Commercial Law

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

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

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

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

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

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

CHAPTER II
Contracts—Consideration and Enforceability

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CHAPTER III
Contracts—Performance and Termination

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

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

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

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

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

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

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

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

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

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

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

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

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