IMPORTANCE OF EXACT PROVISIONS IN CONTRACTS.—So much for the rather difficult subject of the mutual duties of parties to a contract in the performance of it. The best way to avoid doubt or uncertainty in such matters is to provide very exactly in the contract what the rights of the parties shall be in certain contingencies. The law always respects the intention of the parties when it is manifested, and it is only when they have said nothing about their intention that the rules which we have considered become important.
FRAUD.—The next question in regard to contracts arises out of certain grounds of defense that may come up and the most important of these is fraud. Fraud is deception; it is inducing the other party to believe something which is not true, and, by inducing him to believe that, influencing his action. The ordinary way in which fraud is manifested is by misrepresentations. A purchase or sale of stock or of goods may be induced by fraud. A loan may be obtained from a bank by fraud, that is, by misrepresentation of material facts which influence the other side to act.
MISSTATEMENTS OF OPINION ARE NOT FRAUDULENT.—Now what kind of misrepresentation amounts to fraud? There must be misrepresentation of a fact. Merely misrepresentation of opinion is insufficient and what is opinion and what is fact has been the basis of a good many lawsuits. John offers his horse to James for sale at $300. He says that it is the best horse in town. Well, it is not the best horse in town by a good deal, but that sort of statement cannot be the basis of an allegation of fraud. That a thing is "good," or "the best in the market," or similar general statements, all of which ought to be known to the hearer to be simply expressions of opinion, are not statements of positive fact. Take these two statements in regard to the horse. "He can trot very fast." That is a mere statement of opinion. To some minds eight miles an hour is very fast; to more enterprising persons fifteen miles an hour is necessary in order to make travel seem fast. Those are matters of opinion. But a statement that the horse can trot twelve miles an hour, or has trotted one mile in three minutes on the track, are statements of fact, and if untrue are fraudulent. A statement of value is a statement of opinion and cannot be the basis of fraud. A statement that the horse is worth $300, or is worth twice as much as the owner is asking for him, cannot be relied upon; but a statement that $300 was paid for this horse, or was offered for him, is an assertion of fact, and if untrue would be the basis of an allegation of fraud.
PROMISES ARE NOT FRAUDULENT BECAUSE BROKEN.—A promise is not a statement of fact. A man may promise to do something and fail to carry out the promise, and in consequence the person he was dealing with may regret the bargain he entered into, but his only remedy is to sue for damages for breach of the promise if it was part of a contract. He cannot assert that merely because the promise was not kept the transaction was fraudulent. But if a man makes a promise knowing when he makes it that he cannot keep it, he is committing a fraud. The commonest illustration of this is where a man buys goods on credit, having at the time an intention not to pay for them, or well knowing that he cannot pay for them.
STATEMENTS MUST HAVE BEEN CALCULATED TO INDUCE ACTION.—Generally speaking, the statement relied on as fraudulent must have been made with the purpose of inducing action. For instance, suppose John likes to tell large stories. He tells James things about his neighbor's horse. John does not do this for any purpose except to brag about living near a man who has such a splendid horse, but James suddenly takes the notion he would like to have that horse and he goes and buys it. Now it was not legal fraud on John's part to tell those lies about the horse, even though they did induce James to go and buy it, unless John, as a reasonable man, ought to have known that James was likely to buy the horse, as might have been the case if James had been talking about buying him. Then it would be fraud, and it would not make any difference in regard to its being fraudulent that John had nothing to gain by telling these lies, that he was simply doing it for the fun of the thing.
REMEDIES FOR FRAUD.—What remedy has the defrauded person? The law gives him two remedies of which he may take his choice; he cannot have both, but he can have either. One is to sue the fraudulent person for such damages as have been suffered, and the other is to rescind the transaction, to get back what has been given, or to refuse to go on with the contract at all if it is still wholly executory.
DURESS AND UNDUE INFLUENCE.—There are certain defences similar to fraud; duress, or undue influence, is one of them. However, this is comparatively rare. It is compelling a person to do what he does not want to do, making him agree to a bargain that he would not agree to accept under compulsion, as by fear of personal violence or imprisonment; and a bargain made under these circumstances can be rescinded or set aside. Merely threatening to enforce your legal rights by suit against another is not duress, though it may in fact induce him to agree to what he would not otherwise have agreed; but to threaten criminal prosecution as a means of extorting money or inducing an agreement is illegal and in many jurisdictions is itself a crime.
MISTAKE OF FACT.—In certain cases, also, a mutual mistake of a vital fact is ground for setting aside a contract, but these cases are not very common. Mistakes generally do not prevent the enforcement of contracts. Usually where there is a mistake, it is of a character for which one party or the other is to blame. If the mistake arises out of deception it is fraud. If the mistake arises simply because the mistaken party has failed to inform himself of the facts, as he might have done, then it is no defence at all. But if both parties were acting under the mutual assumption that some vital fact was true in making a bargain, either one of them may avoid or rescind the bargain when it appears they were both mistaken.
IMPOSSIBILITY.—Impossibility is sometimes a defence to the performance of a contract. Perhaps the simplest illustration of this arises in a contract for personal services of any kind. Illness or death of the person who promises the services excuses performance. Death does not usually terminate a contract or serve as a defence to it. If a man contracts to sell 100 bushels of grain and dies the next day his estate is liable on the contract just as if he continued alive; but if he agreed to hire a man as an employee for a year, his death or the employee's death within the year would terminate the obligation of both. Unexpected difficulty is not impossibility. For instance, take a building contract: the builder agrees to put up a building within a certain time; he is prevented by strikes. Nevertheless, he is liable for not doing as he agreed. He should have put a condition in his promise, qualifying his agreement to build, that if strikes prevented, he would not be liable. So, if the foundation gave way and the building tumbled down before it was finished, the builder must put it up again. Also, if lightning struck it, he must put it up again.
ILLEGAL CONTRACTS.—One other matter to be considered in connection with contracts and defences to them is illegality. Some kinds of illegal contracts are so obviously illegal that it is not necessary to say anything about them. Anybody would know that they were illegal and that they could not be enforced for that reason. A contract to steal or murder or take part in any crime is a good example. But other kinds of illegal contracts are not so obviously wicked as to make it clear that they are unenforceable. It may be worth while to mention a few of these kinds of illegality.
CONTRACTS IN RESTRAINT OF TRADE.—One class of contracts which has become very important in late years in business is the contract in restraint of trade, so called. The original contracts in restraint of trade were contracts by which one man agreed that he would not thereafter exercise his trade or profession, the object generally being that the promisee should be freed from the competition of the man who had promised to refrain from exercising his trade; and the law became settled a good many years ago that if the promise was general not to exercise the trade or profession anywhere, or at any time, it was illegal, but that if it was only for a reasonably limited space of time it would not be illegal. That old law still exists, but there has grown up further a much more important class of cases where contracts are made to further an attempted monopoly, and one may say pretty broadly that all such attempts are illegal. It does not matter how much business reason there is for it; any attempt to combine in order to get a monopoly, or in order to put up prices, is bad. Moreover, if the attempted restraint of trade or monopoly concerns interstate commerce, the agreement is a Federal crime under the Sherman law.
GAMBLING CONTRACTS.—Another kind of illegal contract is a gambling contract. This seems obvious in agreements for the more extreme kinds of gambling, but in certain business transactions where the matter becomes important, the dividing line is not so clear; especially in dealings on stock exchanges and exchanges for sales of staple products, such as grain, cotton and coffee. The stock exchanges and other exchanges are made the means of a great deal of speculation, which is virtually gambling. Now, in what cases does the law regard these transactions as gambling and, therefore unenforceable, and in what cases are they legal? The answer is, if an actual delivery of the stock, or commodity bought, is contemplated, then the transaction is not gambling in the legal sense; but if a settlement merely of the differences in buying and selling prices is contemplated, as the only performance of the bargain, then the transaction is gambling. The difference is between a stock-exchange business and a bucket-shop business. If you give an order to a stock-exchange house to buy stock, even though you put up but a small margin and could put up but a small margin, and the stock-exchange house knows you could put up but a small margin, nevertheless, the stock-exchange house actually buys that stock, and it is delivered to it. The stock-exchange house would then have a right to demand of you that you pay for that stock in full and take delivery of it, and could sue you for the price if you failed to comply with the demand. However, as a matter of fact, it does not ordinarily do that. If it wants to get the price which you promised to pay, and you fail on demand to take up the stock, it sells the stock which it has been holding as security. The bucket-shop, on the other hand, though it takes your order to buy, does not actually buy the stock; it simply settles with you when you want to settle, or when it wants to settle, because the margin is not sufficiently kept good, by calculating the difference between the price at which the stock was supposedly bought and the price at which it is supposedly sold, those prices being fixed by the ruling market quotations at the time. It would be perfectly possible to make a gambling transaction out of the stock-exchange transaction by a very slight change. If a stock-exchange house should agree, for instance, that the customer should not be compelled to take delivery of the stock, then that added agreement would make the transaction between broker and customer a gambling transaction, even though the broker actually bought the stock on the exchange, and, as between himself and the other broker on the exchange with whom he dealt, there was a perfectly valid sale of the stock. In some jurisdictions, by statute, speculative contracts which are not gambling contracts at common law are made illegal.
BREACH OF FIDUCIARY DUTIES.—Another very important class of illegal transactions arises from breach of fiduciary duties. A fiduciary is rather hard to define. He is somebody that owes a duty higher than a mere contractual obligation, a duty involving something of trust and confidence. A trustee is a fiduciary, so is an agent. A director or officer of a corporation is a fiduciary, and any dealing in which a fiduciary violates his duty to the person for whom he is fiduciary is illegal, and any agreement for such a violation is an illegal contract. It is illegal for a trustee to bargain for any advantage from his trust other than his regular compensation. It would be illegal for a trustee to bargain with a bank to give the bank a trust account in return for some personal advantage, as a loan to be made to the trustee personally. It would be a breach of fiduciary duty for a corporation officer and director to bargain for any personal advantage by virtue of his official action.
KNOWLEDGE OF ANOTHER'S ILLEGAL PURPOSE.—The knowledge of another's illegal purpose will not make the person who knows of it himself guilty of illegality; but if one not only knows but in any way promotes the illegal purpose of another, he will be considered a party to the illegality. A may sell goods to B, knowing that B is going to use them illegally, and A's sale will not be illegal; but if A does anything to help B in using them illegally, or if the goods are of such a character that they can be used only illegally, then A would be guilty of illegality himself.
MEANING OF ASSIGNMENTS.—Much of the difficulty regarding assignment of contracts is due to different meanings which may be attached to the word assignment. When property is assigned the assignee becomes the owner in every sense, if the person from whom he took the assignment had a valid title. This is not true of the assignment of contracts. By the common law, contract rights or "choses in action," as they are termed in law, were not assignable, the reason being that one who contracted with A, cannot without his consent become bound to B.
POWER OF ATTORNEY TO COLLECT A CLAIM.—Though when a man had a contract right he could not by common law make B in a complete sense the owner of the claim, he could give B a power to collect the claim as his, A's, agent, and authorize him to keep the proceeds when the claim was collected. It long ago became established that when an owner of a claim purported to make an assignment of a claim he thereby gave the assignee the power to enforce the claim in his stead, and this power given the assignee is irrevocable.
EFFECT OF ASSIGNMENT OF RIGHTS.—It may be supposed that the effect of an assignment of a right, though the result may be worked out by treating the assignee as an agent or attorney of the assignor, is the same as if the assignee were fully substituted in the position of the assignor as owner of the claim, but this is not quite true. Assuming that the claim is not represented by negotiable paper, the legal owner of the claim is still the assignor. This is shown by the fact that if the debtor pays the assignor in ignorance of the assignment, the debt is discharged and the assignee can only go against his assignor for the latter's fraudulent conduct in collecting the claim after having assigned it. So, too, if the assignor makes a subsequent assignment, this subsequent assignee also has a power of attorney to collect the claim and keep the proceeds; so that if the second assignee in good faith collects the claim in ignorance of the prior assignment, he can keep what he has collected; nor is the debtor liable to the first assignee who must as before seek redress from his assignor. It is, therefore, always important for the assignee of a non-negotiable chose in action to give immediate notice of his assignment to the debtor. If after such notice the debtor should pay the assignor or a subsequent assignee, such payment would not discharge the debtor, and the first assignee could collect the claim from him.
NON-ASSIGNABLE RIGHTS.—Rights cannot be assigned which are personal in their nature. The one who has contracted to paint a picture cannot delegate the duty to another, no matter how skillful. One who has a right to the personal services of an employee cannot assign that right to another. A publisher who has a right to publish all books written by a certain author cannot assign his right to another publisher.
ASSIGNMENT OF DUTIES.—The duties under a contract are not assignable under any circumstances. That is, one who owes money or is bound to any performance can not by any act of his own or by any act in agreement with any other person except his creditor, divest himself of liability and substitute the liability of another. This is sufficiently obvious when attention is called to it; for otherwise debtors would find an easy practical way of escaping from their debts by assigning the duty to pay to irresponsible persons. But the principle is not always recognized. A person who is subject to a duty, though he cannot escape liability, may delegate the performance of his obligation provided the duty is of such a character that performance by an agent will be substantially the same thing as performance by the obligor himself. Thus if a contractor engages to build a house, he may delegate the actual building to another, but he cannot escape responsibility for the work. One who owes a mortgage may delegate the payment of the mortgage to a purchaser of the land who assumes and agrees to pay the debt. If the purchaser of the land actually pays, the debt is discharged; but if he fails to do so, the mortgagee may sue the original mortgagor and the latter will be obliged to bring another action against the purchaser who promised to pay the debt and failed to do so. So where a partnership is changed and a new firm formed, it is very common for the new firm to assume the obligations of the old firm.
ORIGINAL DEBTOR NOT DISCHARGED UNLESS THERE IS A NOVATION.—Though a creditor cannot be deprived of his right against his original debtor without his consent, he may consent. If he does thus consent to take in lieu of the obligation of his original debtor that of the person who assumed the debt, what is called a novation is created. That frequently happens where a new firm succeeds an old one. The new firm goes on dealing with the old creditors, and they impliedly, if not expressly, assent to taking the new firm instead of the old firm as a debtor. But in order to make out a novation you have got to find as a fact that the creditor agreed to give up his right against the old debtor. If the creditor does not assent to a novation then the situation is that the creditor retains his claim against the old debtor, but the person who has assumed the debt has contracted to pay that debt. If he keeps his contract he will pay it and the debt will be cancelled. If he does not keep his contract the creditor will sue the original debtor and the original debtor will sue the man who assumed the debt.
ASSIGNMENT OF BILATERAL CONTRACTS.—In bilateral contracts each party is under a duty to perform his promise, and also has a right to the performance of the other party. If an attempt is made to assign such a contract the effect is this: the assignor delegates to the assignee the duty of performing the assignor's promise, but the assignor himself still remains liable if his agent, the assignee, fails to carry out the duty. Further, the assignor authorizes the assignee to receive the payment or performance due from the other party to the contract and to keep it for himself.
WHAT AMOUNTS TO AN ASSIGNMENT.—No particular words are necessary to constitute an assignment. Any words which show an intention that another shall be the owner of a right are sufficient to constitute the latter an assignee. Especially it should be observed that an order directed to a debtor of the drawer ordering him to pay the debt to a named payee, is an assignment of the debt when delivered to the payee. This case must be sharply distinguished from a bill of exchange or check. A bill of exchange or check is an order to pay a certain amount unconditionally, irrespective of the existence of any particular fund. It is only an order to pay from a particular fund, that is, an order which is conditional expressly or impliedly on the existence of that fund, which constitutes an assignment.
PARTIAL ASSIGNMENT.—A creditor may not only assign his whole claim to an assignee, but he may assign part of it. Such a partial assignment authorizes the assignee to collect the portion of the claim assigned and keep it for himself. But the debtor is not bound to pay the claim piecemeal; he may insist on making but a single payment unless his contract with his creditor provides otherwise. A bank in accepting a deposit contracts to pay that deposit in such amounts as the depositor may indicate on the checks drawn by him, but an ordinary debtor who owes $100 cannot be required to pay in such amounts as his creditor may see fit to demand. For this reason a few courts hold that even if the debtor has notice of a partial assignment, he may pay the whole debt to the original creditor though that results in defrauding the partial assignee. Most courts hold, however, that the debtor when notified of the facts cannot do this, and if he objects to paying fractional parts of his indebtedness he must pay the whole sum into court to be distributed by it among the parties entitled. So, on a question of this character, the local statute should be examined.
ASSIGNMENT OF FUTURE CLAIMS.—Assignments of future claims, as well as of existing claims, may be made, but there are in many States some special provisions of statute law in regard to assigning future wages. Such assignments must often be recorded, and there are certain other special statutory provisions in regard to them. The assignment of future debts is also subject to this qualification: The law does not allow the assignment of a future claim unless the contract or employment out of which the claim is expected to arise has already been made or is already in existence.
DISCHARGE OF CONTRACTS.—Contracts are discharged in much the same way as they are made. The simplest way of discharging a contract is by performing it. When both parties do exactly what they agreed to do the contract is discharged by performance. Where seals still retain their common law effect, it may be discharged without performance by agreement under seal that it shall be discharged, just as a contract may be made by an agreement under seal. The agreement under seal to discharge a contract is called a release. You may release any right that you have—a right for money, a right to have work done or any right. Just as contracts may be made either under seal or by an agreement with consideration, so they may be discharged not only by a release under seal but by an agreement for rescission of the contract. But this agreement must have consideration.
ILLUSTRATIONS.—Suppose A has promised to build a house and B has promised to pay $10,000 for it. Before anything has been done, A and B agree to call that contract off. This is a valid agreement for rescission, because each party agrees to give up something—one party to give up his right to have the house built, the other party to give up the right to get $10,000 pay. So an agreement between employer and employee that a contract shall be terminated before the time originally agreed has sufficient consideration—the employer gives up his right to the employee's services, the employee gives up his right for future pay. But compare with these this case: A owes B a thousand dollars; it is simply a debt. A and B agree to call that square. That agreement is of no validity, for here only one party agrees to give up anything. The creditor agrees to give up his thousand dollars, and he does not get any promised amount in return for it. But that obligation, that debt, could be satisfied if valid consideration were given for the surrender of the claim; and anything agreed upon, as a horse, or ten shares of stock, or anything else the parties agreed to, would be good consideration for the agreement to surrender the claim, so long as one did not get into the difficulty alluded to under the heading of consideration, of trying to surrender a right to a larger liquidated sum in consideration of the payment of a smaller sum of money.
SENDING A CHECK AS FULL PAYMENT.—It is very common for a debtor in making payment by check of his debt to seek to make the check operate as a receipt in full of all claims by the creditor against him. He may do this by writing on the check itself that it is "in full of all demands" or "in full payment" of a certain bill; or he may by a letter accompanying the check state that the check is sent as full satisfaction. The acceptance by the creditor of the check under either of these circumstances is an assent by him to the proposition stated on the check or in the accompanying letter, that the check is in full payment. Such an assent, however, does not necessarily prove that the debtor is discharged; consideration as well as mutual assent is essential to the validity of any agreement which is not under seal. Accordingly if the debt was a liquidated and undisputed one, and the check was for less than the amount due, the agreement of the creditor to take it in full satisfaction is not supported by sufficient consideration under principles previously considered. On the other hand, if the debt was an unliquidated one, or there was an honest dispute in regard to the amount due, the creditor's claim is fully satisfied.
RECEIPT IN FULL.—It may be said generally that though a receipt in full is often thought by business men to be a discharge irrespective of consideration, like a release, this is not true in most States. A receipt in full is good evidence, if payment has been made in full, that it has been so made; but where payment has not been made in full a receipt will not be effectual without consideration, as a release under seal would be.
RENUNCIATION OF OBLIGATION ON NEGOTIABLE INSTRUMENT.—There is one case where the law allows a party who has a right to surrender it without consideration. This is by virtue of the Negotiable Instruments Law, which provides that the holder of a note may discharge any party to it by a written renunciation of his claim. No particular form of words is necessary, but the renunciation must be in writing. No consideration is necessary.
ALTERATION OF WRITTEN CONTRACTS.—The alteration of a written contract in a material particular with fraudulent intent by a promisee in effect discharges the contract so far as he is concerned. He cannot enforce it either in its original form or its altered form, though the other party to the contract may enforce it against him. If the alteration is not material, the contract may be enforced even by the party who altered it whatever the motive of the alteration may have been. If the alteration is material but not fraudulently intended, that party is generally allowed to enforce the contract in its original form. No alteration by a third person affects the rights of a party to a contract. By material alteration is meant one which if given effect would alter the legal obligations of the parties to the contract. The rule of the Negotiable Instruments Law in regard to alteration of negotiable instruments, it should be observed, is somewhat more severe than that generally prevailing in regard to other contracts.
SUGGESTIONS FOR DRAFTING CONTRACTS.—While it is unwise to attempt the drafting of any contract at all complicated, without the services of an attorney, there are certain times when it may be necessary to act suddenly, and a few fundamental facts should be kept in mind. If you are called upon to draft a contract for two other people, the first requisite is to obtain as full information as possible from both parties as to the plans they have in mind. After obtaining this, the details should be arranged in writing, gone over carefully by the draftsman, and submitted to the parties for their approval. A most common mistake made by laymen is to fail to cover contingencies which are more or less likely to happen. For example, what effect would the death of either party have on the contract? This should be provided for. The careful draftsman, whether he be a layman or a lawyer, should draw contracts with the idea of making them so plain that litigation will not result. Contracts should always be drawn in duplicate, so that each party may have a copy, and it is well, if you are the draftsman, to keep a copy for yourself. It is not necessary to appear before a notary public unless you are dealing with a deed, or a similar formal document. If there is good consideration for the contract, no seal is necessary, but under some statutes, a sealed contract is good for a longer period of time, so that there is an added advantage in having the contract under seal.
QUASI CONTRACTS.—The term quasi contract is one which has appeared within the last thirty years. The law in this branch of contracts is still in the process of development and the field of quasi contracts is still not one of settled limits. For our purposes we confine ourselves to those obligations arising from "unjust enrichment," that is, the receipt by one person from another of a benefit, the retention of which is unjust. The term "enrichment" has recently been criticized by one of the ablest writers on this topic, as there are many cases where it is sufficient to show that the defendant has received something which he desired, although the question whether he is thereby enriched, is immaterial. In Vickery v. Ritchie, 202 Mass. 247, we find that where A renders services, and furnishes materials and supplies for the erection of a building for B under a supposed contract and the contract itself is invalid, B is under a supposed quasi contractual obligation to pay A for the services he has rendered and the material he has furnished, regardless of whether B's property is increased in value. We may state the point to be emphasized in quasi contract is the fact that the retention of the benefit received by the defendant would be unjust rather than "enrichment."
DISTINGUISHING CHARACTERISTICS.—There are four characteristics which distinguish quasi-contracts: 1. The obligations of quasi contracts are imposed by law without reference to the assent of the obligor. 2. They are imposed because of a special state of facts and in favor of a particular person and do not rest upon one at all times and in favor of all persons. 3. Although equitable in their origin they are enforced by a common law court. 4. They require that the obligee shall be compensated for the benefit which he has conferred upon the obligor and not for any loss suffered by the obligee.
APPLICATION OF THE PRINCIPLE.—The following are the more common illustrations of the application of the principles of quasi contracts. Where there has been a mistake, and hence the minds of the parties never really met, yet benefit has really been conferred; or, where the attempted contract cannot be enforced as a contract, because it did not comply with the statute, or was illegal, and yet one of the parties has received a benefit; or, where a benefit has been conferred under compulsion or duress.
MISTAKE.—Where parties have attempted to make a contract and a mistake of fact occurs, no contract results. The minds of the parties never really meet. Yet if benefits have been conferred, justice requires that the benefit should be returned, or compensation given, and this, in fact, is just what the law seeks to do when there has been such a mistake that upon the attempted contract itself no suit can be brought. The essentials of mistake, and the way in which a mistake usually arises, are:
(1) It would not be a mistake if a party had paid money when he had any reason to suppose it was not due. A recovery of money under such circumstances cannot be allowed.
(2) The payment must have been induced by mistake in order to allow the recovery. This rule prevents the recovery of money paid in settlement of a disputed matter; but it must be assumed that it was to the party's interest to make the payment. However, suppose that a compromise settlement has been made in the belief that certain facts were different from what they really were. Here the mistake would have induced the payment, and, hence, in such a situation a recovery will be allowed.
(3) The fact regarding which a mistake has been made must also be a material fact, and the fact must have been a part of the transaction itself, not collateral to it in any way. A mistake as to the value of an article purchased, for instance, is not a material fact.
(4) Ordinarily, money paid under mistake of law cannot be recovered, although it is against conscience for the defendant to retain it. A mistake as to the law of another State, however, is a mistake of fact, and money paid under such a mistake can be recovered.
(5) Where the party who mistakenly parted with the money did so because of his own negligence, and to allow a recovery would throw a loss on the other party, he cannot recover what he parted with. One party cannot make another suffer because of his own negligence. Where a party paid money under mistake, and the payee was negligent, the party paying may recover.
(6) When parties suppose they have made a contract, and money has been paid, or services rendered, under that supposed contract, but in fact there was no valid contract at all, or there was a mutual mistake as to a term, this money, or the value of the services, may be recovered.
(7) When money has been paid for the transfer of something by defendant, whether recovery will be allowed in case it should turn out that the defendant had no title, depends on the nature of transaction. If the defendant made a warranty that he had title, a recovery may be had. If, however, the defendant simply sold what he had, whether that was something or nothing, a recovery cannot be allowed unless, as is the law in some States, a vendor impliedly warrants his title by the fact of having possession.
(8) In the case of parties mistaking the existence of a subject matter of sale, if the understanding was that A was purchasing an existing thing, then he can recover the money paid if it should turn out that the thing was not in existence. But if he bought simply a chance, he cannot recover.
BENEFITS CONFERRED UNDER COLOR OF CONTRACT.—Aside from the cases of mistake, there are other grounds for allowing recovery under the principle of quasi contract. A group of these is made up of cases where there cannot be a recovery upon the contract itself, although the parties have come together and agreed without any mistake or misunderstanding, because of the absence of some essential necessary to create an enforceable contract obligation; yet a benefit has been conferred upon the one party who, but for the lack of that essential, would have been liable in an action upon the contract itself. Such cases arise largely where there has been a partial performance of an illegal contract, or of a contract unenforceable because of non-compliance with the statute of frauds, or where full performance is excused by impossibility. Some States also allow recovery on the theory of benefits conferred, where, after partial performance, a party defaults under circumstances not excusing default.
BENEFITS CONFERRED WITHOUT CONTRACT.—We next take up that class of relations where there has been an absence of distinct offer and acceptance, and yet a benefit has been conferred resulting in an unjust enrichment of the other party. If A confers benefit on B, though at B's request, it may be merely a gift. A cannot afterward change his mind and recover for that, as if there had been a contract. A may have paid B's debt in order to prevent a sale of his own property. He may then recover the amount so paid. For example, A left his property with B to have some repairs made. A third party recovered a judgment against B, and A's property was seized on an execution. A paid the judgment in order to release his own property. It was held that he might recover the money so paid from B, who should have paid the judgment. Or A may have paid B's debt because he was surety for B. He then may recover from B the amount so paid; or, if B had two sureties, A and C, and A paid the whole or more than his share, he could recover the share of such payment which C should have paid, on the principle of contribution that equality is equity. But A must have actually made the payment of more than his proportionate share.
THE IMPORTANCE OF AGENCY.—Now that we have finished our discussion of the general principles of contract law, it remains for us to apply these principles to the specific topics of commercial law. Of these, the law of agency is one of the most important. It is perfectly obvious that a man can be in only one locality at a given time. Under modern business conditions he may wish to perform acts in different places at the same time. When business men were first confronted with problems of this kind, the principles of the law of agency began to develop. They resorted to the simple expedient of having others represent them. If these representatives were properly instructed in their duties and faithful in discharging them, there was, of course, no reason why the will of the person who had appointed them was not as fully accomplished as if he had performed the act himself. The Latin maxim, "Qui facit per alium facit per se," that is, "He who acts through another, acts himself," is the basis of the law of agency. The growing importance of the law of agency is strikingly apparent in one branch of modern business. Fifty years ago, the great majority of business operations were conducted either by individuals or by partnerships. To-day, especially in conducting large business enterprises, corporations have replaced individuals and partnerships. Although (as we shall see later in the chapter on corporations) in law a corporation is deemed a separate, legal entity, distinct from the stockholders, in actual practice we know that there is no such distinct physical being as a corporation. It follows, therefore, that every act performed by a corporation must be performed through an agent. With the enormous increase in the number of corporations in the last twenty-five years, and that increase still continuing, we can see that the law of agency is a most important branch of commercial law and very closely connected with corporation law.
AGENCY DEFINED.—Merely for purposes of convenience, it may be best to divide the whole subject of agency into three branches: Principal and agent; master and servant; employer and independent contractor. The term "agency," when used in the broad sense, indicates a relation which exists where one person is employed to act for another. At the outset, we should keep in mind the distinctions between the agent, the servant, and the independent contractor. It is difficult to indicate these distinctions with absolute certainty by definition. An illustration, however, will show clearly what the difference is. I own an apartment house in New York, but as I am not in the city, except infrequently, I employ the real estate firm of Smith & Jones to manage the apartments and collect the rents. They are, of course, my agents, to act in the premises. I own an automobile and I employ a chauffeur to operate the car for me. He is my servant. I own a vacant lot in New York and on it plan to erect an office building. I employ the Smith Construction Company to erect the building. It is an independent contractor. What is the rule, then, to determine the distinction between these three persons? All three persons represent the principal, or the master, or the employer, but the line of distinction lies here: An agent is employed to bring the principal into new contractual obligations; a servant represents his master in the performance of ministerial, or mechanical acts or services, with no thought of bringing his master into new contractual relations with third persons. A person who is employed to perform ministerial or mechanical acts for another, as we have said, is a servant, but there are cases where the master retains no control or right of control of the means or methods by which such work is to be accomplished. In this latter case, the person performing the work is not a servant, but is an independent contractor.
HOW AGENCY MAY ARISE.—Although agency undoubtedly originated from the relationship of master and servant, and that relationship from the enforced service rendered by slaves to their master, to-day the law of agency in the broad sense is a contractual relationship. The agent or servant or independent contractor becomes such upon the express or implied request of the principal. Although agency may exist, in so far as third persons are concerned, without any formal contract between the principal and the agent, yet, in the great majority of cases, there is an actual contract between the parties to the relation. Compensation, although usually an element in the contract, is not necessarily a requisite. For instance, I may be liable for the negligent act of my son in running my automobile in connection with my business, although he is acting without any compensation. There are four methods by which the relationship of agency arises: (1) By contract; (2) by ratification; (3) by estoppel; (4) by necessity.
WHO IS OR MAY BE AN AGENT.—The law of agency, as between principal and agent, is simply an application of the general law of contracts, but as between third parties and the principal, or agent, new questions arise. The first question is, who is an agent and who is a principal? Any employer is a principal and any employee is an agent. The employer is a principal whether he employs the employee for a single act or whether he employs him for a period of time. Besides the ordinary cases that you will think of under the head of employer and employee, an officer of a corporation is an agent, the corporation being the principal. The president of a corporation is as much an agent as a clerk in the employ of the corporation. A partner is an agent—of the firm. These different kinds of agents are distinguished chiefly in the different scope of the authority which they possess.
DISABILITY.—In our discussion of contracts, we found that certain persons were under disability so far as making contracts was concerned. We mentioned the case of infants, married women, insane persons, and the like. The same disabilities do not exist in the law of agency, so far as the agent is concerned. Any person may act as an agent or servant. So infants, married women, slaves, and even lunatics, may be agents or servants whose acts will bind their principals. It has been held that even a dog may be an agent. As to who may be a principal, the ordinary rules of contracts, as we have discussed them, may be relied upon as giving the correct rule.
AGENCY BY CONTRACT.—Concerning agency which arises by contract, little need be said. A contract of agency must possess all of the elements of the ordinary contract, such as mutual assent, consideration, competent parties, legality of object, and in some cases, a particular form. The general principles of contract law as we have discussed them are applicable to this method of forming the agency relationship.
POWERS OF ATTORNEY.—In connection with the formation of agency by contract, special attention must be given to powers of attorney. A power of attorney must oftentimes be given in order to convince third persons that the agent really is an agent, with the powers which he claims to possess. A power of attorney is nothing more than a written statement that a particular person is the agent of another person, with the powers stated in the document. A power of attorney may be very broad, giving the agent very wide powers, or may be narrow, giving the agent or attorney power to do only a specific thing. Now, many powers, so far as the law itself is concerned, might just as well be oral as written, but you could not induce third parties to deal with the agent and believe that he had authority unless he showed as proof of it a power of attorney. That is why a power of attorney is generally given; not that the law requires it, but that the agent may have evidence of his agency which will satisfy third persons that he is really the agent. A corporation would not transfer stock without a written power presented to it; yet, if it chooses to run the risk, there would be nothing illegal in doing so. But it does not choose, and an attempt to compel it to transfer would be held unreasonable unless the authority of the person claiming to be empowered to transfer the stock were in writing and shown to it.
WITNESSED AND SEALED POWERS OF ATTORNEY.—A witness is not necessary on a power of attorney. A witness on a power of attorney has the same effect as on any other document where a witness is not absolutely required, and that is this: if the signature of a document is called in question and the signature is witnessed, the way which the law requires proof of the signature is by calling the witness to testify, and no other evidence is permissible until the witness is produced or his absence accounted for; that is, some adequate reason given and proved for not producing the particular man who witnessed the signature. For this very reason it is sometimes more difficult to prove a signature which is witnessed than one which is not. A signature which is not witnessed may be proved by anybody who has seen the person sign, or who is familiar with his signature, and who can testify that the signature in question is his. The object of a witness is to provide certain evidence that a signature is genuine. The testimony of a witness may be more convincing in case of a dispute than testimony of one who merely recognizes the signer's handwriting. A witnessed power of attorney might be, however, more difficult to prove if the power of attorney were contested than if it was not witnessed, that is, if the witness could not be found. On the other hand, if you had your witness within reach it would be easy to prove the signature by him. The whole matter of witnesses to deeds and other documents, where a witness is not absolutely required, may be thus summarized: it is a good thing to have a witness if the witness is a reliable, well-known person who can always or generally be reached. It is a bad thing to have a witness who is a servant or a person whom you may lose sight of after some time has elapsed. The question may also be asked: How does a power of attorney, when given under seal, compare with one without a seal? One is as good as the other, except that if it is desired that the attorney or agent shall execute any instrument under seal, such as a deed of real estate, the power must itself be under seal; but a power to do anything which does not require the execution of a sealed instrument is just as good without a seal as with one. This, however, is true; if the power contains an agreement by the principal not to revoke the power, this agreement will not be binding if there is neither seal nor consideration, but will be binding without consideration if under seal, in a State where seals still have their common-law effect. The principal will be able, it is true, even in such a case, to revoke the power, but he will commit a breach of contract if he does.
AGENCY BY RATIFICATION.—Where the assent of the principal to the act of the agent is given after the act is performed, it is in the nature of a ratification of the act, and is intended to clothe the act with the same qualities as if there had been a previous authority or appointment. Suppose, for example, A and B are acquaintances. Both are wealthy. A is a good judge of horses and knows B likes good horses. A discovers what he considers a good horse and buys it for B at a very low price. He tells B the next day what he has done and B goes to get the horse and tenders the price, but the dealer refuses to sell, as he has been offered a higher price. B has a cause of action for breach of contract, for by ratifying A's act, he has made a binding contract between himself and the dealer. Suppose in the same illustration, A had selected two horses for B, but when B saw them he decided to take only one of them. In that case, there would be no contract, for it is fundamental that a ratification, to be effective, must be of the whole contract, and not of a part. A ratification, once it is given, dates back to the original transaction and is irrevocable.
FORMATION OF AGENCY BY ESTOPPEL.—An estoppel may be said to arise where a person does some act which will preclude him from averring anything to the contrary. So, if one holds out another as his agent, he is estopped to repudiate the acts of such a person within the scope of his ostensible authority. In the case of Bradish v. Belknap, 41 Vt. 172, the facts were that for a long time prior to 1863, B was the agent of the defendants in selling stoves. This fact was generally known and was well known to the plaintiff. In 1863 B ceased to be the agent of the defendant, but continued to sell stoves, which he purchased of the defendants. No public notice of the termination of the agency was given, nor was the fact known to the plaintiff. B continued to represent himself as agent of the defendants and was in the habit of taking notes for stoves sold, payable to the defendants, and this was known to the defendants. The plaintiff, believing B to be the agent of the defendant, offered to buy a stove of him and pay him in pine lumber. To this B assented and the lumber was accordingly furnished to B and the defendants, together with other lumber which the plaintiff charged up to the defendants. The defendants later attempted to escape liability for the lumber furnished in excess of the value of the stove. The court, holding them liable, said: "B during all this time was perfectly poor and irresponsible, and this fact was known by both parties. B represented himself as the agent of the defendants, and the conduct of the defendants was such as to justify the plaintiff in regarding them as the principals; and we can hardly conceive it possible under the circumstances that the defendants did not understand that the plaintiff so regarded them. And to allow them now to deny the agency and thus defeat the plaintiff's right to recover for the balance of the lumber would be permitting them to perpetrate a palpable fraud on the plaintiff."
ESTOPPEL DEFINED.—This term will occur several times in the different topics of commercial law. An estoppel may be said to arise when a party by conduct or language has caused another reasonably to believe in the existence of a certain state of things and the other party acts on that belief, the first party is precluded from denying the existence of that state of things to any one who has justifiably relied on his language or conduct.
ILLUSTRATION.—There is a common saying in admiralty, that a seaman's claim for wages is nailed to the last plank of the vessel. So if boatswain John Silver is left unpaid by his vessel in London and he later finds the vessel in New York, although its ownership has entirely changed meanwhile, he may still file a libel for his wages and have the United States Marshal for the Southern District of New York seize the vessel. Suppose however you contemplate buying a vessel. You go on board with the present owner and while all the members of the crew are lined up on the main deck, you ask him in a voice loud enough to be heard by everybody whether there are any unpaid wage claims. He replies that everything is paid to date. The crew remain silent. You purchase the vessel and a few weeks later members of this same crew seek to collect from the vessel a wage claim of one year's standing. Their claims against the vessel or against you as owner are unenforcable. In other words, they are estopped because of their conduct when you purchased the vessel. If a person does not speak when he ought, at times the law will not allow him to speak when he wishes. Boatswain Silver had never done anything to preclude him from asserting his wage claim. His, therefore, is not a case of estoppel.
AGENCY BY NECESSITY.—The authority of the agent may be enlarged by some particular necessity or sudden emergency in which case it is the duty of the agent to act, even though he cannot receive the advice or directions of his principal. This method of creating the agency relationship is one upon which the courts are not agreed, and there is great conflict in the decisions. The case of Gwilliam v. Twist, (1895) 1 Q. B. 557, and 2 Q. B. 84, is a good illustration of how close the line may be drawn. The facts were that the driver of an omnibus belonging to defendants became intoxicated while on duty and was taken from his seat by a policeman. A man who happened to be standing near volunteered to drive the omnibus to the defendant's yard, and the driver and conductor acquiesced, the former warning him to drive carefully. The volunteer in negligently turning a corner ran over and injured the plaintiff, who brought action for damages against the defendants, owners of the omnibus. The trial court held, with considerable hesitation, that the defendants were liable for the injury, placing its decision upon the ground of agency by necessity; but the court of appeal reversed the decision on the ground that the necessity did not sufficiently appear, since the defendants might have been communicated with, and left open the question whether, if there had been an actual necessity, the defendants would have been liable.
RIGHT OF PRINCIPAL TO DILIGENT AND SKILLFUL SERVICE.—Let us consider, first, the rights of the principal and agent as between one another. The rights which the principal has against the agent are, first, a right to have the employee render reasonably diligent and skillful service. The amount of skill which the employer can fairly demand from his agent depends on the character of the contract between the two and on the circumstances justifying the principal in expecting a greater or less degree of skill. When a man employs an expert accountant to act for him he has a right to expect greater skill than if he were employing an ordinary bookkeeper. It depends on the character of the work and of the man employed. The amount of compensation paid to the employee may also have a bearing on the amount of skill the employer has a right to expect.
RIGHT OF PRINCIPAL THAT AGENT SHALL NOT EXCEED HIS AUTHORITY.—The second right that a principal has is to demand from his agent that the agent shall act in obedience to instructions and only within the limits of his authority. These limits may be fixed expressly in the contract between principal and agent, or they may be left wholly to implication from the nature of the employment. Perhaps more commonly they are partly fixed by express agreement and partly fixed by natural implications which arise from the nature of the employment.
RIGHT OF PRINCIPAL TO ACCOUNTING.—Thirdly, the principal has a right in financial dealings with his agent, or in regard to financial dealings of the agent with third persons, to demand an account from his agent. It is not enough that the agent actually expend money intrusted to him correctly; he must furnish a correct account of expenses and of collections.
RIGHT OF PRINCIPAL TO FIDELITY.—Finally, the agent is under a duty of fidelity or loyalty to his principal. The principal is entitled to demand that the agent, unless the contrary is agreed, shall make the employment or agency his sole interest in regard to that particular thing. Of course, in many agencies the agent is undertaking a great deal of outside business besides the particular agency in question, and he has a right so to do so long as the principal has not engaged his whole time, and so long as one agency does not interfere with another. But that last is an important point. An agent who undertakes one task for one principal which occupies only one-tenth of his time cannot take another employment which is inconsistent with that. An agent to sell a particular kind of goods for one principal, even though his agency is not expected to take the agent's whole time, cannot undertake an agency for a competing principal. The two things are inconsistent, and the agent would be disloyal if he accepted.
SIDE COMPENSATION.—Then, again, the agent must not get what may be called "side compensation" of any sort. His whole compensation as agent must be what is due him directly from the principal under the agreement. For instance, if a buyer for a department store gets paid a commission by a firm from which he buys goods, that is a side commission which the buyer as an agent has no right to take; and so strict is the law, that if an agent does take any such extra compensation the principal has a right to recover it from him. Of course, if the principal agrees to side compensation, it is all right for the agent to take it; when the principal agrees to it, it ceases to be what we have called side compensation and becomes part of the agent's direct compensation to which he is entitled under his bargain with his principal.
ACTING AS AGENT FOR BOTH PARTIES.—One of the most common difficulties that agents get into in regard to this requirement of fidelity, and sometimes with entirely good faith, is undertaking to act as agent for both parties. That cannot be done unless each party especially agrees that the agent may act for the adverse party. An attorney-at-law cannot represent two sides of a case. A real estate broker cannot represent buyer and seller, and a stock broker cannot represent buyer and seller. Stock brokers have one practice which perhaps may seem to infringe this rule. A customer comes into a broker's office and says he wants to buy 100 shares of New York Central. About the same time another customer comes in and says he wants to sell 100 shares of New York Central. Now, must a broker go on the exchange and make a purchase for one customer and then a sale for the other, or may he, so to speak, negotiate through himself a sale for the customer who wants to buy from the one who wants to sell? What he frequently does, in fact, is this: He buys and sells from himself, but publicly, giving other brokers the chance to buy or sell if they wish. The broker, according to the rules of the New York Stock Exchange, cannot execute this transaction secretly in his office, but must offer the securities in question on the exchange, and the purchase and sale must be recorded on the ticker. If the bidding and asking prices are more than an eighth apart, he may offer the New York Central at a price midway between the bidding and asking quotations and buy it himself and charge each customer a commission, but he must actually make the offer or bid aloud on the floor. The broker is technically acting for both parties, but he is not fixing the price. He makes an open bid on the exchange, and it may be that would save the transaction.
AGENT'S RIGHT TO COMPENSATION.—What are the rights of the agent against the principal? They are two. First, a right to compensation; that is, a right to the pay that has been agreed upon, or, if no pay was agreed upon but it was understood that there should be some compensation, then a right to reasonable compensation. It is perfectly possible to have an agency without compensation. Frequently one man agrees to act for another without pay, and an agent who is acting without compensation, so long as he acts as agent, is bound to the same obligations to his principal as if he were receiving compensation, only he can withdraw from his agency whenever he sees fit since he is not paid for it. But unless circumstances show that an agency was understood to be without compensation, it would be implied that reasonable compensation was to be paid to the agent for his services.
AGENT'S RIGHT TO REIMBURSEMENT.—The other right of the agent is the right to reimbursement and indemnity. As the agent is acting for the principal, the principal ought to pay all the bills of whatever kind incurred, so long as the agent is acting rightfully within his authority, and the principal is bound to pay all such bills. This obligation of the principal to pay all the bills of the agency means not simply that he must pay actual expenses, but that if liabilities of any kind arise by reason of third persons suing the agent or holding him liable, if the action of the agent was within his authority, the principal must indemnify against any loss.
PRINCIPAL BOUND TO THIRD PERSONS BY AUTHORIZED ACTS OF AGENT.—Now let us turn from the rights of principal and agent as between one another to the rights of third persons. When do third persons get rights against the principal? In the first place, whenever the agent, acting in accordance with his authority, enters into a transaction with a third person on behalf of the principal, the principal is bound to the third person to just the same extent as if he himself had entered into the transaction; but it is not only in cases where express authority is given to the agent that this principle applies.
IMPLIED AUTHORITY OF AGENT.—In many cases the authority given an agent is not expressly stated. One has to rely on the general course of business and on the nature of the employment to determine the extent of the agent's authority. A third person deals with a cashier of a bank, or deals with the paying teller, or he deals with the president; now whether the bank is bound by that dealing depends on what is by general custom, or course of business, the authority of a cashier or a paying teller or a president. If cashiers or paying tellers or presidents generally have certain authority, then it is a fair assumption that this particular officer has such authority.
AUTHORITY TO DO PARTICULAR ACTS.—An agent to sell has generally no authority to make a sale on credit or to receive anything but money; he cannot barter or exchange the property even in part, nor pledge or dispose of the property to be sold in payment of his own debts. For the sale of land an agent's authority ought always to be under seal, and the provisions contained in this power of attorney will be strictly construed. In a sale of personal property, an agent has implied authority to do whatever is usual and necessary in such transactions. He may receive payment if he has possession of the goods, but not otherwise, and warrant the quality, if such goods are customarily sold with a warranty by agents. He cannot sell on credit unless such is the custom, as in the case of commission merchants, nor pledge or mortgage the goods. The agent may not buy on credit unless so authorized, or it is the custom of the trade; but a principal's direction to purchase, without supplying the agent with funds, will imply authority to purchase on credit. The agent must purchase precisely as directed. An agent to manage has an authority co-extensive in scope with the business, and possesses the same power and authority as the principal, so far as management goes, but the agent may not sell or dispose of a business, nor mortgage the property used in carrying it on, nor engage in new and different enterprises. Public agents, i. e., public officers, cannot involve their principals, the municipal corporations whose officers they are, in contract liabilities with third parties unless actually authorized to do the act in question; and all persons dealing with them must inform themselves of the scope of their legal powers.
APPARENT AUTHORITY OF AGENT.—But it is not only in cases where the agent is expressly authorized, or authorized by such implication as we have just alluded to, that the principal is bound. There is the further case where the agent has apparent authority, although, as a matter of fact, he has no authority. Take the case of a cashier certifying a check. We will suppose that cashiers, generally, have authority to certify checks. With most cashiers that would be what we have called an implied authority, as it arises from the general nature of their positions though nothing was ever said about it by the bank directors. But suppose in a particular bank it was a rule of the bank, expressly stated and voted by the directors, that the cashier should not have power to certify checks. Now, no one can say that his power here is either express or implied; it is certainly not express, and any implication that might otherwise arise from his position is negatived by the express vote of the directors, and yet if that cashier should certify a check to any person ignorant of this limitation on his authority the bank would be bound by the certification because the cashier has apparent authority. He looks to the world as if he had authority, and seems to the public like any other cashier. Most of the difficult cases in agency, so far as liability of the principal to third persons is concerned, relate to this matter of apparent authority.
ILLUSTRATIONS.—Compare the following case with the case of the cashier above alluded to: A man who is giving some support financially to a book dealer writes a note in which he says, "I authorize A B to buy a stock of books not exceeding, at any one time, $5,000." The book dealer shows that written authority to persons from whom he wishes to buy books. They sell him books, and, unknown to the last person who thus sells him books, he has just before bought a quantity which makes the total largely exceed $5,000. Is the principal liable to the persons who last sold books to the dealer? The answer is no. And what is the difference between that case and the cashier case? In the book case the last seller saw the paper giving authority to the book dealer to purchase. He had no reason to know that the day before a large quantity of books had been purchased. He acted in entire good faith and the deception was natural. Still, the employer, or the writer of the letter, has done nothing here to make the last seller suppose that $5,000 worth of books had not already been bought, nor does the course of business justify the last seller in supposing they might not already have been bought. It was a hard question for him to find out, but on the face of the letter it was evident that any one who dealt with the bookseller might have to determine this question or rely at his peril on the bookseller's word. Here is another case: a town treasurer was authorized to borrow a certain sum of money. He gets a certified copy of the vote and goes to one bank and borrows the money, and goes to another bank with that same certified copy of the vote and borrows the money over again. Is the town liable to the second bank? No; on the face of the paper there was but one loan to the town authorized, and any one who lends the money must at his peril find out whether a loan has already been made. When we say, therefore, that a principal is bound if his agent had apparent authority, we do not mean that whenever a third person is deceived into the belief that the agent has authority, the principal is bound. Quite to the contrary, the principal must have in some way been the cause of that deception; he must have caused it either by some express representations, or he must have caused it by putting a man in a place where the general course of business would induce the public to believe the agent had greater powers than he had.
GENERAL AND SPECIAL AGENTS.—It is much easier to find a case of apparent authority, which will bind the principal, if the agent is a general agent than if he is a special agent. A special agent is an agent authorized to do one act, as this town treasurer was authorized to make one loan. The cashier is a general agent, authorized to do any of the great variety of acts which cashiers ordinarily do, and if the directors vote to take away one of the normal powers of the cashier, they must make the limitation public or the bank will be bound by the cashier's act.
UNDISCLOSED PRINCIPAL.—Not only may the third person hold the principal liable in cases where the agent purports to act for the principal, but also in cases where the agent does not disclose his principal at all and purports to act as a principal himself, so long as it is true that the agent really was acting in the principal's business. Suppose a selling agent for a manufactory enters into a contract for the sale of goods produced in the manufactory. The selling agent, we will further suppose, contracts—as selling agents often do—in his own name; but he contracts in regard to the sale of the product of the principal, the manufacturer, and on his behalf. Now, assume that this contract of the sales agent was authorized; the third person may sue the manufacturing company, though he did not know of the existence of the manufactory at the time he entered into the contract, and supposed he was contracting simply with the agent. As it is phrased in law, an undisclosed principal is liable, and conversely, the undisclosed principal may sue on this contract made by the sales agent.
RATIFICATION.—If an agent acts beyond his authority, the principal, if he chooses, may ratify the acts of the agent. Occasionally in an emergency it becomes necessary for an agent who has his principal's interest at heart to take a chance and act beyond the authority given him. In such a case, if the principal ratifies it, it is all right, both as far as the agent is concerned, and as far as the third person is concerned; but, of course, the principal is under no legal obligation to ratify.
RIGHTS OF PRINCIPAL AGAINST THIRD PERSONS.—Now, the right of the principal against the third person is the converse of the right of the third person against the principal, of which we have been speaking. Generally when a transaction is of such a sort that the third person would have a right of action against the principal, if the principal fails to do as he agreed, the principal will have a right of action against the third person if the latter breaks his agreement.
PRINCIPAL IS LIABLE FOR TORTS OF AGENT.—Not only is the principal liable for the contracts of his agent, but he is also liable for any tort which an agent may commit, so long as he is acting in the course of his business. Of course, accident cases present the commonest type of that sort of liability. A street railway is liable for the results of its motor-man's neglect, so long as the motorman was running the car. If the motorman got off the car on a frolic of his own, the street railway would not be liable for anything he might do then. The same principle may be found in other cases than accident cases. Suppose officers of a corporation wrongfully overissue stock. If those officers were the officers authorized to issue stock, and, therefore, were acting in the general course of their business, the corporation would be liable for that tortious act in overissuing stock.
AUTHORITY MAY GENERALLY BE ORAL AS WELL AS WRITTEN.—The authority given by a principal to an agent may in general be oral as well as written; it is just as good. There are, however, a few exceptions to that. In the first place, an authority given to an agent to execute an instrument under seal must itself be not only written but under seal. An oral or a written authority, if not under seal, given to an agent to convey land, which must be conveyed by a sealed deed, would not enable the agent to make a valid deed. Where the effect of seals is abolished this principle is of course no longer applicable. Generally an agent orally authorized to make a contract to buy or sell land may bind his principal by entering into such a contract. The contract the agent enters into, must, because of the Statute of Frauds, be in writing, and signed, but the agent's authority generally need not be written. In some States, however, written authority is required by statutes.
PROXIES.—A proxy is simply a written power of attorney to an agent, authorizing him to vote for a stockholder, and there, too, a corporation would be held justified in refusing to recognize any proxy that was not in writing, or any agent who did not have a written proxy even though proxies were not required to be in writing.
LIABILITY OF AGENT TO THIRD PERSONS.—How about the rights and duties of the agent as against the outside world? The agent is liable to a third person if he commits a tort. It does not make any difference that the principal is also liable, the agent is liable too. The third person may sue either the principal or agent as he prefers; he cannot get compensation for his injury more than once, but he can get that either from the principal or agent, whichever is more convenient. The third person may hold the agent liable if the agent contracts for an undisclosed principal. In the case of the sales agent referred to a moment ago, where the agent was really acting as agent for a manufacturer but did not say so, the third person might sue the manufacturer on the contract; but he might sue the agent, and if the agent was held liable the agent would have to seek reimbursement from the principal.