Passing from the action of directors in declaring dividends, the wrongs done by corporations may be stated. As it is an impersonal, artificial thing, a corporation cannot possibly commit a wrong or tort like a natural person. For many years this conception of a corporation, that it could not commit many of the well-known wrongs, could not slander a person for example, led to perplexing consequences. Finally the principle was established that through its agents or servants a corporation could do wrong quite like an individual. Thus a corporation may be guilty of malice, and may be punished for slander or libel, for a malicious prosecution, false representation, for trespass should its agents unlawfully enter on the land of another, for maintaining a nuisance and the like. A national bank is forbidden to certify the check of a depositor unless he has the amount of money stated in the check in the bank. And if this is done the certifying official and all others who participated with him in disregarding the law are made criminally liable, and on several occasions the law has been enforced.
Again, a corporation is liable for the negligence of its servants in performing their duties, and are constantly sued for their failures. A railroad company is sued for injuries to its passengers caused by the improper running of its trains; for its failure to carry and deliver freight in accordance with its obligations or agreements. Street railways are constantly sued by passengers who are injured through the negligence of its officials.
By statutes corporations are required to do many things and, if they fail, are liable for the consequences. These duties may be divided into two classes, those toward the public and those that affect their stockholders. Their public duties may again be divided into those that are imposed on them by statute, and a still larger number by the common law. As we have seen, stockholders confide necessarily the management of their corporation to directors, who in most cases must necessarily have a largely discretionary power, and who, in turn, must appoint other agents to execute the details of the corporate business. These not infrequently fail through incompetence or neglect to perform their duties properly, and consequently corporations are subjected to lawsuits in which redress is sought by the injured parties. Some of these wrongs for which they are liable to the public have been mentioned, it would require too much space to mention all.
The injuries done to stockholders by their directors remain for consideration. Unless directors are restricted by action of the stockholders at a stockholders' meeting, they have the authority prescribed by charter and statute; outside these, their authority is largely discretionary, and must be so. If, therefore, stockholders are dissatisfied with their directors, as they often are, their remedy is to elect others at the end of their term of service. If at the time of choosing them, the annual meeting, none are chosen, the directors hold over until they are again elected, or others are chosen in their places. After they have been chosen, no stockholder can interfere in any way with their discretionary authority unless he has a clear case calling for judicial action. "Until a mistake," says Morawetz, "on the part of the directors, individual stockholders have no right to appeal to the courts to define the line of policy to be pursued by the company. The courts therefore are quite unanimous in sustaining the action of directors so long as they act within the discretionary authority given them."
Occasions happen when the removal of directors is essential to the welfare of a corporation. Suppose they are pursuing a course clearly ruinous to the company? In such a case the court will grant relief on the request of the stockholders whenever the corporation itself is unable or unwilling to do so. Primarily the corporation should proceed against the directors, for the wrong is a corporate one. In many cases the corporation is so completely in their control that the stockholders are unable to do anything through it. In such case they must act in the name of, and in behalf of the company. And if they succeed in establishing their case, the courts will order the removal of the directors.
Sometimes the courts, instead of going so far, will enjoin them from doing wrongs that are feared. Suppose it is feared that directors will declare a dividend that has not been earned, the courts on proper proof would enjoin them from making it. Suppose it is feared they will issue more stock and divide all the shares among themselves instead of proportionately among all the stockholders as the law requires, in order to get control of the company, a court would not hesitate to restrain them.
Lastly may be considered a stockholder's rights to inspect the books of his company. This he may do at all proper times and for reasonable purposes. And if the right is refused the courts will aid him in making an inspection. What then is a proper purpose that justifies him in making the request? He cannot do so to satisfy some freak, or to annoy an official with whom he may be on bad terms. Nor can he do it to obtain information to be used for stock-jobbing purposes. Suppose he has reason for supposing that the books were falsified, that the stockholders were not receiving correct accounts of the expenditures and earnings of the company, a stockholder would certainly have a right to make an examination, and could also employ an agent, attorney, or expert accountant to do this for him, for his ignorance of bookkeeping methods might debar him from making an efficient examination were the right confined exclusively to himself.
Curtesy.—A husband acquires an interest or estate in land belonging to his wife after her death. To be entitled to it, there must be a legal marriage. Even though it be unlawful, if not set aside during her life, his interest in her estate cannot be defeated by afterwards declaring the marriage void. Curtesy does not extend to land nominally held by her, or as trustee. The wife must have had a child who might have inherited the estate. It is immaterial whether she acquired her estate before or after the birth of the child. As soon therefore as a child is born, his estate or interest begins and is perfected or consummated by her death, and may be taken at any time afterward for his debts. What may be the effect of a divorce is not well settled. In some states even though he is an innocent party, he forfeits his estate. This rule is founded on the idea that he is a voluntary party, and therefore need not have one; in other states his interest continues. As the husband's rights to such an estate have been abolished in many states, we refrain from adding more principles.
Deceit.—A seller is not liable for deceit when the knowledge, or way of obtaining it, is equally known by both parties. If one goes into a store to buy a bushel of apples that he has seen by the door and inquires the price and pays for them without making any inquiry concerning their quality, he cannot recover his money if half of them prove to be rotten unless the seller intentionally deceived him, for he might have inquired whether they were all like those on top and of good quality. But if the merchant should put fine ones on top in order to deceive a purchaser, he could recover for his loss. This rule has a wide application. Suppose a seller keeps his store dimly lighted intentionally so that the inferior quality of his goods cannot be discerned, and a person should thereby be deceived and injured, he would have a good cause of action against the seller. Suppose a ship was decayed in places, and these were intentionally so concealed that they could not easily be seen by one who was examining with the intention of purchasing, and he was thereby misled, the seller would be liable for the loss to the purchaser. Of course, the prudent course is to obtain a warranty, or better still, whenever practicable, buy of one who has established a reputation for honest, fair dealing.
Suppose a man purchases a piece of land, generally supposed to be an ordinary farm, which contains, as he knows, a valuable coal mine, can the seller after the public knowledge of the mine, recover the land or a larger purchase price therefor? Has the purchaser deceived him? Did the law require the purchaser to make known his superior knowledge before purchasing? No, if it did, there would be no end to the confusion to which such a rule would lead. It is within ordinary experience that purchasers buy either knowing or supposing they will reap advantages from their contracts of which the seller is ignorant. There is no deception in this; but there is in withholding knowledge from the buyer of the quality or condition of a thing that affects its value, and which if known by him would probably prevent him from purchasing. Suppose a horse is blind in one eye and the prudent horse trader says nothing. Can the buyer recover? Ordinarily he could not, for he ought to have looked, and if he did not know enough to look, either he should have obtained a warranty, or have employed a competent agent to purchase for him. Suppose the old trader, skilled in his business, intentionally put his horse in the shadow so that the defective eye could not be seen, then the seller would surely have his remedy against him. If he put his horse there accidentally he would not.
Is a wink a deception for which the winker must answer in the law? A hardened dealer once went near a large meeting of men with a wagon load of bottles containing cold tea. The thirsty crowd soon came around. "One dollar a piece," he announced with a wink. The wink was effective and the bottles were quickly sold. They were filled with cold tea, and the buyers sued for the deceit that had been practiced on them. They failed, the court said that a wink was not enough. Another court might have decided otherwise.
Deeds.—In selling and buying land several deeds are in use. The forms differ considerably in the different states. The most important of them is called a warranty deed, in which the seller not only conveys the title, but warrants or agrees to defend it against all attacks. Suppose A sells a piece of land by warranty deed to B, who makes the unwelcome discovery that a mortgage is existing thereon. He notifies A and asks him to clear the title. Suppose the mortgage has been paid, but the lender of the money, the mortgagee, forgot to give the proper deed to show that he had received payment. And suppose he was an ugly fellow who would not give the proper release. B could compel him to do so, and the expense must be borne by A because his deed of warranty required him to give a clear title.
In such a deed the grantor or seller agrees or covenants to do usually four or more specific things: first, he asserts that he has a right to convey the land at the time of the sale. Of course, if he has not, the agreement or covenant is at once broken and the buyer can proceed against him to make the title good, or to recover damages if he cannot retain the premises. The second covenant or agreement is to the effect that the seller has both the quantity and quality of land mentioned in the deed. The third covenant is that there are no encumbrances on the land, that is, no mortgages, no rights of others to pass over it, or to take earth, water or other things from the land. The fourth covenant is for the quiet enjoyment of the land, which is the most general form of warranty. There may be other covenants, often there are, while the four mentioned may be, and often are, modified.
Does such a warranty bind other persons than the warrantor, in other words are his heirs and persons to whom he may devise his lands also indefinitely bound by his warranty? The statutes in some states fix his liability. Where none exist the law limits the liability of parties to the amount of assets or property they have received from the warrantor; if they have received nothing they are not liable for anything.
A covenant to protect the buyer from encumbrances, claims, etc., does not always relieve him from the expense of a lawsuit. Suppose A claims a right of way over B's land and insists on using it. B brings his action of trespass against him and wins. He cannot sue his grantor or seller to recover the expense of the suit, for the latter would reply, "You have won your case which is proof that the title is good as warranted, and therefore you have no claim against me." If, on the other hand, A had won his case B would then have a good cause of action against his covenantor.
Another kind of deed used in selling land is called an indenture. This is signed by all the parties, and copies are usually made and delivered to all of them. This deed also contains warrants or covenants like the one first described.
Another kind of deed is called a release or quit-claim. By this the grantor or party giving it conveys whatever interest he may have in the land. It is the deed always given by a mortgagee on the payment or discharge of his mortgage. It contains no warrants to do anything and therefore differs from a deed of warranty. Sometimes a person conveys a piece of land knowing that the title is defective which the purchaser, notwithstanding the defect, is willing to buy. The seller may safely give a quit-claim deed for he thereby sells only whatever interest he may have.
All the deeds above mentioned except an indenture, are signed only by the selling or granting party. They become effective by delivery. They are often called poll deeds.
Every grantor must append to his name a seal. Once a seal was of the utmost importance in the days of ignorance when persons knew not how to write and each person had a seal of his own. As distinctive seals have long since disappeared, seals have less significance than formerly, nevertheless many legal rules are founded on the distinction between sealed and unsealed instruments. Thus two written contracts may be exact duplicates except that one of them may have no seal. The law in most states regards the unsealed one as a mere oral or unwritten contract, to which are applied the same rules of evidence. The use of L.S., enclosed in brackets, thus [L.S.] is just as effective as a seal of wax or a wafer. In many states a corporation need not use its corporate seal, any other may be substituted. The federal rule especially requires the use of the corporate seal and that it be affixed by someone who was properly authorized to do this.
By statute the names of two witnesses are required, and when omitted the deed is not only defective, but in some states at least is void. A witness need not write his name in the grantor's presence, if asked to sign in the proper place as a witness this will suffice.
A lease of land is also a deed differing from those mentioned in conveying the use of land for a fixed period and on varying terms.
A deed should be completed before delivering it, the same rule applies to most legal writings. Unimportant alterations may be made, and if any are made, the question may prove difficult, are they important or not. Of course if both parties agree to them, the validity of the deed is not impaired. Whenever they do appear, in some states the law presumes they were made before delivering the deed, but this is not the rule everywhere.
Who can make or execute a deed? A minor cannot make a legal deed, and if he attempts to do so he can avoid or set it aside after he becomes of age whenever he acts with reasonable promptitude. If he does not thus act, his delay will be regarded as a ratifying of his previous action. What action will have this effect is a fact to be proved whenever the controversy arises.
Usually a deed need not be read to the grantee, nor can he avoid it because he did not know the contents, except when fraud has been practised on him. To a blind or ignorant man a different rule applies. The deed should be read to him, and if this is not done, or if it is wrongly read to him, he can have it set aside in a proper legal proceeding.
Delivery is essential; to do this two things are required. The grantor must give up the deed and the grantee must actually accept it, consequently the delivery of a deed after the grantor's death would not be valid. There must be an actual delivery by him, and though a deed may be completed in every other respect, it is not an effective deed. A deed therefore stolen from one's drawer and delivered to the grantee would not be valid, however innocent the grantee might be in receiving it. Many difficulties have arisen in applying this rule. When the question comes before a court, it seeks after the intention of the parties, and is guided by it when ascertained. If therefore a deed were lying on a table and the grantor should say to the grantee, take it, and he did so, the delivery would be complete; but if he should get it in a surreptitious way there would be no legal delivery. Suppose a deed were mailed to the grantee, or handed to another person to deliver to the grantee, this would be a good delivery.
As soon as the deed has been delivered, it should be taken to the recorder's office to be recorded. Every state has offices in the towns or counties for keeping a perfect copy of all deeds relating to the transfer of the lands within the limits of the town or county. The object of this is to protect purchasers, for, if this were not done, the owner of land might sell it to a purchaser a second time who knew nothing of the previous sale, and then someone would be the loser. To guard against such frauds the system of registration was established at an early day in American history. A purchaser therefore should take his deed at once to the proper recording office for record, and this is regarded as notice to the world from the time of delivering the deed to the recorder, who makes a note thereon of the day and hour it was left with him. Suppose that some creditor of the grantor, not knowing of the sale, should attach the land as the property of the grantor to secure a debt due to him, could he hold it as against the purchaser? Ordinarily the purchaser could still retain the land, and the same rule would apply between him and a second purchaser, though buying in good faith supposing the grantor was the real owner. In some states a statute protects the purchaser by giving him a fixed period of two or three months or more to record his deed. The safe rule is to leave the deed with the recorder as soon as possible after receiving it.
It is a general practice to do another thing with deeds, to make or take an acknowledgment of them, and in some states this must be done before they can be recorded. This consists on the part of the grantor going before a proper officer, often a notary public, justice of the peace, clerk of a court of record, commissioner of deeds, and making oath that he has duly executed the above deed. This oath appears in the form of a certificate at the bottom of the deed or appended thereto and is signed by the officer, who also attaches his official seal. When a deed has thus been acknowledged it can be used in a legal proceeding as evidence without requiring further proof of its execution. But if it had not been acknowledged, then a court would require some proof that the deed had been made and delivered before accepting it as proof of the fact.
When a married woman executes a deed the officer who took the acknowledgment of the deed must make an examination, apart from her husband, to ascertain whether or no her act was voluntary, and he must also record the fact. The acknowledgment should be made after the examination. A defective acknowledgment by a married woman is worthless, nor will any court compel her to make another one. Should she make another deed, however, with a proper acknowledgment this would be legal.
The officials who take acknowledgments possess different authority, some can take them only of land situated in their respective states; others have authority to take acknowledgments of deeds of land in every state. In all the states are commissioners of deeds, so called, who are authorized to act outside their own state. Some persons who have an important conveyancing business have qualified themselves to thus act as commissioners for many states, and perform a highly useful service.
If a mistake has been made in a deed can it be corrected? The general rule is it can be amended in all cases of fraud, accident, or mistake. How can this be done? If the grantor is unwilling to do right, the purchaser can by a proper application to a court, or court of equity, ask for the correction of the deed or such other relief as justice requires. Suppose the grantor has declared in his deed that the land contains a hundred acres and a survey finds only fifty. This would be a palpable fraud and a court would, if requested, order the reconveyance of the land and return of the money. Suppose the deed covered no land at all belonging to the grantor, this would be a still greater fraud. Suppose the deed said one hundred acres more or less, and a survey found only fifty acres. The purchaser bought supposing that there was no such deficit, but perhaps a small one, what would a court do? Doubtless it would hold that the grantor tried to deceive the other party and would grant relief.
The land sold must be bounded or described. As land is increasing everywhere in value more pains is taken in describing it, than formerly. Large tracts have been surveyed by the government and are indicated as sections, quarter sections, yet even these boundaries are sometimes imperfect, caused by incorrect surveys, whereby lands overlap, or otherwise have defective boundaries.
One of the well-known rules is, monuments control corners and distances. This is founded on much experience, for this shows that courses differ from variations in the compass, changes in the surface, etc. Though monuments may be moved intentionally or by natural causes, they can be more trusted in the long run of things.
The location of a monument is a question of fact. It is sometimes said that natural monuments possess higher value than artificial ones, this depends on the character of the artificial one. A large stone set in a secure place surely is a better boundary than a wayward stream whose course is changed by every freshet. In marking the public lands of the western territories by statute monuments must designate the corners of the tract. But when these are lost then corners and distances become the guide. Oral evidence may be admitted to establish the location of monuments, and even hearsay evidence may be used for the purpose.
In a city lot courses and distances play a larger part in fixing the boundaries, and are more carefully defined. Often the boundary is to the center of a dividing wall.
The boundary of land by a non-navigable stream is to the center; and if one owns on both sides of such a stream he is the owner also of the bed. But if land is bounded by the bank or shore of a stream, or by other words of clearly evident exclusion, the stream is excluded. The rule is different that applies to a tidal navigable stream. In some states the boundary is high-water mark; in other states low-water. In both cases the riparian owner, so-called, may erect a wharf extending from his land subject to public control. The boundary of a natural pond or lake, either in its natural state or raised artificially, is low-water mark. Nor is the law changed by the conversion of a fresh water pond into a salt pond by the hand of man. The boundary to an artificial pond is through the center.
The title to the bed of all lakes, ponds, and navigable rivers to the ordinary high-water mark is vested in the states. Thus the people who live around them may enjoy the waters the same as others enjoy tidal waters. Nor is the state title affected by any manipulation of the land above the surface of the water.
The same rules of law apply to land situated along public highways. If a deed should bound the land "by or along a highway," it would include the land to the center; only words of clearly intending exclusion have a different effect. If a deed should say "by the side" of a highway, it might be excluded and it might not, the courts do not agree. All agree that the intention of the parties should govern, but differ as to intention expressed in the words they have used. The law is full of such difficulties. If a highway is abandoned, the adjoining owners can extend their lines to the center, unless one of them can prove that he is entitled to more than one half.
In investigating the title to real estate it is the duty of an attorney employed for that purpose, says Justice Trenchard, "to make a painstaking examination of the records and to report all facts relating to the title. He is, therefore, liable for any injury that may result to his client from negligence in the performance of his duties—that is, from a failure to exercise ordinary care and skill in discovering in the records and reporting all the deeds, mortgages, judgments, etc., that affect the title in respect to which he is employed."
Divisional Tree.—When the base of a tree is wholly on the land of one owner the whole tree belongs to him. An adjoining owner, however, may cut off at the divisional line such branches as over-hang his land without notice and without reference to the length of time they have been growing. To do this he cannot go on the land of his neighbor, but must stay on his own land. A different rule applies to a tree that stands on a divisional line and both owners have an interest therein.
Dower.—Dower is the interest that a wife has in her husband's land after his death, and consists, unless modified by statute, of the use of one third during her life. While both live her interest is so secured to her by law that he cannot sell and convey any of his land unless she unites with him in signing a proper deed of conveyance. In most states this interest or dower is paramount to the claims of her husband's creditors. But if there is any lien on the land at the time of his death, like a mortgage, she cannot claim a preference or priority over the mortgagee.
She can claim her dower in any land belonging to her husband which her children, if she had any, could have inherited as the heirs of their father. When her dower is in mortgaged land, she cannot get possession until the mortgage has been paid. Again, where land, wherein she has a dower interest, must be sold, her right to the proceeds follows the sale. If her husband was not in possession of the land claimed by him before and after marriage, her dower will not become effective until gaining possession. If he were only the nominal and not the real possessor, her dower will not attach to the land, nor if he were in possession as trustee, the real ownership belonging to another.
A legal marriage is necessary to sustain a dower estate. Whenever a marriage can be set aside for some illegality, and is not, it will sustain her dower on his death. So, too, her dower may be lost or barred by a legal separation; if she should re-marry, or the divorce is set aside, her dower would revive. Her dower may also be lost should her husband legally part with his estate, or by any legal proceeding it should be taken away from him; thus, should another claim it and prove that he had the better title. In other words she loses her dower whenever her husband has no estate from which her dower can be carved out. It is true that an adverse claimant cannot give any title to her husband's land that would bar her right thereto. The reason for this rule is that, like a minor, her rights cannot be acquired against one who is unable by reason of age or other infirmity to protect himself.
The wife is entitled to have dower assigned to her immediately after her husband's death. Until this is done, she has the right of common law for the period of forty days, called quarantine, to reside in her husband's house, provided she does not marry during that time.
Dower may be assigned to her in two ways. One way is by direction of the court, which ascertains by proper evidence the extent, location and value of the husband's lands, and then directs the sheriff to carry out its order in assigning to her a specific portion for her use during life. The other way is by agreement. In some states money is assigned to her instead of land as dower.
Dower may be barred by agreement made before marriage. These arrangements, marriage settlements, are becoming more frequent with the increase of wealth and complexities respecting the holding of property. Sometimes a testator provides for his widow in lieu of dower. In such a case she may accept the gift, or reject it and claim her dower rights. Suppose a testator should own a large amount of land, and in his will should give her only a small amount of money in lieu of dower. If eager to get the most possible, she would reject the gift of money and claim her dower rights. On the other hand, suppose he had but very little or no real estate, then she doubtless would accept the money gift, unless she could claim a still larger sum by virtue of some statute made to fit such cases.
Dower does not exist in crops or trees severed from the land, but does exist in mines and quarries belonging to the husband which were opened and worked during his life. If lands have been exchanged by the husband, she can elect in which she shall take her dower, but not in both. There can be no dower in a mere personal privilege, or in a revocable license pertaining to land. The widow of a partner is ordinarily entitled to dower in so much of the partnership land as is left after the payment of the firm's debts and the adjustment of matters between the partners. But if an agreement among them that the land shall be considered as personal property for all purposes, then no dower therein can be claimed by the widow of any partner.
A wife can release her inchoate dower or future expectation of receiving it by joining in a conveyance with her husband for that purpose. In order to make the election binding, it must be made with full knowledge on the widow's part of her husband's estate, and the relative value of her dower interest. The election is personal, and cannot be exercised by her representatives after her death, nor by creditors; and if insane, this cannot be done by any committee or guardian acting under the authority of a court.
An absolute divorce, even though for the husband's fault, divests the wife of dower, unless her right is saved by statute. Quite frequently, the statute provides that there shall be no dower in case of divorce for the wife's fault. Occasionally it is provided by statute that divorce for the husband's fault shall not bar dower; and sometimes a statute requires dower to be assigned immediately upon divorce without awaiting the husband's death. It may be added that the principles of the common law relating to dower have been largely modified by statute in all the states.
Drunkenness.—The courts are reluctant to recognize intoxication as an excuse either for committing a crime or for repudiating a contract, but if from long continued intemperate habits a man has become actually insane or incompetent, his actual mental condition will be recognized whatever may have produced it.
Again, in making a contract the other party could hardly deal with a man badly intoxicated without knowing his condition, consequently the element of fraud appears, and the contract may be declared invalid either for lack of contracting capacity on the part of the drunken man, or for fraud on the part of the other in taking advantage of his condition. His fraud would be still greater if he had designedly caused the drunkenness of the other. Either objection, however, renders the contract voidable rather than void, and should an intoxicated party, after he became sober ratify his contract, or fail to repudiate it and restore the consideration, if any, within a reasonable time, he would become bound.
The courts are still more reluctant to admit intoxication as an excuse for criminal acts. The courts hold that one who voluntarily deprives himself of self-control must have intended the consequences, therefore it is everywhere held that one who voluntarily becomes intoxicated, although he did so with no purpose to commit a crime when intoxicated, cannot claim immunity from criminal responsibility, or even a mitigation of the penalty, though having no capacity to distinguish between right and wrong. And yet, like so many legal rules, there are some marked exceptions to this one. Thus, since burglary is the entering of a house with the intent to commit a felony therein, one who blunders into a strange house because he is too drunk to know where he is or what he is doing has not committed the crime of burglary. So one who carried off the property of another through drunken ignorance does not commit larceny, as there is no intent in such a case to convert the property to the taker's own use. Another application has been made in cases of assault with intent to kill a person.
Again, says Peck, "if one is visibly intoxicated, it is the duty of those who come in contact with him to take his condition into account, and their use of due care will be judged in view of that fact. Even if the drunken person and the other are both negligent, the sober party may be liable under the doctrine of the last clear chance, if he fails to exercise toward the drunken man the degree of care which is evidently required to avoid injuring him. Especially is a common carrier, in dealing with a passenger who is on its car in an intoxicated condition, bound to take his helpless condition into account in removing him from the car or otherwise handling him, and not put him in a place of manifest danger to one in his condition."
It has also been held that the intoxication of one who uttered a slander may be admissible in mitigation of the damages, as utterances of a drunken man could not seriously impair the reputation of any one.
Equitable Remedies.—Elsewhere we have told how courts of law differ from courts of equity. In some states no separate courts exist, and wherever legal proceedings are established by a code or system of statute law, the form of complaint addressed to a court is quite the same in an equity case as in any other. But in states where code practice has not been established, the mode of setting forth one's grievance or wrong is by a bill or petition, ending with a prayer for relief. We will now briefly state some of the things for which relief in equity may be sought.
One of the most common things is to compel persons who refuse to perform their contracts to execute them. Suppose one has agreed in writing properly signed to sell his farm to another, but is unwilling to give him a deed. It may be that he can get more for his farm, or he has made the discovery since selling it that it is worth much more, is underlaid with coal or oil, or that a railway is soon to be built near it that will enhance its value. If he went to a law court, all that it could do would be to compel the seller to give the purchaser such damages as he could prove he had sustained from the seller's failure to execute his agreement. But a court of equity can go further and compel the seller to give the purchaser a proper deed, the kind of deed mentioned in the agreement; or, if none was specified, the kind of deed usually given in such cases.
This remedy cannot be always sought whenever the seller fails to execute his contracts. The important limitation is, when the law has an adequate remedy, and the injured person has no need of resorting to a court of equity. All the ordinary agricultural and manufactured products fall within this class, cotton, cattle, lumber, fruits, stock in trade and the like. But if a chattel has a sentimental value to the purchaser, a court of equity will decree that it must be delivered to him, because in such a case the damages would obviously be inadequate. The same rule applies to all articles of a unique or rare value that cannot be duplicated; also to patented or copyrighted things that cannot be procured in the open market.
Suppose one has purchased the stock of a bank or railroad company, which the seller refuses to deliver, has the buyer a legal remedy for damages, or an equitable remedy to compel the seller to deliver the stock, or has he the choice of remedies? The courts have divided on this question. The better rule is, if the stock can be readily bought in the open market, the buyer has only a law remedy to recover damages from the seller's failure to execute his contract; if the stock cannot be thus purchased, a money damage is not an adequate remedy, the purchaser wants the stock and he can, through a court of equity, compel the seller to deliver it to him. As government bonds can always be bought in the open market, a court of equity will not decree the specific execution of a contract for the delivery of the actual bonds purchased.
If A has agreed to erect a building for B on his land and fails to do it, money damages are usually an adequate remedy, but if B cannot find any one else to do the work as well, or in as satisfactory manner, then a court of equity would compel A to fulfil his agreement. Likewise if a landlord has agreed to repair his tenant's premises and neglects, the legal remedy is usually more satisfactory than a specific execution of the agreement, because work done under compulsion is not likely to be as well done as that done voluntarily.
A contract to render personal services will not be enforced against a person who has agreed to perform them, for several reasons, one is that another person can be employed, another is that the thirteenth amendment to the federal constitution, forbidding involuntary servitude, cuts off the equitable remedy in such cases; of course the legal remedy for damages is still effective. A contract to give a mortgage to secure a loan of money may be enforced by the creditor, but a contract to lend money cannot be enforced by either party, because there is usually an open market for the lending and borrowing of money. Likewise a contract to form a partnership cannot be enforced, for, if it were, the unwilling partner could dissolve it and thus nullify the action of the court.
Where one sells out his business, whether commercial or professional, and agrees not to compete with the buyer, equity will compel the seller to observe his contract unless it was illegal or an unreasonable restraint on trade. This limitation is important. Thus A, a dentist in Philadelphia, agreed with B, another dentist, not to practice in the city for ten years a certain method of extracting teeth. A continued to practice as before and B applied to a court of equity to enjoin him. He failed for the reason that no one ought to have a monopoly, so the court said, in any means or method for relieving human suffering, like the process in dispute. If an employee agrees not to divulge the trade secrets of his employer, equity will enforce the agreement, for damages given in a law court would be wholly inadequate.
Another class of cases must be mentioned relating to injuries to land. By the common law the only relief a landowner had against one who injured it in any way was an action of waste to recover money damages. A court of equity has power to issue a command to the person who threatens or attempts to commit injury ordering and directing him to desist from his purpose. This has been often used by the owners of land against their tenants who attempted to do things that would materially injure the property. This remedy is now often used to secure the owner and occupier of land in its proper use against those who attempt to commit a nuisance. While the occupier could recover damages if he sought the aid of a law court, equity will order the wrongdoer to abate the nuisance. Such a remedy is much more effective than the legal one, because damages that may be recovered relate only to a past offense, while the equitable one prevents it from happening or from its continuance.
Promises not to do some particular act on a piece of land are often made in deeds conveying them; they are called covenants. Equity will usually enforce these covenants, and will compel the wrongdoer to undo what he has done provided that relief is sought promptly. Thus if a purchaser agrees not to build nearer the street than a stated line, he can be enjoined from disregarding it. A purchaser therefore who built two houses three feet beyond the agreed line was compelled to remove them.
The remedy in such a case is an injunction. It may be temporary or permanent. Quite often when one applies for an injunction, if the injury threatened is immediate, the court will immediately enjoin the party from proceeding and fix a time for a future hearing to decide whether the injunction shall be dissolved or made permanent. The time fixed for such a hearing is within the discretion of the court, and depends on the nature of the case. Usually the time is quite short, enough to enable the parties to collect the evidence relating to the controversy. The hearing is conducted very much like any other trial, witnesses appear, all the evidence is given, and is reviewed by contending counsel, after which the judge announces his decision. Some of the more noteworthy injunctions of recent days have been rendered against labor unions or their members who, having struck for higher wages, or other ends, have sought to picket the works of their employers and thus prevent them from employing other workers to take the places of the strikers. The unions contend that this is an improper use of the judicial power, whether it is or not no one will deny that it has been long exercised.
In the early days of administering the patent law injunctions were granted against infringers. Judges soon grew more cautious when they learned that patents were sometimes erroneously granted, and that, on acquiring a fuller knowledge of the controversy, there had been no infringement. The modern practice therefore is, unless the proof is very clear, to require a party who applies for an injunction to try his case first and establish his patent and then, if it has been infringed, an injunction will be issued.
Factor.—A factor receives and sells goods for a commission, is usually entrusted with their possession, and sells them in his own name. He has a special interest or property in them, and a lien thereon for advances in money that he may make to the owners. No formal mode of authorizing him to act is required, usually this is done by word only, and his authorized acts may be ratified by his principal. This authority is largely the outgrowth of usage. The authority of a factor to fix the terms of selling may be by agreement or by usage, like any other agent. Limitations fixed by the principal are ordinarily binding on the factor, and, so far as they are chargeable with notice of them, third persons also. Where goods are confided to a factor without instructions, authority to exercise a fair and reasonable discretion is implied. Unless restricted by his principal, or by contrary usage, he may sell goods on a reasonable term of credit. If he is restricted to cash sales only, or is not protected by usage in selling on credit, he cannot do so. Secret instructions would not affect the rights of a purchaser ignorant of them and relying on customary authority.
A factor is employed to sell goods, and not to barter or exchange them, and if he should do this his principal could recover them. He may insure the goods, but is not required to do so unless instructed or is required by usage, which plays a large part in this matter and must be observed except as qualified by instructions.
He cannot compound or compromise a claim for the purchase price, or discharge the debt on payment of a part only, or submit a disputed claim for arbitration, or rescind a sale, or discharge a purchaser from any part of his obligation, or extend the time of payment, or make, accept or indorse negotiable paper contrary to instructions or usage, or sell the goods thus entrusted to him for sale to himself. See Agency.
Fire Insurance.—Insurance against loss by fire is now effected in companies organized for that purpose. Two kinds exist, stock and mutual. In mutual companies the persons insured act together to insure each other. The members of some of the largest mutual companies are manufacturing corporations. The more general mode of conducting them is to require each member to pay a premium in advance for the amount insured which, unless unusual losses occur, will be enough to pay all the losses for the year. If it is not all needed, the balance is returned to the parties who paid the premiums, or is credited to them for the following year. If the losses exceed the premiums thus paid in advance, then an assessment is made on each member to cover the deficiency. Generally the premium paid is more than enough to cover the losses, and a balance is returned or credited to the insured as above mentioned. As mutual companies do not take such risks as stock companies, the cost of insurance is less and therefore is carried in preference to insurance in stock companies, whenever it can be obtained.
There is another way for paying for losses in mutual companies. Instead of paying cash premiums in advance, the insured gives a bond or note well secured that he will pay in cash whenever a call is made on him to cover the losses that have been incurred at the end of the year or other period. This method is in vogue in some sections, because still less money is required to keep property insured. Of course besides the money to pay losses another sum is required to pay the expense of management. It will be seen that the mutual plan is purely for protection against loss and no profit in the way of dividends is forthcoming, for the companies have no capital. It is true that some companies, instead of returning the unexpended premiums for losses retain them or a part of them and by so doing accumulate a surplus. Many companies, however, return all the contributions not expended for management or losses and have no surplus, or only a very small one.
Stock insurance companies proceed on a different principle. They are organized to make money, a capital is subscribed, the rates of insurance or premiums are fixed and after paying the expense of management and loss, the balance is paid to the stockholders in the way of dividends. The business is one of unusual hazard, and only a rich person, who can afford to lose his money, ought to invest in the stock of such companies. Their profits and losses vary greatly from year to year; and failures have been frequent. Nevertheless some companies have a fine record, enough to tempt them to continue notwithstanding their trying reverses.
As the contract of insurance is for an indemnity, the insured must have some interest in the property insured, otherwise the contract is a mere wager, which the law condemns. Moreover the interest must continue and exist at the time of the loss. Who, therefore, has an insurable interest? A bailee, a carrier of goods, a consignee who has authority to sell them, a factor, pledgee, warehouseman, an assignee for the benefit of creditors, an executor or administrator, an attachment creditor, but not a general creditor, a landlord, tenant, mortgagee of real or personal property, a lienor, for example, the holder of a mechanic's lien, a receiver, residuary legatee or devisee, a trustee, vendees and vendors of real and personal property, the owner of stock in a corporation, any agent who has the care and management of his principal's property, besides many others. But a fire insurance policy may be assigned as collateral security with the company's consent, and continue valid though the assignee has no interest in the property. This rule therefore is fundamental, and if the interest of the insured in the property has been extinguished after making his contract and prior to its loss by fire, he can get nothing from the company. Likewise the property must have been in existence at the time of making the contract, if it was not, the policy is void. Many stories are told of insuring ships after learning of their loss; such conduct is a palpable fraud.
An insurance policy is a contract, of which the policy is evidence. A standard policy has been prescribed in several states by statute: in other states the parties are still free to make such terms as they please. It is usual for companies to execute blank policies in due form to be filled out and delivered by their agents. Such policies are not valid until countersigned, unless the countersigning is waived.
When does the policy become valid or binding on the insured? Says a competent authority: "Where a policy has been duly executed in compliance with an application on the part of the insured, so that the minds of the parties have fully met as to the terms and conditions of the contract, a manual delivery of the policy to the insured is not essential to render it binding on the company. If the contract has become binding by the issuance of the policy and the placing it in the hands of an agent for delivery, then the fact that such delivery is not actually made to the insured until after the loss has occurred, will not defeat recovery by the insured."
The premium usually must be paid at the time of issuing the policy, unless a different agreement is made concerning it. Credit may be given, and an agent generally has authority to do this. A valid payment may also be made in other means than money; a check or note may be given for it.
An insurance policy may be assigned, though it usually contains a clause that the consent of the insurer is needful. When the policy contains this clause and the insurer without valid reason refuses to consent to an assignment, "the assignee acquires the same right as though consent had been given."
Consent to an assignment may be given by the president of the company, without formal vote by the directors. It may also be given by the secretary or by any other agent duly authorized.
When can a policy be canceled? Unless this right is reserved in the contract, or given by statute, the insurer cannot cancel the contract without the consent of the insured. It often is reserved, and if exercised, this must be done before a loss occurs, and a cancellation made afterwards, though without knowledge of it, is void. The motive for making it is not important. If, as a condition of cancellation, the unearned portion of the premium is to be returned, the failure to return it renders the cancellation worthless. Nor is this effective until notice has been given to the insured.
A court of equity will reform a contract of insurance on the ground of accident, fraud, and mistake. Oral evidence is admissible to prove the fraud or mistake; it must, however, be clear before a court will grant relief. If mistake is the ground for asking relief, the insured must not have been guilty in causing it, and must act promptly after his discovery. This rule does not prevent him from seeking relief when the agent of the insurer has been negligent. Furthermore it may be granted even after the happening of a loss.
Should there be a conflict between the written and printed portions of a policy, the written portion will be presumed to represent the intent of the parties. If, therefore, the printed portion excludes certain articles from the risk, and the written portion covers them, they are included. Conditions also written or printed on the margin or back of the policy are regarded as portions of it, and these too will control the printed portions. Besides, the written application is usually considered a part of the contract and the policy is construed or interpreted in connection with it. This is especially so where the proposals and conditions are attached to the policy. If the intent of the policy is not clear from the language used, the surrounding circumstances may be shown for the purpose of ascertaining the intent of the parties. The known usage of trade may also be taken into account in construing the language of a policy.
The language of the policy should be so construed as to cover the property within the intention of the parties, and support, if possible, the contract of indemnity. Mere clerical errors or mistakes in describing it may be corrected even after it has been destroyed. The location is an essential element, and the policy will not be stretched to cover property not within the description. If a building is described this does not include separate structures used in connection with it, nor fixtures constituting no part of the structure. Unless expressly excepted, however, insurance covers those things which have been so annexed as to become a part of the realty but none others. The term store fixtures covers fittings, fixtures, furniture used in the course of trade, whether they are part of the realty or not. Likewise the term "stock" used in a mercantile business includes everything usually kept for sale, in that business, but nothing more; while household furniture includes all articles necessary and convenient for housekeeping. With respect to future additions these are covered by the policy unless it is so drawn as to show a clear intent to exclude them.
The risk usually begins with the date of the policy, unless it is effected by a preliminary contract. In such a case the risk begins from the date of the preliminary contract, and continues for the period fixed in the policy, or, if none has been fixed, for a reasonable time.
A misrepresentation voids a policy generally. It must not only be false in fact, but the insured must have known that it was false when making it in a substantial and material respect. The misstatement of an agent of the insured will have the same effect. Indeed, any fraud of the insured in procuring the policy has the effect of voiding it if the insurer chooses to do so. Of course, the wrongful facts or acts of the insured possess a varied character. His conduct in concealing facts that ought to have been made known to the insurer may have that effect. Thus to conceal a fact of which the insured had knowledge, and which, if known by the insurer the risk probably would not have been taken, is a fraud rightly available to the insurer.
The parties to an insurance contract may agree that the questions put by the insurer and the answers given by the insured shall become a warranty. This, as experience has shown, is a simpler way of effecting a policy of insurance. When this is done a misrepresentation constitutes a breach of warranty and the contract becomes void.
The modern policy provides that it shall be void if the insured "now has or shall hereafter make or procure any other contract of insurance, whether valid or not, on property covered in whole or in part by this policy." If the insured effects other insurance he must not forget to obtain consent of the insurer, and should he forget his good intention will not preserve his policy. Nor can the insured protect himself by canceling the prior policy if he breaks the condition. Nor does its expiration revive the subsequent policy. An overstatement of existing insurance under an express warranty will also violate the policy. While forgetfulness or good intention will not save the insured in such cases, insurance obtained by a third person without the knowledge of the insured on the same property will not endanger his rights under his policy.
If a fire occurs and a loss results, this may be total or partial. In every case of loss fire must be the proximate cause of the loss. What loss is covered by a policy has been the subject of frequent controversy. Damage by water used to extinguish a fire is usually covered; also damage to or loss of goods removed to prevent their destruction from fire in the insured or another building. Likewise the loss caused by blowing up a building to check a fire, likewise damage from an explosion which is the direct result of a fire, "but an explosion due to the ignition of a match or spark of an explosive substance, no fire resulting, is not within the terms of an ordinary fire policy." The standard policies contain a clause relieving the insured from liability to pay for property stolen during the progress of a fire, or during the removal of property necessitated by fire.
An exception of liability from lightning, unless followed by fire, excludes recovery unless there is loss from burning, but it is quite common to insure against loss from lightning as well as fire.
Unless there is a stipulation in the policy the insurer is not relieved from liability by mere negligence or carelessness of the insured or his servants though directly contributing to the loss; on the other hand, the insured who does not take reasonable care to avoid loss from his negligence or that of his servants may defeat recovery under his policy. This rule is not easy of application, cases of clearly proved negligence are numerous, also cases free from negligence, a third class of a doubtful nature. The field of the law is open in every direction to these.
For a total loss the insurer is liable for the entire value of the property to the limit covered by the insurance. Thus the loss of a building is total though some of the walls remain standing, but not when the remnant can be restored. In some states the statutes provide that in case of total loss the insurer shall be liable for the full amount of insurance, and shall not be allowed to show that the property was of less value than the amount insured.
When the loss is partial the insurer is liable only for the amount of the loss, not exceeding the insurance. The policy may limit the amount of recovery to the cost of restoring or replacing the property, and in such cases this is often done instead of paying the loss in money. If each of several classes or items is separately valued, thereby separating the liability for them, the recovery for any one class or item is limited to the damage to the same.
Lastly, in fixing the loss the distinction between open and valued policies must be explained. A fire policy is generally written in such a way that the liability of the insurer depends on the amount of the loss to be determined after the loss has occurred. When this is done, the valuation of the property in the application for a policy or in the policy, does not fix the liability of the insurer, even though the loss be total. This is called an open policy. On the other hand the loss may be fixed by a stipulation in the policy, and which binds the insurer to pay the whole sum insured in case of total loss. This is called a valued policy. A policy is regarded as an open one, unless it appears to have been the intention of the parties on a fair and reasonable construction of its terms, to value the loss and so fix by contract the amount that may be recovered.