Banks.= The constitution of the United States does
not expressly give Congress the power to create national banks but
it gives Congress the power to collect taxes, duties and imports, to
borrow and coin money and to make all loans necessary to carry into
execution the powers expressly given. To carry into effect the powers
given relating to money, Congress is deemed to have the power to create
national banks. Congress has passed laws under which national banks may
be organized by associations consisting of not less than five natural
persons who are required to sign and file articles with the comptroller
of currency at Washington, D. C., which articles shall specify the name
of the proposed bank, its place of operation, its capital, the names
and residences of its shareholders, and the number of shares held by
each. National banks may be organized with a capital of not less than
twenty-five thousand dollars ($25,000.00) in cities whose population
does not exceed three thousand, and with a capital of not less than
fifty thousand dollars ($50,000.00) in places whose population does
not exceed six thousand inhabitants, and with a capital of one hundred
thousand dollars ($100,000.00) in places whose population does not
exceed fifty thousand inhabitants, and with a capital of not less
than two hundred and fifty thousand dollars ($250,000.00) in places
exceeding fifty thousand inhabitants.

Before commencing business, national banks are required to transfer and
deliver to the treasurer of the United States, United States registered
bonds, in amount not less than thirty thousand dollars ($30,000.00),
and not less than one third the paid-in capital stock. Upon making
such a deposit of bonds, the comptroller of currency is authorized to
issue to the bank, notes of the bank in different denominations, equal
to 90% of the market value of the bonds deposited. These are the only
circulating notes national banks are authorized to use. The comptroller
of currency is authorized to replace worn notes or returned notes,
proof of the destruction of which is furnished. National banks in the
seventeen largest cities of the United States are required to keep
on hand, money equal to 25% of their circulating notes and deposits.
National banks of all other places are required to keep on hand, money
equal to 15% of their circulating notes and deposits. National banks
are not permitted to make loans on real estate or on their own stock,
except to protect loans already made. In case of insolvency of a
national bank, the stockholders are liable in an amount equal to the
par value of their stock, in addition to their liability to pay the par
value of their stock subscriptions. The shareholders having legal title
to the stock at the time of insolvency of the bank are the ones liable
for the additional liability. National banks may charge the rate of
interest authorized by statute of the state where the bank is located.
If unlawful interest, called _usury_, is charged, the bank forfeits
the entire interest. If the usurious interest has been paid by the
borrower, double the amount of the usury may be recovered from the bank
by the borrower.

National banks are authorized to buy drafts and notes, to discount
commercial paper, to borrow and loan money, to deal in government
bonds, to loan money on collateral, but not to guarantee or indorse
commercial paper, except in the transaction of their legitimate
business. They are permitted to discount or purchase bills and notes,
but not to charge more than the legal rate of interest, even though the
paper is purchased. They may charge reasonable rates for exchange in
addition to interest.

=160. Savings Bank and Trust Companies.= All banks other than national
are organized under state laws, and are known as _state banks_.
The most common kinds of state banks are savings banks and trust
companies. Savings banks ordinarily receive money for safe keeping,
acknowledging receipt by entering deposits in a pass book which the
depositor presents upon making deposits, and upon withdrawal of funds.
Upon drawing funds, the amount is deducted from the balance shown in
the pass book and the balance brought down. Savings banks ordinarily
do not permit depositors to draw checks against their accounts. They
are required to present their pass books in person, or to give them
to an agent or payee designated in a written order to be presented
in withdrawing deposits. If pass books are lost, savings banks are
not obliged to pay deposits unless indemnified against loss by the
depositor. Savings banks are permitted to make loans on real estate.

Trust companies usually have all the power of savings banks with the
added power to act in trust capacities as trustees of estates and for
bond holders, as executors, etc. They usually do a checking business
for the accommodation of their depositors.

=161. Clearing Houses.= A clearing house is an association of banks of
a certain locality, usually of a city, organized for the convenience
of its members in making settlements with each other. As a matter of
practice, holders of checks do not personally present them for payment
at the banks on which they are drawn, but deposit them with the bank
with which they do business. These banks collect them from the banks
on which they are drawn. Each day, a city bank has deposited with it a
large number of checks drawn on other banks of the same city. It would
involve much labor to present these checks for payment on the banks
on which they are drawn, and secure currency or checks therefor. For
convenience, banks organize clearing houses for the purpose of making
daily exchanges, with each other, of checks. If _Bank A_ has deposited
with it $1,000.00 of checks on _Bank B_, and _Bank B_ has deposited
with it $1,100.00 of checks on _Bank A_, the agents of the two banks
meet at the clearing house, and exchange checks and _Bank A_ pays _Bank
B_ the difference between the total amount of checks exchanged, or
$100.00. If the membership of the association consists of twenty-five
banks, the principle is the same, the members exchange checks and
pay each other the difference in amount. Clearing houses have rules
by which members are required to return checks not properly drawn,
over-drafts, forged paper, etc. within a certain time to the paying
bank, or be precluded from raising objections to the clearing house
balance.

=162. Money.= Ordinarily the term, _money_, is used to designate any
medium accepted by a seller from a purchaser in the sale of property.
It is the thing that passes current among business men in their
dealings with each other. Bank notes, checks, gold and silver, nickel
and copper coin, as well as United States certificates, are money.
Money is sometimes used to designate legal tender. _Legal tender_ is
the medium of exchange which creditors are obliged by law to accept in
payment of debts. United States notes, except for duties and interest
on public debts, and gold certificates are legal tender. Gold coin
and silver dollars are legal tender. Subsidiary silver coin, or half
dollars, quarters and dimes, in amount not exceeding ten dollars
are legal tender. Nickels and pennies are legal tender in amount not
exceeding twenty-five cents. Silver certificates and national bank
notes are not legal tender.

=163. Discount.= _Discount_ is money paid in advance for the use of
money. It is interest paid in advance. One of the primary functions of
banks is to discount negotiable paper. The states generally have laws
fixing the legal and maximum rates of interest. If banks or individuals
charge interest in excess of these rules, they subject themselves to
the fixed penalties. In connection with usury laws, some confusion
has arisen as to what constitutes a purchase and what constitutes a
discount. A person is permitted to make contracts and make as large
a profit as possible, if no fraud is used. If the contract involves
the purchase of a negotiable instrument, as distinguished from a loan
of money, he may make as large a profit as he is able. If _X_ desires
to borrow $100.00 of _Y_ and _Y_ gives him the money and takes _X_'s
promissory note, _Y_ can deduct only the lawful rate of interest. If,
however, _X_ holds _Z's_ promissory note indorsed in blank, or payable
to bearer, _Y_ may purchase the note from _X_ for any price he is able,
and if he makes half the face value of it by the transaction, it is
regarded as a sale, and not as a loan. This transaction does not come
within the usury laws. A bank, however, by the weight of authority is
not permitted to make purchases of notes in this sense. The purchase
above described, if made by a bank, would be regarded as usurious.
Banks may purchase notes if so authorized by their charter, but may not
charge more than the lawful rate of interest as profit.

=164. Exchange.= _Exchange_ is the term applied to methods of
cancelling debts and credits between persons of different places. If
_X_, in Cleveland, owes _Y_, in New York, $100.00, and _Z_, in New
York, owes _X_, in Cleveland, $100.00, it is cheaper and safer for _X_
to send _Y_ an order on _Z_ for $100.00 than to send legal tender from
Cleveland to New York. This transaction is called _exchange_. If made
between persons of the same country, it is called _domestic_ exchange;
if between persons of different countries, it is called _foreign_
exchange. Banks of one city keep deposits in other cities for the
purpose of selling drafts thereon to customers.

=165. Interest.= _Interest_ is the money paid for the use of money.
Most states have statutes fixing the rate of interest in transactions
where no rate is specified, and fixing the highest rate that may be
agreed upon. The following are the rates of interest in the different
states:

States. Where no rate is Highest rate that may
agreed upon. be agreed upon.
Alabama 8% 8%
Alaska 8% 12%
Arizona 6% any rate
Arkansas 6% 10%
California 7% any rate
Colorado 8% any rate
Connecticut 6% 15%
Delaware 6% 6%
District of Columbia 6% 10%
Florida 8% 10%
Georgia 7% 8%
Idaho 7% 12%
Illinois 5% 7%
Indiana 6% 8%
Iowa 6% 8%
Kansas 6% 10%
Kentucky 6% 6%
Louisiana 5% 8%
Maine 6% any rate
Maryland 6% 6%
Massachusetts 6% any rate
Michigan 5% 7%
Minnesota 6% 10%
Mississippi 6% 10%
Missouri 6% 8%
Montana 8% any rate
Nebraska 7% 10%
Nevada 7% any rate
New Hampshire 6% 6%
New Jersey 6% 6%
New Mexico 6% 12%
New York 6% 6%
North Carolina 6% 6%
North Dakota 7% 12%
Ohio 6% 8%
Oklahoma 6% 10%
Oregon 6% 10%
Pennsylvania 6% any rate
Rhode Island 6% any rate
South Carolina 7% 8%
South Dakota 7% 12%
Tennessee 6% 6%
Texas 6% 10%
Utah 8% 12%
Vermont 6% 6%
Virginia 6% 6%
Washington 6% 12%
West Virginia 6% 6%
Wisconsin 6% 10%
Wyoming 8% 12%

=166. Usury.= _Usury_ is the term applied to interest charged in excess
of the rate allowed by law. The states differ in the rate fixed by
statute as the legal rate. The most common penalty fixed by statute of
the different states, is forfeiture of all interest.

INSURANCE

_167. Insurance Defined._ _Insurance_ is the name applied to a
contract, by the terms of which one party, in consideration of a
certain sum of money, agrees to protect another to a certain specified
degree against injuries or losses arising from certain perils. The
kinds of insurance are almost as numerous as the kinds of perils to
which persons or property may be subjected. The nature of insurance
contracts are such that legislatures of the states have the power to
define what classes of persons may engage in the insurance business.
Some states provide by statute that only incorporated companies
shall transact the business of writing insurance policies, and that
these companies shall be subject to stringent state supervision and
inspection. States have the right to stipulate upon what terms foreign
insurance companies shall have the right to transact business within
their borders, and may exclude them from transacting business if they
refuse to comply with such provisions. The United States Constitution
provides that interstate commerce shall be under the control of United
States Congress. The Supreme Court of the United States has decided
that insurance business is not interstate commerce. Therefore the
states may determine upon what terms insurance companies may transact
business within their territory. Unincorporated companies as well as
individuals may engage in the business of writing insurance, if it is
not provided otherwise by statute.

=168. Nature of Insurance Contract.= An insurance policy is a contract
requiring competent parties, mutuality, consideration and all the
elements necessary to make any kind of a contract. An insurance
contract is peculiar in that it binds the insurer to pay damages for
losses or injuries arising out of uncertain perils or hazards. It is
in the nature of a gambling transaction. A large number of persons
pool a portion of their assets, in order to pay losses of a certain
character likely to befall only a small portion of the persons entering
into the pool. For example, if ten thousand persons pay one dollar
each to establish a common fund to protect the members against losses
from fire, they do so under the belief and expectation that but few of
the number ever will sustain loss from the peril of fire. An insurance
contract is so closely akin to a gambling contract that persons are
not permitted to take insurance on property, or upon the lives of
persons, unless they have an individual interest, which they should
have a purpose or interest in protecting outside of a mere disposition
to wager. This interest is called _insurable interest_ and is discussed
under a separate section. It is true that many kinds of life insurance
policies protect against death, and that death is an event certain
to occur to the insured, but the real purpose of the policy is to
give protection against the uncertainty of the time of death. The
uncertainty of the thing sought to be protected against is as great in
life insurance as in any kind of insurance.

=169. Parties to Insurance Contracts.= Primarily there are only two
parties to an insurance contract, the party to be paid for the loss, in
case the event insured against occurs, who is called the _insured_, and
the party, who for a consideration agrees to pay an amount certain, or
to be determined upon the happening of the uncertain event. This party
is called the _insurer_ or _underwriter_. In many insurance contracts,
a third party is interested. For example, _A_ may insure his life in _B
Co._, for the benefit of his wife, _C_. _C_ may have nothing to do with
the contract except being named as beneficiary thereunder. She pays
nothing for this benefit. It is a contract made for her benefit. After
she has been made beneficiary, _A_ cannot change beneficiaries without
the consent of _C_. In case of _C's_ death, _A_ may voluntarily name
another beneficiary. If _A_ is indebted to _B_, and _B_, considering
_A_ insolvent, desires to secure the debt by taking out a policy of
insurance on _A's_ life in the _C_ company, he cannot take out such
a policy without the consent of _A_. While a third person may be
interested in an insurance contract, or his consent may be necessary
before the contract can be made, there are primarily only two parties
to the contract, the _insured_ and the _insurer_.

=170. Kinds of Insurance.= Probably the first kind of insurance
written was marine. The next kind was fire; this was followed by life
insurance, and this in turn, by the many varieties of modern insurance
covering almost all kinds of hazards imaginable. The following kinds
of insurance are in common use: marine, fire, life, accident, tornado,
graveyard, fraternal, fidelity, boiler, credit, guaranty title, plate
glass, mutual benefit, employer's liability, hail, hurricane and
health. No attempt is here made to discuss all the different kinds of
insurance. An endeavor is made to discuss some of the fundamental legal
principles connected with the most common kinds of insurance. These
principles apply to all kinds of insurance.

=171. Insurable Interest.= Courts refuse to recognize the validity
of insurance contracts, unless the party taking the insurance has a
pecuniary interest, present or reasonably expected, in the life or
property insured. Such an interest is known in law as an _insurable
interest_. Insurable interest cannot be exactly defined. It depends
upon the circumstances surrounding each particular case. Some things
have been decided by the courts to constitute an insurable interest.
Cases are continually arising, however, which present new features
which must be decided upon their merits. Insurable interest can only
be described, it cannot exactly be defined. It is sometimes said to be
a money or pecuniary interest possessed, or reasonably expected, by
the party entering into the insurance contract. A father may insure
the life of his child, of his wife, or his servant under contract for
a period of service. A party cannot, however, insure the life of a
person with whom he is in no way connected by close blood relationship,
or upon whom he does not depend for present or future support. Such
a contract is regarded as a mere wager, which a sound public policy
refuses to enforce, or even to recognize as valid. A person may insure
a growing crop, and the life of animals owned by him. A mortgagee,
mortgager or pledgee of property may insure the property. A creditor
may insure the life of his debtor; a person may insure his property
against robbery. In fact a person may insure the life of a person or
any property belonging to him or to another, the loss of which will
cause him a pecuniary loss.

In case of life insurance policies, if there is an insurable interest
at the time the insurance contract is made, the policy is valid, even
though the insurable interest afterwards ceases. Any relationship,
either by blood or marriage, close enough to make it of pecuniary
advantage to the party taking the insurance to have the insured
continue to live, is regarded sufficient to constitute an insurable
interest. It has been held that a brother has no insurable interest
in the life of his brother, nor a granddaughter in the life of her
grandfather, nor a son-in-law in the life of his mother-in-law. A
parent, however, has an insurable interest in the life of his child
or wife; or a granddaughter in the life of her grandfather if she
depends upon him for her support. A person may insure his own life or
property in favor of any one else. The question of insurable interest
arises only in case one endeavors to insure the life of another, or the
property of another in which one has only a slight interest.

=172. Forms of Insurance Contract.= The states generally provide by
statute, that to be enforceable, contracts to answer for the debt,
default or obligation of another, shall be in writing (See _Statute
of Frauds_, chapter on Contracts.) The courts have decided that an
insurance contract is not a contract to answer for the debt, default
or obligation of another, but a direct contract by which the insurance
company for a consideration agrees to pay its own debt in case of
loss on the part of the insured. Insurance contracts need not be in
writing. Oral contracts of insurance like other simple contracts are
binding upon the parties thereto. For example, _A_, representing an
insurance company, meets _B_, and agrees orally to insure _B's_ house
from twelve o'clock of a certain day, and accepts the premium for one
year's insurance. The house burns the evening of the day after the
insurance is to become effective. _A's_ insurance company is bound by
the oral contract of insurance. If _A_ is not permitted by his company
to make oral contracts of insurance, and _A_ so tells _B_, or if _B_
knows of this fact, the contract is not binding, since _A_ acts without
authority. If _A_ meets _B_ on Monday, and orally agrees to procure for
him a written policy of insurance on _B's_ house to take effect from
Monday noon, and _B's_ house burns Tuesday morning, _A_ having failed
to procure the written policy of insurance for _B_, the insurance
company is not liable to _B_ for the loss. _B_ had a contract with _A_
by the terms of which _A_ promised to procure a policy of insurance for
_B_. _A_ did not orally promise to insure the house for _B_. _B_ has
an action for damages against _A_, but not an action on a contract of
insurance against the company.

Insurance agents are often authorized to issue receipts, called
_binders_, to the effect that insurance has been contracted by a party
from a certain time. These binders constitute sufficient evidence to
enable the insured to enforce his contract of insurance. Agents are
sometimes authorized to enter a memorandum in their books of insurance,
called _entries_ in their binding books. These constitute sufficient
evidence of the formation of a contract between insurer and insured, to
enable the latter to enforce his contract in case of loss.

=173. Warranties and Representations in Insurance Contracts.= The term,
_warranty_ is commonly used in connection with contracts of sales of
personal property, where it is used to designate a collateral contract
connected with the principal contract in question. In connection with
insurance contracts, it means a statement or stipulation which, by
reference or express term, is itself made a part of the contract of
insurance. The principal distinction between a warranty in connection
with sale of personal property, and in connection with contracts of
insurance, is that in the former case, breach of warranty usually does
not discharge the contract, but simply gives rise to an action for
damages, while in case of contracts of insurance, breach of warranty
discharges the contract itself. Life insurance companies generally
require formal written application by which the applicant for insurance
is required to answer questions. These questions and answers are made
a part of the policy or contract of insurance, either by reference,
or by incorporation, and become warranties. If they are not true, the
policy may be avoided by reason thereof. To constitute a warranty, a
stipulation must be made a part of the insurance contract either by
direct reference, or by express incorporation therein. To constitute
a warranty, the contract of insurance must contain a stipulation that
the statement or assertion in question is a warranty. If a warranty
proves false, no matter if innocently made, the contract is discharged
thereby. Warranties are strictly construed. Much injustice has been
done by reason of warranties in insurance contracts.

Some states provide by statute, that neither the application for
insurance, nor the rules and regulations of the company shall be
considered as warranties unless expressly incorporated in the policy
as warranties. A distinction is made between representations and
warranties. A representation is a statement made as an inducement
to enter into a contract of insurance. It is regarded as one of the
preliminaries to the contract of insurance and not as a vital part
of the contract itself. If a representation proves not to be true
in some particular, the contract of insurance is not discharged by
reason thereof. To constitute a ground for avoiding a contract, a
representation must be false, fraudulent, and material to the contract.
It is sometimes said that a warranty is a stipulation in the contract
of insurance itself, and must be complied with whether true or not,
while a representation is usually given verbally, or in a separate
document, and need only be substantially complied with.

In case of doubt as to whether statements are representations or
warranties, courts incline toward treating them as representations.
Answers to questions were made in an application for insurance followed
by the statement, "The above are true and fair answers to the foregoing
questions in which there are no misrepresentations or suppression of
facts, and I acknowledge and agree that the above statement shall form
the basis of the agreement with the insurance company." The policy
of insurance did not state that these questions were incorporated as
warranties. In a suit on the policy, the court held the answers to be
representations and not warranties.

=174. Life, Term, and Tontine Policies.= _Life policy_ is the term
applied to a contract of insurance payable only at the death of the
insured. _Term_ or _endowment policy_ is the term applied to insurance
payable at the death of the insured, or at the expiration of a certain
term or period of years, if the insured survives such period. The
term, _tontine_ insurance, is the name applied to insurance paid out
of the proceeds of unpaid policies during a certain period or term.
If the insured survives the term, and pays the premium he benefits
by receiving a share of the proceeds received from the policies of
those members who do not survive the period, or who let their policies
lapse for other reasons. The term is taken from the name of the person
who devised the plan. It is sometimes called _cumulative dividend_
insurance. It is written in many different forms.

=175. Marine Insurance.= Contracts of insurance against injuries to a
ship or cargo at sea are called _marine_ insurance contracts. This is
the oldest form of insurance. In securing insurance of this character,
the insured impliedly warrants that the vessel is seaworthy. This is
the only kind of insurance in which there is an implied warranty. The
term _general average_ is used in connection with marine insurance.
If it becomes necessary to sacrifice a part of a cargo to save the
balance, the owners of part of the cargo saved, together with the
owners of the boat, must contribute _pro rata_ toward the loss of the
party whose goods are sacrificed. That is, all owners of cargo and boat
must stand the loss in proportion to their holdings. The one whose
goods are sacrificed is placed in no better or worse situation than the
others.

=176. Standard Policies.= Some states require by statute, that
insurance companies issue policies, the terms of which are fixed by
statute. This gives the insured the benefit of a uniform policy, the
terms of which are easily comprehended, and which are the same in all
cases. These statutory policies are known as standard policies.

=177. Suicide Clauses.= Contracts of insurance frequently contain the
stipulation that the contract shall be void if the insured suicides.
This stipulation is enforceable if it can be proven that the insured
suicided while sane. It is generally held to be unenforceable if the
insured suicided while insane. An insurance company may stipulate that
the contract shall be void if the insured suicides when either sane
or insane. Such a stipulation is enforceable. The ordinary insurance
contract, however, which contains any suicide clause provides against
suicide only, and does not contain any stipulation as to the sanity of
the insured at the time he commits the act. It is usually held that
the burden is upon the insurance company to prove that the insured
was sane at the time he committed suicide. If a policy contains no
suicide clause whatever, suicide will not avoid the policy unless it
is proven that the purpose of the suicide was to defraud the insurance
company. If it is proven that one takes out a policy of insurance with
the intent to commit suicide, the policy is not enforceable in case of
suicide.

=178. Fidelity and Casuality Insurance.= Contracts of insurance by
which the honesty and faithfulness of agents and employees are insured
are termed fidelity insurance contracts. _A_, a bank, employs _B_
as clerk. _A_ requires _B_ to furnish a bond, by the terms of which
the signers of the bond agree to pay _A_ for any losses arising from
_B's_ dishonesty or carelessness. This bond or contract is known as a
_fidelity insurance_ contract.

Insurance contracts providing against losses arising out of accidents
to property are termed _casualty insurance_. Losses by theft or
burglary, or from steam boiler explosions are common examples.

=179. Reinsurance.= One insurance company may insure its own liability
upon policies issued, by entering into separate contracts covering
the same risks with other insurance companies. For example, _A_, an
insurance company, insures _B's_ factory for $1,000.00. _A_ may in turn
insure its liability to _B_, by entering into a contract with _C_,
another insurance company, by the terms of which _C_ agrees to insure
_A_ against loss upon _A's_ contract with _B_. _A_ is not permitted
to bind _C_ by a greater responsibility than _A_ is bound to _B_. In
case _B's_ factory is burned, in the absence of express stipulation to
the contrary, _A_ may recover from _C_ regardless of whether he has
first paid _B_. Even though _A_ is insolvent and unable to pay _B_,
this is no defense to _C_ on his contract with _A_. _C_ must pay _A_
regardless of the insolvency of _A_. In case _B_ has a fire and _A_
settles with him for $500.00, _C_ is liable to _A_ for only $500.00.
That is _C's_ liability to _A_ is the same as _A's_ liability to _B_,
unless by the terms of the re-insurance, _C_ assumes only a portion of
_A's_ liability to _B_. In this event _C_ must pay _A_ the pro rata
share of _A's_ liability to _B_. _B_ in no event has any rights against
_C_. _B's_ contract is with _A_, and the fact that _A_ has entered into
a contract with _C_ involving the same subject matter, gives _B_ no
rights against _C_.

=180. Assignment of Insurance Policies.= By _assignment_, is meant a
sale or transfer of some intangible interest by one person to another
for a valuable consideration. In case of insurance contracts other than
life, no real assignment can be made. The person whose property is
insured is the one who really benefits by the contracts of insurance.
Before loss, an attempted assignment of the insurance policy amounts
merely to a designation of the person to whom the insurance is to
be paid. In case of loss, the original party insured still holds
the property insured or the insurable interest, and any breach of
the insurance contract on his part avoids the contract. A policy of
insurance cannot be assigned without the consent of the insurance
company. If an attempt is made to transfer an insurance policy other
than life, before loss, without the transfer of the property itself,
the transaction does not amount to an assignment, but amounts to a
contract between the seller and buyer, by which the latter is entitled
to receive the proceeds of the policy if any ever arises. So far as the
insurance company is concerned, acts of the seller after the attempted
assignment are as complete a defense as before. If the property
insured as well as the insurance policy is transferred to another,
with consent of the insurance company, this is not an assignment,
but amounts to a new contract between the insurance company and the
purchaser. After a loss has occurred, the right of the insured against
the insurance company amounts to a debt, which may be assigned the same
as an ordinary debt.

In case of life insurance, if a third party has been named as
beneficiary, he is supposed to have such an interest in the policy
that a change of beneficiary cannot be made nor can an assignment of
the policy be made without his consent. In case the proceeds of a life
insurance policy are payable to the insured himself, or to his estate,
the policy may be assigned at the will of the insured. If the policy
provides against assignment, it cannot be assigned. Otherwise, it may
be transferred as collateral security, or sold outright at the will of
the insured.

=181. Open and Valued Policies, and Other Insurance.= Policies or
contracts of insurance are said to be _valued_ or _open_, depending
upon whether the amount to be paid in case of loss is agreed upon in
advance. Life insurance policies are examples of valued policies. The
insurance company agrees to pay a certain fixed amount in case of death
of the insured, or at a certain time. Fire insurance policies usually
are open policies. The insurance company agrees to pay the amount the
insured loses by fire which destroys or injures certain specified
property. The fact that a limit is placed upon the liability of the
insurance company does not make the policy valued. If, however, the
insurance company agrees to pay a certain fixed amount in case of loss
by fire the policy is valued.

A person may take as much insurance upon his life as he pleases, so
long as he reveals the facts to the companies with whom he contracts.
In case of insuring property, the insurer is not permitted to recover
in excess of the value of the property, regardless of the amount of
insurance he carries. If an insurer takes out a policy of insurance
upon property already insured, he must not conceal this fact from the
subsequent insurer. The second policy will provide for payment, in case
of loss in excess of the first insurer's liability, but not in excess
of the value of the property. Or it will provide that in case of loss
each policy shall share the loss in the proportion that the amounts of
the policies bear to the loss.

SURETYSHIP

=182. Nature of Contracts to Answer for the Debt of Another.= In the
transaction of business, many contracts are made to answer for the debt
or obligation of another, as distinguished from the direct debt or
obligation of the person entering into the contract. These contracts
are made for the purpose of adding security to the original contract,
or for the purpose of enabling the original obligor to obtain credit.
The general term applied to contracts to answer for the debts of
another is _suretyship_. The arrangement by which one party agrees to
answer for the debt or obligation of another is a contract. This kind
of a contract requires all the elements of any contract. There must
be a meeting of the minds of the contracting parties, consideration,
etc. If _A_ purchases goods from _B_, agreeing to pay $100.00 for
them, _A's_ obligation to pay _B_ $100.00 is a primary one arising
out of a simple contract. If _A_ purchases goods from _B_ agreeing
to pay $100.00 therefor, and _C_, as a part of the same transaction,
makes a promise in writing to _B_, to pay the $100.00 if _A_ does not
pay, _C's_ obligation is one of suretyship. He is known in law as a
_guarantor_. His contract is to pay the debt of another. He has agreed
to pay _A's_ debt if _A_ fails to pay it. Any contract by which a
person agrees to answer for the debt or default of another, no matter
what its form may be, or by what technical name it may be known, is a
contract of suretyship.

=183. Kinds of Suretyship Contracts and Names of Parties Thereto.=
The term, _suretyship_, is the general or descriptive term applied to
all contracts by which one person agrees to answer for the debt or
obligation of another. It may be in the form of a contract of a surety,
a contract of a guarantor, or a contract of an indorser. There are
at least three parties to all suretyship contracts; the party whose
debt is secured, called the _principal_; the one to whom the debt is
owed, called the _creditor_; and the one promising to pay the debt
of another, called the _promisor_. For example, if _A_, orders one
thousand dollars' worth of merchandise from _B_, and, as a part of the
transaction, _C_ promises to pay the amount for _A_, when due, if _A_
fails to pay it, the transaction is one of suretyship in which _A_ is
_principal_, _B_, _creditor_, and _C_, _promisor_. A promisor may be a
surety, a guarantor, or an indorser of a negotiable instrument. Whether
a promisor is a surety, a guarantor, or an indorser depends upon the
particular kind of a contract made. In any event it is a promise to
pay the debt of another. But the conditions and terms of the agreement
may make it that of a _surety_, a _guarantor_ or an _indorser_. The
distinguishing features of the different kinds of promisors are
discussed under separate sections.

=184. Contract of a Surety.= A surety is one who unconditionally
promises to answer for the debt or obligation of another. For example,
_A_ gives the following promissory note to _B_:

Chicago, Ill., Jan. 2, 1908.

Thirty days after date I promise to pay to the order of _B_--Five
Hundred Dollars.

Signed--_A_.

Signed--_C_, Surety.

This note constitutes an obligation of suretyship in which _B_ is
creditor, _A_ is principal, and _C_ is surety. _C's_ obligation is the
same as that of _A_, his principal. By signing this note as surety, _C_
binds himself to pay the note when due. He does not bind himself to
pay on condition that _A_ does not, or cannot pay the note when due,
but binds himself to pay the note when due. His obligation is the same
as the obligation of _A_. His obligation is not conditioned upon _A's_
failure or inability to pay. When the note is due, _B_, the creditor,
may bring suit against _C_, the surety, disregarding the principal,
_A_. _B_ may bring suit against _C_, the surety, without making any
demand of payment of _A_, or without receiving _A's_ refusal to pay. If
the note is signed by _C_ as above, without using the word, _surety_
after his name, it may be shown by oral testimony that _C_ signed as
surety, if such is the fact. A surety may sign any kind of a contract
as surety for another. In this event, his obligation is to do the same
thing that his principal contracts to do. If the obligation of the
one signing as security is conditioned upon anything, it is not the
obligation of a surety, but that of a guarantor, no matter by what term
designated in the contract. It has been said by some writers that a
surety promises to pay the debt of another if the other does not, and
a guarantor promises to pay the debt of another if the other cannot.
This definition is not correct and is not supported by the cases.
This definition applies only to guarantors, since it is a conditional
promise to pay the debt or obligation of another. A surety's obligation
is absolute, and not conditional in any way upon the failure or
inability of the principal debtor to pay. In commercial practice,
the contract of a surety is infrequently used as compared with the
obligation of a guarantor.

[Illustration: A 40-FOOT WIDE MACHINE TOOL BAY IN THE CLAREMONT, N. H.,
FACTORIES OF THE SULLIVAN MACHINERY COMPANY]

=185. Contract of a Guarantor.= Anyone who agrees to answer for the
debt, default, or obligation of another upon condition that the other
does not or cannot pay the debt, or upon any condition whatever, is a
guarantor. For example, _A_ gives _B_ the following promissory note:

Cleveland, Ohio, Nov. 27, 1909.

Sixty days after date, I promise to pay _B_, or order, One Hundred
Dollars.

Signed--_A_.

The back of the note contains the following statement:

I guarantee the payment of this note when due.

Signed--_C_.

The contract of _C_ is that of a guarantor. If _A_ fails to pay the
note when due, and _B_ demands payment of _A_, and promptly notifies
_C_ of _A's_ failure to pay, _C_ is liable. Technically, _C_ need not
be notified, but it is good business practice to give him notice. _C's_
liability depends upon _A's_ failure to pay the note when due. _C's_
liability is a conditional one as distinguished from the liability of a
surety, which is absolute.

Contracts of guaranty are commonly used in commercial affairs. In
obtaining credit, contracts of guaranty are common. They may be used
apart from promissory notes or negotiable instruments. Any kind of
an obligation or contract of another may be guaranteed. A retail dry
goods merchant desires to purchase $2,000.00 worth of goods from _B_, a
wholesaler. _B_ does not know _A_, but knows _C_, a friend of _A_. _B_
offers to sell _A_ the goods on credit, on condition that _A_ furnish
him a letter of guaranty signed by _C_. _A_ furnishes _B_ the following
guaranty, signed by _C_:

Mr. B.,

New York City.

On condition that you sell _A_ an order of goods which he may select,
I hereby guarantee the payment of the amount thereof, not to exceed
$2,000.00 in amount.

Signed _C_.

By this contract, _C_ binds himself to pay _B_ the purchase price of
the goods, not exceeding $2,000.00, if _A_ fails to pay same.

Contracts of guaranty are of many kinds. They are frequently
given to secure contracts of personal service, for the construction of
buildings, for mercantile transactions, or in fact for any kind of
business transaction. They are contracts, and must contain all the
elements of a simple contract, such as consideration, mutuality,
competent parties, etc. If a contract of guaranty is given at the time
the original contract is made, and is a part of the same transaction,
the consideration which supports the original contract supports the
contract of guaranty. Otherwise, the contract of guaranty must be
supported by a separate consideration.

=186. Contract of an Indorser.= One form of suretyship obligation,
or obligations, to answer for the debt or default of another, is that
of an indorser to a negotiable instrument. The contract of an indorser
differs from that of a guarantor, and from that of a surety.
For example, _A_ gives the following promissory note to _B_:

Chicago, Ill., Jan. 4, 1909.

Ninety days after date I promise to pay to the order of _B_, one
thousand dollars.

Signed _A_.

_B_ indorses the note by writing his name across the back thereof,
and delivers it to _C_ for $985.00. The contract now existing between
_A_, _B_, and _C_, is one of suretyship, in which _A_ is principal,
_B_ creditor, and _C_ promisor. A promisor in suretyship may be either
a surety, a guarantor or an indorser. In this particular case the
obligation of _C_, the promisor, is that of an indorser. The principal
obligation of _C_ to _B_ is that if the note is presented for payment
to _A_ at maturity, and upon _A's_ failure to pay, due notice is
promptly given to _C_, _C_ will be responsible to _B_ for the amount
due on the note. An indorser is also liable upon certain implied
warranties in addition to his primary liability as above set forth. In
the language of the courts, the technical liability of an indorser is
as follows:

"I hereby agree by the acceptance by you of title of this paper, and
the value you confer upon me in exchange, to pay you, or any of your
successors in title, the amount of this instrument, providing you or
any of your successors in title present this note to the maker on
the date of maturity, and notify me without delay of his failure or
refusal to pay. And I warrant that all the parties had capacity and
authority to sign, and that the obligation is binding upon each of
them. And I will respond to the obligation created by these warranties
even though you do not demand payment of the maker at maturity, or
notify me of default."

An indorser is usually defined to be one who writes his name on a
negotiable instrument for the purpose of passing title. By so doing,
he agrees to answer for the debt of another. That is, he agrees
conditionally to pay the obligation of the maker of the instrument if
the maker does not, and if the indorser is promptly notified of the
failure of the maker to pay.

_Irregular indorser_ is the term applied to persons who sign negotiable
instruments outside the chain of title. For example, if _A_ is the
maker of a promissory note and _B_ is the payee, and _C_ places his
signature on the back of the note, _C_ is an irregular indorser. He
signs outside the chain of title. _B_ is the one who must first place
his signature on the back of the note to transfer title. The courts of
the different states have not been in harmony in fixing the liability
of an irregular indorser. Some make his liability that of a surety,
some that of a guarantor, and others that of an indorser. Many of
the states at the present time have statutes regulating the making
and transfer of negotiable instrument. The codes generally fix the
liability of an irregular indorser to be that of an indorser.

=187. Consideration to Contracts of Suretyship.= An agreement to answer
for the debt, default, or obligation of another, to be binding, must
constitute a contract. It must contain all the elements of a simple
contract, including a valuable consideration. A valuable consideration
may be defined to be anything of benefit to the one making the promise,
or anything of detriment to the one to whom the promise is made.
A promise made in return for a promise, usually termed "a promise
for a promise," is considered a valuable consideration as well as
something of value actually given to the one making the promise. A
consideration need not be adequate. It need not be commensurate with
the obligation entered into. In the absence of fraud, a consideration
of one dollar will support a contract for $10,000.00 as well as an
actual consideration of $10,000.00. In a suretyship contract, three
persons are concerned; the party owing the original debt, the one to
whom the debt is payable, and the one promising to answer for another's
debt. By reason of the third party to a suretyship contract, the
question of consideration is sometimes confusing. If the obligation of
the promisor, or the party agreeing to answer for the debt of another,
is made at the same time, and is a part of the same transaction as
the contract between the original debtor and his creditor, the
consideration supporting the contract between the original debtor and
the creditor supports the contract of the promisor. For example, if _A_
endeavors to purchase $100.00 worth of goods of _B_, and _B_ refuses to
make the sale unless _C_ signs a contract of guaranty for the value of
the goods, and _C_ signs such a contract of guaranty which is delivered
to _B_ before the goods are delivered, the consideration, namely the
receipt of $100.00 worth of goods delivered to _A_ which supports _A's_
promise to _B_, will support _C's_ promise to _B_ to pay the $100.00,
if _A_ fails to pay it. If the suretyship contract is entered into
after the original obligation is incurred, and independently of it,
there must be a separate and independent consideration to support it.
For example, if _A_ purchases $100.00 worth of goods from _B_, agreeing
to pay for them in thirty days, and after fifteen days have elapsed
after delivery of the goods, _B_, fearing _A_ is insolvent, asks him to
furnish a guaranty of _C_, _C_ must receive a valuable consideration
to support his contract of guaranty, separate and distinct from the
consideration which supports _A's_ obligation to _B_.

=188. Contract of Suretyship Must be in Writing.= About 1676, the
English Parliament passed a statute known as the Statute of Frauds.
Among other things this statute required contracts of suretyship to
be in writing to be enforceable. The statute was in part as follows,
"No action shall be brought whereby to charge the defendant upon any
special promise to answer for the debt, default or miscarriage of
another person unless the agreement upon which action shall be brought
or some memorandum or note thereof shall be in writing, signed by the
party to be charged therewith or some person thereunto by him lawfully
authorized."

The states of this country generally have re-enacted this statute. An
oral contract of suretyship is not void. The parties may voluntarily
carry it out if they choose. The law does not make it illegal. The law
simply says that it is not enforceable. If an action is brought by a
party on an oral contract of suretyship and the other party objects
for that reason, the court will not enforce the contract. To satisfy
the Statute of Frauds it is not necessary that the entire contract be
in writing, but the substance must be stated, and the writing must be
signed by the one promising to answer for the other's obligation.

A promise to pay one's own debt is not within the Statute of Frauds,
and need not be in writing to be enforceable. If a promise is made for
the primary purpose of benefiting the promisor, even though it takes
care of the debt of another, it is regarded as an original promise of
the promisor, and need not be in writing.

=189. General, Special, Limited and Continuing Guaranties.=
Guaranties may be directed to some particular person or firm, or may
be addressed to anyone who desires to accept them. An open guaranty,
or one addressed to anyone is called a _general_ guaranty. A guaranty
addressed to a particular person or firm is called _special_ guaranty.
In case of a special guaranty, only the person to whom it is addressed
can accept it. Anyone can accept a general guaranty. A letter of
guaranty addressed, "to whom it may concern," is a general guaranty,
while one addressed to "The _A. B._ Co.," is a special guaranty.

A guaranty limited as to time, either by specifying the date on which
it is to expire, or by specifying the number of transactions or the
transactions it is to embrace, is a _limited_ guaranty. If no limit of
time or of number of transactions is placed therein, it continues until
withdrawn by the guarantor. This is called a _continuing_ guaranty.

=190. Notice to Guarantors.= A guarantor may be entitled to two kinds
of notice. He may be entitled to notice of acceptance of the guaranty,
and he may be entitled to notice of default of his principal. The first
is called notice of acceptance of a guaranty, the second, notice of
default of a guaranty. If a person stipulates in his letter of guaranty
that he requires notice of acceptance of his guaranty, the creditor
must give him such notice to hold him. Without such stipulation he
is not, in most jurisdictions, entitled to notice. _A_ addresses the
following letter of credit to _B_:

Cleveland, O., Jan. 4, 1909.

Mr. B.

Give A credit at your store to the amount of $25.00. I will pay you if
he does not.

Signed--C.

The letter of guaranty does not require _B_ to notify _C_ of its
acceptance. In the Federal Courts, the rule requires notice of
acceptance of guaranties. It is sound business practice always to
notify a creditor of acceptance of a guaranty. If a letter of guaranty
contains a stipulation that the guarantor is to receive notice of
default of his principal, such notice must be given, or the guarantor
will be discharged to the amount of his damage resulting from failure
to receive this notice. In case of guaranties involving the payment of
a definite amount at a definite time, for example, in case of guaranty
of payment of a promissory note, no notice is necessary on the part of
the creditor to the guarantor of the failure of the principal to pay.
In other cases it may be stated as a general rule that notice should be
given the guarantor of default of his principal. It is safe business
policy for a creditor to give notice to a guarantor of default of
payment on the part of his principal.

=191. Defense of Payment.= Suretyship obligations are obligations to
answer for the debts or default of another. They may be in the form
of a contract of a surety, of a guarantor, or of an indorser. Certain
things constitute suretyship defenses. They apply equally to a surety,
a guarantor and an indorser. If a principal debtor pays or settles the
debt which another promises to pay, the promisor is thereby discharged.
Payment by a principal is a complete suretyship defense. For example,
_A_ owes _B_ $100.00. _C_ in writing promises to pay _A's_ debt when it
is due. _A_ pays _B_. _C_ is thereby discharged.

=193. Defense of Granting Extension of Time to Principal.= If a
creditor enters into a contract by which the principal is given an
extension of time, the promisor is released. This does not mean mere
delay in enforcing the collection of the principal debt, nor does it
mean leniency of a creditor with his debtor. If, however, a creditor
makes a contract based upon a valuable consideration, by which the
principal debtor is granted an extension of time within which to pay
his debt, the promisor is discharged. For example, if _A_ owes _B_
$1,000.00 on March 1st, and _C_ in writing promises _B_ to pay if _A_
does not, if _B_ does not collect from _A_ on March 1st, but lets
the debt run until March 15th or indefinitely, _C_ is not thereby
discharged. If, however, _B_ in consideration of _A's_ promise to pay
him interest at a certain rate after March 1st, extends the time until
April 1st, _C_ is discharged. To discharge the promisor, the agreement
with the principal to extend the time of payment must be based upon a
valuable consideration, and must be for a definite time.

=194. Defense of Fraud and Duress.= Fraud practiced by the creditor
upon the principal or upon the promisor is a defense to the promisor.
For example, if _A_ is indebted to _B_ and _C_ guarantees _A's_ debt,
and if _B_ procured the contract with _A_ by fraud, or procured the
guaranty from _C_, by fraud, _C_ can avoid the contract of guaranty by
reason of the fraud. If the fraud is practiced by the principal upon
the promisor, it is no defense to the promisor as against the creditor.
For example, if _C_ guarantees _A's_ debt to _B_ and the guaranty is
procured through the fraud of _A_ without _B's_ knowledge or consent,
the fraud will not avail _C_ as a defense to an action brought by _B_
upon the guaranty. The same is true of duress. For a fuller explanation
of fraud and duress see sections on _Fraud_ and _Duress_ under
_Contracts_.

=195. Surety Cannot Compel Creditor to Sue Principal.= Unless so
provided for by statute, a promisor to a suretyship contract cannot
compel a creditor to sue a principal when the debt secured is due, or
claim his discharge for failure on the part of the creditor to comply
with this request. A few states provide by statute that a promisor
may by notice compel a creditor to sue a principal upon a suretyship
obligation when due, or be discharged for his failure so to do.

=196. Surety Companies.= At the present time, corporations are
organized for the purpose of entering into suretyship obligations for
profit. Bonds of public officials as well as of private individuals,
judicial bonds given in appeal of cases at law from one court to a
higher court are commonly signed by surety companies. These companies,
for an agreed annual consideration called a _premium_, sign as surety
these bonds for responsible individuals. Sureties were once said to
be favorites of the law. This was for the reason that individual
sureties signed private, official or judicial bonds as a favor to the
principal, ordinarily without receiving any compensation therefore.
When a liability arose the surety escaped if possible, since it was
not his obligation, but another's which he was called upon to pay. The
courts favored him and technical defenses were recognized which were
not recognized as a defense by persons primarily liable. In the case
of surety companies, however, there is no reason for this favoritism,
since the surety engages in the contract for a consideration, and not
as a favor to anyone. The tendency of the courts is to hold surety
companies strictly to the terms of their contracts.

=197. Subrogation.= By _subrogation_ is meant the substitution of
the promisor for the creditor in case the promisor to a suretyship
obligation pays his principal's debt. For example, if _A_ signs a
guaranty by the terms of which he agrees to pay _B's_ debt to _C_, when
the debt is due if _B_ fails to pay it, and _A_ pays it, _A_ is placed
in _C's_ position and may collect the debt from _B_. Any securities
of _B_ that _C_ held for the debt now belong to _A_. If _C_ has a
judgment against _B_ for the debt, _A_ is subrogated to the judgment
and may himself enforce it.

=198. Indemnity.= The law implies a contract on the part of the
principal to a suretyship contract to pay the promisor when the latter
pays the suretyship obligation. For example, if _A_ guarantees _B's_
debt to _C_, as soon as _A_ is obliged to pay _C_, and does pay _C_,
_A_ may sue _B_ on an implied contract of indemnity for the amount he
has paid _C_.

=199. Contribution.= _Contribution_ is the term applied to the right
of one of two or more co-promisors to a suretyship obligation to secure
a _pro rata_ share from his co-promisors of the amount he is obliged
to pay the creditor on a suretyship contract. For example, if _A_,
_B_ and _C_ guarantee _D's_ debt of $150.00 to _E_, and when the debt
is due, _E_ sues _A_ and collects $150.00 from him, _A_ can sue _B_
and _C_ for $50.00 each. If _A_ pays _C_ only $50.00 he can collect
nothing from _B_ and _C_, since this is only his share of the debt. But
if _A_ settles the debt with _C_ for $50.00, he can recover one third
the amount from both _B_ and _C_. _A_ can pay the debt when it is due,
without waiting for suit if he so desires, and proceed to collect one
third the amount from both _B_ and _C_.

PERSONAL PROPERTY

=200. Personal Property in General.= Personal property is the term
applied to property other than real estate. It may be either tangible
or intangible. Personal property is sometimes divided into _chattels
real_ and _chattels personal_. Chattels real are interests in real
estate not amounting to ownership. Real estate mortgages and leases
are common examples of chattels real. Chattels personal embrace all
personal property other than chattels real. Every thing subject to
ownership not connected with the land is included in the classification
of chattels personal. Promissory notes, personal apparel, furniture,
tools and animals are common examples. Chattels personal are of a
tangible, or of an intangible nature. They are mere rights, or they are
things which may be handled and used. A promissory note, a contract,
or a mortgage is a right as distinguished from a thing in possession.
These rights are sometimes called _choses in action_, while tangible
articles of personal property, such as watches, chairs and horses are
called _choses in possession_. The law relating to personal property
is discussed at length under the sections on _Sales of Personal
Property_, _Pledges_, _Chattel Mortgages_, _Carriers_ and _Wills_.

=201. Acquisition of Title and Transfer of Personal Property.= Title
to personal property may be acquired in several ways, chief among them
being by contract, by possession, by gift, and by operation of law.
If _A_ purchases a carriage from _B_, the transaction is a sale of
personal property and _A_ is entitled to possession of the carriage
by reason of the contract. Title to the carriage is given to _A_ by
contract. Title to some kinds of property is acquired by possession.
Title to wild animals is acquired by possession. The same is true of
fish. Title to lost property, except as against the owner, is acquired
by possession. Title to property is also acquired by voluntary gift on
the part of the owner.

If _A_ dies possessed of articles of personal property, the property
passes to his personal representative to be turned into money to pay
_A's_ debt, or to be distributed in the form of money, or without being
sold, to _A's_ descendant designated by law. This is known as acquiring
personal property by succession, or by operation of law. Personal
property may also be transferred in specie by will.

SALES

=202. Sale Defined.= A transfer of title of personal property is
termed a _sale_. By title is meant ownership. Mere possession of
personal property does not constitute ownership, neither does right
to possession constitute ownership. One may lease personal property,
and by means of the lease have the right to possession, while the
title or ownership is in another. One may find or borrow personal
property, obtaining possession while the title or ownership remains in
another. The transfer of the title or ownership of personal property
as distinguished from the transfer of mere possession or the right of
possession, constitutes the subject of _Sales_. A sale may be defined
to be a contract by which the title to personal property is transferred
for a consideration in money, or money's worth. This transfer of title
to personal property may be entirely independent of the transfer of
possession. One may make a sale of personal property by which the
purchaser takes the title while the possession remains in the seller,
or in some third person.

When, and under what circumstances the title passes is an important
question. A sale of personal property ordinarily gives the purchaser
the right to immediate possession of the property. The time the title
actually passes to the purchaser does not depend upon the time the
property is delivered to the purchaser, but upon the intention of the
parties to the contract of sale. A sale is a contract requiring all the
elements of a simple contract. There must be a meeting of the minds
of the contracting parties, a valuable consideration, competency of
parties, etc. (See _Elements of a Contract_, chapter on Contracts.)

_203._ _Sale Distinguished from a Contract to Sell._ A sale is a
contract by which the title passes to the purchaser at the time the
sale is made. A contract to sell is a contract by which the title
passes to the purchaser at a future time. A sale is a present transfer
of title or ownership to personal property. A contract to sell is
an agreement to pass the title or ownership to personal property to
another at a future time. The practical distinction is in determining
upon whom the loss falls in case the goods are destroyed or injured by
fire, or other accident. In case of a sale, title or ownership passes
to the purchaser, even though possession remains in the seller. If the
goods are lost by fire, without fault of the seller, the purchaser
bears the loss. In case of a contract to sell, the title or ownership
does not pass to the purchaser until the time for fulfilling the
contract has arrived, and until the conditions of the contract are
fulfilled. If the goods are lost before the contract is carried out,
the loss falls on the seller. For example, _A_, a farmer, sells ten
barrels of apples to _B_. _B_ examines the apples, selects the ten
barrels, pays _A_ the stipulated price, and says he will call for them
the following day. Before _B_ calls, the apples are destroyed by fire,
without fault of _A_. _B_ must stand the loss. The title or ownership
passed to him when the sale was made. If _B_ calls on _A_ and enters
into a contract by the terms of which _A_ agrees to deliver at _B's_
residence ten barrels of apples the following day, at an agreed price,
and the apples are destroyed by fire before _A_ delivers them, the loss
falls on _A_. This is a contract to make a sale, not a sale. Title
to the apples does not pass to _B_ until they are delivered by _A_,
according to the terms of the agreement.

Parties may agree that title may pass at a certain time, or upon the
performance of a certain condition. In this event, title does not pass
until the time mentioned arrives, or the condition is fulfilled. In
the majority of sales of personal property, the parties do not set
forth the terms and conditions fully. In the absence of an express
agreement or custom to the contrary, parties are presumed to intend the
title or ownership to pass to the purchaser at the time the sale is
made.

=204. Sale Distinguished from Barter.= A sale is an agreement to
transfer the title of personal property for a consideration in money,
or for something measured by a money standard. An agreement to exchange
goods, or an exchange of goods, is a _barter_, and not a sale. The
distinction is technical, but serves some useful purposes. If _A_,
for a consideration of $200.00, purchases a car of cabbage from _B_
in Nashville, to be delivered in Cleveland, June 20th, and the car
does not arrive, _A_ may go into the nearest market, and purchase a
car of cabbage of the same quality, and collect the difference between
the market price and contract price from _B_. If _A_ is obliged to
pay $250.00 for the cabbages, he can collect $50.00 from _B_. If, on
the other hand, _A_ agrees to give _B_ a horse for a car of cabbages,
no price having been fixed on the horse or on the cabbages, and _B_
fails, and refuses to carry out the contract, _A_ must sue _B_ on the
contract, and collect as damages such amounts as he is able to show he
lost by reason of _B's_ failure to carry out the contract.

Salesmen are commonly employed to sell goods. This means to sell for
money, and unless they are expressly authorized to barter or exchange
goods, attempted exchanges are without authority, and do not bind their
principal.

=205. Conditional Sales.= The term, _conditional sale_, has come
to have a technical meaning. Articles of merchandise, such as sewing
machines, cream separators and cash registers are commonly sold under
a special contract, by which possession is given the purchaser, and
the title by express agreement remains in the seller until the entire
purchase price is paid. The purpose of this form of contract is to
obtain security for the purchase price of the article sold. In the
absence of statutory regulations, if the purchaser does not pay the
purchase price at the agreed time, the seller may take possession of
the property. It is the custom of sellers using this form of contract
to require the purchaser to sign a contract stipulating that the
purchase price be represented by promissory notes of the purchaser,
payable in installments, and that the title is to remain in the seller
until the entire purchase price is paid. If the purchaser defaults
in any one of his installments, by the terms of the contract all the
remaining installments at once become due. This form of contract
worked many hardships. Purchasers were required to make a substantial
payment in advance. If they succeeded in paying practically all the
installments, but defaulted in one, the seller could take possession of
the property, causing the purchaser to lose all he had paid. This form
of contract proved so unconscionable in some of its workings that the
legislatures of most states have passed statutes requiring conditional
sale contracts to be filed with a public official to be enforceable,
and do not permit the seller to take possession of property without
repaying the purchaser the amount already paid less the actual damage
the property has sustained. This damage usually cannot exceed 50% of
the original selling price of the property.

=206. Sale Distinguished from a Bailment.= Possession of personal
property is frequently given another, for the purpose of having work
performed on it, to be used by another, to secure a debt, or to be
protected or preserved without transfer of title. Such a transaction is
called a _bailment_. It is discussed more at length under a separate
chapter. A bailment does not constitute a sale, in that there is no
transfer of title, or ownership of the personal property, possession
of which is given to another. For example, _A_ hires the use of a
horse and carriage from _B_, a liveryman, for two days. _A_ secures
possession of the horse and carriage. He has the right to retain
possession of them for two days, and has the right to use them for the
purpose hired. He cannot sell them, however, nor can he do anything
inconsistent with _B's_ ownership. This transaction is a bailment.

=207. What May Be the Subject of a Sale.= Any article of personal
property having a present existence may be sold. It matters not,
whether it is a chose in possession, or chose in action. By _chose
in possession_ is meant a tangible piece of personal property as
distinguished from a mere right. A horse, plow, chair or desk is an
example of a chose in possession. A promissory note, a contract or
mortgage is an example of _chose in action_. Either may be the subject
of a sale. The distinction between a sale or present transfer of title
to personal property, and a contract to make a sale, must be borne in
mind. If _A_ sells his horse to _B_ for $100.00, in the absence of any
agreement as to delivery the title to the horse passes to _B_ as soon
as the contract is made. This transaction is a sale. If _A_ promises to
sell his horse to _B_ the second of next month, if _B_ will agree to
pay him $100.00 when the horse is delivered the second of next month,
and _B_ so agrees, the contract is not a sale, but a contract to make
a sale. Articles of personal property, to be made or manufactured, are
not the subject of a sale.

Business men commonly make contracts to sell goods in the future which
they do not have in stock, but expect to manufacture, or purchase
elsewhere. Such contracts are not sales. The title to the goods does
not, and cannot pass to the purchaser when the contract is made. They
are mere agreements to make sales in the future. They are treated the
same as ordinary contracts, not as present sales. If the goods are
destroyed before they are completely manufactured, the seller stands
the loss, since the title has not passed from him. If a person agrees
to sell in the future goods to be manufactured, and fails to deliver
the goods specified in the contract, the buyer has the usual remedy. He
may purchase the goods in the market nearest the place of delivery at
the time of delivery, and sue the seller for the difference between the
contract price and the market price. The buyer is not obliged actually
to purchase the goods to enable him to bring suit against the seller.
He may bring a suit against the seller for the difference between the
price he contracted to pay for the goods and the market price at the
time and place of delivery. Crops to be grown are not the subject of
present sale. Crops planted, but not matured, may be sold. Title to the
crops at the present stage of their existence passes to the buyer.

=208. Statute of Frauds, or Contracts of Sale Which Must Be in
Writing.= One section of the English Statute of Frauds applied to
sales. This statute was passed in England about 1676. The seventeenth
section, which applies to sales of personal property, is as follows:

And be it further enacted by aforesaid authority, that from and after
the four and twentieth day of June, 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
that some note or memorandum in writing of said bargain be made, and
signed by the parties to be charged by such contract, or their agent
thereunto lawfully authorized.

The states, generally, have a statute modelled after this section of
the English statute, and providing that contracts for the sale of
personal property, the price of which exceeds fifty dollars, shall not
be enforceable unless a memorandum of the contract be made and signed,
except there be a delivery of at least a part of the property, or
except something be paid by the purchaser to bind the bargain. Some of
the states have no statute of frauds containing a provision relating
to the price of the goods. In many of the states, the valuation fixed
by statute exceeds fifty dollars. Where the statute exists, contracts
which are not in writing are not void. They are merely voidable. The
parties may voluntarily carry them out if they so choose. The law does
not prohibit them, but if one party refuses to recognize the contract,
the other party cannot enforce it by an action at law. A portion of
the fourth section of the English Statute of Frauds provides that
contracts, by their terms not to be performed within one year from
the time of the making thereof, must be in writing to be enforceable.
The states, generally, have a similar statutory provision. This
statute applies to sale of personalty as well as to real estate. If
the contract can be performed within one year, it is not within the
provisions of the statute.

=209. Delivery of Personal Property Sold.= In the absence of any
express agreement to the contrary, there is an implied agreement, on
the part of the seller, to deliver personal property sold, when the
purchaser pays the price. By delivery is meant placing the personal
property at the disposal of the purchaser. It must be borne in mind
that in a contract of sale of personal property, title or ownership
passes to the purchaser at the time the sale is made, even though
possession remains in the seller. This gives the seller the right to
obtain possession of the goods upon paying the price. If the goods
are destroyed without fault of the seller after the sale, and before
delivery, the loss falls on the buyer. If _A_ offers to sell _B_ his
wagon for $100.00, and _B_ accepts, nothing being said about delivery,
the title to the wagon passes at once to _B_. If it is destroyed
without fault of _A_, the loss falls on _B_, even though _B_ has not
paid the price or received possession of the wagon. _B_ is entitled to
possession of the wagon when he pays _A_ $100.00. _A_ is not obliged to
give _B_ possession of the wagon, even though _B_ is the owner of it,
until he receives the price, $100.00.

In the above example there is no stipulation about delivery. The
parties make a sale, agreeing upon the price and thing to be sold,
nothing being said about the delivery. The law in such cases impliedly
requires the seller to deliver when the price is paid, and not until
then. In many contracts, however, the time, place, and manner of
delivery are stipulated in the contract. Sometimes usage and custom
supply these things when the parties do not expressly so stipulate.
When a time, place, or manner of delivery by the seller is stipulated
in a contract, either by express agreement, or by usage and custom,
title to the property usually does not pass to the buyer until the time
has elapsed, and until the seller has delivered according to the manner
stipulated, or has tendered delivery.

A stipulation in a contract of sale that the seller shall deliver at a
particular time or place, or in a particular manner is deemed to show
an intention on the part of the parties that title shall not pass until
the seller has so delivered. If the seller refuses to accept the goods
or pay the price, an offer to deliver by the seller is equivalent to
a delivery. The seller, on the other hand, is not obliged to give up
possession of the goods until he receives the agreed price. If the
seller agrees to give the buyer credit, this rule is not applicable.
If no time of delivery is mentioned, delivery must be made within a
reasonable time, depending upon the circumstances connected with the
particular contract. When delivery is to be made in installments,
failure to pay for one installment ordinarily entitles the seller to
refuse to deliver the balance, or if the seller refuses, or fails
to deliver the first installment, the buyer may refuse to accept
subsequent installments. The buyer is not obliged to accept anything
except the article ordered. If more or less is tendered him, he is not
bound to accept. If he accepts more or less, he is bound to pay the
reasonable value of the same. If no place of delivery is mentioned,
the presumption is that delivery is to be made at the place where the
property is located at the time the sale is made.

The mere fact that delivery is to be made in the future does not
prevent title from passing at the time the sale is made. There must
be something in addition to the fact of future delivery to delay the
passing of the title until the time of delivery. If _A_ purchases an
automobile from _B_, making the selection, delivery to be made the
following Thursday, title passes at once to _A_. If the automobile
is destroyed by fire, or injured without _B's_ fault, the loss falls
on _A_. If, however, _B_ is to do anything with the property, or is
himself to make delivery, this shows an intention on the part of the
parties that title is not to pass until delivery is made.

=210. When Title Passes.= The question of when title to personal
property, the subject of a sale, passes to the purchaser is important
in determining upon whom the loss falls, if the property is destroyed,
stolen, lost or levied upon by judgment of attaching creditors.
Title or ownership to property sold does not depend upon possession.
Personal property may be sold, and title or ownership may pass to the
purchaser, while the seller still has possession, as well as the right
to possession. The general rule is that title or ownership of personal
property sold passes to the purchaser at the time the parties to the
sale intend it to pass. If their intention is expressed, it governs,
and the question is settled. In the great majority of sales, however,
the parties do not expressly determine when title shall pass and this
must be presumed from the circumstances.

For example, if _A_ offers _B_ $20.00 for a certain harness which is
selected, and _A_ accepts the offer, nothing being said about the
delivery or payment, or when title or ownership shall pass to _A_, the
law presumes it to be the intention of the parties that title shall
pass when _B_ accepts _A's_ offer--and from that time, the harness
belongs to _A_. _B_, however, has the right to retain possession of
the harness until _A_ pays him the purchase price of $20.00. When _A_
offers _B_ the $20.00 at the place where the harness was located when
the sale was made, _B_ must give _A_ possession. _B_ is not obliged
to deliver at any other place. If, however, _A_ offers _B_ $20.00 for
_B's_ harness, which is determined upon and selected, _B_ to deliver
same at _A's_ place of business the following evening, this shows an
intention on the part of the parties that the title is not to pass to
_A_ until _B_ delivers the property to _A_ the following evening. A
tender or offer by _B_ to deliver the property to _A_ the following
evening, passes title and places the property at _A's_ risk. If,
however, delivery is to be made merely in the future, not requiring
the seller to take the property to any particular place, the fact that
delivery is to be made in the future does not prevent title passing to
the purchaser at once.

If _A_ purchases _B's_ harness for $20.00, the harness having been
selected, delivery to be made in five days, title passes at once to
_A_.

[Illustration: COOK COUNTY BUILDING, CHICAGO, ILL.

Holabird & Roche, Architects, Chicago, Ill.

Building Completed in 1907. Cost, $5,000,000. Length, 380 ft.; Width,
160 ft.; Height, 204 ft. Eleven Stories, with Sub-Basement Connecting
with Tunnel System and Electric Railroad Service Underlying Business
Portions of City. Walls, Gray Vermont Granite; Spandrel Sections,
Green Terra-Cotta. The Corinthian Columns on the Exterior are 94 ft.
Long and 9 ft. in Diameter. General Interior Plan is that of Letter
E. Building Contains its Own Electric-Light and Steam-Heating Plants.
City Hall, Shown at Left, is Practically a Duplicate of the Old County
Building Replaced by this New Structure, and will Itself be Replaced by
a Similar Building. Photographed June, 1907, 17 Months after Excavation
was Started.]

_A_ is obliged to offer _B_ $20.00 at the expiration of five days, and
_B_ must give possession to _A_. If the article sold is to be prepared
for delivery, or any work is to be performed on it by the seller before
delivery, title does not pass until this work has been completed. If
the goods are to be weighed or measured to determine the quantity or
price, title does not pass to the purchaser until this has been done.
Probably, if the goods are determined upon, and the entire mass is sold
and delivered to the seller who is to weigh or measure it to determine
the quantity only, the title passes upon delivery.

If the contract, sale provides that goods are to be delivered to
a carrier, delivery to the carrier passes title to the purchaser.
Delivery to the carrier must be made so as to protect the interests and
rights of the purchaser. The goods must be properly packed, and the
proper kind of a bill of lading taken.

If goods are sold upon approval, or upon trial, they must be approved
or tried before title passes.

If a portion of goods in mass or bulk is sold and the mass or bulk
contains different qualities, the portion purchased must be separated
and selected before the title passes. If a portion of goods in bulk
is purchased, the bulk being of the same quality, separation of the
portion sold is sufficient to pass title. Some courts even hold that
separation is not necessary to pass title, if the bulk is of the same
quality. Title to goods to be manufactured does not pass until the
goods are manufactured and tendered.

=211. When Payment of Price Must Be Made.= Parties to a contract of
sale may expressly agree upon a time of payment of the article sold.
In this event, the time agreed upon prevails. In the absence of an
agreed time of payment, the law presumes that payment is to be made at
the time and place of delivery. The seller may retain possession of
goods sold, until he receives payment of the agreed price, even though
title has passed to the purchaser. If the sale is made on credit, the
purchaser cannot be required to pay until the time for which he was
to be given credit has expired. In the absence of an agreed time for
payment, payment must be made at the time of delivery of the goods.

If the seller reserves any control over the goods, title remains in
him. For example, if he is to ship the goods to another, and if he
takes the bill of lading in his own name instead of the name of the
purchaser, title remains in the seller.

=212. Effect of Fraud Upon a Contract of Sale.= Fraud has been
defined by a prominent author to be "A false representation of facts,
made with a knowledge of its falsehood, or recklessly, without belief
in its truth, with the intention that it should be acted upon by the
complaining party, and actually inducing him to act upon it." If a
party innocently makes a representation, even though it proves to be
false, the representation is not fraudulent unless the party making the
representation should have known, or could easily have discovered, its
falsity.

If _A_ endeavors to buy goods from _B_, and tells _B_ that he is worth
$5,000.00, when in fact he is worth nothing, and _B_ relying upon _A's_
statement, sells the goods to _A_, _B_ is entitled to rescind the
contract by reason of the fraud. He may sue and recover the price of
the goods, or he may retake the goods from the buyer. (See _Rescission_
under chapter on Contracts.) If the goods have been sold to a third
party who purchases for value and without notice of the fraud, the
original seller cannot take the goods from him. A sale procured through
fraud is voidable, and not void. The seller may avoid the sale if he
chooses. That is, title vests in the purchaser subject to being retaken
by the seller, if he chooses, when he discovers the fraud. If a third
person innocently purchases the goods before the original seller
rescinds the contract, the last purchaser's title cannot be disturbed.
The seller may permit the purchaser to keep the goods, and bring an
action for damages based upon deceit.

One kind of a sale frequently induced by fraud is void, absolutely,
and not voidable. If a person fraudulently induces another to believe
that the purchaser is someone else, and purchases goods under this
representation, no title passes from the seller, and he may recover the
goods from an innocent purchaser.

=213. Rule of Caveat Emptor, or Let the Purchaser Beware.= One
who purchases chattel property from anyone except the grower or
manufacturer of the article in question, which is inspected by the
purchaser, or may be inspected by the purchaser, purchases at his own
risk. If the article turns out to be of poor quality or worthless,
in the absence of fraud or warranty, the purchaser has no redress.
This rule is called the _rule of Caveat Emptor_, (let the purchaser
beware). Its purpose is to decrease litigation, and make men rely upon
their own judgment. If a purchaser is unwilling to rely upon his own
judgment, he must exact a warranty from the seller. In the absence
of warranty or fraud, the purchaser must abide by the result of his
purchase. If the article purchased has defects apparent to anyone
upon inspection, the purchaser cannot complain. He should have seen
the defects. If the defects are not apparent upon inspection, he must
bear the loss. He should have required the seller to warrant the goods
against latent defects, if he was unwilling to purchase on his own
judgment. In all sales by an owner, however, title to the goods is
impliedly warranted, and in case of sale of goods grown or manufactured
by the seller, there is an implied warranty against latent defects. In
all other sales, the purchaser buys at his own risk, and has no redress
against the seller unless the latter warrants the goods. Warranties are
discussed in the following section.

=214. Express Warranty.= Contracts of sale often contain collateral
agreements called _warranties_. Warranties are either express or
implied. An _express_ warranty is an agreement in addition to the
ordinary agreement to transfer a certain chattel for a consideration
in money or money's worth, by which the seller agrees that the thing
sold is of a certain quality, or is in a certain condition. An express
warranty is not an essential part of a contract of sale. That is,
a sale containing no collateral promise to the effect that certain
conditions or terms of the contract are warranted, may be made. If the
contract of sale does not expressly state that the seller warrants
certain terms or conditions, or does not contain words of similar
meaning, the contract of sale is without express warranty. An express
warranty, by express agreement, adds something to the contract of
sale. This additional agreement, called an express warranty, enables
the purchaser to recover damages from the seller for failure of the
warranty, when he might not be able to have any redress if the sale
were made without warranty. Express warranties may be made orally, or
in writing.

If the seller, in making the sale expressly states that he warrants
certain terms of the contract, or uses language which means that he
intends to warrant certain terms of the contract, there is an express
warranty. _A_ sells a wagon to _B_ and warrants that it will carry
6,000 lbs. of stone. If it fails to carry this amount, _B_ can recover
from _A_ on this warranty. If _A_ had sold the wagon to _B_ without
this stipulation, and it had failed to carry 6,000 lbs. of stone, _B_
would have no redress.

A seller is permitted to express his opinion relative to the quality of
the article which is the subject of the sale without making a warranty.
This is called "trade talk," or "puffing." A seller is permitted
to express his own opinion relative to the quality of goods he is
endeavoring to sell, without having his words amount to a warranty,
but if he makes positive assertions, his words will be construed as
a warranty. Such expressions as, _This is first class_, and _This is
equal to any on the market_, are usually regarded as "trade talk" and
not as warranties.

=215. Implied Warranties.= Some contracts of sale carry with them
_implied warranties_. These warranties are common to all sales of the
particular class in question. Implied warranties cannot be said to be
in addition to the contract of sale, but are impliedly a part of the
contract. The most common implied warranties are warranties of title,
warranties of wholesomeness in sale of food, warranties in sales by
sample, warranties of merchantability, and warranties of fitness of
goods to be used for a particular purpose.

=216. Implied Warranty of Title.= In every sale, in the absence of an
express stipulation to the contrary, there is an implied warranty of
title. This means that the ownership is in the seller, and that he has
the right to sell the property, and that it is free from incumbrances.
This, of course, does not prevent the seller from disposing of just
what interest he has in the property if he expressly so contracts.
For example, if _A_ negotiates the sale of a horse to _B_, and tells
_B_ that he has purchased the horse a few days previously from _C_,
and does not know whether there are any incumbrances on the horse,
but will sell what interest he has, and if _B_ purchases on these
representations, he cannot sue _A_ on an implied warranty of title if
it subsequently develops that _D_ has a mortgage on the horse. If,
however, _A_ offers to sell _B_ a horse, saying nothing about the
matter of title, and _B_ purchases the horse, and later is obliged to
yield possession to _C_, who holds a mortgage, _B_ may recover the
purchase price of the horse from _A_ upon an implied warranty.

Formerly, a distinction was drawn between sales of property in the
possession of the seller, and of property in the possession of some
third person, making the seller not liable upon an implied warranty
in the latter case. At present, however, the tendency of the courts
is to make the seller liable upon an implied warranty, regardless
of whether the property is in his possession, or in the possession
of a third person at the time the sale is made. When a person sells
chattel property, not as owner, but in an official capacity, or as
an agent, there is no implied warranty of title. Common examples of
this principle are sales by a pledgee, mortgagee, sheriff, guardian,
administrator, assignee, or trustee in bankruptcy.

=217. Implied Warranty of Wholesomeness in Sales of Food.= In the
sale of articles to be used for food, there is an implied warranty
that the article sold is wholesome and fit for the purpose which it is
sold. This rule is based upon the principle of public policy, that it
is the duty of the state to protect life and health. _A_, a grocer,
sold canned tomatoes to _B_, for use in _B's_ family. The tomatoes
contained poisonous adulteration. _A_ was held liable in damages to
_B_, for breach of implied warranty of wholesomeness of the article
sold for food. Some jurisdictions hold that this rule does not apply in
sales of food, where the article is not sold to a consumer. That is, if
the article is sold by a wholesaler to a jobber, or to a retailer, the
warranty does not apply, but where it is sold by anyone to a consumer,
it does apply.

=218. Implied Warranty in Sales by Sample.= When goods are not
inspected by the buyer, but a sample is furnished him, from which he
purchases, there is an implied warranty that the goods sold correspond
with the sample. The fact that a sample of goods is exhibited by the
seller and examined by a purchaser does not necessarily mean that
a resulting sale is one by sample. The sample exhibited may not be
claimed by the seller to represent in every respect the article to be
furnished, or the purchaser may not desire to purchase according to the
sample. To constitute a sale by sample, a sample must be exhibited by
the seller upon a representation that it is a sample of the goods to be
sold. If exhibited for any other purpose, the resulting sale will not
be a sale by sample. The purchaser must make the purchase relying upon
the sample, and with the understanding that the goods are to correspond
with the sample. If the goods are present at the time the sale is made,
and the purchaser inspects them, or has the opportunity to inspect
them, in the absence of fraud, he cannot claim that the sale is by
sample.

=219. Implied Warranty of Merchantability.= Where goods which
have not been inspected or selected by the purchaser are ordered
to be delivered in the future, there is an implied warranty that
they are of average quality. This is called an _implied warranty of
merchantability_. _A_ ordered a "Buckeye" mowing machine of _B_, to
be delivered the following week. _B_ delivered a machine which would
not cut grass. _B_ was held liable to _A_ upon an implied warranty
of merchantability. If _A_ had inspected the machine, and made the
purchase upon his own selection, in the absence of fraud on the part of
_B_, _A_ would have no redress. But, in case the article is purchased
without opportunity for inspection, to be manufactured or delivered in
the future, there is an implied warranty that the article is an average
one of its kind.

=220. Implied Warranty of Fitness of Goods for the Purpose for Which
They are to Be Used.= When a purchaser makes known to a seller the
purpose for which the article is to be used, and the seller is himself
the manufacturer or grower of the article, there is an implied warranty
that the article is fit for the purpose for which it is to be used.
This applies only to articles to be manufactured or delivered in the
future, and not to articles inspected and selected by the purchaser.
If _A_ goes to _B_, a manufacturer, and tells him he desires to have
manufactured an instrument to hold liquid soap suitable for the use
of workingmen in shops, and _B_ agrees to manufacture and sell such
an article, there is an implied warranty on _B's_ part that the
soap-holders will be suitable for the purpose for which they are to
be used. If, however, _A_ furnishes _B_ plans for the manufacture
of a liquid soap-holder, and orders a quantity, there is no implied
warranty on _B's_ part that the articles will be fit for the purpose
intended. _A_ in this case relied upon his own judgment. _B's_ contract
is fulfilled when he furnishes the article according to _A's_ plans.
The work must, of course, be done in a workmanlike manner, free from
defects of material and workmanship. This implied warranty of fitness
of an article for the purpose for which it is to be used, applies only
where the purchaser reveals the purpose of the article to the grower or
manufacturer who agrees to furnish such an article. It does not apply
to articles furnished according to furnished plans, or to articles
selected by the purchaser.

=221. Remedies for Breach of Warranty.= In case of breach of
warranty, the purchaser may bring a suit for damages against the
seller, or he may promptly return the goods, and recover the purchase
price. The latter remedy is called _rescission_. In case of breach of
an express warranty, in most jurisdictions the remedy is the same as
for breach of implied warranty. In some states, however, the seller is
not permitted to return the goods and sue for the purchase price, but
is restricted to an action for damages.

=222. Seller's Lien, Delivery to Carriers, and Stoppage in Transitu.=
In case of sales for cash, the seller has the right to retain
possession of the goods until he receives payment of the purchase
price. If the goods are sold on credit, or if the seller agrees to
deliver at a certain place, the seller must comply with his contract.
But if the purchaser becomes insolvent before the goods are delivered,
the seller may retain possession until paid. He is not obliged to
deliver goods on credit, even though such is his contract, if the
purchaser subsequently becomes insolvent. The right of a seller to
retain possession of goods until the purchase price is paid is called
_the seller's lien_. This lien is lost by the seller's delivery of the
goods to the purchaser. If the possession is obtained by fraud on the
part of the purchaser, it is regarded as no possession, and the seller
may still enforce his lien by retaking possession of the property.

Where goods are ordered by a person in one town from a person in
another town, necessitating delivery by a carrier, in the absence of
express stipulation to the contrary, title to the goods passes to the
vendee upon delivery of same by the vendor to the carrier. If _A_, in
Cleveland, orders a car of pine lumber from _B_, in Milwaukee, for
$1,500.00, title to the lumber passes to _A_ when _B_ delivers the
lumber to the transportation company in Milwaukee. If _A_ orders the
lumber delivered F. O. B. Cleveland, title does not pass to _A_ until
the lumber reaches Cleveland. If _A_ orders the lumber, agreeing to pay
$1,500.00 for the same, "freight allowed" to Cleveland, title passes
to _A_ when _B_ delivers the lumber to the transportation company
in Milwaukee, even though _B_ must allow _A_ to deduct the freight
from the purchase price of $1,500.00. This question is important in
determining upon whom the loss falls in case of damage of the goods
while in the hands of the transportation company. The one who has the
title at the time the loss occurs must stand the loss. Such party may
recover from the transportation company. This question is discussed in
the chapter on Carriers.

While a seller loses his lien by delivery of possession of the goods
to the purchaser, if the goods are delivered to a carrier and the
purchaser becomes insolvent before the carrier delivers the goods to
him the seller may stop delivery of the goods, and retake possession
even though title has passed to the purchaser. The seller's lien in
this event revives. By _insolvency_ is meant inability to pay one's
debts. The right of a seller to stop a carrier from delivering goods to
a vendee, in case of insolvency of the latter, is called _stoppage in
transitu_. This question is also discussed in the chapter on Carriers.

A seller may enforce his lien by keeping the goods, and suing the
purchaser for damages, or by selling the goods at private or public
sale, with notice to the purchaser of the time and place of sale, and
then by suing the original purchaser for the difference between the
amount he receives for the goods on resale, and the amount the original
purchaser agreed to pay. The seller may, of course, hold the goods and
demand the original purchase price of the purchaser, and not yield
possession until he receives the purchase price.

=223. Remedies of Seller.= The seller's lien described in the
previous section is one of the remedies of a seller. If the purchaser
refuses to accept the goods, the seller may keep or resell the goods,
and if he receives less than the original purchaser agreed to pay, he
may recover the difference as damages from the original purchaser. For
example, _A_ agreed to manufacture and deliver a specially constructed
cash register for _B_ for $500.00. When it was completed, _B_ refused
to accept same. _A_ sold it for $200.00, the fair market price, and
recovered from _B_, $300.00 as damages for _B's_ breach of contract.
If the purchaser accepts the goods and fails to pay for them when due,
the seller may sue and recover the entire purchase price, together with
damages and expenses which are necessarily connected therewith.

=224. Remedies of Purchaser.= Where title has not passed to the
purchaser, if the seller refuses or fails to deliver goods according to
the contract of sale, the purchaser may go into the market at the time
and place of delivery and purchase goods, and if obliged to pay more
than the original contract price, he may recover the excess from the
seller. For example, suppose _A_ purchases five hundred pounds of lard
of _B_ for $60.00, _B_ agreeing to deliver the lard October 30th, at
Chicago. If _B_ fails to deliver the lard in Chicago, October 30th, _A_
may purchase lard of the same quality in Chicago, and if he is obliged
to pay $90.00 for the same, he may recover $30.00 damages from _B_. If
there is no market at the place of delivery mentioned in the contract,
the purchaser may purchase at the nearest market. If the purchaser
makes the purchase for a particular purpose, which he makes known to
the seller at the time the sale is made, and he is specially damaged
by reason of the failure of the seller to keep his contract, special
damages may be recovered for losses arising by reason of the special
circumstances. If title to the goods has passed to the purchaser,
in case the seller refuses to deliver them, the purchaser may bring
an action of _replevin_ to recover their possession. Replevin is a
possessory action. (See chapter on Courts and Legal Remedies.)

QUIZ QUESTIONS

BANKING, LOANS, MONEY, AND CREDITS

1. Define a _bank_.

2. Classify banks.

3. How are national banks created?

4. What are state banks?

5. Define and distinguish _banks of discount_, _banks of cirrculation_,
and _banks of deposit_.

6. Are most banks incorporated companies?

7. What are the powers of an incorporated bank?

8. Do banks have the power to deal in real estate?

9. Do banks have the power to collect commercial paper?

10. What are _bank deposits_?

11. Is a bank required to receive deposits from any one who tenders
them?

12. What name is applied to the person authorized to receive bank
deposits?

13. Do savings banks permit their customers to draw their deposits by
check?

14. Distinguish _general_ and _special deposits_.

15. Define _check_.

16. What kinds of banks do a checking business?

17. By what process may a depositor withdraw money from a savings bank?

18. Define a _paid voucher_.

19. When do banks return checks to their customers?

20. When are checks payable?

21. What should a customer do with paid checks when they are received
from his bank?

22. When must checks be presented for payment?

23. Is a bank required to pay the checks of its depositors?

24. If a bank refuses to pay a check what, if anything, must the holder
do to hold the maker liable?

25. Are national banks permitted to make loans on real estate?

26. Are savings banks permitted to make loans on real estate?

27. Define _credit_.

28. By what means is credit information furnished?

29. Distinguish _credit_ and _capital_.

30. Are forged negotiable instruments void or voidable?

31. Is a bank liable for paying forged checks, or must the depositor
whose signature is forged stand the loss?

32. If a forgery is not reported by a depositor until six months after
it was committed, who must stand the loss?

33. Is a bank liable if it pays a _bona fide_ holder a check payable to
bearer?

34. Under what laws are national banks created?

35. Does the United States Constitution expressly provide for the
creation of national banks?

36. What United States officer has supervision over national banks?

37. Are national banks furnished with circulating notes? If so, in what
amounts?

38. In case of the bank's insolvency, what is the liability of national
bank stockholders?

39. What rate of interest can national banks charge?

40. Can national banks buy and sell bonds?

41. What penalty is imposed upon national banks for usury?

42. Define and distinguish _savings banks_ and _trust companies_.

43. Are clearing houses banks? What are the functions of clearing
houses?

44. In what two ways is the term _money_ used?

45. What is _legal tender_?

46. Are silver certificates legal tender?

47. Define _discount_.

48. Distinguish _discount_ and _purchase of negotiable paper_.

49. Are banks permitted to purchase negotiable paper at a profit in
excess of legal rates of interest?

50. Are individuals and business concerns permitted to purchase
negotiable paper at a profit in excess of legal rates of interest.

51. Define _exchange_.

52. Distinguish _foreign_ and _domestic exchange_.

53. Define _interest_.

54. Define and give an example of _usury_.

55. What is the usual penalty for usury?

INSURANCE

1. Define _insurance_.

2. Are insurance companies controlled by the legislatures of the states?

3. May an individual or a partnership enter into insurance contracts?

4. Is insurance business interstate commerce if transacted between
citizens of different states?

5. May one state exclude insurance companies of another state from
transacting business within its territory?

6. Does an insurance contract require all the elements of an ordinary
contract?

7. In what way does an insurance contract differ from an ordinary
contract?

8. How many parties are there to an insurance contract?

9. Define _underwriters_.

10. Define _beneficiary_.

11. Name the principal kinds of insurance written at the present time.

12. Define and give an example of _insurable interest_.

13. Must an insurance contract be in writing to be binding?

14. Are insurance contracts within the Statute of Frauds?

15. Define _binder_.

16. Define _warranty_ as used in an insurance contract.

17. Distinguish warranty as used in insurance contracts from warranty
as used in contracts of sale.

18. Define _representation_ as used in connection with insurance
contracts.

19. Distinguish _warranty_ and _representations_.

20. Does breach of warranty avoid a contract of insurance?

21. Does breach of representation discharge an insurance contract?

22. Define _life policy_.

23. Define _term policy_.

24. Define _tontine policy_.

25. Define _marine insurance_.

26. What implied warranty enters into a policy for marine insurance?

27. Define _general average_.

28. Define _standard policy_.

29. If a policy of insurance contains no stipulation relative to
suicide, and the insured takes the policy intending to commit
suicide, and does commit suicide, is the policy enforceable?

30. If an insurance policy contains a suicide clause, and the insured
commits suicide while insane, is the policy enforceable?

31. May an insurance company stipulate against suicide in such a manner
as to avoid the policy if the insured suicides when insane?

32. Define and distinguish _fidelity_ and _casualty insurance_.

33. What is _re-insurance_?

34. Is a company writing a policy of re-insurance liable to the party
originally insured?

35. May a company re-insure at greater risk than it itself has
insured? 36. Can a fire insurance policy be assigned before a loss
has occurred?

37. Can a fire insurance policy be assigned after a loss has occurred?

38. Can a life insurance policy be assigned at any time?

39. Define and distinguish _open_ and _valued policies_.

40. Define _other insurance_.

41. What limit, if any, is placed upon the amount of life insurance a
person may take?

42. May a person insure personal property for more than its actual
value?

43. If a person insures his house in three different companies for
two-thirds of its value in each company, in case of loss how much
an he recover, if anything, on each policy?

SURETYSHIP

1. Define _suretyship_.

2. Is a suretyship obligation a contract?

3. What contracts is the term _suretyship_ used to designate?

4. How many parties are there to a suretyship contract?

5. Define _principal_.

6. Give an example of a suretyship contract.

7. Define _promisor_.

8. Define _creditor_ to a suretyship contract.

9. Give the different technical names that may be applied to a promisor
of a suretyship contract depending upon the nature of the
liability.

10. Define _surety_.

11. Give an example of a contract of a surety.

12. Is the liability of a surety conditional upon that of his principal.

13. Define _guarantor_.

14. _A_ promises a creditor of _B_ to pay _B's_ debt if _B_ does not.
Is _A's_ contract that of a surety or of a guarantor?

15. In commercial practice what form of suretyship contract is most
frequently used, that of a surety or of a guarantor?

16. Define _indorser_.

17. Is an indorser's contract found outside of negotiable instruments?

18. Is an indorser bound by any implied contract?

19. What are the warranties of an indorser?

20. Is consideration a necessary element of a contract of suretyship?

21. If a suretyship contract is part of the transaction which it
secures must it be supported by a separate consideration?

22. Must any contracts of suretyship be in writing?

23. Is an oral contract of suretyship illegal?

24. What is meant by the Statute of Frauds as applied to suretyship
contracts?

25. Define _general guaranty_.

26. Define _limited guaranty_.

27. Define _special guaranty_.

28. Define _continuing guaranty_.

29. What kinds of notice may a guarantor be entitled to?

30. When, if at all, is a guarantor entitled to notice of default of
his principal?

31. When, if at all, is a guarantor entitled to notice of acceptance of
his guaranty by a creditor?

32. If _A_ is surety for _B_ upon _B's_ debt to _C_ of $100.00 and _B_
settles his debt with _C_ for $50.00, can _C_ hold _A_ for the
balance?

33. If _A_ guarantees _B's_ debt to _C_ of $100.00 due one year and
with interest at 6%, and _B_ without _A's_ consent reduces the
interest to 5%, is _A_ thereby discharged?

34. If _A_ guarantees _B's_ debt to _C_ of $100.00 payable in one year,
and _C_ without _A's_ consent extends the time of payment six
months upon _B's_ agreement to pay 6% interest, is _A_ thereby
discharged?

35. Is fraud practiced by the principal upon the promisor to a
suretyship contract, a defense to the promisor in an action brought
by the creditor?

36. In the absence of special statute can a promisor to a suretyship
contract compel by notice a creditor to sue a principal?

37. Are surety companies favorites of the law?

38. Define _subrogation_.

39. Give an example of _subrogation_.

40. Define _indemnity_ as applied to a suretyship contract.

41. _A_ guarantees _B's_ debt to _C_ of $100.00 upon a promissory note.
_B_ defaults and _A_ pays the debt. _A_ then sues _B_ for $100.00
upon the promissory note. Is this an example of indemnity or
subrogation? May _A_ sue _B_ for $100.00 independently of the
promissory note?

42. Define _contribution_.

43. _A_, _B_, and _C_ guarantee _B's_ debt to _E_ of $300.00. _D_ sues
_A_ and collects $100.00. Can _A_ sue _B_ and _C_ for $33.33 each?

PERSONAL PROPERTY

1. Define _personal property_.

2. Classify personal property.

3. Distinguish _chattels real_ from _chattels personal_.

4. Define and give an example of _chose in action_.

5. Define and give an example of _chose in possession_.

6. How may title to personal property be acquired?

7. May a person obtain title to personal property by finding it?

8. How can personal property be transferred?

9. Upon death of the owner, to whom does title to personal property
pass?

SALES

1. Distinguish ownership and possession of personal property.

2. May title and possession of personal property be in different places?

3. Define _sale_.

4. How does a sale differ from a contract to sell?

5. _A_ promises to deliver a car of coal to _B_ the following month in
consideration of _B's_ promise to pay _A_ $300.00 upon delivery of
the coal. Is the transaction a sale or a contract to sell?

6. In a contract to sell, if the property is destroyed by fire before
the property is delivered, who stands the loss?

7. Distinguish _barter_ from _sale_.

8. _A_ agrees to deliver to _B_ one hundred bushels of apples for
twenty tons of coal at $5.00 per ton. Is the transaction a
_sale_ or a _barter_?

9. Define _conditional sale_.

10. At the present time is a vendor of a conditional sale contract
permitted to take possession of the property after 90% of the
purchase price has been paid.

11. _A_ leaves his automobile at _B's_ shop for repairs. Is this
transaction a sale?

12. Distinguish _sale_ from _bailment_.

13. What kinds of personal property may be the subject of a sale?

14. May personal property to be manufactured be the subject of a
present sale?

15. What is meant by the Statute of Frauds as applied to sales?

16. What contracts of sales must be in writing?

17. When must personal property sold be delivered?

18. In the absence of any express agreement as to delivery, when and by
whom must personal property be delivered?

19. If a sale is made in which delivery is to be made in the future may
title pass to the purchaser at once?

20. When does title pass to the purchaser in a sale of personal
property?

21. Does the fact that delivery is to be made in the future, of itself,
prevent title passing to the purchaser at the time the sale
is made?

22. _A_ sells a desk to _B_ for $10.00, agreeing to revarnish the desk
and deliver same to _B_ the following Saturday. When does title to
the desk pass to _B_?

23. What, if anything, does intention of the parties have to do with
the passing of title to the purchaser?

24. In the absence of an express agreement when must the purchase price
be paid?

25. Is the seller permitted to retain possession of the property sold
until he receives the purchase price?

26. _B_, by means of fraud, purchases a bicycle from _A_. _B_ sells it
to _C_, who does not know of the fraud. Can _A_ recover the bicycle
from _C_?

27. _A_ purchases a bicycle from _B_ telling _B_ that he is _C_. _B_
knows _C_ by reputation and thinks that he is selling to _C_.
_A_ sells the bicycle to _D_. Can _B_ obtain possession of the
bicycle from _D_?

28. Define _Caveat Emptor_.

29. Does the rule of _Caveat Emptor_ apply if the seller expressly
warrants the goods sold?

30. Define _express warranty_.

31. _A_ sells a horse to _B_ assuring _B_ that the horse is perfectly
sound. The horse has blemishes. Does _A_ warrant the horse?

32. Define _implied warranty_.

33. Enumerate the most common implied warranties.

34. Does an implied warranty of title accompany every sale?

35. _A_ purchases an automobile at a sheriff's sale. The automobile is
mortgaged. May the mortgagee take the auto from _A_? If so, can _A_
recover on an implied warranty from the sheriff?

36. What is meant by _implied warranty of wholesomeness of food_?

37. Does this warranty extend to any purchaser?

38. Give an example of an implied warranty in a sale by sample.

39. Does the implied warranty of merchantability apply when the goods
are selected and inspected by the purchaser?

40. Give an example of a sale in which there is an implied warranty of
fitness for the purpose for which the goods are to be used.

41. Does this implied warranty exist if the goods are constructed and
furnished according to a model furnished by the buyer?

42. Define _rescission of a contract_.

43. May a contract of sale be rescinded for breach of warranty?

44. Generally, what is a purchaser's remedy for breach of warranty?

45. Define _lien_.

46. Give an example of seller's lien.

47. Define _stoppage in transitu_.

48. _A_, in Cleveland, orders goods of _B_ in Chicago. _B_ delivers the
goods to the Adams Express Company, addressed to _A_. The goods
are lost in a railway wreck. Who must bear the loss, _A_ or _B_?

49. _A_ sells a carriage to _B_. _B_ refuses to pay for the same. If
_A_ has not delivered the carriage to _B_ may he sue _B_ for
damages?

50. _A_ purchases a carriage from _B_. _A_ tenders the price, but _B_
refuses to deliver the carriage. May _A_ obtain possession of the
carriage by legal action?

51. May _A_ sue _B_ for damages for refusing to deliver the carriage?

[Illustration: A CORNER IN THE NEW YORK EXECUTIVE OFFICE OF THE WESTERN
ELECTRIC COMPANY
Occupying a Part of One Floor of the Marshall Field Building]

COMMERCIAL LAW

PART IV

BAILMENTS

=225. Bailment Defined.= A _bailment_ has been defined to be "A
delivery of goods for the execution of a special object, beneficial to
the bailor, the bailee or both, upon a contract express or implied, to
carry out this object, and dispose of the property in conformity with
the purpose of the trust." It is the giving possession of personal
property to another for the purpose of having the property cared for,
improved or used, with the understanding that when the purpose of the
delivery is fulfilled, the property shall be returned to the bailor or
disposed of according to his directions.

A bailment differs from a sale in that the title to the property
remains in the bailor, and possession is given the bailee, while in
a sale, the title or ownership of the property is transferred to
the purchaser, while possession may remain in the seller. Bailment
is a broad subject covering many transactions. Loans, pledges, and
deliveries of property of every nature, in which mere possession is
given another without transfer of title are included. If _A_ leaves his
watch with _B_, a jeweler, for repairs, the transaction is a bailment.
If _A_ delivers property to _B_, a transportation company, to be
conveyed to _C_, the transaction is a bailment. If _A_ loans his knife
to _B_, the transaction is a bailment.

=226. Parties to a Bailment Contract.= There are two parties to a
bailment contract. The one who gives possession of chattel property to
another, reserving title to himself, is called the _bailor_, and the
one who receives possession of the property under these conditions is
called the _bailee_. A bailment is a contract. Parties to a bailment
must be competent to contract. (See _Competency of Parties_, chapter on
Contracts.) Parties under legal age may avoid contracts of bailment.
If _A_, fifteen years of age, hires a horse from _B_, a liveryman, for
one hour for $2.00, _B_ cannot compel _A_ to carry out his contract if
_A_ objects on the ground of infancy. But if _A_ injures the horse he
is liable in damages to _B_. An infant is liable for his torts, but not
for his contracts.

=227. Classification of Bailments.= Bailments are usually divided
into three classes; bailments for the sole benefit of the bailor,
bailments for the sole benefit of the bailee, and bailments for the
benefit of both the bailor and bailee. A common example of a bailment
for the sole benefit of the bailor is a delivery of property to the
bailee, to be kept by the bailee gratuitously for the accommodation
of the bailor, or delivery of property to the bailee to have work
performed on it, without compensation to the bailee. Examples of
bailments for the sole benefit of the bailee are loans to the bailee
without compensation to the bailor. Bailments for the mutual benefit of
bailor and bailee include deliveries of property to carriers, pledges,
renting property, or hiring the bailee to perform work on the property
bailed, or hiring the bailee to care for the property.

=228. Elements of a Contract of Bailment.= It is sometimes said that
a bailment for the sole benefit of the bailor is not a contract by
reason of there being no consideration. A consideration may consist
of any benefit to the party making a promise, or any detriment to the
one to whom the promise is made. The giving up of the property bailed
to the bailee is considered a detriment to the bailor, even though the
bailee receives no benefit. For a transaction to constitute a bailment,
there must be a delivery of the property bailed to the bailee, and
an acceptance by him of the property. This delivery may be actual or
constructive, as by delivery of a warehouse receipt, or a bill of
lading. The delivery must be sufficient to enable the bailee to secure
the possession of the goods, and to control the possession during the
period to be covered by the bailment, to the exclusion of the bailor.
The property must be in existence to be bailed. A contract of bailment
need not be express; it may be implied as well--a thief or a finder of
property is a bailee for the true owner.

=229. Title to Property Bailed.= The title to property bailed does
not pass to the bailee. Mere possession passes to the bailee. It is not
necessary that the bailor have title to the property to bail it. If
he has right of possession he may, under certain circumstances, bail
it. _A_ may rent a livery stable, including horses and carriages, of
_B_, for three years, with the understanding that he will operate the
business in the usual way. _A_ does not have title to the horses and
carriages, but he may hire them to _C_, or to anyone he chooses. This
transaction with _C_ constitutes a bailment, in which the bailor does
not have title to the property bailed. He has, however, sufficient
right of possession to enter into a bailment contract. The principal
distinction between a bailment and a sale of personal property is
that, in the latter case, title passes to the purchaser regardless of
change of possession of the property, while in the case of a bailment,
possession of the property must pass to the bailee, while title is not
disturbed.

=230. Bailments for the Sole Benefit of the Bailor.= Where personal
property is deposited with another for safe keeping, or for the purpose
of having work performed on it, without compensation to the bailee,
the transaction is called a bailment for the sole benefit of the
bailor. The liability of a bailor for the loss or injury of property
intrusted to his care, depends upon the nature of the property itself,
and upon whether the bailee receives compensation for his services.
Three degrees of care and negligence, respectively, are recognized in
bailments; slight, ordinary and great care, and gross, ordinary and
slight negligence. What constitutes ordinary care or negligence is
determined by considering what a man of ordinary prudence would do
under the circumstances in question. Any case of negligence above or
below this standard constitutes great care or gross negligence. If
_A_, in going to lunch, leaves his umbrella in _B's_ office, and the
umbrella is stolen, _B_ is not liable to _A_, if he exercised slight
care. If _A_, a lawyer, is obliged to go to police court to try a
criminal case, and leaves his diamond pin with _B_, a brother attorney,
_B_ is obliged to exercise only slight care, as in the case of the
umbrella, and is liable only for gross negligence. But slight care
means a much greater degree of care in case of the diamond pin than in
the case of the umbrella. In case of a bailment for the sole benefit of
the bailor, the bailee is obliged to exercise only slight care, and is
liable only for gross negligence. He receives no compensation for the
service, and for this reason is not obliged to exercise a great degree
of care. Property cared for gratuitously for the accommodation of the
bailor, or to be carried to some place, or to have something done to it
gratuitously, constitutes this class of bailments.

=231. Bailments for Sole Benefit of Bailee.= Property loaned to a
bailee for the latter's accommodation constitutes a bailment for the
sole benefit of the bailee. _A_ borrows _B's_ horse to drive to _Y_.
_A_ pays _B_ nothing for the use of the horse. _A_ must exercise
great care in the use of the horse, and is liable to _B_ for slight
negligence. It is no defense, in case the horse is injured while in
_A's_ possession, that _A_ acted as an ordinarily prudent man would act
under the circumstances. He must act as an ordinarily prudent man would
act when exercising great care. If, from the circumstances connected
with the injury to the horse, it is determined that an ordinarily
prudent man would have been guilty of slight negligence in the method
of handling the horse or causing the injury, _A_ is liable to _B_ for
the injury to the horse.

A court said on this point, "A bailee who is a borrower must use
extraordinary care to protect the property loaned to him, and is
responsible for the slightest neglect. He must exercise all the care
and diligence that most careful persons exercise in the transaction of
their own affairs."

If the bailee uses the property for any purpose other than that for
which it was bailed, or if he exceeds the authority of the bailor in
the use of the property, he is liable for injuries resulting. For
example, _A_ borrowed _B's_ oxen to plow up a hedge. _A_ used the oxen
to draw a load of stone. A stone rolled off the cart and injured one of
the oxen. _A_ was held liable for the injury.

=232. Bailments for Benefit of Both Bailor and Bailee.= The majority
of bailments are for the benefit of both bailor and bailee. This class
of bailments includes the hiring of personal property. _A_ rents _B's_
automobile for three hours, at three dollars an hour. This is an
example of this class of bailments. This class also includes pledges
or pawns of goods. If _A_ pledges ten shares of stock in a corporation
to his bank for a loan, this transaction constitutes this form of
bailment. This also includes the hiring of a bailee to carry goods
from one place to another. The most common example of this class of
bailments is that of common carriers. For example, _A_ employs _B_,
an express company, to carry a package of jewelry from Cleveland
to Chicago. The bailment is for the mutual benefit of both _A_ and
_B_. Any case in which one party employs another to carry goods from
one place to another for compensation is included in this class of
bailments, and is discussed more at length in the chapter on Common
Carriers.

Hiring a person to care for personal property for compensation is
included in the class of mutual benefit bailments. A traveling salesman
leaving his trunk and satchel with a hotel-keeper is a common example.
Where one person hires another to perform work or services on the thing
bailed, the transaction constitutes a mutual benefit bailment. For
example, if _A_ leaves his overcoat with _B_, his tailor, to be cleaned
and pressed, the transaction constitutes this form of bailment. In
mutual benefit bailments the bailee has the right to use the property
bailed only for the purposes of the bailment. If _A_ rents _B's_
automobile, he is entitled to use it during the period covered by the
contract. If he rents it for a particular designated trip, he cannot
use it for any other trip. In a mutual benefit bailment, when the
bailee hires out the use of a chattel, there is an implied contract on
his part that the chattel is fit for the purpose for which it is to
be used, and that it may safely be used for such purposes. _A_ rents
_B's_ naphtha launch for the purpose of taking a lake ride. _B_ has
carelessly supplied the wrong fuel. An explosion results, injuring
_A_. _B_ is liable for the injury. In mutual benefit bailments, the
bailee is obliged to exercise ordinary care, and is liable for ordinary
negligence.

The bailee must act as an ordinarily prudent man would act under the
same conditions in protecting and caring for the property. _A_ rents a
typewriter of _B_. If the typewriter breaks or gets out of order during
ordinary usage, _B_ must stand the loss. If the parties to a bailment
of this class specifically contract as to who shall bear the loss in
case of accident, or as to the degree of care which shall be exercised,
these express stipulations prevail.

=233. Warehousemen and Storage Companies.= A person who keeps a
place for the storage of goods for a compensation is a warehouseman
or storage-keeper. In a few states, public warehouses are provided
for by statute. In these states, the statutes define the duties and
liabilities of warehousemen. These public warehousemen are generally
required to take all goods offered for storage, no matter who the owner
may be, if the goods are in condition to be stored and if the storage
charges are tendered.

Most warehouses operate their business as private enterprises. A few
states provide by statute for public warehouses. Private warehousemen
may select their customers. They are not required to accept goods for
storage if they do not so desire. The government provides warehouses
for the storage of goods upon which customs or duties are to be paid.
These warehouses are private enterprises authorized by the government
to act as government warehouses. The government requires a bond of
these warehousemen for the protection of itself, but the government is
in no way responsible for the warehouseman's treatment of the goods, or
for breaches of contracts between the warehousemen and their customers.

Warehousemen commonly issue receipts for goods stored with them. These
warehouse receipts ordinarily are made payable to the customer's order,
and may be negotiated. They are not generally recognized as negotiable
instruments. A few states have statutes making them negotiable
instruments, but outside these jurisdictions, warehouse receipts are
merely evidences of ownership of the property. The purchaser takes the
same right to the property which the original bailor had, with the
additional right to sue the transferor if the title proves defective.

A warehouseman has a lien on the property for his charges. The
warehouseman or storage-keeper must exercise ordinary care in the
protection of the property. The bailor must reveal to the bailee
the character of the goods stored. If the goods are of a dangerous
character and injury results, the bailor is responsible to the bailee
for damages, if he has failed to reveal the dangerous character of the
goods.

=234. Degree of Care Required of Bailee.= A bailee of property is
required to exercise a certain degree of care in the use, preservation
and protection of the property placed in his possession, and is liable
for a certain degree of negligence. The amount of care a bailee is
obliged to exercise, and the amount of negligence for which he is
liable, depends upon the kind of property bailed, and whether the
bailment is for the sole benefit of the bailor, the bailee, or for
the mutual benefit of both the bailor and the bailee. If the property
bailed is of great value, or so delicate that it is easily lost,
destroyed or injured, a greater degree of care is required on the part
of the bailee than if the property is of little value, or is of such a
nature that it is not easily damaged, lost or destroyed.

If _A_, with _B's_ permission, stores his wagon in _B's_ barn, and the
wagon is stolen, _B_ is not liable unless he was grossly negligent.
He was not paid for the bailment, and was obliged to exercise only
slight care in the protection of the wagon. If, however, _A_ leaves his
watch with _B_ while he attends a ball game, and the watch is stolen,
_B_ must have exercised greater care than in the case of the wagon by
reason of the value and nature of the property bailed. Otherwise, he
will be liable. In this case as well as in the case of the wagon, _B_
received no compensation for the bailment, and is obliged to exercise
only slight care in the protection of the property bailed, and is
liable only for gross negligence. What constitutes slight care and
gross negligence differs materially in the case of the wagon and in the
case of the watch.

In connection with bailments, care is said to have three degrees,
_great_, _ordinary_ and _slight_. Negligence is also said to have
three degrees, _gross_, _ordinary_ and _slight_. Ordinary care or
negligence is the standard for testing each case. After ordinary care
or negligence is determined, slight or great care, and slight or gross
negligence is determined by ascertaining whether the care or negligence
is above or below ordinary. Any care greater than ordinary is great
care; any care less than ordinary is slight care. Any negligence
greater than ordinary is gross negligence. Any negligence less than
ordinary is slight negligence. If a person takes such precautions
in the use, preservation, and protection of the property as an
ordinarily prudent person would take of his own property under similar
circumstances, he is said to exercise ordinary care. The degree of care
required of a bailee depends upon the kind of a bailment in question,
as well as upon the kinds of property bailed.

If the bailment is for the sole benefit of the bailor, the bailee
receiving no compensation for his inconvenience and work, he is
required to exercise only slight care, and is liable only for gross
negligence. If the bailment is for the sole benefit of the bailee, the
bailor receiving no compensation for his inconvenience and the loss of
the use of his property, the bailee is required to exercise great care
in the use and preservation of the property, and is liable for slight
negligence. In case of mutual benefit bailments, the bailee is obliged
to exercise ordinary care in the use and protection of the property,
and is liable for ordinary negligence. Two classes of mutual benefit
bailees, innkeepers and common carriers, do not come within the above
rule. These are known as _exceptional mutual benefit bailments_, and
are discussed under separate chapters.

=235. Rights of Bailee as Against Bailor.= A bailee has the right to
keep the property, to use it according to the terms of the contract of
bailment, and to defend this right even against the bailor himself.
While the title to the property in question remains in the bailor,
the right of possession during the period covered by the contract of
bailment is in the bailee. He may retain possession of the property for
the purpose of the bailment. A bailee is entitled to use the property
bailed, and is restricted only by the limitations of the contract. If
the bailee uses this property in a way not authorized by the contract
of bailment, he is liable in damages to the bailee.

Where a mutual benefit bailment requires the bailee to use skill in
connection with the property bailed, the bailor must exercise a degree
of skill ordinarily used by persons who perform similar work. If the
bailee fails to use this degree of skill, he is liable in damages
to the bailor. For example, if _A_ leaves his horse with _B_, a
blacksmith, to be shod, and _B_ attempts the work, but performs it so
unskillfully, or carelessly that the horse is injured or lamed thereby,
_B_ is liable to _A_ for the damage caused.

=236. Rights of Bailee as Against Third Persons.= A bailee has the
right to keep the property bailed as against third persons who endeavor
to interfere with his possession. The bailee is not permitted to
dispute the title of the bailor for his own benefit. If, however, the
property is taken away from the bailee by action at law, by one whose
title is superior to that of the bailor, the bailee is relieved from
liability to the bailor. In this event, the one who has the paramount
title coupled with the right of immediate possession, may take the
property from the bailee. If the bailee yields possession to one whose
right of possession and title are inferior to the bailor's, the bailee
is answerable to the bailor for any losses sustained. The bailee cannot
confer good title upon anyone to whom he attempts to sell the property
bailed, even though the purchaser buys without notice of the bailment.
Anyone who injures the property while it is in the possession of the
bailee is responsible either to the bailor or bailee for the damages.

=237. Lien of Bailee.= A bailee who has performed work on the article
bailed, for which he is to be paid a consideration, is said to have
a _lien_ for the value of the work performed, or materials furnished.
By a lien is meant the right of the bailee to retain possession until
the value of his labor or material has been received. At common law,
a livery stable keeper had no lien upon horses fed and cared for. By
statute in most states, livery stable keepers now have a lien upon
horses left with them. If a bailee is employed to perform work or labor
upon personal property, and the property is destroyed without fault
of the bailee after part of the work has been performed, the bailee
may recover for the amount of work performed and materials furnished,
unless the contract of bailment is to the effect that the entire job is
to be completed before any payment is made.

A bailee loses his lien by parting with possession of the property.
At common law, a bailee could not sell the property to enforce his
lien. By statute in most states, the bailee is permitted to sell the
property, by giving notice of the time and place of sale to the bailor,
or by foreclosing his lien by a legal action.

PLEDGES

=238. Pledge Defined.= A _pledge_ is one form of a mutual benefit
bailment. It is a deposit of personal property by a debtor with a
creditor as security for a debt, the title to the property remaining
in the debtor until the property is disposed of by the creditor in
accordance with the express or implied agreement of pledge. A pledge
differs from a chattel mortgage in that possession of personal property
is given a creditor for the purpose of securing a debt, the title
remaining in the debtor. In case of a chattel mortgage, the title to
the personal property passes to the mortgagee, who is the creditor,
subject to revesting in the mortgagor, who is the debtor, in case of
payment of the mortgage debt. In a chattel mortgage, possession of the
property generally remains in the debtor.

_A_ owes _B_ $100.00. He gives _B_ possession of a diamond ring as
security for the debt. If _A_ does not pay the $100.00 when due, _B_
may retain possession of the ring until he receives $100.00 from _A_,
or he may sell the ring at public sale, advising _A_ of the time and
place of sale. If the ring sells for more than $100.00, _B_ must pay
_A_ the excess of $100.00.

Pledges form an important part of present day business. Pledges of
bonds, stocks and negotiable paper are common in transactions with
banks. Banks commonly make loans, taking a promissory note secured by
a pledge of stocks, bonds, negotiable instruments, or other personal
property. Their loans are commonly called loans on _collateral_ or
loans on _collateral security_.

=239. Parties to a Pledge.= A pledge of chattel property is a
contract express or implied. The party giving the property as security
to his creditors is called the _pledgor_, the party receiving the
property is called the _pledgee_. Like any contract, it requires
competent parties. (See _Competency of Parties_, chapter on Contracts.)
A person mentally insufficient, intoxicated, or an infant, is not
competent to make a contract. An infant's contracts of pledge, like any
of its contracts are voidable, but not void. The infant may carry out
the contract if he chooses. An infant's contracts are not illegal. They
cannot be enforced against an infant, however, if he objects by reason
of infancy. A competent party, contracting with an infant, cannot
void his contract on the ground of infancy of the other contracting
party. Most contracts of pledge are implied. If _A_ owes _B_ $10.00 and
gives _B_ his watch as security, _B_ impliedly has the right to retain
possession of the watch until _A_ pays him $10.00. _B_ also has the
right after _A_ fails to pay him the $10.00 when due, to sell the watch
at public auction, and apply as much of the proceeds as is necessary to
the payment of his debt. In most pledges of importance where securities
are pledged, the contract of pledge is reduced to writing, and a
stipulation is made giving the pledgee the right to sell the property
at public or private sale without notice to the pledger, and permitting
the pledgee himself to be a purchaser at the sale. No matter what the
contract of pledge provides, the sale should be public, notice of which
should be advertised, and notice of the time and place should be given
the pledgor.

=240. Personal Property Which May Be Pledged.= Any kind of personal
property which is the subject of transfer may be pledged. This includes
personal property having a tangible existence, as well as that which is
intangible. That is, choses in action as well as choses in possession
may be pledged. A promissory note, a certificate of stock, or a bond
which is an evidence of something tangible or the right to obtain
something tangible, is the subject of a pledge, as well as furniture,
jewelry and other tangible personal property. Property which has no
active or potential existence is not the subject of a pledge. A person
cannot pledge a horse which he expects to purchase, or a crop which he
expects to grow on the land of another. A person may, however, pledge a
growing crop.

=241. The Debt Secured.= A pledge or delivery of personal property is
for the purpose of securing a debt owing the pledgee. The existence of
a debt is one of the essential elements to a valid pledge. A delivery
of personal property to another in the absence of a debt may constitute
a bailment for the sole benefit of the bailor, the bailee, or for the
mutual benefit of both parties. To constitute a pledge, however, there
must be a debt owing the pledgee, and the property must be delivered
to him, and accepted by him as security for the debt. The debt must be
legal, and must be supported by a sufficient consideration to support
the contract of pledge.

_A_ won $50.00 at cards from _B_. _B_ gave _A_ his watch as security
for the debt. _B_ was permitted to recover possession of his watch
from _A_ by legal action, since the gambling transaction was illegal.
_B_ did not legally owe _A_ $50.00. An illegal debt cannot support a
contract of pledge. If, for any reason, the debt is not owing or is not
valid, it will not support a contract of pledge.

=242. Title to Property Pledged.= The legal title or ownership of
personal property pledged remains in the debtor or pledgor. A right of
possession is given the pledgee. This is sometimes called a _special
property_. A pledge differs from a sale in that, in a sale, the title
or ownership of the personal property passes to the purchaser, while
the possession may remain in the seller. In a pledge, however, the
possession passes to the pledgee or creditor, while the title remains
in the pledgor or debtor. A pledge differs from a chattel mortgage in
that, in the latter, the title passes to the creditor or mortgagee,
subject to revesting in the mortgagee or debtor, upon the latter's
paying the mortgage debt.

There is probably one exception to the rule that title to property
pledged does not pass to the pledgee, and that is in case of negotiable
instruments. A negotiable instrument endorsed in blank, or made
payable to bearer passes like currency by delivery. A pledge of such
paper passes title to the pledgee. A pledge of negotiable paper not
endorsed in blank, or not payable to bearer should be made by proper
endorsement. In this event title passes to the pledgee. The title
is revested in the pledgor by proper indorsement, or by delivery, if
the instrument is transferable by delivery, when the debt secured is
paid. A pledgee of negotiable paper, who takes it before it is due
without notice of defenses, is an innocent purchaser for value without
notice, and as such, is entitled to the rights of an innocent purchaser
for value without notice. (See _Innocent Purchaser for Value Without
Notice_, chapter on Negotiable Instruments.)

=243. Collateral Securities.= Loans by banks are frequently made on
collateral securities. This means that the borrower gives a bank a
promissory note for the amount, and pledges personal property to secure
the note. The contract of pledge may be by separate written instrument,
or it may be made a part of the note itself. Where made a part of the
note, the note is called a _collateral note_. (See _Collateral Note_,
chapter on Negotiable Instruments.) Any kind of property which is
the subject of a pledge may be used as collateral security. Stocks,
bonds, and even commercial paper are commonly used. Jewelry, bills of
lading, and warehouse receipts are not infrequently used in this kind
of a pledge. Collateral security given as security for a promissory
note or other negotiable instrument is a pledge. The rules governing
ordinary pledges govern this kind of pledge as well. The only practical
distinction between a collateral loan and an ordinary loan is that, in
a collateral loan, the debt is evidenced by a negotiable instrument
which is secured by a pledge of personal property.

=244. Rights and Duties of Pledgor and Pledgee.= A pledgor has the
right to have his pledged property returned to him upon payment of
the debt secured by the pledge. He also has the right to have the
property carefully preserved and cared for while in the possession
of the pledgee. The pledgee is entitled to retain possession of the
property pledged until the debt owing him is paid. He may re-pledge
the property if he so desires. If the pledged property is negotiable
paper, the pledgee must collect the paper as it falls due, and observe
all the requirements necessary to preserve the rights of the pledgor.
If the property pledged is tangible personal property, the pledgee
must use the care of an ordinarily prudent man in the preservation and
protection of it. He is not permitted to use property which may be
injured by use, and should not use the property except to the extent
that it is necessary for its preservation. If the pledgee sells or
transfers the debt secured, the purchaser is entitled to the benefit
of the pledge. That is, if _A_ owes _B_ $500.00 and pledges five shares
of stock to _B_ as security for the debt, and _B_ sells the debt to
_C_, _C_ is entitled to the benefits of the pledged certificates of
stock. If _B_ gives _C_ possession of the stock, _C_ may retain the
same until he receives the $500.00 from _A_. If _B_ does not turn over
the shares of stock to _C_, _C_ may bring an action to compel the
transfer of possession to him.

=245. Disposal of Property by Pledgee After Default.= If the pledgor
fails to pay the debt secured when due, the pledgee has the right to
enforce his pledge. In the absence of any special agreement, the law
impliedly gives the pledgee the right to sell the property at public
sale, and apply as much of the proceeds of the pledged property as is
necessary to the payment of his debt. This sale must be public. The
pledgee must first notify the pledgor that he is in default of payment,
and of his intention to sell the property, giving the time and place
of the proposed sale. The pledgee cannot be a purchaser at the sale,
unless so permitted by express stipulation in the contract of pledge.
Many contracts of pledge are in writing, by the terms of which the
pledgor waives notice of default and of time and place of sale, and
permits the pledgee to sell at private sale, and to become a purchaser
at the sale. When a pledgee is given the right to purchase by the
contract of pledge, he cannot make a valid purchase without advertising
the property, and without exerting himself reasonably to obtain the
greatest amount possible for the pledged property at the sale.

In selling pledged property, notice of default should be given the
debtor. He should also be notified of the time and place of sale. The
sale should be advertised publicly, and should be public. The pledgee
cannot himself purchase the property unless the contract of pledge
expressly so provides. Even in this event, the sale will not be held
valid unless it is public and fair in every way to the interests of the
pledgor. A pledgee is permitted in some states to sell according to
certain statutory methods provided. A pledgee may sell by foreclosing
his lien in equity. This means by filing a written request in a court
of equity to sell the property. In this event, the sale is conducted by
order of court.

=246. Redemption.= A pledgor has the right to obtain possession of
the property pledged, by paying the debt secured at any time before
actual sale of the property. A pledgor sometimes agrees by the contract
of pledge, to waive the right to redeem the property after default of
payment of the debt secured. Courts will not enforce such a provision
of the agreement against him. The pledgor is permitted to redeem the
property by paying or tendering the amount of the debt at any time
before sale of the pledged property. If the pledgor is in default of
payment, however, and agrees by separate agreement, made subsequently
to the contract of pledge, that the pledgee may keep the property
pledged in satisfaction of the debt, he is bound by this agreement.

MORTGAGES OF PERSONAL PROPERTY

=247. Mortgages of Personal Property Defined.= By _mortgage_ of
personal property, is meant the transfer of title to personal property
by a debtor to a creditor; the possession of the property usually
remaining in the debtor, and the transfer being made for the purpose of
giving the creditor security for the debt, the debtor having the right
to secure a return of title to the property by paying the debt within
a stipulated time. It is a conditional sale. It is not absolutely
necessary that possession of property which is the subject of a chattel
mortgage, remain in the debtor. Possession may be given the creditor
with the understanding that possession and title are to revest in the
debtor when the latter pays the debt secured. As a matter of business
practice, however, possession of personal property which is the subject
of a chattel mortgage, remains in the debtor, the creditor taking the
title as security for the debt, with the right to secure possession
or sell the property in case the debtor fails to pay the debt secured
when due. When possession of personal property is given a creditor
as security for a debt, the transaction is usually in the form of a
pledge. In a pledge, title remains in the debtor, but possession is
given the creditor. The distinguishing features of a sale, bailment or
pledge, and a mortgage of personal property are important. In a sale
of personal property title passes to the purchaser, while possession
usually remains in the seller until the purchase price is paid. In a
pledge, which is a form of a bailment, title remains in the bailor, and
possession only is given the bailee or creditor. In case of a chattel
mortgage, possession remains in the debtor, while title passes to the
creditor subject to revesting in the debtor upon payment of the debt
secured. The debtor, or person giving the mortgage, is called the
_mortgagor_, the creditor, or person receiving the mortgage, is called
_mortgagee_.

[Illustration: IN THE PRIVATE OFFICE OF THE GENERAL MANAGER OF THE S.
OBERMAYER CO., CINCINNATI, OHIO]

=248. What Kinds of Personal Property May Be Mortgaged.= The rule is
usually stated as follows: Any interest in personal property which
may be the subject of a present sale may be mortgaged. Any tangible
personal property such as furniture, horses, cattle and clothing,
as well as intangible personal property, such as promissory notes,
contracts, and shares of stock may be mortgaged. It is not necessary
that the mortgagor have absolute, unencumbered title to the property
to give a mortgage. An owner may give several mortgages on the same
property. He may mortgage his interest as long as any remains. If _A_
owns a stock of goods worth $10,000, he may give successive mortgages
to different creditors to whom he is indebted. He must practice no
fraud, however. He must make each mortgage subject to the prior ones,
and must reveal the facts to the creditor taking the mortgage. But he
is permitted to mortgage his remaining interest.

=249. A Mortgage of Personal Property as Security for a Debt.= A
mortgage of personal property is a contract, and must be supported
by a consideration. Mortgages are usually given to secure loans of
money. They may, however, be given to secure any kind of obligation.
A mortgage of personal property may be given to secure advances of
money to be made in the future, as well as present or past advances or
obligations. It is usually held that a past indebtedness is sufficient
consideration to support a mortgage, as to all persons, except one who
may have been defrauded out of the property mortgaged.

=250. Form of Mortgages of Personal Property.= To constitute a
transaction a chattel mortgage, there must be an agreement by which
title to personal property is transferred to a creditor upon condition
that it is to revest in the debtor upon the latter paying a certain
sum of money, or fulfilling an obligation, within a certain time.
As between the mortgagor and mortgagee themselves, an oral chattel
mortgage is binding, unless within the provisions of the Statute of
Frauds. (See _Statute of Frauds_, chapter on Sales.) Most states
provide that contracts for the sale of personal property involving
more than $50.00 must be in writing to be enforceable. This provision
applies to chattel mortgages. If possession of the mortgaged personal
property is given the mortgagee under an oral mortgage, the
transaction is binding, not only between the parties thereto, but as to
third persons as well. Most states provide by statute that as against
third persons who purchase the property, or as against creditors of the
mortgagor, the chattel mortgage must be in writing, and be recorded
or filed with a public official, in case possession of the mortgaged
property is left with the mortgagor. This question is discussed more at
length in the following section.

=251. Filing and Recording Mortgages of Personal Property.= Most
states have statutes providing that chattel mortgages must be filed or
recorded with a designated public official to be effective as against
creditors, subsequent purchasers or mortgagees. This requires that the
mortgage be in writing, and be deposited or recorded according to the
provisions of the statute with the designated public official. For
example, if _A_ orally mortgages his horse to _B_ to secure a loan of
$40.00, the mortgage may be binding between _A_ and _B_, but if _C_,
a creditor of _A_, secures a judgment against _A_ and levies on the
horse, his levy is superior to _B's_ mortgage. If _A_ sells the horse
to _D_, who has no notice of the mortgage to _B_, _D's_ rights to the
horse are superior to _B's_. If _A_ gives a mortgage in writing to _E_,
who records his mortgage according to statute, his rights to the horse
are superior to _B's_. The statutes of the different states require
these mortgages to be refiled at stated intervals. Most states require
them to be refiled each year. Some require them to be refiled only
every three years.

=252. Rights of Mortgagor in Property Mortgaged.= A mortgage of
personal property ordinarily contains a stipulation that the mortgagor
shall retain possession until after default of payment of the mortgage
debt. Some states have statutory provisions giving the mortgagor the
right of possession of the mortgaged property before default of payment
of the mortgage debt. It is the custom at the present time to give the
mortgagor possession of the property before default. If a mortgagor
having possession of the property has it stored on his own behalf, and
the warehouseman acquires a lien on the goods for his charges, his lien
is inferior to the mortgage. The same is true if a mechanic acquires a
lien for repairs upon the property.

A mortgagor may mortgage his interest in the personal property by
giving a second mortgage. The second mortgagee takes the mortgagor's
right to have the property revest in him upon payment of the debt
secured by the first mortgage. A mortgagor may sell his interest in the
property, subject to the interest of the mortgagee. If the mortgage
stipulates that a mortgagor cannot sell his interest, this stipulation
is binding. A mortgagor has the right to pay the debt secured, and by
this means to have the title to the property revest in him.

=253. Rights and Liabilities of Mortgagee.= A mortgagee of personal
property has a conditional title to the property. If the mortgagor does
not pay the debt secured, according to the terms of the mortgage the
mortgagee has the right to seize the property or at least to subject
it to the satisfaction of his debt. The mortgagee has the right to
sell the debt secured by the mortgage. In the absence of an express
stipulation to the contrary, a transfer by a mortgagee of the debt
secured by the mortgage, transfers the mortgage. An assignment of a
chattel mortgage apart from the debt secured, passes no interest to
the transferee. A mortgagee has the right to seize the property upon
default of payment of the debt secured, if the mortgage contains a
stipulation to that effect. The mortgagee has the right to foreclose
his lien. By this is meant that he has the right to file a petition in
a court of equity asking that the property be sold, and that his claim
be paid from the proceeds first, and that the mortgagor's right to
pay the debt and secure a return of the property be cut off. This is
discussed under the section on _foreclosure_.

=254. Mortgagor's Right of Redemption.= In law, a mortgage is regarded
as a security for a debt, rather than as a transfer of property. By a
chattel mortgage, a transfer of title to personal property is made by a
debtor to a creditor as security for a debt. The debtor has the right,
however, to secure a return of the title to the property by paying the
mortgage indebtedness according to the terms of the mortgage. When the
debtor fails to pay the debt when it is due, absolute title to the
property vests in the mortgagee or creditor. The law, however, permits
the debtor or mortgagor to pay the debt at any time before actual sale
of the property by the mortgagee, together with interest and expenses,
and thus secure the title to the mortgaged property. This is known as
the _mortgagor's equity of redemption_.

Legal title is vested absolutely in the mortgagee upon failure of the
mortgagor to pay the mortgage debt when due. The mortgagor, however,
is permitted to pay the debt with expenses at any time before sale of
the property, and by this means to secure a return of the title to
the property. This makes a mortgage of personal property in effect a
security for a debt, rather than a transfer of title. The purpose of
the law is to give the creditor or mortgagee the right to secure the
payment of his debt out of the mortgaged property, and nothing more.
Most states have statutes providing a method by which a mortgagor may
obtain his equity of redemption. Where there are no statutes, this
right must be enforced by a petition in a court of equity.

=255. Mortgagee's Right of Foreclosure.= Equity permits the mortgagor
to recover the mortgaged property by filing a petition in a court of
equity, even after he has defaulted in paying the mortgage debt, by
tendering the amount due, together with interest and expenses. This
right of the mortgagor may be cut off by an equitable right enforced
on the part of the creditor or mortgagee. This right is called the
_mortgagee's right of foreclosure_. When the debtor or mortgagor is in
default, the creditor or mortgagee is permitted to file a petition in a
court of equity, setting forth the fact, and asking the court to order
the property to be sold, the expenses to be paid, the mortgage debt to
be satisfied, and the balance of the proceeds of the sale to be paid to
the debtor or mortgagor. After this proceeding has been resorted to and
completed, the debtor cannot enforce his equity of redemption.

The common method afforded a mortgagee of foreclosing a mortgagor's
equity of redemption is by the petition in equity above described. Many
of the states have provided statutory methods which may be followed.
Some mortgages by express stipulation give the creditor or mortgagee
the right to seize the property and sell same upon default of the
debtor to pay. This takes the place of an equitable foreclosure. When
a mortgage contains a power of sale stipulation, the mortgagee may
seize the property when the mortgagor defaults, and sell the same at
public sale. The excess recovered over the mortgage debt and expenses,
must be paid the mortgagor. If possession of the property cannot be
obtained peaceably, the mortgagee must bring an action in replevin,
by which possession is obtained by an officer of the court. In some
jurisdictions, a mortgagee is permitted to seize and sell mortgaged
property upon default of the debtor, even though the mortgage contains
no power of sale stipulation. The sale must be _bona fide_ and public,
or it can be set aside at the instance of the defrauded mortgagor.

CARRIERS

=256. Carriers Defined.= _Carrier_ is the term applied to individuals
or companies engaged generally or specially in carrying goods or
passengers from place to place. The business of carriers has grown
rapidly with the development of this country. The business of
steamboat, railway, express, and electric package companies forms an
important part of present day affairs. Carriers are usually classified
as _common_ or _private_. Both common and private carriers may carry
either passengers or goods. Carriers of passengers are discussed in a
separate chapter.

=257. Common Carriers of Goods.= A common carrier of goods is one who
represents himself as engaged in the business of carrying goods from
place to place for anyone who desires to employ him. A common carrier
of goods is liable as an insurer of the goods. By reason of this
exceptional liability attaching to a common carrier, it is important to
know who are common carriers. Everyone who carries goods from place to
place is not a common carrier. To constitute a person a common carrier,
there must be a representation on his part of a willingness to carry
goods belonging to anyone who desires to employ him for that purpose.
A common carrier need not necessarily hold himself out as willing to
carry all classes of goods. He may limit his business to carrying a
peculiar class of goods, and still be a common carrier. It may be
stated as a rule that anyone who holds himself out as willing to carry
goods of any person is a common carrier. Common examples of common
carriers are railroad companies, express companies, public transfer
companies, and electric package companies. An express company, in
holding itself out as willing to carry goods of any person, is a common
carrier.

If persons carry goods only on special contract, and choose their
customers, they are private carriers, and are not liable as insurers of
the goods entrusted to their care. Anyone may engage in the business
of a private carrier, and so long as he does not hold himself out
as a common carrier, he cannot be compelled to accept for carriage
goods against his will, neither is he liable as an insurer of the
goods. A private carrier is an ordinary bailee. If he agrees to carry
for compensation, he must exercise ordinary care, and is liable for
ordinary negligence. The business of a common carrier is said to be one
of the exceptional mutual benefit bailments. The exceptional liability
of a common carrier is discussed under a separate section.

=258. Implied Liability of a Common Carrier.= In early days when
pirates infested the seas and stagecoach robberies were common, it
was an easy matter for a common carrier to conspire with robbers and
thieves, in unjustly depriving the owner of the goods entrusted to the
carrier's care. By reason of the opportunity given a common carrier
fraudulently to deprive a shipper of his goods, the law at an early
time placed the exceptional liability of an insurer upon a common
carrier. The relation between a shipper and a carrier, after goods are
placed in the hands of the carrier, is one of mutual benefit bailment.
The liability of a common carrier, however, is not limited to the
liability of an ordinary mutual benefit bailee. Common carriers and
innkeepers are said to be _exceptional mutual benefit bailees_. This
exceptional liability is placed on them by reason of the opportunity
given them fraudulently to deprive the owners of their goods, and to
compel the carriers to protect the goods against robbery and theft.

A common carrier is liable as an insurer of the goods entrusted to his
care. He cannot avoid liability by acting as an ordinarily prudent man
would act under the circumstances in protecting and caring for the
goods, but he must actually protect them or be liable to the owner for
their loss or damage. There are a few exceptions discussed under a
separate section. If _A_ employs _B_ to keep, feed, and care for his
horse for six months, for fifty dollars, and _B_ puts the horse in his
stable, where it is stolen, together with _B's_ own horse, _B_ is not
liable to _A_ for the loss of the horse, if he acted as an ordinarily
prudent man would act under the same conditions. If, however, _A_
delivers his horse to _B_, a railroad company, to be shipped from
Buffalo to Chicago, and the horse is stolen from _B's_ possession, _B_
must pay _A_ the value of the horse. He is not permitted to say that he
exercised ordinary care in the protection of the horse. This is what
is meant by the exceptional liability of a common carrier. While the
reason for this exceptional liability of a common carrier has largely
passed away by the practical extermination of highway robbers and
pirates, the exceptional liability of common carriers remains as a
part of the law. This exceptional liability is not a matter of express
contract between the shipper and the carrier, but is impliedly a part
of the contract.

=259. Exceptions to the Liability of a Common Carrier as an Insurer.=
A common carrier of goods is not absolutely liable as an insurer of
the goods entrusted to his care. If the goods are lost, injured, or
destroyed by an Act of God, by a public enemy, by negligence of the
shipper, by the inherent nature of the goods, or by the exercise of
public authority, the carrier is not liable as an insurer.

By _Act of God_ is meant an inevitable act arising without the
intervention or aid of a human agency. A loss of goods by a storm,
by lightning, or by earthquake is an example. If the goods are lost
or injured as a result of any act of the shipper, the carrier is not
liable as an insurer. A carrier is permitted to adopt and enforce
reasonable regulations relating to the packing and shipment of goods.
If the shipper negligently packs goods so that they are injured by
reason thereof, the carrier is not liable as an insurer. If the shipper
improperly addresses packages, and they are lost by reason thereof, the
carrier is not liable as an insurer. If the shipper accompanies live
stock, and injury occurs by reason of the carelessness of the shipper,
the carrier is not liable as an insurer.

By _public enemy_ is meant a power at war with a nation. This includes
pirates. Mere insurrections, robberies, thefts, mobs, and strikes are
not included in this class of public enemies. If a loss of goods occurs
by means of public enemy, a carrier is not liable as an insurer of the
goods. If the loss occurs through the _inherent nature of the goods_,
without the negligence of the carrier, the latter is not liable as
an insurer. For example, if fruit spoils as a result of warm or cold
weather, if the carrier is not in any way at fault, he is not liable as
an insurer, since the loss occurs on account of inherent defects of the
goods. If animals injure themselves while in the carrier's possession
by reason of their viciousness, or fright, which injury could not have
been prevented by reasonable care on the part of the carrier, the
latter is not responsible.

If the goods are lost or injured by reason of the _exercise of public
authority_, the carrier is not liable as an insurer. If the goods,
while in the possession of the carrier are seized upon attachment, or
by levy on execution by the creditors of the shipper, the carrier is
not liable if he promptly notifies the shipper.

=260. Limiting Common Law Liability by Special Contract.= The common
law liability of a common carrier of goods is that of an insurer. It
matters not how the loss or injury occurs, whether without, or through
the carelessness of the carrier, the latter is liable for the loss, if
it does not come within the recognized exceptions. Carriers commonly
endeavor to limit their exceptional liability by making a special
contract with a shipper, by the terms of which the carrier limits his
exceptional liability in case of loss.

There is considerable conflict of authorities between the different
states as to whether a carrier may limit his exceptional liability
at all by special contract. Where permitted to limit this liability,
there is considerable controversy as to the extent to which a carrier
may limit his liability by special contract. The courts of most
jurisdictions agree that a common carrier cannot limit his exceptional
liability by special contract as to his own negligence or the
negligence of his servants. This special contract by which a common
carrier limits his exceptional liability as an insurer is usually in
the form of a written contract signed by the shipper or in the form of
stipulations in the bill of lading given to the shipper and called to
his attention.

If a carrier accepts a carload of hay for shipment, without limiting
his common law liability by special contract, and the hay is destroyed
by fire, the carrier must respond in damages for the loss, regardless
of his negligence. If, however, the carrier enters into a special
contract with the shipper to the effect that the carrier shall not
be liable for loss by fire, and the hay is destroyed by fire without
negligence of the carrier or his agents or servants, the carrier is not
liable in damages.

=261. Limiting Common Law Liability by an Agreed Valuation.= Common
carriers frequently attempt to limit their liability for loss or injury
to goods by stipulations in a bill of lading, that in case of loss, the
valuation shall not exceed $50.00, or some specified amount. If the
shipper does not notify the carrier that the valuation is a greater
amount, the amount mentioned in the bill of lading is the valuation
fixed by special contract. In case of loss there is a great variety
of holdings as to whether a carrier may limit his liabilities to the
amount mentioned in the contract. Probably the courts in the majority
of cases hold that such a stipulation is valid in case of losses
arising not by reason of the negligence of the carrier or his agents.
The courts of a few jurisdictions hold that the stipulation as to
valuation is good even as against the negligence of the carrier or his
agent.

So far as interstate shipments are concerned, the question is settled
by the Federal Interstate Commerce Act of 1906. This act provides that
as to shipments from one state to another, such a stipulation is not
valid. The language of the Interstate Commerce Act relative to this
question is as follows:

A common carrier receiving property for interstate transportation
shall issue a receipt or bill of lading therefor, and be liable to
the holder for any loss, damage or injury to the property, and no
contract, receipt, etc., shall exempt the carrier from the liability
thereby imposed.

At present, so far as interstate shipments are concerned, a common
carrier cannot limit his common law liability by a special contract.

=262. Bills of Lading and Shipping Receipts.= _Bill of lading_, or
_shipping receipt_ is the term applied to the receipt given a shipper
by a carrier, when goods are delivered into the latter's possession. A
bill of lading serves two purposes. It is a receipt of the shipper from
the carrier for the goods delivered to the latter, and it is a contract
representing the agreement between the shipper and the carrier. It is
usually held that the terms printed on the bill of lading are binding
on the shipper, even though the bill is not signed by him. A bill of
lading represents the title to the goods. It may be transferred like a
negotiable instrument. A purchaser takes the position of the shipper.
A bill of lading is negotiable in the sense that it represents title
or ownership of the goods, and in the sense that a purchaser takes the
right of the shipper in the goods. But it is not negotiable in the
sense that a purchaser takes a better position than the original holder
had.

=263. Title to Goods After Delivery to Common Carrier.= In the absence
of special agreement to the contrary, where a party in one town
purchases goods from a party in another, the goods to be delivered by
common carrier, title to the goods passes to the purchaser when the
goods are delivered to the carrier properly packed and addressed. This
kind of a sale is commonly called a sale _F. O. B._ place of purchase,
"F. O. B." means "free on board." Careful business people, in making
sales or purchases, specify whether the goods are to be F. O. B.
place of shipment, or F. O. B. place of delivery. If the sale is F. O.
B. place of delivery, title does not pass to the purchaser until the
goods are delivered at the place specified. If the goods are lost by
the carrier, the loss falls on the shipper or carrier, and not on the
purchaser. If goods are shipped F. O. B. place of shipment, or if no
agreement is made about shipment or payment of freight, title passes
to the purchaser when the goods are properly delivered to the carrier.
If the goods are lost, the loss falls on the carrier or purchaser, and
not on the seller. Where no stipulation is made relative to payment
of freight or carrier's charges, the law presumes that the purchaser
is to pay the carrier's charges. Sales are sometimes made in which it
is specified that the freight charges are _to be allowed_. This means
that the shipper is to pay the carrier the freight charges. If the
goods are lost, the loss falls on the purchaser. If there is an express
stipulation that the goods are to be delivered at the place of delivery
by the seller, this means that title does not pass to the buyer until
the delivery is made at that place, and the shipper or seller stands
the risk of loss in transit.

=264. Duty of Common Carrier to Accept Goods for Carriage.= A
common carrier of goods holds himself out to the public as ready to
carry the goods of anyone who desires to employ him. The carrier
may demand payment of reasonable charges in advance. He may also
enforce reasonable regulations relating to the packing, delivery, and
addressing of goods. Carriers are not obliged to carry goods other
than the kinds they purport to carry. For example, an express company
representing itself to the public as a carrier of light packages cannot
be forced to accept heavy machinery for carriage. A carrier cannot be
compelled to accept goods not belonging to the class it represents
itself as being in the business of carrying. But a carrier must accept
for carriage goods of the class it purports to carry, no matter by
whom tendered. If the bill of lading offered by the carrier contains
stipulations not agreeable to the shipper, the latter may demand the
carrier to carry the goods under the terms of the implied common law
liability of a carrier. The carrier is excused from accepting goods in
the event of a great and unexpected bulk of business. He must, however,
furnish sufficient equipment to meet the general requirements of
business.

=265. Stoppage in Transitu.= Where goods sold on credit have been
delivered to a carrier, if the vendor learns that the purchaser is
insolvent, he may order the carrier to withhold delivery of the goods.
This is called _stoppage in transitu_. This question is also discussed
in the chapter on sales. The vendor may compel the carrier to withhold
delivery of goods by giving him written or oral notice to that effect.
To be effective, this notice must be given before the carrier has
surrendered possession of the goods to the purchaser. If the carrier
delivers the goods to the purchaser after receiving notice from the
seller to withhold shipment, he is liable in damages to the seller.
If the purchaser has received possession of the bill of lading, and
has sold it to a _bona fide_ purchaser, as to the latter, the seller
cannot exercise the right of stoppage _in transitu_. If the carrier is
in doubt about who is entitled to possession of the goods, he may file
a petition with a court, called an _interpleader_, asking the court to
determine who is entitled to possession of the goods.

=266. Delivery of Goods by a Carrier.= The manner of delivery of goods
required of a common carrier, depends largely upon usage and custom.
In large cities, express companies and carriers of small packages
usually make deliveries to residences and places of business. In small
towns, and in the country they usually deliver at their depots or
store rooms only. Persons dealing with common carriers are bound by
their customs, and by reasonable regulations of the carriers. Carriers
by water and rail ordinarily deliver at their depots and warehouses
only. The purchaser is obliged to call for his goods. The carrier is
obliged to give the purchaser notice that the goods have arrived. If
the purchaser fails to call within a reasonable time thereafter, the
exceptional liability of a common carrier ceases, and the liability of
a warehouseman attaches. A warehouseman is obliged to exercise only
ordinary care in the protection of the goods, while a carrier is an
insurer of the goods.

If a carrier delivers goods to the wrong person, he is liable in
damages to the owner. If the consignee refuses to accept the goods, the
carrier should notify the shipper of this fact. The carrier's liability
then becomes that of a warehouseman.

Goods are frequently delivered to a carrier _C. O. D._ (collect
on delivery). A carrier, in this event, is required to collect a
specified amount from the purchaser before delivery. The purchaser
is entitled to inspect the goods. Title to goods sent C. O. D., is in
the purchaser, the possession only being reserved by the owner for the
purpose of collecting certain charges, ordinarily the purchase price.

=267. Charges and Lien of Common Carrier.= A common carrier usually
stipulates by special contract with a shipper the amount of charges for
carriage. In the absence of special contract, the carrier is entitled
to a reasonable amount for this service. The United States Congress has
the right to regulate charges for interstate carriage. The states may,
through their legislatures, regulate the rates within their respective
jurisdictions. A carrier has a lien on the goods carried for his
charges, and may retain possession of the goods until these charges are
paid.

=268. Discrimination by Common Carrier.= A common carrier represents
himself as willing to carry the goods of anyone who desires to employ
him. Business depends to a large degree upon the facilities offered by
carriers, notably by railroads. If certain business men or interests
are favored by carriers, competition in the same line is eventually
destroyed. For this reason, the law prohibited discrimination on
the part of a common carrier. All persons shipping under the same
conditions must be treated alike. The policy of the law is to promote
competition. There are cases which hold that a carrier is permitted
to charge one person a less rate than another, if the latter is not
charged an unreasonable rate. But this rule does not apply where the
parties are competitors and where the difference in rate charged is for
the purpose of destroying competition. The matter of discrimination
is now regulated largely by interstate commerce legislation discussed
under a separate section.

=269. Carriers of Mail.= The Constitution of the United States gives
Congress the power to establish postoffices and post roads. Under
this provision, the postoffice department has been created. It is a
department of the government. While the postoffice department carries
mail for compensation, it is a department of the government and not
a common carrier. The government cannot be sued without giving its
consent. It is an elementary principle that a government or sovereign
power cannot be sued by its citizens. If the mail is lost, the
government cannot be sued for damages. The government employs postal
clerks, postmasters and mail-carriers to operate the postal system.
These agents or servants of the government are required to give bond
to the government. If they violate their contract, or neglect their
duties, the government may collect its losses on these bonds. A
person whose mail is lost cannot sue a postoffice agent on his bond.
If, however, a person whose mail is lost can trace the loss to the
carelessness of a particular postmaster or mail-carrier, he may sue
such postmaster or carrier for damages sustained.

=270. Interstate Commerce Act.= The United States Constitution gives
Congress the power to regulate interstate commerce. The United States
Congress enacted interstate commerce regulations in 1887, 1889, 1891,
1895 and in 1906. The present United States interstate commerce
regulation is commonly known as the _Interstate Commerce Act of 1906_.
This act provides for an interstate commerce commission, consisting of
seven members. Each member receives a salary of $10,000 a year. The act
compels carriers engaged in interstate or foreign commerce to publish
a schedule of charges for carrying property. Carriers who give rebates
or offset, or discriminate between shippers in any way, are subject to
heavy fines, and the officers and agents are subject to imprisonment.
The commission is authorized to investigate the profits and charges of
carriers, and to fix the maximum and minimum rates for carriage as well
as the proportion of through rates to which each of several carriers
is entitled. Persons discriminated against may make complaints to the
commission. The commission may investigate these complaints as a court
by summoning witnesses, and by taking testimony. The commission may
award damages to the party injured. If the carrier refuses to comply
with the orders of the commission, the latter may invoke the machinery
of the United States courts to enforce its order. When matters are
removed to a United States court, the finding of the commission makes
out a _prima facie_ case.

Section 20 of the act prevents carriers doing interstate or foreign
commerce business from relieving themselves from liability by special
provision in the bills of lading. This is a very salutary act, since
it was the common custom of carriers to place many provisions in their
bills of lading by which they endeavored to evade their liability
as common carriers. It was practically impossible for a shipper to
comprehend all the printed stipulations contained in a bill of
lading. This provision of the act compelling a common carrier doing an
interstate or foreign commerce business to issue a bill of lading by
which he is liable, in case of loss, for the real value of the goods
lost, is as follows:

"Any common carrier, railroad or transportation company receiving
goods for transportation from a point in one state to a point in
another shall issue a receipt or bill of lading therefor, and shall
be liable to the lawful holder thereof for any loss, damage or injury
to such property caused by it, or by any common carrier, railroad or
transportation company to which such property may be delivered, or
over whose lines such property may pass, and no contract, receipt,
rule or regulation shall exempt such common carrier, railroad or
transportation company from the liability hereby imposed; provided,
that nothing in this section shall deprive any holder of such receipt
or bill of lading of any remedy or right of action which he has under
existing law."

The act also provides that every person or corporation, whether carrier
or shipper, who shall knowingly grant, give, solicit, accept or receive
any such rebates, concession or discrimination shall be deemed guilty
of a misdemeanor, and on conviction thereof shall be punished by a fine
of not less than one thousand dollars ($1,000.00), nor more than twenty
thousand dollars ($20,000.00).

The act also provides that the willful failure, upon the part of any
carrier, to file and publish the tariff or rate and charges required by
said act, or the failure strictly to observe such tariffs until changed
according to law, shall be a misdemeanor, and upon conviction thereof,
the corporation offending shall be subject to a fine of not less than
$1,000.00 for each offense, nor more than $20,000.00 for each offense.

The act also provides that agents or officers of a corporation
convicted of violating the act may be imprisoned not more than two
years in addition to the fine. A person delivering property to a
carrier for transportation to another state or to a foreign country
who shall accept a rebate or offset from the regular scheduled charge
shall, in addition to the above described penalties, forfeit to the
United States a sum of money three times the amount received from the
carrier.

CARRIERS OF PASSENGERS

=271. Carriers of Passengers Defined.= One who holds himself out as
ready and willing to carry from place to place for compensation, all
who desire to employ him for this purpose is a public carrier of
passengers. The liability of a public carrier of passengers is not the
same as that of a common carrier of goods. A common carrier of goods is
liable as an insurer of the goods, while a common carrier of passengers
is obliged to exercise a high or extraordinary degree of care, only in
the protection of passengers. Railroad, steamboat, ferry and omnibus
companies are common examples of public carriers of passengers. Owners
of buildings operating elevators are in the position of public carriers
of passengers. While, strictly, they are not obliged to carry all
persons, they operate the elevator publicly for the convenience of
their tenants, and their tenants' clients. The liability for injury to
passengers of owners of buildings in which elevators are operated is
the same as that of public carriers of passengers.

=272. Who Are Passengers?= A person does not have to be on board a
public conveyance to be a passenger. Steamboat companies provide
depots, waiting rooms, and wharves for the convenience of passengers.
Railroad companies provide depots, rest rooms, and waiting rooms for
persons desiring to make use of the railroad. It is said to be the
rule, that when a person enters the premises of a public carrier for
the purpose of becoming a passenger, he is a passenger from the time
he enters upon the property of the public carrier. If a person enters
the premises of a public carrier not for the purpose of purchasing
a ticket, nor to become a passenger, he is a mere trespasser, and
is not entitled to the rights and privileges of a passenger. A
person traveling on a pass is a passenger. A carrier of passengers
is permitted to enforce reasonable regulations for acceptance of
passengers. Until these reasonable rules are observed a person is not
a passenger. A person is a passenger until he has a reasonable time to
leave the public conveyance and premises of the carrier after reaching
his journey's end.

=273. Rights and Liabilities of Carriers of Passengers.= A public
carrier of passengers is obliged to carry all suitable persons who
desire to become passengers, so far as the carrier has facilities for
their accommodation. The carrier is also obliged to furnish reasonable
facilities to accommodate all who may reasonably be expected to present
themselves as passengers. A carrier may refuse to carry drunken or
disorderly persons, as well as those who, by reason of contagious
diseases or for other reasons, are not proper passengers. A carrier
may require passengers to purchase tickets before admitting them to
the vehicle of conveyance. The carrier is permitted to pass reasonable
rules and regulations for conducting his business. Unlike a carrier of
goods, a carrier of passengers is not liable as an insurer. A carrier
of passengers is bound to exercise extraordinary care in the protection
of the passengers, and is liable for any negligence resulting in a
passenger's injury, and which is not contributed to by the passenger.

If a passenger refuses to pay his fare, or becomes disorderly, he
may be removed by the carrier. The carrier is entitled to use only
the force necessary to effect the removal of the passenger. If the
passenger is injured by reason of excessive force used by the carrier
in, his removal, the carrier is liable in damages. Some states require
by statute that carriers remove obnoxious passengers only at regular
stations. In the absence of such statutes, a carrier may remove a
passenger at any place where he may be removed without injury. If a
passenger is injured by reason of his own negligence, or if his own
negligence in any way contributed directly to the injury, he cannot
recover damages from the carrier.

=274. Baggage.= A public carrier of passengers may pass reasonable
rules and regulations governing the control and amount of personal
baggage a passenger is permitted to carry with him. The contract
between a passenger and an ordinary public carrier impliedly gives
the passenger the right to carry with him on his journey, baggage
consisting of articles to be used on his journey. The business of the
passenger, his social position, and the purpose of the journey largely
determine the question of what articles properly constitute personal
baggage. A workingman would not be permitted to claim that jewels and
fancy dresses were a part of his personal baggage Such articles would
properly constitute the personal baggage of an actress or a society
woman.

If the personal baggage is placed in trunks and packages, and placed
in the absolute control of the carrier, the latter is liable for
their protection as an insurer. If the articles are retained by the
passenger, the carrier is liable only as a bailee for hire. That is,
the carrier is liable only for ordinary negligence, and is obliged to
exercise only ordinary care.

[Illustration: THE SHIPPING DEPARTMENT AT THE PLANT OF THE SAMUEL C.
TATUM CO., CINCINNATI, OHIO]

A carrier is permitted to charge for excess baggage, and becomes liable
as an insurer of such baggage. A carrier is not obliged to carry any
baggage not necessary for the convenience or comfort of a passenger,
and if attempt is made to carry it as personal baggage, the carrier
does not become liable for loss or injury thereto. Sample goods carried
by traveling salesmen do not constitute personal baggage. A carrier is
not permitted to carry these samples free of charge. If the freight is
paid by the salesman, the carrier becomes liable as an insurer.

INNKEEPERS

=275. Innkeeper Defined.= An innkeeper is a person who keeps a public
house for the entertainment, for compensation, of all fit persons who
desire to become guests and who are willing to pay the regular price.
An innkeeper furnishes both food and lodging to guests. Persons who
furnish one or the other, only, are not innkeepers. Innkeepers are
classed as exceptional bailees. They are liable as insurers of their
guests' baggage entrusted to their care. A boarding-house keeper is not
an innkeeper. A restaurant keeper is not an innkeeper.

=276. Duties and Liabilities of Innkeeper.= Innkeepers are obliged
to receive all fit persons who present themselves as guests and who
offer the regular price for entertainment. An innkeeper is obliged by
reason of his public profession, to keep food and lodging facilities
sufficient to meet all reasonably expected demands. Like a carrier of
passengers, an innkeeper is not obliged to receive obnoxious persons.
After a traveler has been received by an innkeeper for the purpose
of obtaining food and lodging, he is a guest. The innkeeper is then
obliged to use reasonable care for the protection of the guest. A
person who boards at an inn is not a guest, neither is one who rooms at
an inn, but does not board there.

An innkeeper is liable as an insurer, for the loss of, or damage to,
the goods entrusted to his care by his guest. If the goods are lost
or injured without any negligence on the part of the guest himself,
and not by an Act of God (see _Act of God_, chapter on Carriers), or
by a public enemy, the innkeeper is liable to the guest. If the goods
are retained by the guest, and remain in his possession and control,
the innkeeper is not liable as an insurer for their protection, but is
obliged to exercise only ordinary care.

=277. Lien of Innkeeper.= An innkeeper has a right to retain possession
of the goods of his guests until he receives his compensation. This is
called an _innkeepers' lien_. At common law, a boarding-house keeper
has no lien on the goods of the boarder. Some states provide by statute
for a boarding-house keeper's lien upon the goods of a boarder. Even
though the goods brought to an inn are the goods of a third person,
the innkeeper has a lien thereon for the charges of the guest, unless
the innkeeper knows at the time of receiving the guest, that the goods
belonged to another. Unless otherwise provided by statute, an innkeeper
cannot sell the goods of a guest upon which he has a lien, but must
file a bill in equity, a petition in a court of equity requiring the
goods to be sold under order of court for the payment of his charges.

REAL PROPERTY

=278. Real Property Defined.= The great English legal writer,
Blackstone, divides all property into two kinds, _real_ and _personal_.
The latter embraces everything of a movable nature, while the former
embraces everything of a permanent nature. Blackstone defines real
property as consisting of _lands_, _tenements_ and _hereditaments_. By
land is meant the soil, and everything above and beneath the soil, the
trees and vegetation above as well as the deposits beneath the soil.
By tenement is meant anything that may be held, such as a franchise
or right of way. By hereditament is meant everything that can be
inherited. It includes lands and tenements. Under the English law,
heirlooms were considered hereditaments. They are not so considered
under our law.

=279. Trees, Growing Crops, and Emblements.= Growing trees are part of
the land and are considered real property. Nursery trees may be planted
by a tenant for the purpose of the tenancy. In this event, they are
considered personal property. Trees cut down and cut into logs are
personal property. Trees blown down or cut down, but not cut into logs
are real property. Trees sold, but not cut, are regarded as personal
property. A practical distinction between real and personal property
is that real property passes to the heirs at the death of the owner,
while personal property passes to the executors or administrators
of the owner's estate. Personal property is first subjected in the
satisfaction of judgments at law against the owner.

_Emblement_ is the term applied to crops which must be planted
annually. Such crops as corn, potatoes, wheat, and melons are
emblements. They are personal property even though not severed from
the soil. They belong to the tenant who plants them. Apples, peaches,
clover, and similar things which are harvested annually, but are grown
from roots or trees which are not planted annually, are real property.
They are a part of the real estate, and pass with it when the latter is
transferred.

=280. Party Walls.= A wall between two estates standing partly on the
land of each estate is a _party wall_. If injured or destroyed by one
of the adjoining owners, the other has an action for damages against
him by reason thereof. If a wall stands wholly upon the land of one
owner, and another constructs his house using a part of the wall as
a foundation, he is a trespasser and is liable in damages, or may be
compelled to remove his house therefrom. If, however, he is permitted
to use the wall in such a manner for twenty years, the wall is regarded
as a party wall. The party so using the wall for twenty years is said
to acquire an _easement by prescription_. Party walls are owned in
common by adjoining owners. Each party does not own half the wall. Both
parties own the entire wall together.

=281. Fixtures.= By attaching a piece of personal property permanently
to the land, or to something permanently connected with the land, the
personal property, in law, becomes a part of the realty. A tenant may
so attach personal property to the land of his landlord as to lose
title thereto. No distinct line can be drawn between articles which
may constitute fixtures and those which may not. It is something of a
matter of intention of the one so attaching the articles to the land.
It is now usually conceded by the courts that a tenant may attach such
articles to the real property as are necessary and desirable for the
purpose of his tenancy, and may remove them at or before the expiration
of his lease, if the same can be done without injury to the real estate
or to the fixtures to which they are attached. A different rule is
applied in case of an owner as against a purchaser or mortgagee. For
example, if _A_ leases a building for the purpose of operating a dry
goods store, he is permitted to put in shelves and to remove them at
the expiration of the tenancy. If _A_ were the owner, and permanently
attached the shelves, he could not remove them as against a purchaser
of the building or a mortgagee.

=282. Fences.= Most of the states have statutes regulating the
building and maintenance of fences. Parties may enter into a contract
relating to partition fences if they choose. The duty to maintain
certain portions of a partition fence may result from usage. If _A_
and _B_ are adjacent owners of a farm, and _A_ has for a period of
twenty years maintained a certain portion of the partition fence, he
may be compelled to continue to maintain that portion of the fence. A
partition fence constructed jointly by the adjacent owners is their
common property. It is their joint duty to keep it up. Either one has a
right to go upon the premises of the other for that purpose. One person
may construct a fence on his own premises, which he may rebuild or take
away at pleasure. A person constructing a fence must use reasonable
care in seeing that it is so constructed and kept up that stock coming
in contact with it is not injured.

=283. Private Ways.= The right to go over the land of another is known
in law as a _way_. Originally, ways were of three kinds, a mere foot
way, a foot and horse way, by which a horse might be ridden over the
way, and a cart way. The last two classes are now treated as one. Ways
are classified as _ways of necessity_ and _ways of convenience_ or
_easements_.

If _A_ sells land to _B_ and the only access _B_ has to a highway is
over _A's_ land, _B_ has a way of necessity over _A's_ land. If _A_
sells land to _B_ and the only access to a highway left to _A_ is over
the land of _B_, _A_ has a way of necessity over _B's_ land.

A way of convenience may arise by continuous usage under a claim of
right for a period of twenty years. If _A_ for an uninterrupted period
of twenty years, under claim of right uses a path over _B's_ premises,
he acquires a way of convenience or easement which gives him the right
to continue the use of the path.

=284. Highways.= Ordinarily, highways are established by public
officials acting under statutory authority. Land is taken from the
owners by order of court granted upon a petition properly filed and
heard. It is said that the public has an _easement in a highway_, a
right to use the highway as a roadway. The absolute title remains in
the original owner. If the highway is abandoned, the property reverts
to the original owner or to his grantees or assignees.

A highway may be created by declaration or admission of the owner that
a certain piece of property is to be used as a highway. It must also be
accepted as such by public officials. The public may also obtain the
right to use certain property as a highway by adverse user for a period
of twenty years. This is called _obtaining the right by prescription_.

_285. Estates in Land._ The extent of the interest of a person in
a certain piece of land or real estate is said to be his _estate_.
Estates are designated by different names, depending upon the amount
of the interest held. In general, estates in land are divided into
_freehold estates_ and _estates less than freehold_. Freehold estates
are in turn divided into _estates of inheritance_, and _estates less
than inheritance_. Estates of inheritance are divided into _estates in
fee simple_, and _estates in fee tail_. Estates less than inheritance
consist of _dower estates_, _estates curtesy_, _estates for the life of
another_, and _estates for one's own life_, and _homestead estates_.
Estates less than freehold or leasehold estates consist of _estates for
years_, _from year to year_, _at sufferance_ and _at will_.

=286. Freehold Estates.= Freehold estates embrace estates of
inheritance and estates less than inheritance. They are estates of
uncertain periods of duration. The estate may be one of inheritance,
that is, forever, or for a lifetime. The term, _freehold_, is taken
from the name, _freeman_. A freehold estate originally applied to the
estate of a freeman. A freeman, that is, a person permitted to go
anywhere he chose, belonged to the only class of persons permitted to
hold estates of this character. The meaning of the term has lost its
significance. Under our law, all persons are freemen.

=287. Estates in Fee Simple.= Absolute ownership in land is termed
an _estate in fee simple_. It means that the owner has absolute and
unconditional ownership of the land in question. It is an estate of
general inheritance. At the owner's death, the estate passes to the
general heirs of the owner, unless particular persons are designated by
will of the owner to take the title.

=288. Estates Tail.= It was formerly the custom in England for wealthy
land owners to give land to the oldest son to be given by him to his
oldest son, a particular person or his direct heirs. That is, instead
of giving the entire interest in the land to a person in such a manner
that the latter could sell or dispose of it as he chose, it was given
by deed or will to a particular line of heirs or persons. If _A_ gave
his property by will to =B= and _B's_ direct heirs, the estate created
did not permit _B_ or his direct heirs to dispose of the estate in
such a manner that the direct heirs designated could be deprived of
the estate at _B's_ death. Granting estates to a particular person or
heir rather than to heirs generally, is called _entailing estates_.
The estate granted is called an _estate tail_. The result of entailing
estates is to continue them in the hands of a few.

England no longer permits the entailing of estates for long periods.
In this country, the matter is controlled by statutes of the different
states. A person is permitted to give real estate, by will, to a person
for the latter's life, and then to a person not yet born. The latter
takes the estate in _fee_. A person is not permitted to give property
to _A_, and to the unborn child of the unborn child of _A_. If this is
attempted, when _A_ has a child, the latter takes an _estate in fee
simple_. The above doctrine is called the rule against perpetuities.

=289. Life Estates.= An estate created to exist during the life of the
holder, during the life of a third person, or until an uncertain event
happens or fails to happen, is called a _life estate_. Life estates
embrace homestead estates, dower estates, and estates by the curtesy.
If _A_ gives _B_ a farm for life, remainder in fee to _C_, _B_ takes a
life estate. He may sell or transfer his life estate, but no more. If
_A_ dies leaving a will, by the terms of which _B_, his wife, is given
a farm for life, or during widowhood, _B_ takes a life estate in the
farm. If she marries, she loses her estate. This estate may be created
by deed as well as by will.

=290. Estates by the Curtesy.= At common law, the husband, at the
wife's death, has a life estate in the real property owned by the wife,
if issue has been born alive during the life of the wife. The husband
may waive his right to the estate if he signs a deed with the wife,
whereby he expressly waives his right to his estate by the curtesy. The
interest of the husband in the estate of his wife, is at the present
time in most states regulated by statute.

=291. Dower Estates.= At common law, at the death of her husband, a
wife takes a life interest in one-third the real property owned by her
husband during the marriage. If _A_ owns one hundred acres of land,
and dies, leaving a wife, _B_, _B_ takes one-third interest for life
in the one hundred acres of land. This interest of _B_ is called her
_dower estate_. Some states by statute provide that the wife shall have
a definite share of the husband's estate at the latter's death. In the
states having these statutes, the wife is not entitled to dower, but
takes the prescribed share in place thereof. The husband cannot deprive
the wife of right of dower, by transferring his real estate. If she
does not expressly release dower in the deed of conveyance, it may be
enforced against the estate, if she survives her husband.

=292. Exempt Estates.= The states generally provide by statute that
certain property shall be exempt from execution on judgment obtained
by creditors of the owner. Exemption statutes usually provide that a
certain amount of real estate used as a home by the owner shall not
be subjected to the satisfaction of judgments of creditors. If the
debtor has no real property used as a home, he is sometimes permitted
to retain a certain amount of personal property in place thereof. This
statutory right to keep a certain amount of real property exempt from
creditors is sometimes called a _debtor's homestead estate_. It exists
during the life of the owner.

=293. Estates for Years.= The right to the possession, or the contract
for possession of land for a definite period of time is called an
estate for years. Originally in England, only freemen could hold
freehold estates. Freehold estates are those of inheritance and those
less than inheritance. Persons occupying a position inferior to that of
freemen under the early English law, sometimes called _villeins_, were
permitted to hold estates for years, but not freehold estates.

If _A_ leases his farm to _B_ for five years, _B_ has an estate for
years. If _A_ leases his house and lot to _B_ for one month, _B_ has an
estate for years. If _A_ leases his house and lot to _B_ for two years,
and to _C_ for three years, _C's_ estate to follow _B's_, _B_ and _C_
have estates for years. Estates for years are also discussed under
_Landlord and Tenant_. Estates for years are commonly called leases or
leaseholds. A holder of an estate for years may assign or sublet his
estate, unless it is provided otherwise in his lease.

=294. Waste.= If persons have estates for years or life in real
property, certain rules for the use of such property are recognized
in order that they may not destroy or injure the remaining estate.
That is, if _A_ has an estate for life in a farm, and _B_ has the
remainder, _A_ is not permitted to destroy _B's_ interest. If a tenant
for life or years so treats the estate as permanently to injure it,
he is said to commit _waste_. A tenant for life is not permitted to
cut off the timber. He may cut out underbrush. If such is the custom
in the vicinity, he may cut timber for fuel and to repair buildings
and fences. The general rule is, that a tenant for life or years may
so use the estate as not permanently to injure or destroy it. He is
entitled to the fruits and crops, to cultivate the estate to advantage,
but not to destroy the buildings or fences, or to so treat the land as
ultimately to destroy its productiveness.

=295. Estates at Will and at Sufferance.= Estates at will and at
sufferance are discussed under the title of _Landlord and Tenant_. They
are estates in land, and are classified as estates less than freehold.
An estate which may be ended at the desire or will of either party
is known as _an estate at will_. If _A_ and _B_ agree that _A_ may
occupy _B's_ house, _A_ to pay thirty dollars per month, the tenancy
to cease at the desire of either party, _A_ is said to be a tenant at
will, and the estate he possesses is called _an estate at will_. It
is not transferable. If _A_ attempts to assign his lease, it ceases.
An estate at will is terminated by either party notifying the other
of his intention to terminate the lease or by either party doing
anything inconsistent with the estate. If the owner dies, the estate is
terminated.

If a person has a lawful estate in land, and retains possession
without right after his interest ceases, he is said to be a _tenant
at sufferance_. If _A_ rents _B's_ house for one year, and, at the
expiration of the year he still occupies the house without _B's_
consent, he is a tenant at sufferance. He, in fact, has no estate in
the premises except that which the owner suffers him to enjoy. This
interest is called an _estate at sufferance_. A tenant at sufferance
is a wrongdoer. He may be ejected at the will of the owner. The owner
is not permitted to use excessive force in ejecting a tenant at
sufferance. He may use the force necessary to eject him. At the present
time, most of the states have statutory provisions by which unlawful
tenants may be ejected by legal process.

=296. Estates in Remainder.= There may be many estates in the same
piece of real property. If an owner of an estate in fee simple by one
instrument grants an estate less than fee simple to one person and
the balance of the fee simple estate to another, the latter estate is
called a _remainder_. If _A_, an owner in fee, by the same instrument
grants _B_ an estate for life, remainder in fee to _C_, _C_ has an
estate in remainder. If _C_ is living at the time the estate is
granted, the estate in remainder vests in him at the time of the grant,
and is called a _vested remainder_. If the estate in remainder depends
upon any contingency, or is conditional in any way it is said to be
a _contingent remainder_. If _A_ grants a life estate in his farm to
_B_, and the remainder to the heirs of _C_, the heirs of _C_ cannot be
determined until _C's_ death. The estate in remainder is said to be
_contingent_.

=297. Estates in Reversion.= An owner of an estate in real property
in fee simple is permitted to grant his interest in the form of as
many estates as he pleases. As long as the total of his grants do not
equal his interest, he is said to retain an _estate in reversion_. If
_A_ owns a farm in fee simple, and grants _B_ an estate for ten years,
_A's_ remaining interest is called an estate in reversion.

=298. Title to Real Property.= Title to real property or the right of
the owner eventually to obtain possession of it may be acquired in
several ways. Mere occupancy under claim of title will, under certain
circumstances, if for a certain uninterrupted period of time, give the
occupant title. An uninterrupted possession of real property, under
a claim of right for a period in excess of twenty years will in most
states give the occupant title by _adverse possession_.

Civilized nations provide by law that the heirs of the owner of real
property shall take the title to the property at the owner's death.
Estates less than freehold pass as personal property to the executors
of the estate of the deceased owner. The statutes of the different
states designate who are heirs.

Title to land owned by the government is transferred by public grant.
Title by an owner may be conveyed to another by voluntary gift, by
devise or will, or by deed. Title by devise or will is discussed in the
chapter on Wills.

=299. Deeds.= The customary method of transfer of real property is
by deed. A deed is a written instrument sealed and delivered for the
conveyance of land. Deeds were originally divided into _deeds-poll_,
and _indentures_. Deeds-poll were mere written obligations of the
grantor delivered to the grantee, the grantee making no covenants. An
indenture, on the other hand, consists of mutual obligation on the part
of grantor and grantee. The obligation of each was reduced to writing,
signed, sealed, and delivered, the one in exchange for the other. A
lease is an example of an indenture. The term, _indenture_, originated
from the custom of writing the obligation of both parties on the same
piece of paper, and by writing some letters of the alphabet between
the two agreements, and by cutting the paper through these letters at
sharp angles. The separate obligations could be identified by fitting
together the saw-tooth edges of the different instruments. At present,
duplicate copies are made designating them as indentures. Leases are
discussed more at length in the chapter on Landlord and Tenant.

At present, the form of deeds in common use are _quit claim deeds_ and
_warranty deeds_. Some states provide forms of deeds by statute. Even
in the absence of statute, a written instrument, properly signed and
delivered by the grantor, containing a description of the property,
and an expression of intention to convey the real estate described, is
probably sufficient to constitute a deed. A formal deed is customarily
used. Transfers of real property are important transactions. A formal
deed contains several formal parts known by different names. These
formal parts have resulted from well recognized customs and practices,
some of them dating back a great many years. The formal parts of a
warranty deed are the _premises_, the _habendum_, the _redendum_, the
_conditions_, the _warranties_ or _covenants_, the _conclusions_ and
the _acknowledgment_.

=300. Premises of a Deed.= The premises of a deed contain the name
and description of the parties. If a deed is given by an unmarried
person, he should be designated in the premises of the deed as _A B_,
unmarried. This enables abstractors of titles to determine that a
complete transfer of title has been made. Otherwise there is nothing
to show that _A B_ did not have a wife at the time the transfer was
made. In this event, the wife would retain her right of dower. The
premises usually contain the date of instrument. Sometimes, the date
is placed at the end of the instrument. The consideration is also
contained in the premises. The consideration of a deed may be either
good or valuable. If the grantor receives something of value, as money
or an article of value, the consideration is said to be _valuable_. If
a parent grants real property to a child or relative and states the
consideration to be love and affection, the consideration is adequate,
and is known as _good consideration_. The receipt of the consideration
is also acknowledged in the premises of a deed. The language by which
the grantor conveys the estate, such as "give," "grant," "set over,"
and "release" is contained in the premises as well as the description
of the estate granted.

=301. Habendum and Redendum Clauses.= The premises of a deed are
followed by the _habendum_ and _redendum_ clauses. The _habendum_
clause describes the estate granted, whether an estate in fee, an
estate for life, or an estate for years. It is not necessary to repeat
the description of the estate in the _habendum_ clause. The _habendum_
clause usually commences with the words, "To have and to hold."

The _redendum_ clause contains any interests or rights retained by the
grantor. If the grantor reserves to himself the right to use a certain
driveway, he places this reservation in the _redendum_ clause.

=302. The Conditions, Warranties and Covenants of a Deed.= A warranty
deed may not be an absolute transfer of real property, but may be
conditional. For example, if the deed is absolute in form, but contains
a condition that the transfer is to be of no effect if the grantor
pays the grantee a certain sum of money by a certain time, the deed is
a conditional one. The conditions above described constitute the deed
a mortgage. This class of conditional transfer is discussed in the
following chapter. Most deeds are without conditions.

The next formal part of a warranty deed is the covenant of warranty.
The grantor covenants that he is lawfully seized of the estate. This
means that the grantor has the legal title and right to possession,
which right he conveys to the grantee. The grantor also covenants that
the grantee shall have quiet enjoyment of the estate, that the estate
is free from incumbrance, and that the grantor and his heirs warrant
the title to the estate.

=303. The Conclusion of a Deed.= The conclusion of a deed contains
the signature of the grantor and the statement that he has signed and
sealed the deed. Most states require by statute that a deed must be
signed in the presence of two witnesses. The signature and statement of
the witnesses to the effect that the deed was signed in their presence
is a part of the conclusion. The mere statement that the grantor signs
and seals the deed makes it a sealed instrument. Seals were originally
impressions made in wax affixed to the instrument. A scroll or flourish
of the pen was regarded as a seal, but at present a deed is in itself
regarded as a sealed instrument, and requires no seal nor substitute
therefor.

=304. Acknowledgment of a Deed.= The states of this country require
by statute, deeds to be recorded by the public recorder, if parties to
the deed desire to give notice of the transfer to third persons. Third
persons are deemed to have notice of deeds so recorded even though they
have no actual notice. For the purpose of having a deed recorded, the
grantor must acknowledge his signature before a notary public who adds
his statement to that effect to the deed, and signs and seals the same.
A quit claim deed contains no warranties nor covenants. It is merely a
release of the grantor's interest to the grantee.

QUIZ QUESTIONS

BAILMENT

1. Define _bailment_.

2. For whose benefit may bailment be made?

3. Distinguish a _bailment_ from a _sale_.

4. Give an example of a bailment.

5. Name and define the parties to a bailment contract.

6. May an infant enter into a bailment contract?

7. Is an infant liable for his torts?

8. Classify bailments.

9. Give an example of a bailment for the mutual benefit of both bailor
and bailee.

10. Is a bailment a contract?

11. What is the consideration in a bailment for the sole benefit of the
bailor?

12. What party to a bailment contract has possession of the property?

13. Is a finder of lost property a bailee?

14. In whom is the title to bailed property?

15. Are the title and possession in the same person?

16. May a person not the owner of property bail it?

17. Give an example of a bailment for the sole benefit of the bailor.

18. What degree of care is required of a bailee in case the bailment is
for the sole benefit of the bailor?

19. Give an example of a bailment for the sole benefit of the bailee.

20. What degree of care is required of a bailee in a bailment for his
sole benefit?

21. _A_ hires of _B_ an automobile for $3.00 per hour. Is the bailment
for the sole benefit of the bailor, the bailee, or for the mutual
benefit of both parties?

22. In the above example what degree of care is required of _A_?

23. What implied warranties accompany mutual benefit bailments?

24. Define and distinguish public and private warehousemen.

25. What are government warehouses?

26. Are warehouse receipts negotiable?

27. What degree of care is required of warehousemen?

28. What degrees of care are recognized in bailments?

29. How is the standard for determining degrees of care arrived at?

30. Is ordinary care the same in the bailment of different kinds of
property?

31. If a third person takes property away from a bailee may the latter
recover possession?

32. What are the rights of a person purchasing from a bailee?

33. What is meant by _liens_ on personal property?

34. _A_ leaves his watch with _B_ for repairs. _B_ repairs the watch.
Can _B_ retain possession until he receives his pay?

35. May a bailee sell property to satisfy his lien?

PLEDGES

1. Is a pledge a bailment?

2. Define a _pledge_.

3. Does title to property pledged remain in the pledgor?

4. Distinguish _pledge_ from _chattel mortgage_.

5. Name and define the parties to a contract of pledge.

6. May an infant pledge property?

7. What kinds of personal property may be pledged?

8. Can a person pledge personal property which he expects to purchase?

9. Can a person pledge a growing crop?

10. What is the purpose of a contract of pledge?

11. Can there be a pledge which is not security for an existing debt?

12. If _A_ delivers possession of personal property to _B_ but does not
owe _B_ anything, is the transaction a pledge? If not a pledge,
what is the transaction?

13. Who has possession of pledged property?

14. Does the pledgee have title to property pledged?

15. In case of a chattel mortgage who has title to the mortgaged
property?

16. In case of pledge of negotiable instruments, who has title to the
instruments?

17. What is meant by _loans on collateral securities_?

18. What is a _collateral note_?

19. By whom are collateral notes commonly used?

20. After payment of the debt for which property is pledged, who is
entitled to possession of the pledged property?

21. Who is entitled to possession of property pledged before payment of
the debt secured?

22. In case of pledge of negotiable instrument who must collect the
interest and instrument when due?

23. What degree of care is required of a pledgee in the protection of
pledged property?

24. If the pledgor fails to pay the debt when due, what may the pledgee
do with the property?

25. In selling pledged property what notice, if any, should the pledgee
give the pledgor?

26. What is meant by _foreclosing a lien in equity_?

27. Define and explain _redemption_.

28. When may the right of redemption be exercised?

MORTGAGES ON PERSONAL PROPERTY

1. Define _chattel mortgage_.

2. In case of a mortgage of personal property, who has possession of
the property? Who has title?

3. Define _mortgagor_ and _mortgagee_.

5. Distinguish _chattel mortgage_ and _sale_.

4. Distinguish _chattel mortgage_ and _pledge_.

6. Distinguish _pledge_ and _sale_.

7. May _choses in action_ be mortgaged?

8. Define and distinguish _choses in action_ and _choses in
possession_. May both be mortgaged?

9. What is the purpose of a chattel mortgage?

10. Does a chattel mortgage require a consideration?

11. Can there be a chattel mortgage without a debt to be secured?

12. Must a chattel mortgage be in writing?

13. _A_ mortgages his horse to _B_ to secure a debt of $40.00. _A_
delivers the horse to _B_. The mortgage is oral. Is it binding?

14. What is the reason for filing or recording a chattel mortgage?

15. Does a chattel mortgage of property, possession of which is given
the mortgagee, have to be recorded to be binding?

16. Who is entitled to possession of mortgaged personal property?

17. _A_ mortgages his household furniture to _B_, later he stores
the furniture with _C_. _C_ acquires a storage keeper's lien.
Is the latter's lien superior to _B's_?

18. Does a mortgagor retain an interest which he may dispose of?

19. Does a mortgagee have absolute title to the property mortgaged?

20. If _A_, the mortgagee of personal property, sells the debt secured
by the mortgage to _B_, what becomes of the mortgage?

21. When the mortgagor defaults in payment of the secured debt, how may
the mortgagee obtain possession of the property?

22. Define _equity of redemption_.

23. Can a mortgagor enforce his equity of redemption after the
mortgagee has obtained possession of the property?

24. Can a mortgagee enforce his equity of redemption without paying the
mortgage debt?

25. Define _foreclosure_.

26. What is the purpose of foreclosure?

27. How is foreclosure enforced?

CARRIERS

1. Define and give an example of _common carrier_.

2. Define and give an example of _private carrier_.

3. What constitutes a person or company a common carrier of goods?

4. Is a common carrier of goods obliged to carry goods of all kinds?

5. Distinguish _common carrier_ and _private carrier_.

6. What is the exceptional liability of a common carrier, and what is
the reason for this liability?

7. If goods intrusted to a common carrier are lost without negligence
of the carrier is the latter liable to the owner?

8. Is the exceptional liability of an insurer a matter of express or
implied contract?

9. What are the exceptions to the liability of a common carrier as an
insurer of the goods intrusted to his care?

10. Define and give an example of _public enemy_.

11. Define and give an example of _Act of God_.

12. Is a common carrier permitted to limit his common law liability as
an insurer of the goods by special contract?

13. Is a common carrier permitted to stipulate against the carelessness
of his agents or servants?

14. Is a common carrier permitted to limit his liability as an insurer
of goods by stipulating in the bill of lading issued that the
valuation is limited to a certain amount, unless informed otherwise
by the shippee?

15. What does the Interstate Commerce Act provide relative to the above
question?

16. What is a _bill of lading_?.

17. Distinguish bill of lading and shipping receipt.

18. What are the two essential features of a bill of lading?

19. In what sense, if any, is a bill of lading a negotiable instrument?

20. _A_, in Cleveland, orders a car of hogs from _B_, in Buffalo. _B_
delivers the hogs to the railway company in Buffalo, to be shipped
to _A_ in Cleveland. In whom is the title to the hogs?

21. If _A_ stipulates that the hogs are to be delivered F. O. B.
Cleveland, in whom is the title to the hogs after they are
delivered to the railway company, and before they reach Cleveland?

22. What goods, and under what circumstances, is a carrier obliged to
accept for shipment?

23. Explain the meaning of _stoppage in transitu_. Under what
circumstances is a shipper permitted to exercise the right?

24. What carriers are obliged to make delivery at the residence or
place of business of the consignee, and what carriers are obliged
only to deliver at their depots or warehouses?

25. Define and explain _carrier's lien_.

26. How may a carrier enforce his lien?

27. Why is a common carrier not permitted to discriminate between
shippers?

28. When, if at all, is a carrier of mail liable for negligence?

29. Is the government liable to an owner of mail for its loss?

30. What are the principal features of the Interstate Commerce Act of
1906?

[Illustration: ENTRANCE TO THE ADMINISTRATION BUILDING OF THE WERNER
COMPANY, AKRON, OHIO]

CARRIERS OF PASSENGERS

1. Is every person or company carrying passengers for compensation a
common carrier?

2. Are owners of buildings operating elevators common carriers of
passengers?

3. When does a person become a passenger?

4. Is a person traveling on a pass a passenger within the legal meaning
of the term, passenger?

5. Is a public carrier of passengers obliged to accept all who present
themselves as passengers?

6. When, and how, may a public carrier eject a passenger?

7. What degree of care is a public carrier of passengers obliged to
exercise?

8. What constitutes baggage?

9. What is the liability of a carrier of passengers for loss or injury
to baggage?

INNKEEPERS

1. Must a person represent himself as being ready and willing to
furnish both food and lodging to all who desire to become guests,
in order to be an innkeeper?

2. Are boarding-housekeepers innkeepers?

3. Are innkeepers obliged to receive all persons who present themselves
as guests if the regular price is tendered?

4. What degree of care in the protection of guests is required of
innkeepers?

5. What degree of care is required of innkeepers in the protection of
the baggage of guests?

6. What is an _innkeeper's lien_?

7. How may an innkeeper enforce his lien?

REAL PROPERTY

1. Define _real property_.

2. What is included in the term, real property?

3. Define and give an example of _hereditament_.

4. Define and give an example of _tenement_.

5. Are standing trees real or personal property?

6. Are trees blown down real or personal property?

7. What is the practical distinction between real and personal property?

8. Define _emblements_.

9. Do emblements belong to the tenant or to the landlord?

10. Are apples emblements? If not, why not?

11. How may a wall become a party wall by prescription?

12. Define _fixtures_.

13. Are fixtures real or personal property?

14. Does the rule as to fixtures differ in case of a tenant, and in
case of an owner?

15. Do owners of adjoining property own a partition fence jointly or
does each one own a particular part of the fence?

16. Define and give an example of a _way of necessity_.

17. Define and give an example of a _way of convenience_.

18. How are highways ordinarily established?

19. How may a highway be established by prescription?

20. Into what classes are estates divided as to the quantity of
interest held?

21. What is a _freehold estate_?

22. From what is the term, freehold, derived?

23. Define and give an example of an _estate in fee simple_.

24. What is meant by _entailing an estate?_

25. What was the reason for the practice of entailing estates?

26. To what extent may an estate be entailed in this country?

27. What is the rule against perpetuities?

28. Define and give an example of a _life estate_.

29. What claims do life estates embrace?

30. Define _estate by the curtesy_.

31. Define and give an example of _dower estate_.

32. Define and give an example of _homestead estate_.

33. Define and give an example of an _estate for years_.

34. Is a lease for two months an estate for years?

35. May a holder of an estate for years transfer it?

36. What is meant by _waste_?

37. What is the general rule relating to waste?

38. Give an example of an _estate at will_.

39. Distinguish an _estate at will_ from an _estate at sufferance_.

40. How may an estate at will be terminated?

41. Define and give an example of an _estate in remainder_.

42. Distinguish _vested_ and _contingent remainder_.

43. Distinguish _estates in reversion_ from _estates in remainder_.

44. How may title to real property be acquired?

45. Define _deed_.

46. Define _deed poll_.

47. Define _indenture_.

48. What are the formal parts of a deed?

49. What things are included in the premises of a deed?

50. What is meant by the _habendum_ and _redendum clause_ of a deed?

51. What is a _warranty of a deed?_

52. What are the general warranties of a deed?

53. What things are included in the conclusion of a deed?

54. What is meant by the _acknowledgment of a deed?_

[Illustration: A CORNER IN THE JOHN CRERAR LIBRARY, CHICAGO, ILL.]

COMMERCIAL LAW

PART V

MORTGAGES OF REAL ESTATE

=305. Mortgage Defined.= By the common law, a mortgage was an
absolute deed of conveyance, by the terms of which the debtor was
entitled to receive a reconveyance of the property upon payment of the
debt described in the mortgage, or upon performing the conditions for
which the mortgage was given. For example, _A_ owes _B_ one thousand
dollars, _A_, to secure the debt, gives _B_ an instrument of conveyance
of his house and lot, the instrument containing a provision that if _A_
pays _B_ one thousand dollars ($1,000.00) on or before January 1st,
1911, _B_ is to reconvey the house and lot to _A_. The above represents
a mortgage at common law. As explained later, a present day mortgage is
somewhat different.

At common law, the creditor had possession of the property from the
time the mortgage was given, unless it was expressly agreed that the
debtor was to remain in possession. The real purpose of a mortgage
is to give security for a debt or obligation. To permit a creditor
to keep the mortgaged property upon default of the debtor to pay the
debt when due, is unjust in many cases. For example, if _A_ gives a
mortgage to _B_ upon property worth one thousand dollars, to secure
a debt of three hundred dollars, and _A_ defaults in payment, it is
unjust to permit _B_ to keep the property. Courts of equity have for
a long time regarded this transaction as a mere security for a debt,
and not an absolute transfer of title to property. Courts of equity
long ago permitted the debtor to file a petition in a court of equity
asking that the property be reconveyed to him upon payment of the debt,
and damages due the creditor. Courts of equity recognize this right
of the debtor, which is called _equity of redemption_. At the present
time mortgages are, in form, an absolute conveyance of real estate,
with a condition that the title is to revest in the debtor, or that
the conveyance is to be void and of no effect, if the debtor pays
the debt or performs the condition. If the debtor fails to perform
this condition at the time stipulated, he is still able to enforce his
equity of redemption. This, in effect, makes a mortgage of real estate
a mere security for a debt. The creditor is permitted to cut off the
debtor's right of redemption by foreclosure, which is discussed under a
separate section.

=306. Parties to a Mortgage Contract.= A mortgage of real estate
is a contract. Like any contract, it requires competent parties, a
consideration, mutuality, etc. (See _Essentials of a Contract_, chapter
on Contracts.) The party conveying the real estate to another as
security for the debt is called the _mortgagor_, the party to whom the
mortgage is given is called the _mortgagee_.

=307. Possession of Mortgaged Property.= Originally at common law, the
mortgagee was entitled to the possession of the mortgaged premises as
soon as the mortgage was given, and before default of the mortgagor
to pay the debt described in the mortgage. At the present time,
the mortgagor is entitled to possession of the mortgaged premises
until after default of payment of the mortgage debt. After default,
the mortgagee may take possession of the premises. Some states now
provide by statute, that the mortgagor shall have possession of the
mortgaged premises until he defaults in payment of the mortgage debt.
Independently of such a statute, the mortgagor has the right to
possession of the mortgaged premises before default of payment of the
mortgage debt. This is by reason of the fact that the law regards the
transaction as a security for a debt rather than an absolute transfer
of title.

Parties are permitted to enter into any contract they choose so long as
the provisions are legal. Parties to a mortgage may stipulate who is to
have possession before default or payment on the part of the mortgagor.
If it is stipulated that the mortgagee is to have possession, he
is entitled to it under the terms of the mortgage contract. If no
stipulation is made, the mortgagor impliedly is given the right of
possession before default.

=308. Deeds as Mortgages.= If a deed, absolute on its face, is given
by a debtor to a creditor to secure a debt, it will be treated by a
court of equity as a mortgage. Equity regards the substance of things
rather than the form. (See _Courts of Equity_ under chapter on Courts,
Remedies, and Procedure.) Courts of equity were originally created
for the purpose of granting justice where the rules of the common law
failed. In England, they were called _courts of chancery_. A judge sits
alone as a court of equity, without the aid of a jury. When there is
no remedy at law, and a wrong exists, equity affords a remedy. In this
country, the same court frequently sits as a court of equity as well as
a court of law. In the case of deeds absolute on their face, if it was
the intention of the parties that the conveyance was to constitute a
security for a debt, rather than a sale, a court of equity will permit
the grantor to secure a return of the property upon payment of his
debt. Equity looks at the substance of the transaction disregarding
the form. If mortgages are not in proper legal form, and either party
is not permitted at law to enforce his right, equity will enforce the
transaction according to the intention of the parties. Informal or
incomplete mortgages are called _equitable mortgages_.

=309. The Debt Secured.= A mortgage is a contract, and like any
contract, must be supported by a consideration. (See _Consideration_,
chapter on Contracts.) The consideration of a mortgage may be anything
of benefit to the one giving the mortgage, or any detriment to the one
receiving the mortgage. The consideration of a mortgage ordinarily is
an advancement or loan, past or present, made by a mortgagee to the
mortgagor. That is, a mortgage is given as security for some debt or
obligation in favor of the mortgagee. This debt is usually described in
the mortgage as a promissory note. Even though no note has been given,
if the amount described in the mortgage as a promissory note is the
amount of the debt, or if any debt exists, the mortgage is valid. A
mortgage may be given to cover future advances, or for a pre-existing
indebtedness. If a mortgage is given as security for a promissory note,
it will secure all renewals of the note as well.

=310. Essentials of a Mortgage.= A mortgage is an instrument for
the conveyance of land. By the provisions of the Statute of Frauds,
such instruments must be in writing to be enforceable. (See _Statute
of Frauds_, chapter on Contracts.) The states provide by statute that
mortgages must be recorded to be effective as against subsequent
innocent purchasers, mortgagees or creditors. Mortgages must be in
writing for the purpose of recording, as well as to comply with the
Statute of Frauds. When a mortgagee takes possession of the mortgaged
premises, this is sufficient notice to creditors and subsequent
purchasers of his interests. In this event the mortgage need not be
reduced to writing nor recorded.

Mortgages are usually written in the form of formal deeds. (See _Form
of Deeds_, chapter on Real Property.) Although it is good business
practice to follow these well recognized forms in drawing mortgages, an
informal instrument describing the parties and the property mortgaged,
and showing an intent to make a mortgage is sufficient. Some states by
statute provide a short statutory form. This form may be used, but does
not prevent the common law form from being used.

A mortgage is given to secure a debt or obligation. This debt or
obligation should be set forth in the mortgage, and the time when it
is to be paid or performed should be set forth. The mortgage should
also contain a description of the property mortgaged. A complete and
accurate description, such as is used by surveyors, is the best form.
By this means, a person can locate the property directly from the
description given in the mortgage. It is sufficient if the description
given enables a person to locate the property either by reference
to another record containing a description, or by its own terms. A
surveyor's description is better, however. A mortgage should contain
the names of the grantor and the grantee.

The mortgagor is entitled to his equity of redemption. That is, he is
entitled to the right to file a petition in a court of equity, offering
to pay the mortgage debt, interest, and damages to the mortgagee, and
asking for a return of the property. This may be done at any time
before foreclosure by the mortgagee. Foreclosure is discussed under a
separate section.

=311. Power of Sale and Delivery in Escrow.= If a mortgagor
stipulates in the mortgage that he waives, or will not enforce his
equity of redemption, the law does not permit the mortgagee to enforce
such a stipulation. It is regarded as against public policy, and
illegal. Whenever there is a mortgage, there is an equity of redemption
in favor of the mortgagor.

Some mortgages contain a stipulation that in case the mortgagor fails
to pay the mortgage debt when due, the mortgagee may sell the property,
deduct his claim costs and expenses, and return the balance to the
mortgagor. Such mortgages are called _power of sale mortgages_. They
are valid and enforceable. The mortgagor's equity of redemption is
protected, in that he receives the balance of the proceeds of the sale
of the mortgaged premises, after the mortgage debt and expenses are
paid. The sale, under a power of sale mortgage, must be public and
_bona fide_.

A mortgage must be signed by the mortgagor. This is called in law,
_execution of the mortgage_. The mortgage must also be attested.
This means that the signing must be in the presence of a witness or
witnesses. This requirement is a statutory one. Some states require
only one witness, others two. If a mortgage is to be recorded, the
signature of the mortgagor must be acknowledged before a notary
public or officer authorized to administer oaths. This is called
_acknowledgment_. It means that the mortgagor acknowledges the making
of the signature in the presence of an officer authorized to administer
oaths. The officer writes a certificate of this acknowledgment on the
mortgage. Acknowledgment is a statutory requirement. A mortgage will
not be received for record by the public recorder, unless it has been
acknowledged.

A mortgage given by a married man must contain a waiver of dower by
the mortgagor's wife, or the wife will have a dower estate therein if
her husband dies before she dies. The mortgage of a married man should
contain a statement that the wife waives her dower interest, and the
wife should sign the mortgage before witnesses, and acknowledge her
signature. A mortgage, like any written contract, does not become
effective until delivered. By _delivery_ is meant giving possession of
the instrument to the mortgagee or his agent, with intent that it is to
become effective from that date. If a mortgage or written instrument is
delivered to a third person to be held for a certain purpose or until a
certain time, this is called _delivery in escrow_.

=312. What Interest in Real Estate May be Mortgaged.= Any interest in
real estate which is the subject of transfer or sale may be mortgaged.
One who has the absolute title, called _fee simple interest_, in real
estate may mortgage it. A mortgage is not regarded as a transfer but
merely as a security for a debt or obligation. The mortgagor retains an
interest called his equity of redemption. For all practical purposes, a
mortgage of real estate means that the mortgagee may sell the property
mortgaged upon failure of the mortgagor to pay the mortgage debt when
due. The mortgagee may keep enough of the proceeds of the sale to
satisfy the mortgage debt. The equity of redemption of a mortgagor and
the remainder must be returned to the mortgagor, or his right to the
proceeds of the sale of mortgaged premises, after the mortgage debt is
paid, is an interest which in turn may be mortgaged.

A mortgagor may give successive mortgages so long as he finds persons
willing to accept them as security. In practice, second and third
mortgages on real estate are common. Not only may real estate be
mortgaged, but anything permanently connected with real estate, such
as crops, trees, horses, and buildings. Articles of personal property
which have become permanently annexed to real estate are called
_fixtures_. (See _Fixtures_, chapter on Real Estate.) If title to real
estate has been obtained by fraud, a valid mortgage may be given to one
who has no notice of the fraud. The principle involved is that a title
obtained by fraud or duress is voidable. The party defrauded may obtain
a reconveyance of the property as against the party practicing the
fraud, but not as against innocent purchasers who have had no notice
of the fraud. If, however, a conveyance is attempted by means of a
forgery, no title to the property passes to the purchaser, who in turn
can convey nothing by mortgage or otherwise. Similarly, a party who has
conveyed his interest in real estate absolutely, by deed or contract,
has nothing left to convey, and cannot give a mortgage. An interest in
real estate less than absolute ownership, as a life interest, or a mere
lease, or term for years, is an interest which may be mortgaged.

=313. Recording Mortgages.= To be effectual against creditors,
subsequent purchasers, and mortgagees, most of the states require by
statute, that mortgages be recorded with the public recorder of the
county where the property is located. These statutory provisions do not
render mortgages ineffectual as between original parties. _A_ gives a
mortgage on his house and lot to _B_. _B_ does not have the mortgage
recorded. If _A_ fails to pay the mortgage debt when due, _B_ may
foreclose. As against _A_, _B's_ mortgage is enforceable without being
recorded. If, however, _A_ gives a subsequent mortgage to _C_, and _C_
records his mortgage, _C's_ mortgage is superior to _B's_. If _A_ sells
the property to _D_ after mortgaging it to _B_, _B_ not recording the
mortgage, _D_, upon having his deed recorded, takes the title free
of _B's_ mortgage. If _A_ gives _B_ a mortgage, _B_ not having the
mortgage recorded, and _E_ obtains a judgment against _A_ and levies
upon the real estate mortgaged to _B_, _E_ obtains a lien superior to
_B's_.

The statutes of a few states provide that mortgages become effective
from the time they are left with the recorder for record. The recorder
stamps on the mortgage the time it is left for record, and the mortgage
becomes effective from that time. Suppose _A_ on the second of February
gives a mortgage on his house and lot to _B_, for $500.00, and then
on the fifth of February gives a mortgage on his house and lot to _C_
for $500.00. If _C_ has his mortgage recorded February sixth, and
_B_ has his mortgage recorded February seventh, _C's_ mortgage is
superior to _B's_. In the few states where a mortgage does not become
effective until received for record, the one first received for record
is superior to others, even though the mortgagee first leaving his
mortgage for record takes his mortgage with actual notice of the prior
mortgage. The general rule is that one who takes a mortgage with actual
notice of other mortgages, takes subject to such mortgages.

To be received for record, a mortgage must be acknowledged. This means
that the mortgagor must acknowledge the signature to the mortgage
before a notary public or officer authorized to administer oaths. The
officer makes a certificate of the acknowledgment on the mortgage.

=314. Transfer of Mortgages and Mortgaged Premises.= While, in form,
a mortgage is a transfer of real estate, it is regarded merely as
security for a debt. The mortgagee is not permitted to transfer title
to the real estate. He is, however, permitted to transfer the interest
which he possesses in the mortgaged premises. Such a transfer is called
an _assignment_. It is a contract of sale by which the mortgagee sells
his interest in the mortgage. (See _Assignment of Contract_, chapter on
Contracts.) For example, if _A_ mortgages his farm to _B_ as security
for a one-thousand-dollar promissory note, _B_ cannot convey title to
the property mortgaged, to _C_, but he may sell his interest in the
mortgage to _C_. The mortgage cannot be sold separately from the debt
secured. The mortgage, separated from the debt, represents nothing
of value. If, in the example above given, _B_ endeavors to sell the
note to one person, and the mortgage to another, the purchaser of the
mortgage takes nothing. A sale of the debt secured by the mortgage,
carries with it the mortgage security, unless it is expressly agreed
that the debt is transferred without the security of the mortgage.

If _A_ mortgages his farm to _B_ to secure a promissory note for
one thousand dollars, and _B_ sells the note to _C_, _C_ takes the
security of the mortgage as well as the note, unless it is expressly
agreed between him and _B_ that the security of the mortgage is not
transferred with the note. After _B_ sells _C_ the note, _B_ cannot
cancel the mortgage. The mortgage now belongs to _C_. If _A_ mortgages
his farm to _B_ to secure two promissory notes of $500.00 each, and _B_
sells one of the notes to _C_, in the absence of an agreement to the
contrary, _C_ has one-half interest in the mortgage as security for his
note. _B_ may, however, expressly stipulate in the sale of his note to
_C_, that _B_ is to retain the entire mortgage security for his own
note.

When a debt secured by a mortgage is assigned, the assignee should
immediately notify the mortgagor of the assignment, in order that
the mortgagee shall pay him, and not the assignor. This is the safe
policy to follow, although technically, the mortgagor before paying the
mortgage debt should be sure that the mortgagee is still the owner of
the note, debt, or other obligation, secured by the mortgage.

A mortgagor is permitted to sell his interest in the mortgaged
premises before satisfying the mortgage. He may sell his equity of
redemption, or he may sell in such a manner that the purchaser assumes
the mortgage. If the mortgagor sells the mortgaged premises, the
purchaser agreeing to assume the mortgage as between the mortgagor and
the purchaser, the purchaser must pay the mortgage. The mortgagee,
however, is not bound by this agreement. He may disregard it. He may
accept the benefit of it if he chooses and sue the purchaser on this
contract. (See _Contract for the Benefit of Third Persons_, chapter on
Contracts.) If, however, the mortgagee agrees to accept the purchaser
of the mortgagor's interest as the debtor, the original mortgagor is
relieved thereby.

=315. Satisfaction of Mortgages.= A mortgage is given as security
for a debt or obligation. It is satisfied by payment of the debt,
or fulfillment of the obligation. The mortgage debt may be paid by
the mortgagor himself, by a purchaser of the mortgagor's interest,
by a subsequent mortgagee, or by any one having an interest in the
real estate mortgaged. If anyone, other than the mortgagor, pays the
mortgage debt to protect his own interest, he is thereby entitled to
the benefit of the mortgage. This is called _subrogation_. If _A_ owes
_B_ $5,000.00, and gives _B_ a note for that amount, secured by a real
estate mortgage on a farm, _C_ signing the note as surety or guarantor,
in case _C_ pays the note upon default of _A_, _C_ is entitled to _B's_
benefit in the mortgage. Payment of a mortgage debt may be made to a
mortgagee, himself, his assignee of the mortgage debt, or any agent
or authorized representative of the mortgagee. A party not having
an interest in the land cannot voluntarily pay a mortgage debt, and
claim the benefit of a mortgage by subrogation. A party interested in
the land, even the mortgagor, himself, cannot compel the mortgagee to
accept payment before the mortgage debt is due.

Upon payment of a mortgage debt, the title to the mortgaged premises
by this act becomes absolute in the mortgagor. At common law, if
the mortgagor paid the mortgage debt when due, the mortgagee had to
reconvey by deed the mortgaged premises to the mortgagor to give the
latter title. But at the present time, a mortgage is not regarded as
a conveyance of title, but merely as a security for a debt, the title
vesting absolutely in the mortgagor any time he pays the debt before
the actual foreclosure of this right by the mortgagee.

When the mortgagor pays the mortgage debt, he is entitled to a written
satisfaction of the debt. This is a mere written statement that the
mortgage is satisfied, signed by the mortgagee. The mortgagor is thus
enabled to have the mortgage cancelled of record, which gives the
public notice that the mortgage is no longer effective. The mortgagor
presents his written statement of satisfaction to the public recorder,
who enters it in his record of the mortgage.

=316. Equity of Redemption.= A mortgagor does not lose his interest
in the mortgaged property by failure to pay the mortgage debt when due.
Courts of equity regard a mortgage as a security for a debt, and not
a transfer of real property. Even though the mortgagor fails to pay
the mortgage debt when due, and in spite of the fact that the mortgage
purports to be a transfer of real estate, conditioned only on the
payment of the debt described, equity refuses to regard the transaction
as a sale, and permits the mortgagor to recover the property by paying
the debt, interest, and expenses connected with the mortgage, at any
time before the statute of limitations cuts him off. The states have
statutes requiring suits of different kinds to be brought within
certain periods. These statutes vary somewhat in the different states.
Most states require an action by which a mortgagor enforces his equity
of redemption, to be brought in about twenty or twenty-one years after
the debt becomes due. The mortgagor himself or anyone to whom he
transfers, or who acquires his interest, is entitled to the equity of
redemption.

If _A_ mortgages his farm to _B_, to secure a promissory note of one
thousand dollars due in one year, _A_ does not lose his right to the
property by failure to pay the note when due. He may bring a suit in
equity at any time, usually within twenty-one years, after the note
becomes due, offering to pay the mortgage debt, interest, and costs,
and asking for a return of the property. Equity now gives the mortgagee
a right to cut off the mortgagor's right of redemption by foreclosure.
This is discussed in the following section.

=317. Foreclosure of Mortgages.= A mortgagor has the right to redeem
the property at any time within the statute of limitations, after the
mortgage debt becomes due. The mortgagee does not have to wait the
pleasure of the mortgagor to redeem or abandon the right. Equity gives
the mortgagee the right to cut off the mortgagor's equity of redemption
by foreclosure. By foreclosure is meant the mortgagee's right to file
a petition in a court of equity asking that the property be sold, and
that from the proceeds, the amount of the mortgage debt and costs first
be paid, and that the balance be paid the mortgagor. The court orders
the property advertised and sold, and the proceeds distributed as above
described.

Some mortgages contain a stipulation concerning foreclosure. These
mortgages are called _power of sale mortgages_. It is stipulated
that when the mortgagor is in default of payment, the mortgagee may
advertise and sell the property, deducting from the proceeds the
mortgage debt, interest, and expenses, and paying the balance to the
mortgagor. These power of sale mortgages are enforceable. The sale must
be free from fraud, public, and the mortgagee cannot become a purchaser
unless so stipulated in the mortgage, or so provided by statute. The
states usually provide by statute a method of foreclosure. These
statutes frequently provide that a mortgagee may enforce his mortgage,
and obtain a judgment against the mortgagee on the mortgage debt in the
same action. If the mortgaged premises do not bring enough to satisfy
the judgment, the balance may be enforced against the mortgagor by
seizing any property subject to execution that he possesses.

TRUSTS

=318. Defined and Classified.= In a popular sense, the term, _trust_,
is often used to designate combinations of capital or combinations
among business men for the purpose of destroying competition, or for
the purpose of regulating prices. This is not the meaning of the term
as used in this chapter. It is here used to mean an estate of some kind
held for the benefit of another. A trust has been defined to be "An
obligation upon a person, arising out of a confidence reposed in him,
to apply property faithfully according to such confidence." _A_, by
will, appoints _B_ trustee of his farm, for the benefit of _C_. Upon
_A's_ death, if _B_ accepts the duty imposed upon him by the will, a
trust is thereby created in which _B_ holds the legal title to the
farm, for the benefit of _C_.

Trusts are sometimes classified as _general_ and _special_. If the
property is conveyed by deed or will to another to be held in trust
for a third person, without specifying any of the duties of the second
person, it is said to be a general or simple trust. If, however, the
duties of the second person or trustee are defined, the trust is
called a special trust. A trust for the benefit of an individual or
individuals is called a _private_ trust, while one for the benefit of
a public institution, or for the public, is a _public_ trust. If _A_
gives his property to _B_ to care for the poor of the city of Chicago,
the trust is public. As to their method of creation, trusts are usually
divided into _express_, _implied_, _resulting_ and _constructive_
trusts.

=319. Parties to Trusts.= The party creating a trust is called the
_grantor_ or _settlor_. The party to whom the title to the property
is given to hold for the benefit of another is called the _trustee_.
The party for whose benefit the trust is created is called the _cestui
que trust_. If the beneficiaries are more than one in number, they are
termed _cestui que trust_. If _A_ deeds his land to _B_ for the benefit
of _C_, _A_ is the settlor, _B_ is the trustee, and _C_ is the _cestui
que trust_.

=320. Who May be Parties to a Trust.= Persons of lawful age, and
competent to make contracts, including corporations, may create trusts.
Any person competent to make contracts, including corporations, may act
as trustee. Even infants (persons under legal age) may act as trustees
if the duties require the exercise of no discretion. An infant may hold
the legal title as trustee, and if the duties require the exercise of
discretion, the court will remove him or appoint a guardian to perform
his duties. Anyone capable of holding the legal title to property may
be a _cestui que trust_. This includes corporations, aliens, and, in
case of charitable trusts, infants. Any kind of property, whether
real or personal, may be given in trust. This includes lands, chattel
property, promissory notes, accounts, and kindred property rights,
regardless of where the property is located.

=321. Express Trusts.= An _express trust_ is one created by the express
written or oral declaration of the grantor. If _A_ gives a deed of his
farm to _B_, by the terms of which _B_ is to hold the farm in trust for
_C_, _A_, the grantor, has created an express trust in favor of _C_,
_B_ as trustee holds the legal title to the farm, and _C_, as _cestui
que trust_ or beneficiary, holds the beneficial or equitable interest.
_A_, before giving the deed of trust, was the absolute owner of the
farm. That is, _A_ held the legal title and the equitable interest
in the farm. By creating the trust, he placed the legal title in one
person and the equitable or beneficial interest in another.

Originally, in England, at common law, trusts could be created by
oral declaration as well as by written instruments. At that time,
land could be transferred without written instruments. The seller
took the buyer on to the land to be conveyed, and in the presence of
witnesses delivered to him a symbol of the land, such as a piece of
turf or a twig. About 1676, the Statute of Frauds was passed by the
English Parliament, requiring among other things, that conveyances
of lands, including the creation of trusts therein, must be by
written instruments. This provision of the Statute of Frauds has been
re-enacted by most of the states of this country. At the present time,
trusts in real estate must generally be created by written instrument.
Trusts may be created by will to take effect at the grantor's death.
Trusts may be created in personal property. Except when created by
will, trusts in personal property may be created by oral declaration
of the grantor. A grantor may create a trust voluntarily. If actually
carried out, or if the grantor's intention to create the trust is
expressed as final, it requires no consideration to support it. If
the declaration of trust amounts to a mere agreement to create a
trust, and is not carried out, it requires a consideration to enable
the beneficiary to compel its execution. After an express trust is
completed, it cannot be revoked by mutual agreement between the grantor
and trustee without the consent of the _cestui que trust_.

[Illustration: THE ASSEMBLING DEPARTMENT IN THE COMPTOMETER FACTORY,
CHICAGO FELT & TARRANT MFG. CO.]

The most common forms of express trusts are created by deed, by will,
or by contract. Any declaration of the grantor, no matter how informal,
if expressing his intention to create a trust, is sufficient to create
a trust. A trust cannot be created for an immoral or illegal purpose.

=322. Implied Trusts.= When a person by deed or will does not use
language expressly creating a trust, but uses language showing his
intention to create a trust, one will be implied. Such a trust is known
in law as an _implied trust_, as distinguished from an _express trust_.
If _A_ devises all his property to his son, _B_, the will containing
the following language: "I request my son, _B_, to pay his cousin, _C_,
$10.00 per month during his life," this language is held to create a
trust in favor of _C_, wherein _B_ is trustee.

=323. Resulting Trusts.= One party may so conduct himself, or so deal
with another, that a court will declare the transaction to be a trust,
even in the absence of any express declaration, or of an intention
on the part of the parties to create a trust. Such a trust is known
in law as a _resulting trust_. _J_, to avoid paying his creditors,
purchases property in the name of his wife, _K_. _K_ is a trustee for
her husband, _J_, and creditors can by suit in equity subject _J's_
interest in the property.

If _A_ purchases property, and takes the deed in the name of _B_, _B_
is trustee for _A_. _B_ is the legal owner, and _A_ is the beneficial
or equitable owner. If a third person purchases the property from _B_,
without notice of _A's_ rights, and for value, the third person takes
good title to the property free from _A's_ claim.

In this country, the states generally require by statute, that deeds
and mortgages of real estate must be recorded. If an equitable
owner does not have a properly recorded written instrument showing
his interest in the real estate in question, thereby giving future
purchasers notice of his interest, he cannot complain unless the third
person has actual notice of his rights or purchases without giving a
valuable consideration. A resulting trust is not created by agreement
or contract to that effect, but is created by the trustee using money
or funds of the _cestui que trust_ in the purchase of property in his
own name.

=324. Constructive Trusts.= If one person is in a confidential relation
to another, and misappropriates the money of the other, this act is
said to create a _constructive trust_, in which the defrauding party is
trustee, and the defrauded party is beneficiary, or _cestui que trust_.
A constructive trust differs from a resulting trust in that the former
involves fraud on the part of the trustee, exercised on the _cestui
que trust_, while a resulting trust never involves fraud between the
trustee and _cestui que trust_, although created for the purpose of
defrauding third persons.

If _A_, an attorney, is employed by _B_ to collect a note of $500.00,
and fraudulently reports a collection of $300.00, keeping $200.00,
a constructive trust results, in which _A_ is trustee for _B_, for
$200.00. If _A_, for the purpose of defrauding his creditors, deposits
his money in bank in _B's_ name, a resulting trust arises in which _B_
is trustee for _A_, and _A's_ creditors can subject the property.

Anyone defrauding another by duress, by taking advantage of old age or
of mental weakness, or by fraud, becomes the trustee for the wronged
party in the amount the latter has lost.

=325. Rights and Liabilities of Trustee.= A trustee of an express trust
need not accept the trust against his will. If _A_ by deed, will, or
written declaration, names _B_ as trustee of certain property for _C_,
_B_ need not accept unless he so desires. If _B_ refuses to act as
trustee, the trust does not fail by reason thereof. A court may appoint
another trustee or may itself administer the trust. After accepting a
trust, a trustee cannot resign without the consent of the _cestui_.
He may be removed by the court for misconduct, or he may transfer his
duties, if so stipulated in the instrument creating the trust.

In England during the reign of Henry VIII, a statute was passed called
the _Statute of Uses_, declaring that real property given to one person
and his heirs in trust for another and his heirs, should vest the legal
title in the trustee. Thus, if _A_ gives real estate to _B_ and his
heirs in trust for _C_ and his heirs, _C_ takes the legal title. The
Statute of Uses is in force in most of the states of this country. It
does not apply to personal property, and if the trustee is given some
duties, such as to collect rents, or to do anything except to hold the
legal title as trustee, the case is not within the Statute of Uses, and
the trust will be carried out.

A trustee holds the legal title to the trust estate. Suits against
the estate must be brought against him as trustee, and suits for the
protection of the estate must be brought by him as trustee. A trustee
has the right to possession of all personal property covered by the
trust, and to possession of the real property, if necessary to execute
the terms of his trust. A trustee must protect the estate and perform
his duties with care, or be liable to the beneficiary for any damages
resulting. He is not permitted to make any profit out of his office.
Any profit made by him through his connection with the trust estate
belongs to the beneficiary.

=326. Rights and Liabilities of Beneficiary.= A _cestui que trust_
has the right to receive the benefits of the trust estate as outlined
in the instrument creating the trust. If the trustee fails properly
to perform his duties, the _cestui que trust_ may bring legal action
to have him removed. A trustee has legal title to the trust property,
and may convey good title to one who purchases for value, and without
notice of the trust. The _cestui que trust_ can follow and regain trust
funds or property, if the latter are conveyed to persons not _bona
fide_ purchasers.

LANDLORD AND TENANT

=327. In General.= The term, _landlord and tenant_, is applied to the
relation existing between one who obtains the right to the possession
of the real property of another, under a contract by the terms of which
the title or ultimate right to possession, or at least some interest
in the property, remains in the grantor. The relation existing between
landlord and tenant is contractual. Like all contracts, there must be a
consideration, competent parties, and legality of purpose.

The contract by which one party becomes a tenant is called a _lease_.
The party granting a lease is called the _landlord_. The owner to whom
the lease is given is called the _tenant_ or _lessee_. A lease of
property is not a sale. By a lease of real property, the lessor grants
but a portion of what he possesses. By making a sale of real property,
the grantor transfers his entire interest. If a tenant transfers his
entire interest in the lease, it is a sale, and is usually called an
_assignment_. If a tenant sublets a portion of his interest in the
lease, he, himself, becomes a landlord, and the sublessee becomes a
tenant.

=328. Rights of a Tenant.= The form and contents of a lease are
discussed under a separate section. Parties to a lease may agree to
any terms they choose, if the terms are legal. In the absence of
express stipulations in a lease, many things are implied. A tenant is
entitled to the possession and use of the premises leased, from the
time mentioned in the lease for it to take effect. By possession is
meant the right to take actual possession of the premises without being
prevented by one having a right superior to that of the tenant.

A tenant is permitted to rent any premises he chooses. A landlord, on
the other hand, may lease to a tenant any premises he possesses. There
is no implied warranty on the part of the landlord that premises leased
are in good condition, or that they are fit for any particular purpose.
The tenant makes his own bargain, and, as in the case of making a
purchase of goods, or in making any contract, he must take care of
his own interests. The tenant may stipulate in the lease that the
premises are to be in a certain condition, that they are adapted to a
certain purpose. In this event, the tenant is not obliged to accept the
premises if they do not comply with the terms of the lease, or he may
bring an action for damages against the landlord for not complying with
the terms of the lease. In the absence of any express stipulation as to
the condition of the premises, or their suitableness for the purpose
for which they are to be used, the law implies nothing.

A landlord is not permitted to defraud a tenant. He cannot conceal
or misrepresent material facts relating to the lease. If there is
a misrepresentation of a material fact by the landlord, which is
relied upon by the tenant to the latter's injury, the tenant has been
defrauded. He may refuse to accept the property, or he may repudiate
the lease as soon as he discovers the fraud. A tenant impliedly has
the right to quiet enjoyment of the premises leased. The landlord
must not disturb the tenant's right to quiet possession. If the
landlord, himself, or one who legally claims a right to possession of
the premises disturbs the tenant's possession, the latter may sue the
landlord for damages. If a mere trespasser or one who wrongfully claims
the right, disturbs the possession or quiet enjoyment of the tenant,
the landlord is not liable. The acts of strangers are beyond his
control. The tenant may use the premises for the purposes stipulated
in the lease. In the absence of express stipulation, he may use the
premises for the purpose and in the manner in which the property leased
is customarily used.

=329. Taxes, Repairs, and Insurance.= The general rule is, that in the
absence of express stipulation in the lease to the contrary, all taxes
are to be paid by the landlord. Even though the lease provides that the
tenant is to pay all taxes, this does not include special assessments,
such as assessments for city paving and sewers. Water rent is not
included in the general term, _taxes_. The landlord is obliged to pay
all taxes on the property unless the tenant expressly assumes them. In
the absence of any express stipulation, the tenant must pay water-rent.
There is no implied duty on the part of the tenant to insure the
property leased.

A tenant is, in the absence of any express stipulation, required
to keep the property in repair. He is not liable for ordinary wear
and tear of the property, but must make ordinary repairs at his own
expense. If the property is destroyed by fire without the fault of the
tenant, the tenant is not liable for the loss. He is not obliged to
rebuild the property destroyed. The lease is ended by the destruction
of the property by fire, and the tenant is not obliged to pay further
rent. The above is the rule fixed by statute in most states. The common
law rule was that a tenant was not relieved from paying rent by the
destruction of the building by fire.

=330. Liability for Injuries Arising from Condition of Leased
Premises.= In the absence of any stipulation in the lease relative to
the condition of the premises leased, the tenant is presumed to make
the lease on his own judgment. There is no implied duty on the part
of the landlord to deliver the premises in any particular condition.
This rule is subject to the limitation that a landlord is not permitted
to deliver possession of premises containing latent defects of such a
character as would be liable to cause injury to a tenant. If injury
results from such latent defects, the landlord is liable in damages to
the tenant. As a rule, however, the tenant takes the premises as they
are, and if injury results to himself by reason of apparent defects
in the premises, he has no right of action against the landlord. The
tenant has control of the premises. If persons are injured by reason
of accummulations of snow or ice on the walks, the tenant, and not the
landlord, is liable therefor.

=331. Rent.= The compensation given by a tenant to a landlord for the
use of leased premises is called _rent_. A tenant may become liable
for rent without any express agreement to that effect. If one person,
with the consent of another, occupies the premises of the latter as a
tenant, he is liable to pay the reasonable value of such occupancy,
as rent. This obligation is implied from the relation of landlord and
tenant existing between the parties.

Ordinarily, the matter of rent is expressly agreed upon and, until
the tenant is evicted, his lease surrendered, or he is released, he
is obliged to pay the landlord rent. The tenant's liability to pay
rent does not necessarily depend upon actual occupancy of the leased
premises. He may rent the premises for the use of another, or he may,
without excuse, refuse to accept possession of the premises. In either
event, he is liable for rent. If the lease expressly stipulates that
the premises are in a certain condition as to plumbing, etc., the
tenant may refuse to accept the possession if the conditions are not
fulfilled. If, on the other hand, the tenant leases premises, nothing
being said about their condition, the tenant is presumed to rely upon
his own judgment, and the fact that the premises are uninhabitable by
reason of defective plumbing, by reason of unhealthful conditions, or
for any reason, does not release him from his contract. He is liable
to pay the rent agreed upon. The landlord is not permitted to defraud
the tenant. He cannot mislead the tenant by false or fraudulent
representations. Fraud enables a tenant to avoid a lease.

If a tenant refuses to accept possession of premises leased, or
abandons the premises without excuse, he is still liable for the rent
for the balance of the term. If he surrenders the lease, and the
landlord consents to the surrender, the tenant is relieved from further
liability. But a voluntary abandonment by the tenant, not consented
to by the landlord, does not relieve the tenant from liability to pay
rent. If a tenant abandons the premises leased, the landlord may permit
the premises to remain vacant and compel the tenant to pay the balance
of the rent when it is due under the lease. The landlord may, on the
other hand, accept the premises, and cancel the remainder of the lease.
Again, the landlord may take possession of the premises and relet them
for the benefit of the tenant, notifying the tenant of his intention.
He may collect any deficiency in the rent from the original tenant. For
example, if _A_ rents _B's_ house for one year for $300.00 and at the
expiration of six months _A_ abandons the premises, _B_ may relet the
premises to _C_ for _A's_ benefit. If _B_ relets for _A's_ benefit, he
must obtain the best terms possible. If he obtains only $100.00 rent
from _C_ for the balance of the term, he can collect $50.00 from _A_.

=332. Distress.= At common law, a landlord had the right to take
possession of the personal property of a tenant who was in arrears for
rent, and hold the personal property until the rent was paid. This
remedy is known as _distress_. When a landlord makes use of this remedy
he is said to _distrain for rent_. A landlord cannot deprive the tenant
of possession, and then distrain for rent. It is not an action against
the tenant personally, as an action for debt. It is a mere right of a
landlord to take possession of the tenant's personal property after
rent is due, and while the tenant is still in possession of the leased
property as tenant. The landlord may retain possession of his property
as security for the rent. At common law, a landlord could not sell the
property, but could hold it as security for the rent.

At the present time, the right to distrain for rent is not recognized
by many states. Where recognized, it is regulated largely by statute.
The landlord is usually required to give bond, and file an affidavit
with a court to the effect that the rent of a certain amount is justly
due. The property is then seized by an officer of the court, and upon
final termination of the case, may be sold, and the proceeds applied to
the payment of the rent. This action is now treated in the nature of an
attachment. (See _Attachment_, chapter on Courts and Legal Remedies.)
The remedies of a landlord commonly recognized at the present time are
actions for rent, and actions to recover possession of the premises.
These remedies are discussed under a separate section.

=333. Leases.= _Lease_ is the term applied to the agreement by which
one person becomes a tenant, and another a landlord. Leases are usually
in the form of formal written instruments in which the rights and
duties of the parties are quite fully set forth. No particular form of
language is required to make a valid lease. If the agreement shows an
intention on the part of the parties to create the relation of landlord
and tenant, it is sufficient to constitute a lease. Parties may make
oral leases covering short periods of time. Most of the states provide
by statute that leases beyond certain periods must be in writing to be
enforceable. This period varies in the different states. Some require
leases in excess of three years to be in writing; others fix the limit
at one year. Some of the statutes which do not specially require
leases to be in writing, make them void as against purchasers or
incumbrances if not recorded. Such statutes in effect require the lease
to be in writing. A lease does not require a seal. By statute, most
states require leases to be witnessed, usually by two witnesses, and
acknowledged before a notary public. Witnessing is called _attesting_,
or _attestation_. By _acknowledgment_ is meant an admission of the
signature by the parties to a lease before a notary public. The notary
writes his certificate upon the lease, stating that the parties
acknowledged the signature in his presence. The notary signs and seals
the certificate of acknowledgment. The states generally require by
statute that leases beyond a certain time, usually one or more years,
be recorded with the public recorder of the county where the property
leased is located, to be effectual as against subsequent purchasers or
incumbrances.

Certain requisites are recognized in formal lease. The names and
description of the parties, the terms of the lease, the description of
the property, the signing, delivery, and acceptance of the lease, and
the witnessing and acknowledging are regarded as essential features.

_Covenants_ are express or implied terms of a lease. If parties
expressly agree to do certain things enumerated and set forth in
the lease, the covenant is said to be _express_. The law implies
certain obligations on the part of the parties to a lease. There is
an _implied_ covenant on the part of the tenant to pay rent, and to
make all ordinary repairs subject to the reasonable wear and tear of
the premises. The landlord impliedly consents to give the tenant quiet
enjoyment, and to pay taxes and assessments.

=334. Transfer of Leases.= A landlord may transfer his interest in a
lease. A tenant may, unless the lease stipulates otherwise, transfer
his interest in a lease. A transfer of an interest or right in which a
third person, not a party to the transfer, has an interest is usually
called an _assignment_. For example, _A_ owes _B_ $100.00, _B_ may
assign his claim to _C_. By notifying _A_ of the assignment, _A_ is
obliged to pay _C_, instead of _B_. Any defense that _A_ has against
_B_ is available against _C_. As a rule, partial interests cannot be
assigned so as to be binding upon the obligor, without the latter's
consent. If _A_ owes _B_ $100.00 _B_ cannot assign $10.00 of this claim
to ten different parties. This would compel _A_ to pay ten different
persons, while the original obligation bound him to pay but one. _A_
may have a counter claim amounting to $50.00. To obtain the benefit of
this counter claim, he would have to set it up in five different suits,
whereas if the claim were sued by the original owner, or by one owner
he would have to make a defense in but one suit.

An assignment may be made orally, if not in conflict with the
provisions of the Statute of Frauds. It may be made by written
contract. No particular language is required to make a valid
assignment. Any words expressing the intention of one party to make an
assignment, accepted by the one to whom the assignment is to be made,
is sufficient. A landlord may assign a lease. Upon receipt of notice
of the assignment from the landlord or the assignee, the tenant must
pay to the assignee the rent subsequently coming due. If an assignment
is made by a landlord, and no notice is given the tenant, the latter
discharges his liability under the lease by paying the original
landlord. Originally at common law, a landlord could not assign his
rights without the consent of the tenant. The tenant could not be
compelled to recognize a new landlord. Recognition of a new landlord
was called _attornment_. A tenant may assign his interest in a lease if
the lease does not expressly provide otherwise. This does not relieve
the tenant from liability under the lease, even though the landlord
consents to the assignment, and accepts rent from the assignee. The
original tenant is a surety for the rent. After an assignment of a
lease by the tenant, the landlord, if he does not expressly release the
original tenant, may collect the rent from either party.

=335. Leases for Years.= A _lease for years_ is a lease for a definite
and ascertained period of time. If _A_ rents _B's_ farm for five years
commencing June 1, 1910, the lease is for years. If _A_ leases _B's_
house for a year, a month, or a week, to commence on a certain date,
the time of the lease is definite and ascertained and constitutes a
lease for years. If _A_ rents _B's_ house for a year commencing June
23, 1910, at $25.00 per month, the rent to be monthly in advance,
the lease is one for years. The fact that the rent is to be paid in
installments does not render the lease one from month to month.

A lease is regarded as personal property and, while it is an interest
in real property, it is usually called a chattel real, and is treated
as personal property. When the owner of a lease dies, the lease is
personal property in the hands of the executor or administrator of the
owner, and does not descend to the heirs of the owner as real property.
In some states, long time leases, such as leases for ninety-nine years,
are by statute made real property.

The practical distinction between leases for years and leases from
month to month, is that in the former, the lease ends when the time
covered by it expires. In a lease from month to month, a new lease is
created by implication, if a tenant is permitted to hold over. This
question is discussed more at length under the section, _Tenancies from
Year to Year_.

=336. Subletting.= Some states by statute refuse to permit a tenant to
sublet any portion of his lease, without the consent of the landlord.
A landlord may stipulate in his lease that a tenant shall not sublet
any portion of the premises. In the absence of statutory provisions,
or stipulations in the lease, a tenant may sublet the leased premises.
A transfer by a tenant of an interest in the leased premises may be an
assignment, or it may be a sublease. An assignment is a transfer by a
tenant of his entire interest in the premises. If _A_ rents _B's_ farm
for five years, and sells his lease for five years to _C_, the transfer
is an assignment. A transfer of only a portion of a tenant's interest
is a sublease. If _A_ rents _B's_ farm for five years, and leases the
farm for three years to _C_, the transfer is an assignment. If _A_
leases the farm to _C_ for five years, the transaction is a sublease.
An assignment is a transfer of the tenant's entire interest in the
leased premises. A sublease is a transfer of a part of a tenant's
interest in the leased premises.

A tenant may mortgage his interest in the leased premises. A creditor
of a tenant may levy upon the lease in satisfaction of a judgment, the
same as upon any article of personal property.

The purpose of the statute and stipulations in a lease, forbidding a
tenant to sublet the leased premises, is for the protection of the
original lessor. A subtenant is not permitted to avoid a lease on
the ground of such a statutory provision, or by reason of such a
stipulation in a lease. For example, if _A_ rents _B's_ farm for five
years, and the lease contains a stipulation that _A_ cannot sublet,
if _A_ sublets the farm for three years to _C_, _C_ cannot avoid the
obligation to _A_ by reason of the stipulation in the lease. The
stipulation is a privilege in favor of _B_. It may be exercised by
_B_ if he chooses to avail himself of the privilege. He may waive the
privilege, or refuse or neglect to exercise his right. Neither _C_ nor
anyone else can avail himself of this privilege.

It is sometimes quite difficult to tell just what constitutes a
subletting in violation of a statutory provision or a provision
in the lease. Mere privileges granted to others do not constitute
sublettings. Permission granted a neighbor to use a barn for a short
period, or taking roomers by the week, has been held not to constitute
a subletting.

If a tenant in violation of his lease sublets a part of the premises,
the original lessor may eject the sublessee, and sue the tenant for
damage for breach of contract.

If a tenant exercise his right of subletting a part of the premises, he
is not thereby relieved from his responsibility to pay rent under the
lease. Even though the tenant agrees to accept rent from the sublessee,
and apply the same on the obligation of the original lessee, this does
not relieve the original tenant from his obligation to pay rent. For
example, if _A_ rents _B's_ house and lot for three years for $25.00
per month, payable monthly in advance, and _B_ agrees to accept the
rent from _C_, and does accept payments from _C_, this does not relieve
_A_ from liability to pay _B_ the rent. _A_ is a surety, and his
obligation to pay the rent to _B_ is the same as the obligation of _C_.
If _B_ expressly agrees to relieve _A_ and to accept _C_ in place of
_A_, he can no longer hold _A_.

=337. Tenancies at Will and at Sufferance.= A lease may be entered
into, the terms of which may be terminated at the will of either party.
It is for an indefinite period. Such a lease creates a _tenancy at
will_. (See _Estates at Will_, chapter on Real Property.) Tenancies
at will are uncommon. The usual tenancies are tenancies for years and
tenancies from year to year. If _A_ permits _B_ to take possession of,
and to occupy his house under an agreement that either he or _B_ may
terminate the lease at the desire of either party, the tenancy is one
at will. _B_ may agree to pay rent at the rate of $10.00 per week,
$40.00 per month or $500.00 a year, or at any rate, without affecting
the estate at will. If the estate is for an indefinite period, but is
terminable at the wish of either party, no matter what the arrangement
for paying the rent, it is an estate at will, as distinguished from an
estate for years, and an estate from year to year.

It is sometimes held that a person who holds over with the consent of
the landlord after the termination of a lease for a definite period,
called _an estate for years_, is a tenant at will. For example, if
_A_ rents _B's_ house for one year, and at the expiration of the
year, _A_ with _B's_ consent retains possession, _A_ is a tenant at
will. The tenancy may be terminated at the desire of either party,
and upon notice by either party. In most jurisdictions, however, this
constitutes _A_ a tenant from year to year. (See following section.)

A _tenancy at sufferance_ is created by a tenant unlawfully retaining
possession of the premises after the termination of his lease,
without the consent of the landlord. If _A_ rents _B's_ house for one
year, and at the expiration of the year _A_, without _B's_ consent
retains possession of the house, he is a tenant at sufferance. He is
a trespasser, and may be ejected by _B_. Tenancies at will and at
sufferance are estates in land. They are also discussed under the
chapter on Real Property.

=338. Tenancies from Year to Year.= A tenancy may be created for
a definite period of time to continue for similar periods unless
terminated by notice of either party. Such a tenancy is called a
_tenancy for years_. The tenancy may involve any definite period with
the understanding that it is to continue for similar periods if not
terminated by notice of the landlord or tenant. While the estate is
called an estate from year to year, or a tenancy from year to year, it
may be for a week, a month, a year, or a series of years, or for any
definite period. If _A_ rents _B's_ house for one year, the rent to be
paid at the rate of $30.00 per month, payable monthly in advance, the
lease to continue for yearly periods unless either _A_ or _B_ notifies
the other to the contrary, the tenancy is from year to year. If, at the
expiration of the year, _A_ retains possession of the premises, having
received no notice from _B_ to leave, _A_ has a lease for another year
under the same terms, and so on, for succeeding years. The period
may be a week, or a month, as well as a year. Sometimes leases are
spoken of as leases from month to month, or from week to week, in case
the lease is to continue for a month, or a week. The same principle
is involved as in leases from year to year. If the tenant holds over
after the expiration of the week or month, he has a lease for a similar
period at the same terms.

A tenancy for years may be created by express or by implied contract.
It is sometimes difficult to tell whether a tenancy is for years, from
year to year, or at will. If a lease specifies that it is to cover a
definite period only, it is a lease for years, and terminates at the
expiration of that period. If the lease stipulates that it is to cover
a definite period, and continue for similar periods unless either party
terminates it by notice to the other, it is a lease from year to year.
If the lease stipulates that it can be terminated at the will of either
party, it is a lease at will. When the lease is oral, or created by
implication, the intention of the parties must determine the nature of
the lease.

Some difficulty arises in determining whether a lease is one at will,
or from year to year when a tenant for years is permitted to hold over
with the consent of his landlord. For example, if _A_ rents _B's_
farm for one year, and is permitted by _B_ to remain in possession
after the expiration of the year, in theory, _A_ is a mere tenant at
will, and can be ejected at the will of _B_. This is the law in a
few jurisdictions. Most jurisdictions, however, hold that _A_, when
permitted to hold over by _B's_ consent, becomes a tenant from year to
year.

=339. Termination of Leases.= A lease for years is terminated by
expiration of the period covered by the lease. The lease may contain
covenants, breach of which may by stipulation constitute a ground of
forfeiture. For example, a lease may contain a stipulation that the
landlord may declare a forfeiture in case the tenant fails to pay the
rent when it is due. If the tenant commits a breach of this or any
other covenant made by special stipulation, a ground of forfeiture,
the landlord may by notice declare the lease forfeited. This renders
the balance of the lease void. Leases for years, definite periods of
time, require no notice to terminate. Leases at will, and from year to
year require notice on the part of the party seeking their termination
to be given to the other party. For example, suppose _A_ rents _B's_
house for one year, to continue for similar periods if agreeable to
both parties. To terminate the lease at the end of the year, _B_ must
notify _A_ to quit the premises at the expiration of the year. If _A_,
on the other hand, desires to terminate the lease at the expiration of
a year, he must notify _B_ previous to the expiration of the year, of
his intention to terminate the lease at the expiration of the year. If
_A_ holds over without notice to _B_, or without _B's_ consent, _A_ has
a lease for another year at the same terms as before.

To terminate a lease from year to year or at will, the party seeking
the termination of the lease must notify the other party of his
intention to terminate the lease. The states generally provide by
statute the time and manner of giving such notice. In general, the
notice must be in writing and must be served on the interested parties
or their agents a reasonable time before the expiration of the period
of the lease.

A lease may be terminated by a subsequent agreement between the
parties. This is commonly known as a _surrender_. A surrender is a
release of possession of the premises by the tenant, and an acceptance
by the landlord. A mere abandonment of possession by a tenant without
the express or implied acceptance or assent of the landlord is not a
surrender. Such an abandonment might constitute a breach of contract
on the part of the tenant, but it requires the assent of the landlord
to terminate the lease. If _A_ rents a farm for three years at $500.00
a year, and at the expiration of two years agrees to pay _B_ $100.00
to cancel the lease, and _B_ accepts, the transaction constitutes
a surrender, and terminates the lease. If _A_ merely abandons the
premises without the consent of _B_, the lease still exists. _B_ can
collect the rent for the remaining period covered by the lease. If _A_
abandons the premises, and notifies _B_ that he will not carry out
the lease, _B_ may refuse to accept the breach, permit the premises
to remain vacant, and collect the rent from _B_. _B_ may accept _A's_
breach of the contract, and terminate the lease, or he may take
possession of the premises, and relet them for _A's_ benefit, notifying
_A_ that he takes possession for _A's_ benefit, and not for his own. In
this event, _B_ must use reasonable diligence in obtaining the highest
rent possible, and if he is obliged to rent for a less amount than _A_
was to pay, _B_ can collect the difference from _A_.

=340. Liability of Parties to a Lease for Breach.= If the landlord
fails to fulfill the conditions of the lease, he is liable in damages
to the tenant. The damages are the difference between the rent paid
under the lease, and the market value of the premises furnished. For
example, if _A_ rents his house and lot to _B_ for one year at $25.00
per month, and agrees to redecorate the house, but fails to do so, _A_
may recover from _B_ the difference between $300.00, the rent paid
under the lease, and the market rental of the house undecorated. If
a tenant abandons the lease, the landlord may recover from the the
deficiency between the rental named in the lease, and the rental he is
able to obtain for the balance of the time covered by the lease.

For example, if _A_ rents _B's_ farm for three years at $500.00 a year,
and at the expiration of two years, _A_ abandons the lease, if _B_ is
able to obtain but $300.00 for the remaining year covered by the lease,
he can recover $200.00 and expenses from _A_.

A suit for damages is not the only remedy the landlord has against a
tenant for the latter's abandonment of the premises. The landlord may
refuse to accept the breach on the part of the tenant, let the premises
remain vacant, and collect the rent under the lease.

The landlord may enter the premises for the purpose of preventing
loss or destruction of the premises without accepting the breach. The
landlord may accept and cancel the remaining portion of the lease, or
he may again lease the premises for the benefit of the tenant, and
collect the deficiency in the rent from the tenant. This question is
also discussed in the previous section.

=341. Actions for Recovery of Rent and Possession of Leased Premises.=
A landlord may sue and recover judgment by bringing an ordinary action
for debt when rent or any installment is due. If _A_ rents _B's_ house
for one year at the rate of $25.00 per month, payable at the end of
each month, and fails to pay any installment, _B_ may sue him. The
judgment may be satisfied out of any property _A_ may have. If married,
_A_, by statute in most jurisdictions, is entitled to a certain amount
of exempt property.

If the landlord has failed to perform all of the terms and conditions
of the lease, _A_ may bring a counteraction against _B_ when sued
by _B_ for rent. For example, if _B_ has failed to repair the house
according to the terms of the lease, _A_ may counterclaim for damages
when sued by _B_ for the rent.

When the period of the lease expires, the landlord is entitled to
possession of the premises. At common law, he was entitled to use the
force necessary to recover possession. He is not permitted to commit
a breach of the public peace in obtaining possession. Most of the
states provide statutory methods for obtaining possession. A complaint
is filed with a court and an officer of the court ejects the tenant
by order of court. Non-payment of rent does not entitle the landlord
to terminate the lease, unless the lease expressly so provides. When
the lease is forfeited according to its provisions, the landlord is
entitled to take possession.

TRADE=MARKS AND NAMES

=342. Trade=Marks in General.= Persons are permitted to place marks
on goods manufactured or sold by them, which indicate their origin or
ownership. By this means, they are able to obtain the benefit of any
superiority which their goods have over goods of other manufacturers
or sellers. These marks placed on goods by owners or manufacturers are
called _trade-marks_. A court has defined a trade-mark to be "A word,
symbol, figure, form or device, or a combination thereof adopted or
devised and used by a manufacturer or seller of goods to designate the
origin or ownership of the goods, and used by him to distinguish the
goods from those sold or manufactured by others."

A manufacturer or seller of an article is not permitted to appropriate
as a trade-mark a name commonly used to describe the article. Flour
is manufactured and sold by many persons. Anyone has the right to
manufacture and sell flour by that name. No one is permitted to
appropriate to himself as a trade-mark the name _Flour_. A person may,
however, apply an arbitrary term, not describing the thing produced,
for the purpose of designating his brand of flour as distinguished from
other brands of flour. While a manufacturer of flour is not permitted
to appropriate as a trade-mark to be used on flour the name _Flour_, he
may be permitted to use the term _Ideal_. The person first adopting the
name _Ideal_ as a trade-mark in the sale of flour, acquires a property
right in the name. The law will protect him in the use of this name in
connection with the sale and manufacture of flour.

Any arbitrary name, sign, mark, symbol, letter or number used for
the purpose of designating the origin or ownership of goods may
be appropriated as a trade-mark by the person first adopting and
continuing its use. A person is not permitted to adopt as a trade-mark
anything which indicates the grade or ingredients, or which is
descriptive of the article sold or manufactured. The reason for this
rule is that otherwise a person adopting the name would have a monopoly
on the production of such articles. _Crack-Proof Rubber Goods_, as
applied to rubber goods; _A1 Honey_, as applied to honey, are terms
descriptive of quality of goods and cannot be appropriated.

A proper name of a person is not the subject of a valid trade-mark.
Persons of the same name are permitted ordinarily to use their name in
the manufacture of goods of the same nature. A party is not permitted,
however, to manufacture or sell his goods as the goods of another. He
may not be permitted to use his own name in the sale of certain goods
if another has long made and sold goods under the same name, and if
purchasers are defrauded thereby, or if confusion results. This is
not by reason of a person having a trade-mark in his own name, but by
reason of unfair trade. This is discussed under the section on _Unfair
Trade_.

=343. Trade=Marks= (CONTINUED). A name of a place or locality cannot
be appropriated as a trade-mark. Any person is permitted to use the
name of a place or locality to designate the origin of the goods and
it is the common property of all as much as any descriptive name. A
geographical name cannot be appropriated as a trade-mark. A common
example of this principle is the use of the term, _Lackawanna_. This is
the name of a district in Pennsylvania. A coal company endeavored to
appropriate the name, but was not permitted to use it as a trade-mark.
Others, mining coal in the Lackawanna district have an equal right to
designate their coal by the same name. Any fanciful or arbitrary name
not describing the article, may, however, be adopted as a trade-mark.
A person first using such an arbitrary mark in the manufacture or
sale of a particular class of goods acquires a trade-mark. He may use
the mark without any intention of acquiring a trade-mark therein. If
another person attempts to use the mark, no matter if without intent to
defraud, he may be enjoined from its use. The owner of a trade-mark has
no greater right than any other person to use the trade-mark on classes
of goods different from the class on which it has been acquired. A
trade-mark used on flour may also be used on stoves by another person.
This principle is subject to the limitations that one person is not
permitted to deceive purchasers in leading them to believe that they
are purchasing the goods of another. This question is discussed under
the section on _Unfair Trade_.

A trade-mark is acquired by the person first using it in connection
with the sale or manufacture of goods. It is not necessary that it be
adopted with the intention of being used as a trade-mark. A trade-mark
may be lost by discontinuance. A trade-mark will not be allowed on an
article which it is against public policy to manufacture. An example of
this principle is adulterated food or medicine. A trade-mark which does
not indicate that the goods manufactured or sold are the result of the
personal skill of a particular person, may be sold with the business in
connection with which the trade-mark is used.

=344. Trade Names.= A person is permitted to use a name other than
his own for the purpose of trade. For example, John Smith may use
the name _The John Smith Co._, _The Eureka Co._, _The L. X. Co._,
or any arbitrary or fanciful name he may choose, so long as it
does not conflict with the rights of others. Such names are called
_trade names_. Their adoption and use are governed by the same
legal principles as trade-marks. Trade names, however, are applied
to a business, while trade-marks are brands applied to articles
of manufacture or sale. As in the use of trade-marks, a person is
not protected in the use of trade names which describe the article
manufactured or sold. The use of the name, _Cleveland Fertilizer Co._
by John Smith, does not prevent others from using the same name.
The law does not permit one party to monopolize the use of the term
_fertilizer_; neither does it permit him to monopolize the geographical
term, _Cleveland_. The party first adopting a trade name other than
a descriptive geographical, individual, or proper name, acquires the
right to use it as a trade name.

While a person cannot acquire such a right in a geographical or
descriptive name, he may, by long use of it, acquire the right to
prevent others from using it in such a manner as to deceive purchasers.
A person is not permitted to sell his goods as the goods of another.
This right to prevent others from using a name which deceives the
public is not by reason of any trade name acquired, but by reason of a
person unfairly making others believe they were purchasing the goods of
one person, when, in reality, they are purchasing the goods of others.

=345. Unfair Trade.= A trade-mark, or a trade name cannot be
descriptive of the articles sold or manufactured. Neither can a proper
name or a geographical name be appropriated to a trade-mark or name.
To enable a person to acquire a trade-mark or trade name, a mark or
name must be adopted which in no way describes the article manufactured
or sold. It must be one that is not taken from the place where the
goods are manufactured or sold, or from the name of the inventor or
manufacturer. It must be an arbitrary or fanciful name or mark. A
manufacturer of flour may use as a trade-mark the name _Beauty Flour_,
but not _Minnesota Flour_, or _Pure Flour_. A party may use as a
trade-mark for men's collars the picture of a lion, but not the word
_linen_. When a trade-mark or a trade name has once been used as such,
the owner, unless he loses or transfers the right, acquires the sole
right to its use, and may compel others to cease using it, regardless
of actual damages or confusion. At the present time, the courts
recognize a principle known as _unfair trade_. Even though a person
has adopted a geographical name, or a name descriptive of the articles
manufactured or sold as a trade name, he is permitted to enjoin others
from the use of this name, if the use of the same enables the latter
to sell his goods as the goods of the former. A person cannot use the
name _Cleveland Fertilizer Co._, so as to acquire a trade name therein.
But if the name _Cleveland Fertilizer Co._, is used by a person so long
and so extensively as to acquire for its owner a broad reputation as a
manufacturer of an excellent quality of fertilizer, another who adopts
the name may be enjoined from its use, if purchasers are deceived
thereby. This is on the ground of unfair trade.

=346. Unfair Trade= (CONTINUED). The same principle applies in the
use of individual names. A person may not acquire a trade-mark in
his own or in any individual or proper name, since others have the
right to the use of their own name. But a person may acquire such
a reputation as a manufacturer of a particular article, that if
others of the same name are permitted to use their name in the same
connection without distinguishing features, the public will be deceived
in making purchases. For the purpose of protecting the public from
being deceived, the courts sometimes enjoin persons from the use of
their own name in connection with the manufacture and sale of certain
articles. For example, Thomas Edison has acquired fame as an inventor
and manufacturer of _Edison Batteries_. A person by the name of Edison
would not be permitted to manufacture and sell electric batteries under
the name of _Edison Electric Batteries_, for the reason that the public
would be deceived thereby. This would be what is known as unfair trade.
The same principle applies to geographical names. A geographical,
individual, proper, or descriptive name cannot be used as a trade name,
or a trade-mark, but they can be so used as to prevent others from
using them, by reason of violating the law of unfair trade.

=347. Registration of Trade=Marks.= In 1906 the United States Congress
passed the present statute relating to the registration of trade-marks.
The act provides that the owner of a trade-mark used in commerce with
foreign nations, the several states, or the Indian tribes may register
said trade-marks by filing the same with the Commissioner of Patents. A
trade-mark is acquired in the same manner as at common law. The United
States act does not change the method of acquiring trade-marks, nor
does it designate what constitutes trade-marks. It simply permits a
person to register a trade-mark already acquired. In case of dispute,
the owner has the advantage of a public record of his claim, and until
he has lost his right in the trade-mark to some one who proves to have
a better right, the registration is _prima facie_ evidence of ownership.

Before registering a trade-mark, the owner is required to file with
the Commissioner of Patents at Washington, an application showing the
nature of the trade-mark, on what goods used, and when acquired. A
fee of $10.00 is required. The owner must file a verified statement
that he is the owner of the trade-mark sought to be filed. Trade-marks
which consist of the name of an individual, firm, or corporation,
or words descriptive of the articles manufactured or sold, a
geographical term, or a photograph of any living person, except with
such person's consent, shall not be registered as trade-marks. When
such application is filed, if the Commissioner of Patents finds that
it is proper to register the same as a trade-mark, he publishes the
mark in the official gazette. Anyone may oppose the registration by
filing objections within twenty days after said publication. If no
objection is filed, the trade-mark is registered, and a certificate of
registration is furnished the applicant.

If objection to the registration of a trade-mark is made, the
applicant is notified by the Commissioner of Patents. If the trade-mark
interferes with another, or is descriptive of the article to which it
is to be applied, the commissioner will refuse to register it. A person
whose application for registration of a trade-mark has been refused
by the Commissioner of Patents may appeal from the decision of the
Commissioner of Patents by filing applications of appeal with the Court
of Appeals of the District of Columbia.

Registered trade-marks may be assigned in connection with the good
will of the business in which the trade-mark is used. Notice of such
assignment must be filed with the Commissioner of Patents within three
months from the time the assignment is made, to render it valid as
against other innocent purchasers. Certificates of registration shall
be effective for twenty years, and may be renewed for like periods upon
payment of the registration fee.

After a trade-mark has been registered, anyone who considers himself
injured by said trade-mark may file complaint with the Commissioner of
Patents, and if the latter determines that there is an infringement,
or that someone has a prior right to the trade-mark, the registration
may be cancelled. Notice of registration of a trade-mark is given the
public by publishing the words, _Registered U. S. Patent Office_, with
the trade-mark.

Most of the states have statutes making it a crime falsely to use the
trade-mark or brand of another company. The use of labels by trade
unions is protected in this manner in several states.

WILLS

=348. Will Defined.= A will has been defined to be a "disposition
of real property to take effect after the death of the testator."
Originally, the term _will_ applied only to dispositions of real
property, and the term _testament_ applied to dispositions of personal
property. At present, the terms _will_ and _testament_ are not
uncommonly used. But the original limitation of the term, _will_, is no
longer commonly recognized. The term, _will_, is now used to describe a
disposition of personal as well as real property to take effect at the
maker's death.

=349. Names of Parties and Terms Commonly Used in a Will.= The person
who makes a will is called the _testator_ or _devisor_. The term
_testator_ is more commonly used than the term _devisor_ to designate
the maker of a will. The term _devise_ is used to designate the giving
of real property. If _A_ desires to give a farm to _B_ by will,
the language used in the will is, "I, _A_, devise to _B_ my farm."
Technically, the term _devise_ means the giving by will of real estate,
but it is commonly used to designate the giving by will of personal
property as well. The term _bequeath_ is used to designate the giving
of personal property by will. If _A_ desires to give by will a watch
to _B_, he uses the language, "I, _A_ bequeath to _B_ my watch." The
beneficiary, or person designated in the will to receive real property,
is called the _legatee_.

=350. Origin and Nature of Wills.= At common law, a person was
permitted to give by will a portion of his personal property. He was
not permitted to give real property by will. In England, the right
to give real property by will was given by statute. The law of this
country has always recognized the right to give real as well as
personal property by will. It is not regarded as a right but rather
as a privilege extended to an owner of property. This privilege is
controlled by the legislatures of the states.

The states differ in their statutory requirements as to the manner of
making wills, and the amount of property that may be willed to the
exclusion of the wife and family. A will must be signed, acknowledged,
and witnessed as required by statute, and may be rendered void if the
statutory requirements are changed between the time the will is made
and the death of the testator. A will is not a contract. The right
to make contracts cannot be abridged by legislation. This right is
a constitutional right. The constitution gives an owner of property
no right to make a will. It is a privilege which may be abridged or
taken away by the legislature. Most of the states give a wife a dower
interest in the real estate of her husband. (See _Dower Estate_,
chapter on Real Property.) A husband cannot will away his estate,
depriving his wife of dower.

=351. Law Governing Wills When Testator Owns Property in One State
and Resides in Another at Time of Death.= Real property is fixed and
immovable. No matter where a testator resides at the time of his death,
the law of the state where the real property is located governs the
will relative to its disposition. If the will does not comply with the
law of the state where the real property is located, the general rule
is that the will cannot be enforced, even though the will is valid
under the law of the state where the testator resides at the time of
his death. For example, if _A_ owns real property in Cleveland, Ohio,
but resides in Omaha, Nebraska, _A_ may make a valid will under the
law of Nebraska which may not comply with the Ohio law. If _A_ dies,
the provisions of the will cannot be enforced as to the real property
in Cleveland. Personal property, on the other hand, is movable and
is supposed to follow the residence of its owner. If a will is valid
where the testator resides at the time of his death it is valid to
pass personal property, regardless of where the personal property is
located. Some states at present provide by statute that if a will is
valid where the testator resided at the time of his death, it is valid
to pass real property, no matter where located.

=352. Essentials of a Will.= Primarily, a will is an instrument in
which a person expresses his intention to give his property to certain
designated persons, to take effect upon his death. Any instrument,
no matter whether it be termed a will, containing an expression of
intention to have property pass to another at the death of the maker,
satisfies the requirement.

To constitute a will, there must be no present interest in the property
passing absolutely to the beneficiaries named in the instrument at
the time the written instrument is made. A person may make a gift, a
bill of sale, or a deed of property if he chooses. The title to the
property passes to the purchaser or donee at once or at some future
stipulated time. Such transactions are not wills. A will does not take
effect until the death of the testator. It may be revoked, changed, or
supplanted at the will of the testator. Any instrument that conveys
a present interest is not a will. The two most essential things in
determining whether an instrument constitutes a will are, first, the
power to revoke the instrument, or a stipulation or language used
showing that the instrument is not to take effect until the testator's
death; and second, the expression of an intention of the testator to
make a will. Certain formal requisites as to signature and witnessing
are required by statute in different states. These requirements are
discussed under separate sections.

=353. Who May Make a Will.= By statute in most states, anyone of
legal age, of sound and disposing mind and memory may make a will. At
common law, when a woman married, her property became her husband's.
A married woman could not make a will. At present, by statute, most
states provide that married women may contract concerning their
separate estates. They are also permitted to make wills. A person must
be of legal age to make a will. What constitutes legal age is fixed
by statute in the different states. All provide that twenty-one years
is the legal age for males. Some fix the legal age for females at
eighteen, others at twenty-one.

What constitutes sound and disposing mind and memory is a matter
of some dispute. It is conceded that idiots, imbeciles, and insane
persons, while insane, cannot make wills. The mental capacity required
of a person to enable him to make a will is usually stated to be that
mental capacity which enables a person to describe his property, to
name the natural objects of his bounty, and to understand the nature
of a will. A person does not have to be in good health to make a will.
He does not have to be mentally sound within the ordinary meaning of
the term. He may be very ill, and weak both in mind and body. He may
be eccentric, may have been insane, may be subject to illusions, or
even may be under guardianship for insanity and still be able to make
a will. If he is able without assistance from others to describe his
property, to understand in general the nature and effect of making
a will, and to name the persons who are the natural objects of his
bounty, he is capable of making a will. If his mind is not sufficient
to perform all of these functions he is not capable of making a will.
To constitute an instrument a valid will, it is not necessary that the
instrument show in itself that the testator had all these powers. He
may not name all, or any of the natural objects of his bounty in the
will. He may not describe all of his property. If he was capable of
doing these things at the time he made the will, regardless of whether
or not he exercised this capacity, the will is valid.

If a testator makes a will under such mental pressure or threat of
violence that he does not act according to his wishes, the will may be
avoided by reason of undue influence or duress. Undue influence may be
exerted by anyone, but not necessarily by a beneficiary under the will.
All solicitations or remarks or supplications to the testator to make
a particular provision in a will do not constitute undue influence.
The influence must be of a sort to compel the testator to act against
his wishes, and to destroy his ability to act through his own mental
agency.

=354. What May be Disposed of by Will.= Any property owned by the
testator, whether real or personal, may be disposed of by will.
Property cannot be freed from liens or incumbrances by will. If _A_
owns a farm, but _B_ has a mortgage on it, _A_ can dispose of his
interest by will, _B_ retaining his interest in the mortgage as against
the devisee. A husband cannot cut off his wife's dower estate by will.
A person may dispose of all his real and personal property by will. A
will covering all the real and personal property of the testator will
pass the real and personal property acquired by the testator after he
made the will.

=355. Requisites of a Will as to Form.= Ordinarily, a will must be in
writing. In some jurisdictions, and under certain circumstances, oral
wills are recognized as sufficient to pass certain property. These
oral wills are called _nuncupative_ wills. They are discussed under a
separate section. A will may be written on any kind of material, and in
any language. It may be printed, written on a typewriter, written in
the testator's own handwriting or by another. It may be written on one
or several pieces of paper. The pieces need not be fastened together if
their contents show their connection. Another instrument not set forth
in the will may be incorporated into the will by reference, if the
instrument can readily be identified, and was in existence at the time
the will was made. A will must be signed.

The statutes of most states require that a will be signed by the
testator, or by some one authorized to sign for him. A person not able
to write may sign by mark. A person usually signs by mark as follows:

his
John _X_ Smith.
mark

Any mark made by the testator is sufficient. Most states require by
statute that wills must be signed in the presence of two or three
witnesses. These witnesses must be competent to understand the nature
of the transaction. They need not necessarily be of legal age. They
must affix their signatures as witnesses to the will. A beneficiary
under the will should not be a witness. The witnesses of a will are
required to observe the competency of the testator and his signature,
in order that they may testify to these facts when the will is proven.
The statutes of most states make it sufficient for the testator to
acknowledge his signature in the presence of the witnesses. In this
event, they need not see him sign his name to the will. The witnesses
are usually required to sign the will in the presence of the testator,
and in the presence of each other.

=356. Publication of a Will.= Some states provide by statute that
to constitute a written instrument a valid will, the testator must
acknowledge it to be a will at the time it is signed and witnessed.
This act is known as _publication_. Some states do not have such
a statutory provision. In the absence of statutory provisions,
publication is not necessary. It is not necessary that the testator
read or cause the will to be read to the witnesses to comply with the
statutory requirements of publication. The witnesses must know that
they are witnessing a will. Any word, expression or act on the part of
the testator which notifies the witnesses that they are witnessing a
will is a sufficient publication.

_A_ requested _B_ and _C_ to visit his house in the evening and witness
his will. They went to _A's_ house, where _A_ presented a document
to them, which he signed in their presence, and which they signed as
witnesses. _A_ did not acknowledge that the instrument was a will. The
court held this to be a sufficient publication. _B_ and _C_ had been
informed that the instrument was _A's_ will.

=357. Contract to Make a Will.= A person may enter into a contract
to make a will which will bind his estate. The party with whom such
a contract is made cannot force the other party to make a will, or
prevent him from revoking a will if made, but he can bring an action
for damages against such party's estate if the latter dies without
leaving a will according to his agreement. A will can be revoked at the
desire of the testator. Revocability is one of the essential features
of a will. A party may bind himself by contract to make a will in favor
of a certain person. This contract does not prevent such person from
revoking the will if made, but it renders the person's estate liable
for breach of contract. _A_, a boy of twenty-one years of age, was told
by his father, _B_, that if he would continue to work for him until he
was thirty-five years of age, he would will him a certain farm, _A_
agreed to this proposition, and worked for his father until he was
thirty-five years of age. _B_ subsequently died, leaving a will by
which the farm was given to another son. _A_ was permitted to recover
the value of the farm by suit.

These contracts require clear and convincing evidence to support
recovery. _A_ agreed to board, clothe, care for, and bury _B_, his
father, in consideration of _B's_ agreement to give _A_ all his
property. _A_ fulfilled the terms of his contract. _B_ died leaving
a will by which his property was given to _C_. _A_ was permitted to
recover the value of the property by suit.

=358. Holographic Wills.= A _holographic_ will is one written entirely
in the handwriting of the testator. Such wills are sometimes called
_olographic_ wills. A minority of the states of this country recognize
the validity of holographic wills. These wills need not be witnessed to
be valid. An ordinary will may be printed, typewritten, or written by
a person other than the testator. The testator must sign and publish
the will, that is, he must acknowledge the instrument to be a will, in
the presence of the attesting witnesses. In case of a holographic will,
there need be no witnesses, acknowledgment, or publication, but the
will must be entirely in the handwriting of the testator, and must be
signed and dated by the testator himself.

In some jurisdictions, it is necessary that a holographic will be found
among the testator's valuable papers, to constitute a valid will. _A_
died and the following document was found among his valuable papers:

$100,000.00

Four years after my death, I hereby authorize my executors to pay
Francis Penn one hundred thousand dollars.

Signed _A_.

This was held to be a valid holographic will. A holographic will is
frequently in the form of a letter addressed to the beneficiary.

=359. Nuncupative Wills.= Many of the states of this country recognize
the validity of oral wills made under certain circumstances for the
purpose of disposing of personal property. Such wills are called
_nuncupative_ wills. Soldiers and sailors while in actual service may
dispose of their personal property by this form of will.

Persons other than soldiers and sailors may make nuncupative wills
when in their last sickness or in danger of impending death. The will
is made by calling upon disinterested persons to bear witness to the
will which the testator describes orally. These words, in substance
at least, must be reduced to writing, usually within ten days from
the death of the testator, by one of the witnesses, and signed by the
witnesses. Nuncupative wills are not favored in law. They are not
sufficient to dispose of real property. Some states do not recognize
the validity of these wills unless they are made at the testator's
dwelling. An exception to this rule is where the testator, surprised by
sickness when upon a journey, dies while away from home. Nuncupative
wills must be proven within six months after they are reduced to
writing. _A_ was suddenly taken seriously ill at his home. He called
upon _B_ and _C_, disinterested witnesses, to bear witness to his will,
and directed that his personal property be given to his wife _D_. _A_
died, _B_ reduced the words of _A_ to writing within ten days after
_A's_ death, and _C_ and _B_ signed as witnesses. The will was proven
within six months. It was held to be a valid nuncupative will.

=360. Revocation and Alteration of Wills.= A will may be revoked at any
time before the testator's death. The testator may himself revoke his
will, or he may cause someone to perform some act under his direction
and in his presence, which will revoke the will. The statutes of most
states provide that a person may revoke a will by tearing, cancelling,
obliterating, or destroying the will with the intention of revoking
it. Any of these acts performed by a stranger, not in the presence nor
under the direction of the testator, are void acts, and do not destroy
the validity of the will. If the testator himself, tears, cancels,
destroys, or obliterates the will with the intention of revoking the
will, the instrument no longer has any validity or force as a will.
A will is cancelled by drawing lines with a pen or pencil across
the written portion of the will. A will may be revoked by a later
will which expressly revokes the former, or which disposes of all
the property of the testator. A later will which does not expressly
revoke a former will, and which does not dispose of all the testator's
property does not revoke the former will, but both are construed
together. A _codicil_ is an instrument altering, revoking, changing,
or adding to certain portions of a will. It must, itself, be signed,
witnessed and acknowledged the same as a will, and is construed as part
of the will.

=361. Lost Wills.= A will which is lost or destroyed with no intention
to revoke may be proven as a will after the testator's death. If a
will is partially or totally destroyed by accident, or by someone who
is to profit by the total or partial destruction, the will is said to
be _spoliated_, and its contents, as it existed before spoliation,
may be proven after the testator's death. It must be remembered that
a will may be revoked by a testator at any time. If a testator makes
a will, and has it in his possession, and after his death the will
cannot be found, the presumption is that he revoked the will. This
presumption may be rebutted, however. If the testator tells of having a
will shortly before his death, or if the will is seen, or any evidence
is produced that the will was not revoked by the testator, it may be
proven as a lost will. If a will is made and left for safe-keeping
with a third person, inability to find it after the testator's death
raises no presumption that is was revoked by the testator. To prove a
lost will as a will, witnesses must be produced who know in substance
the contents of the will, that it was made and that it was not revoked
by the testator. If a will is partially destroyed by someone who is
to benefit thereby, or by accident, the contents of the portion so
destroyed may be proven as a lost will.

=362. Abatement, Advancement, and Ademption.= If a person does not
have sufficient property at his death to pay the bequests and devises
made in his will after payment of his debts, his devises and bequests
are paid _pro rata_ out of the estate remaining after the payment of
debts and expenses, unless the testator expressed a wish or intention
that certain bequests or devises were to be satisfied in preference to
others. In this event, the wishes of the testator must be observed.
The rule requiring all devisees and legatees to receive but a portion
of the property mentioned in the will, in case there is not sufficient
property to satisfy all, is called _abatement_.

If a person makes a will bequeathing a certain article of personal
property, or a certain amount of money to another, and if, before
the will becomes operative by the death of the devisor, the latter
delivers the article or pays the money to the legatee, or sells or
disposes of the particular article mentioned in the bequest, the will
is said to be _adeemed_, and the act by which it is adeemed is called
_ademption_. In case of ademption of a particular article, the bequest
is satisfied. In case a certain sum of money is bequeathed to a person
by will, and the amount of money is given the legatee by the devisor,
whether it satisfies the bequest, or whether it is a gift in addition
to the bequest mentioned in the will, is a matter of intention on the
part of the devisor. If the devisor expressly says it is a gift in
addition to the bequest mentioned in the will, it will not satisfy the
bequest mentioned in the will. If nothing is said which expressly
shows the wish or intent of the devisor, the presumption is, that it is
to apply on the bequest, or if sufficient in amount, that it satisfies
the bequest. The intent of the testator may be determined by the
circumstances connected with the payment. If a sum of money is paid by
a testator during his lifetime to a legatee mentioned in his will, to
apply on the bequest, the payment is sometimes called an _advancement_.

=363. Form of Will.=

I, John Brown, of the City of Chicago, County of Cook, and State of
Illinois, being about 61 years of age, and of sound and disposing mind
and memory, do make and publish this my last will and testament.

_First_, I desire that all my debts and the expenses connected with my
funeral be paid.

_Second_, I give, devise and bequeath to my wife, Jane Brown, the sum
of $10,000.00, all the household furniture and chattel property of
every kind and nature used in and in connection with our residence,
and a life estate in my two farms.

_Third_, I give and devise to my two sons, John Brown, Jr., and Clark
Brown, jointly, my farm known as the "Home Place." This devise is
subject to the life estate of my wife mentioned in division two of my
will.

_Fourth_, I give and devise to my daughter, Anna Brown, my farm known
as the "North Place," during her life, and at her death to her lawful
issue. This devise is subject to the life estate of my wife, provided
for in division two of this will.

_Fifth_, the balance of my personal property I give and bequeath to
Smith Home for Aged Men, of Chicago.

I appoint my son, John Brown, Jr., executor of this will, and revoke
all former wills. In witness whereof, I have subscribed my name this
10th day of September, 1909.

JOHN BROWN.

The foregoing instrument was signed by the said John Brown in our
presence, and by him published, and declared to be his last will and
testament, and at his request, and in our presence and in the presence
of each other, we subscribed our names as attesting witnesses at
Chicago, Illinois, this 10th day of September, 1909.

THOMAS JONES, Residing at 21 State St.,
JAMES JOHNSON, Residing at 4704 Drexel Ave.,
Chicago, Ill.

COURTS AND LEGAL REMEDIES

=364. Courts.= Courts may be defined to be the institutions established
by the government to settle disputes and to administer justice. They
may consist of a judge sitting alone, of several judges sitting
together, or of a judge and a jury. Courts are assisted in their
work by bailiffs and clerks. Attorneys who conduct the trials for the
opposing parties are officers of the court. They can be fined and
imprisoned for refusing to obey the lawful order of the court. In
general, courts may be divided into state courts and federal or United
States courts.

=365. Federal Courts.= The Constitution of the United States provides
that:

"The judicial powers of the United States shall be vested in one
supreme court, and in such inferior courts as the Congress may from
time to time ordain and establish. The judges both of the supreme and
inferior courts shall hold their offices during good behavior, and
shall at stated times receive for their services a compensation, which
shall not be diminished during their term of office."

The United States Constitution further provides that:

"The judicial power shall extend to all cases in law and equity
arising under the constitution, the laws of the United States, the
treaties made, or which shall be made, under their authority; to all
cases affecting ambassadors, other public ministers and consuls; to
all cases of admiralty and maritime jurisdiction; to controversies to
which the United States shall be a party; to controversies between two
or more states, between a state and citizens of another state, between
citizens of different states, between citizens of the same state
claiming land under grants of different states, and between a state
and the citizens thereof, and foreign states, citizens or subjects."

Congress has provided for District Courts, Circuit Courts, and Circuit
Courts of Appeal, which, in addition to the Supreme Court, constitute
the Federal or United States Courts.

=366. United States District Courts.= The United States as a whole is
divided into districts. Each district is presided over by one United
States judge, called a district judge. Each state constitutes at least
one district and some states are divided into several districts. For
example, Ohio has two districts, called the Northern and Southern
Districts of Ohio. New York has four districts, called the Northern,
Southern, Eastern, and Western Districts. The judges are appointed
for life, or during good behavior. The appointments are made by the
President of the United States, by, and with the advice and consent of
the senate. Each district judge is required to reside in the district
for which he is appointed.

=367. United States Circuit Courts.= The entire territory of the United
States is divided into nine sections, and each section comprises the
jurisdiction of a separate United States Court. That is, there are
nine Circuit Courts in the United States. Each circuit is composed of
several districts. For example, the sixth circuit is composed of the
states of Ohio, Kentucky, Michigan, and Tennessee. Each circuit has at
least two circuit judges, and is presided over by one of the judges
of the Supreme Court of the United States. The Circuit Court holds
court in each district of the circuit, and the Circuit Court of each
district is composed of the United States Supreme Court judge presiding
over the circuit, the two circuit judges, and the district judge of
the district. The Circuit Court holds court at different times in each
district of the circuit. Any one judge may hold court alone. Usually,
trials in Circuit Courts are presided over by one judge.

The United States Circuit Court and the United States District Courts
have original and exclusive jurisdiction of practically all the cases
which may be brought in the United States Courts. The United States
Supreme Court has original jurisdiction of a few important classes of
cases. By _original jurisdiction_ is meant the right to commence cases
in the particular court. By _appellate jurisdiction_ is meant the right
to take a case from one court to a higher court upon appeal or writ
of error, for the purpose of having the case retried or examined for
errors of law.

=368. United States Circuit Court of Appeals.= Each of the circuits in
the United States has a Circuit Court of Appeals. This court consists
of one member of the United States Supreme Court, who acts as presiding
judge, and the two circuit judges of the circuit. At least two judges
must be present to hold court. If two of the regular circuit judges
are not present, a district judge of any district of the circuit may
act. A district judge cannot sit as judge of the Court of Appeals in
determining cases in the trial of which he acted as district judge. The
Circuit Court of Appeals has no original jurisdiction. It is solely
an appellate court. Cases from the District and Circuit Courts may be
appealed to it, and brought before it on writs of error. Some cases may
be appealed direct to the Supreme Court of the United States from the
District and Circuit Courts. The Circuit Court of Appeals has final
jurisdiction in many matters appealed to it.

=369. The Supreme Court of the United States.= The Supreme Court of the
United States holds court at Washington, and consists of nine judges.
It has original jurisdiction in some important matters, and cases may
be appealed to it, or tried on writs of error from the District Court,
Circuit Court, and Circuit Court of Appeals. The Constitution of the
United States provides that, "In all cases affecting ambassadors, other
public ministers and consuls, and those in which a state shall be a
party, the Supreme Court shall have original jurisdiction."

=370. United States Courts with Admiralty Jurisdiction.= The
Constitution of the United States provides that the United States
Courts shall have jurisdiction over admiralty and maritime cases.
Admiralty cases comprise those cases arising out of breach of contract,
or out of injuries occurring upon the seas or navigable waters within
the jurisdiction of the United States. The District Courts of the
United States are given original jurisdiction in admiralty cases. In
the trial of admiralty cases, the judge acts alone and is not assisted
by a jury.

=371. State Courts.= The United States Constitution provides that,
"The powers not delegated to the United States by the Constitution nor
prohibited by it to the states, are reserved to the states respectively
or to the people." Thus, the provision of the United States
Constitution, authorizing the creation of federal courts does not
prevent the states from establishing and maintaining courts. Each state
has its own courts. In fact the bulk of litigation is tried by state
courts. The courts of the different states differ somewhat in name and
jurisdiction. Most of the states have a court of inferior jurisdiction
where small cases involving $300.00 or less, are tried, and a County
Court where cases involving more than $300.00 are tried, and to which
cases may be appealed from the inferior courts. The inferior court
is usually called a Magistrate Court, or a court of a Justice of the
Peace. All states have a court of last resort, usually called a Supreme
Court. The primary function of state Supreme Courts is to hear appealed
cases and cases brought to it upon writs of error. They have very
little original jurisdiction. Supreme Courts consist of judges only.
They have no juries.

Some states have an Appellate Court inferior to the Supreme Court,
which has jurisdiction to hear cases on appeal and error. The states
also have courts for the administration of estates, called Probate,
Surrogate, or Orphans' Courts.

=372. Courts of Equity.= Originally in England, the king was regarded
as having original right to administer justice. It became the custom
to appeal to the king in cases where the common law rules afforded
no remedy. Later, appeals were made to the chancellor, the king's
secretary. Cases were also referred by the king to the chancellor. In
time, a distinct court, governed by well established precedents and
rules, was established. These courts were called the Courts of Chancery
or Courts of Equity. Their jurisdiction covered only those cases not
covered by Courts of Law. Chancery courts consisted of a judge only,
or a number of judges who heard and determined cases without the
assistance of a jury. Courts of Equity are recognized in this country,
but few states have separate courts of Equity or Chancery. The same
judge is authorized to act as a Court of Law and a Court of Equity.
Equity has jurisdiction of those cases only, in which there is no
adequate remedy at law.

If _A_ makes a contract with _B_ by which he purchases a certain
desirable house and lot and _B_ refuses to make the transfer, and
if the house and lot are of such a character that _A_ cannot obtain
another which suits his purpose and fancy, _B_ may be compelled by a
Court of Equity to transfer the lot to _A_. A Court of Law would give
_A_ money damages for breach of contract, but would not compel _B_
specifically to perform the contract. The United States, as well as the
states, has Courts of Equity.

=373. Legal Actions and Their Enforcement.= Legal actions may be said
to be of three kinds, those arising out of contract, those arising
out of torts, and those arising out of crimes. Crimes are punishable
by fine, imprisonment, or death. The state, through its officers,
punishes criminals. In theory, a crime is a wrong committed against the
community. The community, that is, the state, through its officers,
convicts and punishes persons who have committed crimes. The person
who is injured personally, or whose property is injured, has an action
for damages against the party committing the wrong. This action is
independent of the crime. The same act may render a person liable to
punishment for committing a crime, and liable to an action for damages
to the injured party. If a person wrongfully strikes another and
injures him, the state may punish the guilty party for committing a
crime, and the injured person may sue him for damages.

Legal actions arising out of injuries to persons and property as
distinguished from crimes are called _civil_ actions. Civil actions
arise out of breach of contract, or out of torts. If a person fails
to pay a promissory note, or to perform any contract, a legal action
arises out of contract. If a person slanders another, or wrongfully
strikes him, a legal action arises out of tort. Legal actions are
enforced by the injured or complaining party filing a complaint in
court. The party against whom the complaint is filed is notified of the
suit by an officer of the court. This notice is called the _summons_.
The written complaint is usually called the _petition_. The complaining
party is usually called the _plaintiff_. The party against whom the
petition or complaint is filed is called the _defendant_. The defendant
is allowed a certain time in which to file a statement of his defense.
This written statement of the defendant in which he sets forth his side
of the case is called an _answer_. These written statements are called
the _pleadings in the case_. The parties then appear in court with
their witnesses and the case is heard. The judge determines questions
of law, and the jury determines questions of fact. The decision of the
jury is called the _verdict_. The twelve jurymen must agree to enable
them to render a verdict. If they disagree, a new trial with another
jury is held. The judge may set aside a verdict, and grant a new trial
if the verdict is irregular, or contrary to law. When a judgment
has been rendered, execution may be levied upon the property of the
defeated party for the amount of the judgment and costs. Execution
is levied by the sheriff, who seizes and sells the property of the
defeated party, sufficient to satisfy the judgment.

QUIZ QUESTIONS

MORTGAGES

1. What was the nature of a mortgage at _common law_?

2. At common law who had the possession of real property mortgaged?

3. Is a mortgage a contract?

4. What names are applied to the parties to a mortgage?

5. At present who is entitled to possession of mortgaged real estate?

6. Under what circumstances, if any, may a deed be construed to be a
mortgage?

7. What is the ordinary consideration to a mortgage contract?

8. May a mortgage be given to secure a future indebtedness?

9. What is meant by the _debt secured by a mortgage_?

10. Is an oral mortgage of real estate enforceable?

11. Distinguish a _mortgage_ and a _deed_.

12. If a mortgagor stipulates in the mortgage that he waives his equity
of redemption can this stipulation be enforced against him?

13. What is meant by _power of sale mortgage_?

14. Explain attestation of a mortgage.

15. Explain acknowledgment of a mortgage.

16. When does a mortgage become effective?

17. Define _delivery in escrow_.

18. What interest in real estate may be mortgaged?

19. Is a mortgage of real estate regarded as a transfer of the real
estate?

20. Explain _recording mortgages_.

21. What is the necessity of recording mortgages?

22. May a mortgagee transfer title to the real estate?

23. What interest in the real estate mortgaged can a mortgagee transfer?

24. If a mortgagee sells the debt what becomes of the mortgage?

25. How may mortgages be satisfied?

26. Define and explain _equity of redemption_.

27. Define and explain _foreclosure of mortgages_.

TRUSTS

1. Define _trusts of property_.

2. Classify trusts.

3. Define _grantor of a trust_.

4. Define and give an example of _settlor of a trust_.

5. Define and give an example of a _trustee of a trust_.

6. Define and distinguish _beneficiary of a trust_, and _cestui que
trust_.

7. What classes of persons may be parties to a trust?

8. What kinds of property may be the subject of a trust?

9. Define and give an example of an _express trust_.

10. Define and give an example of an _implied trust_.

11. Define and give an example of a _resulting trust_.

12. Define and give an example of a _constructive trust_.

13. Who has the legal title to trust property?

14. Is a person named in a declaration of trust as trustee, obliged to
accept the trust?

15. What are the duties and liabilities of a trustee?

16. May a beneficiary of a trust convey title to the trust property?

17. If a trustee wrongfully disposes of trust property what remedies,
if any, has the beneficiary?

LANDLORD AND TENANT

1. Define _lessor_ and _lessee_.

2. Distinguish _lease_ and _sale_.

3. Distinguish _lease_ and _assignment_.

4. Is a lease a contract?

5. Does a lease carry with it an implied warranty that the premises
described are in good condition?

6. _A_ rents _B's_ house for one year. _C_, a stranger, without right
attempts by legal action to evict _A_. Does _A_ have a right of
action against _B_ for breach of implied warranty of quiet
enjoyment?

7. For what purposes may a tenant use leased premises?

8. In the absence of express agreement what party to a lease is obliged
to pay taxes and insurance on the leased premises?

9. A lease provides that the tenant is to pay the taxes. A special
assessment for paving is levied. Is the tenant obliged to pay this
assessment?

10. Who is obliged to pay water rent in the absence of any special
agreement in a lease?

11. Who is obliged to pay for ordinary repairs?

12. At common law was a tenant relieved from paying rent by the
destruction by fire of the leased premises?

13. What is the rule at the present time as to release of a tenant's
obligation to pay rent in case the buildings leased are destroyed
by fire?

14. Is there an implied obligation on the part of the landlord to
deliver leased premises in any particular condition?

15. If a tenant is injured by reason of secret defects in the premises
is the landlord liable to him for the injury?

16. If snow and ice are permitted to accumulate on the walk of the
leased premises, causing injury to third persons, is the landlord
or tenant liable for the injury?

17. May a tenant become liable for rent without any express agreement
to that effect?

18. May a tenant be liable for rent without being in possession of the
leased premises?

19. _A_ rents _B's_ house, nothing being said about the condition of
the plumbing. The plumbing leaks. Is _A_ obliged to take the house?

20. If a tenant abandons the rented premises before expiration of the
term of the lease and so notifies the landlord, is he liable for
the balance of the rent?

21. In case a tenant abandons the rented premises, what three remedies
has the landlord?

22. Define _distress_.

23. At common law could a landlord sell personal property distrained?

24. What is the present-day method of distraining for rent?

25. Define _lease_.

26. Must a lease be in any particular form to be legal?

27. What leases, if any, must be in writing?

28. What is meant by attestation of a lease?

29. Define _acknowledgement_.

30. What is the necessity of acknowledgment of a lease?

31. What is the necessity of recording leases?

32. Define, and give an example of an _express covenant_.

33. Define, and give an example of _implied warranty_.

34. Is there any limitation upon a landlord's right to transfer his
interest in a lease?

35. Is there any limitation upon a tenant's right to transfer his
interest in a lease?

36. If _A_, a landlord, assigns his lease to _C_ without notifying _B_,
the tenant, and later the tenant pays _A_, who is insolvent, can
_C_ collect the rent from _B_?

37. Define _attornment_.

38. If a tenant assigns his lease is he relieved from his obligation to
pay rent?

39. Define, and give an example of a _lease for years_.

40. _A_ rents _B's_ house for one year, agreeing to pay rent in monthly
installments. Is the lease one for years, or from month to month?

41. Is a lease real or personal property?

42. What is the practical distinction between a lease for years and a
lease from month to month?

43. When, if at all, may a tenant sublet?

44. Distinguish _assignment_ and _sublease_.

45. If a tenant sublets the premises is he relieved of his obligation
to pay rent?

46. Define and give an example of an _estate at will_.

47. Distinguish an estate at will from an estate for years, and an
estate from year to year.

48. If a tenant for years is permitted to hold over his term with
consent of the landlord, in most jurisdictions is the new tenancy
one at will, or one from year to year?

49. Define, and give an example of a _tenancy at sufferance_.

50. Define and give an example of an _estate from year to year_.

51. _A_ leases a house for a month with the understanding that it is to
continue for similar periods if agreeable to both parties. Is the
lease from year to year?

52. _A_ rents _B's_ house for one year. At the expiration of the year
_A_ is permitted by _B_ to hold over for a month. _B_ then
endeavors to eject _A_. _A_ claims he has a lease for eleven more
months. Is _A_ correct in his assertion?

53. Is a lease from year to year terminated by mere lapse of time?

54. Does breach of a condition or covenant, in the absence of an
express stipulation in the lease making it a forfeiture, constitute
a ground of forfeiture?

55. Do leases for years require any notice to terminate?

56. Do leases from year to year require any notice to terminate?

57. In general, in what manner must notice to terminate a lease be
given?

58. Define and give an example of a _surrender_.

59. Does abandonment of the premises by a tenant without consent of the
landlord, constitute a surrender?

60. If a tenant abandons the rented premises, may the landlord relet
for the account of the tenant?

61. Distinguish _breach of lease_ from _surrender of lease_.

62. If a landlord commits a breach of lease by failing to repair
according to agreement, what is the measure of the tenant's
damages?

63. If a tenant abandons the rented premises what are the landlord's
remedies?

64. If a tenant abandons rented premises, may a landlord permit the
premises to remain vacant, and collect rent from the tenant for the
balance of the term?

65. If a tenant abandons a lease and the landlord desires to relet for
the account of the tenant, must he notify the tenant that he takes
possession, and relets for that purpose?

66. How may a landlord recover rent?

67. How may a landlord recover possession of leased premises when the
lease has expired, or is broken?

TRADE MARKS AND TRADE NAMES

1. What is the purpose of trade marks?

2. May anything other than words, letters, or figures be used as a
trade mark?

3. May a word which describes the article on which it is used be used
as a trade mark?

4. May a name of an individual be used as a trade mark?

5. May a name of a place or locality be used as a trade mark?

6. If a person uses a mark without any intention of its becoming a
trade mark, does he acquire a valid trade mark therein?

7. _A_ has acquired a trade mark on flour; has he also acquired the
same trade mark on stoves manufactured by him?

8. If _A_ has acquired a trade mark on flour, can _A_ prevent _B_ from
using the same trade mark on stoves?

9. What length of time is required to obtain a valid trade mark?

10. _A_ used a trade mark on flour for two years, and ceased using it
for two years. In the meantime _B_ used the trade mark. To whom
does the trade mark belong?

11. What trade marks, if any, may be sold?

12. Define _trade name_.

13. What is the distinction between _trade marks_ and _trade names_?

14. May a person acquire a trade name in a name describing the article
manufactured?

15. How is a trade name acquired and how long must it be used to be
acquired?

16. May a person acquire a trade name in a geographical name?

17. What is meant by _unfair trade_?

18. Is it unlawful for a person to adopt as a trade name or trade
mark, a name or mark descriptive of the article manufactured, or a
geographical or a proper name?

19. _A_ used the name "Chicago Varnish Co.," for ten years, and
advertised the name extensively, spending large amounts of money in
this connection. _B_ adopts the name, "Chicago Varnish Co.," and
the public purchases his product thinking they are buying _A's_
product. Can _A_ prevent _B_ from using the name "Chicago Varnish
Co."?

20. Is everyone entitled to use his own name in the manufacture or sale
of any article he pleases?

21. Who may register trade marks, and when may they be registered?

22. Does registration of a mark constitute it a trade mark?

23. What is the advantage of registering a trade mark?

24. How may registered trade marks be transferred?

WILLS

1. Define _will_.

2. When does a will take effect?

3. Can both real and personal property be disposed of by wills?

4. Distinguish the terms _will_ and _testament_.

5. Define and distinguish the terms _testator_ and _devisor_.

6. Define the term _devise_.

7. Define the term _bequeath_.

8. Define and distinguish the terms _devisee_ and _legatee_.

9. What are the most common statutory requirements of a will?

10. Is a will a contract?

11. By the laws of what state is a will disposing of real property
governed?

12. By the laws of what state is a will disposing of personal property
governed?

13. May a will be in the form of a letter addressed to a beneficiary
named in the will?

14. In a will does any present interest in the property pass to the
beneficiaries at the time the will is made?

15. When, if at all, may a will be revoked?

16. May a person under legal age make a will?

17. Can a married woman make a will?

18. What test is applied in determining whether a person is mentally
capable of making a will?

19. What kinds of property may be disposed of by will?

20. Must a will be in writing?

21. May a will be printed?

22. Define and describe _signing_, _attesting_, and _acknowledging a
will_.

23. Define and describe _publication of a will_.

24. Give an example of a contract to make a will.

25. May a contract to make a will be revoked?

26. Define and give an example of _holographic will_.

27. What is the distinguishing feature between a holographic will and
an ordinary will?

28. Define and describe _nuncupative wills_.

29. May real property be disposed of by a nuncupative will?

30. When, and by whom must a nuncupative will be reduced to writing?

31. Must a nuncupative will be attested?

32. What is meant by _revocation of a will_, and by whom, when, and how
may a will be revoked?

33. Define and describe _alteration of a will_.

34. Define _codicil_.

35. When, and how, may a lost will be proven?

36. Define and give an example of _abatement_.

37. What is meant by _ademption of a legacy_?

COURTS AND LEGAL PROCEDURE

1. Define _courts_.

2. In general how may courts be classified?

3. By what authority are Federal Courts established?

4. What is the term of office of Federal judges?

5. Classify Federal Courts.

6. How many United States District Courts are there?

7. How many United States Circuit Courts are there?

8. How many Circuit Court judges are there in each circuit?

9. Do the Supreme Court judges and District judges have anything to do
with the Circuit Courts? If so, what?

10. What is meant by _original jurisdiction_, as applied to a court?

11. Does the United States Circuit Court of Appeals have any original
jurisdiction?

12. How many United States Supreme Court judges are there?

13. What, in general, is the jurisdiction of the United States Supreme
Court?

14. Where are admiralty cases tried?

15. What cases are included in term admiralty cases?

16. Are juries used in the trial of _admiralty cases_?

17. By what authority are State Courts established?

18. Classify, in general, State Courts.

19. What are Courts of Equity, and over what classes of cases do they
have jurisdiction?

20. Classify legal actions.

21. Give an example of an act which is both a tort and a crime.

22. Define _plaintiff_ and _defendant_.

23. Define _pleadings_.

24. What is the function of a jury in the trial of a case?

25. Define _verdict_, and distinguish it from judgment?

26. How are judgments enforced?

INDEX

Abandonment, remedies of landlord for, 279

Abatement, definition of, 295

Acceptance
definition of, 15
of draft, 133

Acceptor
of negotiable instruments, 122
rights and liabilities of, 123

Acquisition of personal property, 179

Act of bankruptcy, 35

Act of God as affecting carriers, 225

Ademption, definition of, 295

Administrative law, definition of, 13

Advancement, definition of, 295

Adverse interest, 40

Age, legal, 16, 20

Agencies, irrevocable, 72

Agency
contracts within Statute of Frauds, 41
contracts which must be in writing, 41
definition of, 39
general, 43
purposes for which created, 42
ratification of, 42
special, 43
universal, 43

Agents
apparent authority of, 50
how appointed, 41
authority of, 43
to collect, 52
to warrant, 53
of corporations, 107
definition of, 39
delegation of authority by, 51
distinguished from master and servant, 39
duties of, to principal, 46
general, 43
principal to pay, 44
risks assumed by, 44
secret instructions of, 50
universal, 43
value of services, 44
who may be, 40

Anomalous indorser, 130

Appeal from one court to another, 298

Assessments
of corporations, 104
not included in taxes, 271

Assignment
of contract, 31
of insurance, 167
of lease, 269
notice of, 274
oral, 274

Assignability distinguished from negotiability, 113

Attestation
of deeds, 245
of will, 291

Attornment, definition of, 274

Auctioneer, 55

Baggage
what constitutes, 234
duty of innkeeper to receive, 236
sample cases, 234

Bailee
definition of, 205
liability of, 212
lien of, 212
right of possession of, 212
right of, against third persons, 212
right of, to use property, 212
right of, against bailor, 212

Bailment
classification of, 206
definition of, 205
distinguished from sale, 182
parties to, 205
for sole benefit of bailee, 208
for sole benefit of bailor, 207
what constitutes a, 206

Bailor
bailments for sole benefit of, 207
definition of, 205

Banks
checks on, 153
of circulation, 151
classified, 151
clearing houses, 157
definition of, 151
of deposit, 151
deposits in, 152
discount, 158
of discount, 151
exchange, 158
functions of, 152
interest, 158
loans of, 154
money, 157
national, 151, 155
pass books of, 153
powers of, 152
private, 151
rights of, in case of forged, altered, lost, or stolen checks, 154
savings, 156
state, 151
trust companies, 156
usury, 160

Bankruptcy
acts of, 35
definition of, 35
involuntary, 35
revokes agency, 59
voluntary, 35

Barter, distinguished from sale, 181

Bearer, negotiable instrument payable to, 112

Beneficiary of trust, 266, 269

Bequeath, definition of, 287

Bilateral contract, definition of, 19

Bill of exchange, definition of, 116

Bill of lading
definition of, 227
negotiability of, 227
valuation, 226

Blank indorsement, 124

Boarding housekeeper not an innkeeper, 235

_Bona fide_ holder of negotiable instrument, 135

Bonds
coupon, 118
definition of, 118
form of, 118
registered, 118

Breach of contract, 280

Brokers
definition of, 55
insurance, 55
stock, 55
real estate, 57

By-laws of corporations, 103

Capital of national banks, 293

Capital stock
of corporations, 103
decreasing, 105
increasing, 105

Capitalization of corporations, 103

Carrier
Act of God, 225
charges of, 230
common, 223
defined, 223
delivery of goods by, 229
delivery of goods to, 193
discrimination by, 230
of goods, 223
implied liability of, 224
interstate commerce act, 231
liability as insurer, 223
lien of, 230
limiting liability, 225
of mail, 230
negligence of shipper, 225
private, 223
public enemy, 225
stoppage _in transitu_, 229
title to goods in possession of, 227

Carrier of passengers
baggage, 233
definition of, 232
degree of care required of, 233
right to eject passengers, 233
rights and liabilities of, 233

Casualty insurance, definition of, 166

_Caveat Emptor_, rule of, in sales, 188

Certificate of protest, 136

Certificates of deposit, 121

Certificates of stock, 101

Certification of checks, 118

_Cestui que trust_
definition of, 265
rights and liabilities of, 269

Charter of corporations, 92

Chattel mortgage, 1
definition of, 247
distinguished from pledge, 218
distinguished from sale, 218
filing and recording, 220
form of, 250
mortgagee, 218
mortgagor, 218
parties to, defined, 218
possession of property, 218
redemption, 221
rights of mortgagee, 221
rights of mortgagor, 220
as security for a debt, 219
title in mortgagee, 218

Chattel real, definition of, 274

Chattels
definition of, 128
personal, 128
real, 128

Checks
on banks, 153
certification of, 118
definition of, 117
when returned, 153

Child may be agent, 40

Choses
in action, 178, 182, 219
in possession, 178, 182, 219

Circulation, banks of, 151

Clearing houses, 157

Codicil, definition of, 294

Cognovit promissory notes, 120

Collateral promissory note, 120

Collateral securities, definition of, 283

Combination of capital distinguished from trusts, 265

Commercial law, definition of, 13

Compensation of agent, 44

Conditional sale, definition of, 181

Conflict of laws in contracts, 30

Consideration
adequate, 17
in contracts of suretyship, 173
definition of, 17
good, 17
illegal, 17
in negotiable instruments, 132
past, 17
to trust agreement, 321
valuable, 17

Consolidation of corporations, 98

Constitution
definition of, 12
English, 12
limitation of, 95

Constructive trusts, definition of, 268

Continuing guaranty, definition of, 175

Contract
acceptance to, 15
as affected by duress, 28
as affected by frauds, 28
as affected by mistake, 29
agreement in, 15
assignment of, 31
bilateral, 19
breach of, 34
competent parties, 16
consideration to, 17
by correspondence, 25, 26
definition of, 14
dependent covenants in, 34
discharge of, 33
of drunkards, 22
elements of, 15
executed, 19
executory, 19
express, definition of, 18
forms of, 38
of idiots, 22
illegal, 27
implied, 18
independent covenants in, 34
of infants, 20
of insane persons, 22
of married women, 22
mutuality in, 19
offer to, 15
parties to, 16
of partnership, 77
remedies for breach of, 36
rescission of, 34
signing of, by corporation, 108
specific performance of, 37
_statu quo_ in, 34
Sunday, 27
by telegraph, 25, 26
trust created by, 266
under seal, 27
unilateral, 19
voidable, 20
warranty in, 34
will not a contract, 288

Corporation
act through agents, 39
by-laws of, 103
calls and assessments of, 104
capitalization of, 103
certificates of stock of, 101
charter of, 92, 95
common stock of, 105
consolidation of, 98
creation of, 92
_de facto_, 96
definition of, 90
directors of, 102
dissolution of, 111
distinguished from partnership, 90
dividends of, 106
estoppel of, 95
foreign, 110
franchise of, 90
kinds of, 94
meetings and elections of, 99
names of, 93
nature of, 90
object of, 90
officers and agents of, 107
organization of, 92
powers of, 91
preferred stock of, 105
promoters of, 96
regulation of, 103
reorganization of, 197
resolution of, 103
revocation of franchise of, 91
seal of, 91, 108
stockholders of, 100
_ultra vires_ acts of, 109
voting at meetings of, 99
watered stock, 105

Counterclaim good against assignee, 274

Coupon bonds, 118

Courts
appeal from one court to another, 298
classification of, 296
definition of, 296
reports, 12

Covenants
in deeds, 245
dependent, 34
express, 273
implied, 273
independent, 34
of leases, 273

Creditor to suretyship contract, 169

Credits, definition of, 154

Crime, agency to commit, 42

Crimes of corporations, 185

Criminal, 13

Cumulative voting at corporate meetings, 99

Custom as part of contract, 22

Customs make law, 11, 12

Damages, definition of, 13

Death
of partner, 87
revokes agency, 59

Debts
of another, 169
secured by chattel mortgage, 219
secured by mortgage, 257
transfer of, 261

Deeds
acknowledgment of, 246
conclusion of, 245
covenants in, 245
definition of, 243
description of property in, 244
formal parts of, 243
habendum clause, 245
indentures, 243
as mortgages, 256
premises of, 244
quit claim, 246
redendum clause, 245
signature of, 245
trust created by, 266
warranties in, 245
witnesses to, 245

_De facto_ corporation, 96

Defenses, 132

_Del credere_ agency, 56

Delivery
in escrow, 258
of goods, 193, 229
of mortgages, 258
of personal property sold, 184

Deposit
indorsement for, 129
banks of, 151

Devise, definition of, 287

Devisor, definition of, 287

Discharge of contract
by bankruptcy, 35
by breach, 34
by performance, 33
by subsequent agreement, 34
by tender, 33

Discount, definition of, 158

Dishonor, notice of, in negotiable instruments, 36

Dissolution of partnership, 87

Distress, definition of, 273

Distribution of assets of partnership, 88

Dividends of corporations, 106

Divisions of law, 12

Domestic exchange, 158

Dower estates
definition of, 31
cannot be taken away by will, 288

Draft
definition of, 116
presentment and acceptance of, 133

Drawee of negotiable instrument, 122

Drunkard
contracts of, 22
cannot enter into partnership, 78

Duration of estates, 239

Duress
as affecting wills, 289
as defense to payment of negotiable instrument, 131
as defense to suretyship contract, 176
definition of, 28

Duties
of agent to principal, 46
of partners to each other, 84
of partners to third persons, 85
of principal to agent, 44

Election of corporations, 99

Elements of a contract, 15

Emblements, definition of, 236

Enemy, public, as affecting carrier, 225

Equity
courts of, 37, 300
definition of, 37
of redemption in chattel mortgages, 221
of redemption in real estate, 263

Estate, trust, 265

Estates in land, 239

Estoppel,
of corporation from denying existence, 95
partnerships by, 77

Exchange
barter, 181
definition of, 158
of goods not a sale, 181

Executed contract, definition of, 19

Execution
of contracts of corporations, 108
definition of, 300
of leases, 273
of negotiable instruments, 108

Executory contract, definition of, 19

Exempt property, 206

Express contract, definition of, 18

Express trusts, definition of, 266

F. O. B., definition of, 227

Factors, definition of, 54

Federal court, 297

Fee simple estates, definition of, 239

Females, legal age of, 16

Fictitious name of partnership, 79

Fidelity insurance, definition of, 169

Foreclosure of chattel mortgages, 222

Foreclosure of mortgages, 264

Foreign corporation, 110

Foreign exchange, 158

Forfeiture of leases, 279

Forgery
of negotiable instruments, 130
ratification of, 42

Forms
of bond, 119
of certificates of deposit, 121
of certificates of protest, 136
of certificates of stock, 101
of cognovit note, 120
of collateral note, 120
of contract, 38
of judgment note, 120
of partnership agreement, 89
of will, 296

Franchise of corporation, 90

Fraud
defense, of in suretyship, 176
definition of, 28
effect of, upon lease, 277
effect of, on sale, 188
renders contract voidable, 28

Freehold estates, definition of, 239

Gambling contracts void, 28

Gift of personal property, 179

Government warehouses, 209

Grace, days of, 134

Guarantor
contract of, 171
notices to, 175

Guaranty
continuing, 175
general, 175
letter of, 175
limited, 175
special, 175

Guests, duty of innkeeper to receive, 235

Habendum clause in deed, 245

Hereditaments, 236

Highways, how established, 238

Holder in due course of negotiable instrument, 135

Holographic wills, 293

Homestead estates, 241

Hotelkeeper (see Innkeeper), 235

Idiot
contracts of, 22
cannot enter into partnership, 78
cannot be a principal, 40
relation to contract, 16

Illegal acts cannot be ratified, 42

Illegal agencies void, 42

Illegal consideration, 17

Illegal contracts, 27

Implied contract, definition of, 18

Implied contract of bailment, 206

Implied trusts, definition of, 267

Implied warranty, definition of, 189

Indemnity in suretyship, 178

Indorser
anomalous, 130
blank, 124
for collection, 129
contract of, in suretyship, 172
for deposit, 129
in full, 126
irregular, 172
liability of, 130
without recourse, 128

Infant
may be agent, 40
contracts of, 20
definition of, 40
may be partner, 78
cannot be principal, 40
may be trustee, 265

Infringement of trade mark, 283

Innkeeper
definition of, 235
duties and liabilities of, 235
lien of, 236

Innocent purchaser for value without notice, 135

Insane person may be agent, 40

Insane person to contract, 16

Insane person cannot be partner, 78

Insolvency of purchaser, 193

Insurable interest, definition of, 162

Insurance
assignment of, 167
broker, 55
contract, 160
definition of, 160
fidelity and casualty, 166
kinds of, 162
life policies, 165
marine policies, 165
open policy, 168
representations in contracts of, 164
standard policies, 166
suicide clauses in policy of, 166
term policies, 165
tontine policies, 165
underwriter's, 161
valued policy, 168
warranties in contracts of, 173
who must pay on leased premises, 271

Interstate commerce act, 231

Involuntary bankruptcy, 35

Irrevocable agencies, 59

Joint liability of parties, 32

Judgment
definition of, 300
promissory note, 120

Justice of peace court, definition of, 299

Landlord and tenant
attornment, 274
definition of, 269
implied warranty, 270
lease, 269
notice, 279
rent, 272
taxes, repairs, and insurance, 271

Law
administrative, 13
commercial, 13
constitutional, 12
criminal, 13
definition of, 11
division of, 12
private, 13
public, 13
sources of, 12
statute, 12
unwritten, 12
written, 12

Law merchant, 113

Leases
acknowledgment of, 273
assignment of, 269
covenants of, 273
definition of, 269
forfeiture of, 279
form of, 273
recording, 273
signing, 273
termination of, 279
transfer of, 274
witnessing, 273

Legal tender, 33, 157

Legatee, definition of, 287

Lessee, definition of, 269

Lessor, definition of, 269

Liabilities
of agent and principal, 46
of agent to third person, 47
of partners to each other, 84
of principal to agent, 44
of undisclosed principal, 48

Lien
of bailee, 212
of carrier, 230
at common law, 212
how enforced, 212
of innkeeper, 236
seller's, 193

Life estates, 240

Life policies of insurance, 165

Limited partnership, 89

Loans, definition of, 154

Lost wills, how proven, 294

Magistrate, court of, definition of, 299

Males, legal age of, 16

Marine insurance, definition of, 165

Married women, contracts of, 22

Membership, changes of, in partnership, 86

Mercantile agencies, definition of, 154

Minds, meeting of, 15

Mistake of fact, 29

Mistake of law, 29

Money, definition of, 157

Mortgagee, definition of, 218, 256

Mortgages
debt secured by, 257
deeds as, 256
definition of, 255
delivery of, 258
elements of, 258
equity of redemption, 263
foreclosure of, 264
parties to, 256
of personal property, 218
recording, 260
satisfaction of, 262
transfer of, 261

Mortgagor
definition of, 256
rights of, 220

Mutuality in contracts, 19

National banks
capital of, 155
how created, 155
U. S. corporation, 92

Necessaries, definition of, 20

Negligence
gross, 210
liability of agent for, 46
ordinary, 210
of shipper, 225
slight, 210

Negotiable instruments
_bona fide_ holder of, 135
definition of, 112
forgery of, 130
origin of, 112
parties to, 122
presentment and acceptance, 133
presentment for payment of, 135
promissory notes, 114
purpose of, 112
requisites of, 122
signing, by corporations, 108

Negotiability
of bill of lading, 227
definition of, 112
distinguished from assignability, 113

Note
cognovit, 120
collateral, 120
definition of, 114
judgment, 120

Nuncupative wills, 293

Open insurance, 168

Oral assignment of leases, 274

Oral contract, 41

Organization of corporation, 92

Ostensible partner, definition of, 79

Partners
agreement of, 81
definition of, 77
distribution of assets of, 88
duties of, to each other, 84
kinds of, 79
powers of, 82
property of, 82
survivorship of, 87
withdrawal of, 86

Partnership, 77-90

Pass book of banks, 153

Pawnbrokers, 55

Payee of negotiable instrument, 122

Partial assignments, 274

Perpetual succession of corporation, 91

Perpetuities, rule against, 239

Personal property
definition of, 178
mortgages of, 218
possession of, 179
sale of, 179
title to, 179
transfer of, 179

Pledgee, definition of, 214

Pledges, definition of, 213

Pledgor, definition of, 214

Preferred stock, 105

Principal, definition of, 39

Quit claim deed, definition of, 246

Quorum at corporate meetings, 99

Real property, definition of, 236

Redemption
equity of, in real estate mortgage, 263
mortgagor's right of, in chattel mortgage, 221
of pledged property, 217

Redendum clause in deed, 245

Registration of corporation, 103

Registration of trade marks, 286

Reinsurance, definition of, 167

Remainder, estates in, 212

Rent
action by landlord to recover, 281
definition of, 272
when payable, 272

Reorganization of corporation, 97

Rescission
of contract, definition of, 34
of sale by reason of fraud, 188

Revocation of agency, 58

Revocation of offer, 25

Revocation of wills, 294

Rights, definition of, 11

Sale
caveat emptor, 188
definition of, 179
distinguished from bailment, 182
implied warranty, 190
of pledged property, 214
of trade mark, 283

Savings banks
definition of, 156
deposits in, 152
pass books of, 153

Seal
contract under, 27
definition of, 27
private, 27
use of, by corporation, 108

Signature
of agent to written instruments, 53
to deeds, 245
to a will, 291

Silent partner, definition of, 79

Spoliated wills, how proven, 294

_Statu quo_, definition of, 35

Statute of Frauds
as affecting contracts, 23
agency contracts within, 41
as applied to leases, 273
contracts of suretyship within, 174
partnership contracts within, 78
in sales, 183

Statutes, definition of, 12

Stock
common, 105
increasing and decreasing, 105
preferred, 105
watered, 105

Stockholders of a corporation, 102

Stoppage _in transitu_, 193, 229

Storage companies, 209

Subagents, 51

Subletting, 272

Subrogation in suretyship, 177

Sufferance
estates at, 242
leases at, 277

Sunday contracts illegal, 27

Surety contract of, 170

Surety companies, 177

Suretyship, 169-178

Survivorship in partnership, 87

Taxes, 271

Tearing wills, 294

Telegraph, contracts by, 25

Tenancies
at sufferance, 277
from year to year, 278
for years, 275
at will, 277

Tenant, definition of, 269

Tender, definition of, 33

Tenements, definition of, 236

Testament, definition of, 287

Testator, definition of, 287

Third persons
contracts for benefit of, 21
property held for benefits of, 265

Title to negotiable instruments, 215

Title to
personal property, 179
pledged property, 215
real property, 243
trust property, 266

Tontine policies of insurance, 165

Torts, 46, 111

Trade marks, 282

Trade name, 284

_Transitu_, stoppage in, 193, 229

Treaties, definition of, 12

Trust companies, definition of, 156

Trustees, 265

Trusts, 265
beneficiary of, 266
classified, 265
consideration to, 267
how created, 266

_Ultra vires_ acts of corporation, 109

Underwriter, definition of, 161

Undisclosed principal, 48

Unfair trade, 285

Unilateral contract, definition of, 19

Universal agents, 43

Unwritten law, 12

Usury, 160

Valued insurance, 168

Verdict, definition of, 300

Voluntary bankruptcy, 36

Voting by proxy, 99

Wagering contracts void, 28

Warehousemen, 209

Warranties
in deeds, 245
in insurance contract, 164

Warranty
in contracts, 34
deeds, 244
express, 189
implied, 190

Watered stock of corporations, 105

Wife, dower of, 288

Will
ademption, 295
codicil, 294
creation of trusts by, 266
definition of, 287
duress, 290
estates at, 242
form of, 296
holographic, 293
leases at, 277
nature of, 288
nuncupative, 293
publication of, 292
revocation of, 294
signature to, 291
statutes regulating making of, 288
who may make, 289
witnessing, 291

Witnesses
to deeds, 245
to a will, 291

Written law, 12

TRANSCRIBER'S NOTE:

-Obvious print and punctuation errors were corrected.

*** End of this LibraryBlog Digital Book "Cyclopedia of Commerce, Accountancy, Business Administration, v. 3" ***

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