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

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COMMERCIAL LAW

American Institute of Banking

Section American Bankers Association

110 East 42 Street     New York City

Copyright, 1921
by
American Institute of Banking

PREFACE

INSTITUTE PLATFORM

CONTENTS

WHO IS A BANKER?

Commercial Law

INTRODUCTION

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

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

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

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

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

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

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

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

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

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

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

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

CHAPTER I
Contracts—Mutual Assent

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"Fairbury, Feb. 14, 1874.

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

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

"Fairbury, 1874.

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

"Lorenzo Beach, $2000."

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

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

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

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