Y;iR
iill
WILLIAMS y ROGERS SERIES
A SHORT COURSE IN
COMMERCIAL LAW
BY
FREDERICK G. NICHOLS
DIRECTOR BUSINESS EDUCATION
DEPARTMENT OF PUBLIC INSTRUCTION
ROCHESTER, N.Y.
AND
RALPH. E. ROGERS
OF THE NEW YORK BAR
AMERICAN BOOK COMPANY
NEW YORK CINCINNATI CHICAGO
COPYRIGHT, 1913, BY
FREDERICK G. NICHOLS AND
RALPH E. ROGERS
W P. I
PREFACE
THERE is an insistent demand for a commercial
law text that can be covered thoroughly and com-
pletely in a comparatively short time, and this book
has been prepared to meet these conditions.
The authors have included in the text all the
essential topics, and have kept the book within the
prescribed limits by excluding topics that are not
of sufficient importance to be a part of every com-
mercial course. The language used in the text is
neither legal nor technical, so that teachers, even
without special legal training, will find the subjects
easy to teach and unusually interesting to the student.
The actual cases presented in connection with the
legal principles treated in the text were selected with
great care from court records, and their study in con-
nection with the study of the legal principles on
which the decisions were based cannot fail to add
greatly to the interest in, and value of, the subject.
The lesson plan is a feature which it is believed
will be appreciated.
298951
CONTENTS
PAGE
LAW IN GENERAL i
CONTRACTS 5
PARTIES 8
SUBJECT MATTER 12
MUTUAL ASSENT -15
CONSIDERATION 23
DISCHARGE . . . . . . . .28
PROPERTY 63
CONTRACTS FOR THE SALE OF PERSONAL PROPERTY 70
REAL PROPERTY CONTRACTS 100
CONTRACTS FOR THE BAILMENT OF PERSONAL
PROPERTY 124
INNKEEPERS 137
COMMON CARRIERS 142
NEGOTIABLE INSTRUMENTS 154
BILLS OF EXCHANGE 164
NEGOTIATION AND INDORSERS . . . .169
FIRE INSURANCE 189
LIFE INSURANCE 196
GUARANTY AND SURETYSHIP . . . . 216
AGENCY .* 233
PARTNERSHIP 250
CORPORATIONS 267
PROCEDURE AND REMEDIES 287
INDEX ^ , . .295
iv i
y
A SHORT COURSE IN
COMMERCIAL LAW
LESSON I
LAW IN GENERAL
1. DEFINITION.
2. CLASSIFICATION.
3. COMMERCIAL LAW.
1. Definition. Law has been defined as "a rule
of action/' on the theory that all action is governed
by some well-defined law.
2. Classification.
AS TO SCOPE
Natural Law is that law according to which all
nature is governed and has, therefore, a wider scope
than any other kind of law.
Moral Law is the law of right and wrong which
should govern all human beings in their intercourse
with each other. It stands next to natural law in
scope, since it is world wide in its application.
International Law is that law accord ng to which
dealings between citizens of different countries are
carried on. It has its foundation in treaties, cus-
2 LAW IN GENERAL
toms, aricl' agreements which hive been entered into
from time to time between nations for the guidance
of their citizens in their intercourse with each other.
Municipal Law is the law which is made by, and
for, the benefit of any unit of government. The
laws of cities, counties, states, and nations belong
to this class. This book treats of one branch of this
law.
AS TO SOURCE
Constitutional Law is that law which has its origin
in formal constitutions adopted by the people of
any state or nation. The purpose of a constitu-
tion is to protect the rights and interests of the
people as a whole, and to provide a broad founda-
tion upon which to build a satisfactory government.
Only the broadest rules of conduct can be laid down
in a constitution.
Common Law is the name given to rules of action
which have become fixed through long usage by the
people of England and by the decisions of English
courts. In early times when men first began to
deal with each other, it became necessary to settle
disputes that arose between individuals, and for
this purpose a small body of men were often called
together to hear the facts in a disputed transaction.
Upon hearing all the evidence these men rendered
a decision. When other disputes of a similar nature
arose, it was customary to settle them in accordance
with the decision which had been reached in the
previous case. Soon this precedent came to have
LAW IN GENERAL 3
the effect of law. At first these decisions were not
reduced to writing and therefore had no permanent
form. Later, when courts had been established for
the trial of disputed claims, it became customary to
make a permanent record of all decisions, together
with the facts upon which the decisions* were based.
Thus, the great underlying principles upon which all
laws are based at the present time, are embodied in a
long line of court decisions.
Statute Law. A statute law is a law made by any
legislative body. Much of the common law has
been reenacted in the form of statutes. When the
IJnited States became an independent nation, jj-
was determined that all the common law of Englanc^.
and so much of the statute law of England as was
applicable to our changed conditions, should he cojj-
sicTered the Common law**of this country 7 and this
law is still in force except where changed by statute^
In the preparation of a book on Commercial Law-
it is necessary to adhere rather strictly tn t\^f
commorilaw. __ Where the common law has been
changecTby statute in any state, it will be necessary
for students in that state to consult the statutes.
[ c In this country the highest law under which W.
live"Ts the Constitution of the United States.^ Next
to this in authority are the laws enacted by Congress,
\ The Constitution of thf^tr ' n w^ 1 '^ wp l' vp rnmpg
next in authority, and tne statute laws enacted byihs,
legislature of the state stand fourth^ Congress has the
'Tight to legislate only regarding interstate matters.
4 LAW IN GENERAL
AS TO JURISDICTION
Criminal Law is that part of the law which has to
do with the prevention and punishment of acts which
are committed against the welfare of society as a
whole, or any part of it. When a person steals a
watch, this act of stealing is one that would en-
danger the property of the entire community in
which the property was stolen, as no member of the
community could be sure that his property would
not be taken if the thief were allowed to go un-
punished.
Civil Law is that part of the law^adiictLhas to do
with the relations between individuals. Whena
person enters into a contract with another, and thjea-
refuses to carry out the terms of his agreerjQft*- r t] i re
onjy person who is injured is theone with who thf
contract was made. The^cTvil Hrw is invoked against
the one who has failed to carry out the terms of
his contract.
3. Commercial Law. Commercial law is th^t
part of the civil law which has to do with the re-
lations of persons in business. In treating this sub-
ject, it has seemed best to consider contracts in
general first, and then to deal with the special con-
tracts of personal property, real property, negotiable
instruments, bailments, .common carriers, innkeepers,
insurance, guaranty and suretyship, agency, partner-
ship, and corporations.
It will be noticed that the subject of contracts
CONTRACTS 5
runs through the entire book, and in treating the
various subjects named, the contractual side is
emphasized.
The chief purpose of commercial law is to familiar-
ize students with the fundamental principles of law,
in order that they may know their rights, and also
that they may avoid making mistakes in their busi-
ness dealings which would involve them in legal
difficulties. While a person may safely handle
legal matters of minor importance, it is not intended
that those who complete the study of this text
shall become their own lawyers, but rather that
they shall know when the services of a lawyer are
required, and to the utmost degree conduct their
business in such a way as to eliminate the necessity
for the employment of legal service.
LESSON II
CONTRACTS
4. DEFINITION.
5. ELEMENTS.
6. CLASSIFICATION.
4. Definition. A contract is an enforceable agree^.
ment between two or more competent persons^ based,
upon consideration or in writing under seal, resulting^.
injegal_obligation to do or not to do some particular
tiling.
CONTRACTS
5. Elements. From the definition it will be seen
that there are four essential elements of a contract :
.) Two or more competent persons.
Legal subject matter about which to contract.
utual assent to the terms of the contract.
Legal consideration or the formality of a seal.
These elements will be studied separately after
contracts have been properly classified.
6. Classification. Contracts are divided as to form
into express and implied contracts. Contracts are
also divided as to fulfillment into executed and
executory contracts.
An express contract is one in which the intentions
of the parties and the terms and conditions of the
agreement are settled and expressed when the con-
tract is made. It is complete in itself. An express
contract may be either formal or simple (parol).
An^ implied contract is one in which the parties do
not n\ake an agreement in words, but by their acts
show anintention to contract, and from these acts an.
agreement in tact "is implied and mutual obligations
arise. For example, a ouiider went to a lumber
merchant and said, " Send twenty bunches of
shingles of A No. i grade to 187 South Ave." The
merchant replied, " All right, they will be delivered
to-day." The contract of sale is expressed, but the
contract to pay the market price is implied. When
a person steps on the street car, he enters into an
implied contract with the railway company in which
T
y vo-
CONTRACTS 7
it agrees by implication to carry him to his destina-
tion if such destination is on its line, either direct or
by transfer, and to use due diligence and care to
carry him safely, and he impliedly agrees to pay the
regular fare for the service. This contract is implied
from actions without spoken words^
There is another form of implied contracts, called
constructive or quasi contracts. These are not true
contracts, since there Ts*no agr^rnent Kpi-wfr" th^
p^r t i^c pniM-K^ ] nw impli^s a contract relation on_
accountof the simplicity of the remedy and because
reason and justice require that some obligation
should exisE For example, if A, to save himself
from loss, should pay a debt which B should have
paid, A may bring action against B just as though
B had made a contract to pay A that sum of money.
Clearly there is no sort of agreement between A
and B, but the law implies an agreement in order
that A may receive what is justly due him.
Since a contract is essentially an agreement be-
tween the parties, it need be in no particular form,
and may be written or oral.
A formal contract is a written contract under
the seals of the parties, and is called a contract hp
specialty. Of this sort are bonds, deeds, mortgages,
c. ^f^^^t^-^
All contracts other than; specialty contracts/ are
called simple or parnl rr>nfr?g*s These may be_
either oral or written and no special form of wnH? is
necessary. At Common Law the only simple con-
8 . CONTRACTS
tracts required to be in writing were those in the
form of negotiable instruments, but various statutes
have added to this requirement.
An executed contract is one the terms of which have
been carried out. Npjjiing remains to be done by
to the contract.
An executory contract is one for the fulfillment of
which something relrmjns fo be done. A contract
maybe executed_as JIQ one party and executory as
to the other. For example, A sells and delivers his
"norse to B, who promises to pay A $150 at a certain
future time as full payment for the horse. The con-
tract is executed as to A, and executory as to B.
LESSON III
PARTIES
7. IN GENERAL.
8. INFANTS.
9. PERSONS MENTALLY INCOMPETENT.
10. MARRIED WOMEN.
11. ALIEN ENEMIES.
7. In General. Since every contract is an agree-
ment, there must always be at least two persons con-
cerned. In general, any person may make a contract
upon any terms he pleases. There are certain classes
of persons, however, who are unable to enter into
contracts that will bind them, with a few exceptions.
PARTIES 9
These are infants, persons mentally incompetent,
married women, and alien enemies.
8. Infants. At common law every person under
the age of twenty-one years is an infant. In some
states the age of majority has been changed by
statute. The law considers that an infant is unable
properly to preserve his property, and for his pro-
tection has decreed that he cannot make a contract
that will be binding on him except in certain cases.
This does not mean that an infant's contract is
absolutely void, it is merely voidable. When he
becomes of age, or before, he may repudiate the con-
tract. He may ratify it when he becomes of age, and
if ratified it becomes a valid contract in all respects.
The privilege of disaffirming a contract on the
ground of infancy is a personal one of which none
except the infant can take advantage. Neither a
parent nor a creditor carr disaffirm an infant's
contract. Nor can the adult with whom the infant
contracts disaffirm or repudiate the contract.
There are two exceptions to this general rule re-
garding the ability of an infant to contract, j^irs^t,
he can always bind himself to pay for the necessa-
ries of life, such as clothing, lodging, education, etc.,
provided he contracts for such things as are suited
to his station in life, and which have not already been
furnished him. An adult dealing with an infant
must ascertain whether or not things purchased by
him are necessaries. Even in the case of necessaries,
the law will protect the infant who has agreed to pay
io CONTRACTS
an excessive price. His contract will be set aside
and the seller will be permitted to recover a reason-
able price.
An infant may repudiate his contract, even though
he is not in a position to restore the other party to
his original position as regards the thing contracted
about, but, if possible, he must restore anything re-
ceived under the contract. For example, an adult
who sells a horse to an infant will be obliged to re-
turn the purchase price upon the request of the in-
fant, even though the horse has died since the con-
tract was made.
It is generally held that a contract by which an
infant secures the services of another as his agent is
void, not merely voidable, particularly where the
agency relation is created by a power of attorney
under seal.
9. Persons Mentally Incompetent. Since a meet-
ing of the minds of the parties is necessary to
create a valid contract, a person who is mentally in-
competent cannot make a valid contract except for
necessaries. Accordingly, a person may avoid a
contract by showing that he was insane or intoxicated
when the contract was ma'de, and that his condition
was apparent, or otherwise known to the other party.
Such a contract is voidable, not void, and may be
ratified when the person is restored to a rational
mental condition. A person may be judicially de-
clared incompetent on account of idiocy, insanity, or
habitual drunkenness, and a guardian will be ap-
PARTIES 1 1
pointed to manage his property. Thereafter the
incompetent can make no valid contracts, as his
guardian has full charge of his affairs.
If a person innocently makes a contract with one
who is insane at times and rational at other times,
he may enforce the contract if it be one of a kind the
repudiation of which would cause a loss to him. This
would not be true, however, if the insane party had
been declared insane judicially. It would come
under the general rule that where one of two innocent
persons must suffer a loss, the one who made the loss
possible is the one who should stand it.
10. Married Women. Under the common law,
when a woman married her property rights were
merged in those of her husband. She lost her iden-
tity as far as the contracting privilege was concerned.
This common law disability has been quite largely
removed, and in many states a married woman may
contract as freely concerning her individual property
as she could have done when single.
11. Alien Enemies. When a country is engaged
in war it is important that its citizens should have
no dealings with the hostile country. It is assumed
that while they are at war their interests are ad-
verse, and to permit dealing of any kind at that
time would open a way for unscrupulous citizens
to make private profit out of harmful business,
such as furnishing arms or other munitions of war.
Considerations of public policy demand the sus-
T2 CONTRACTS
pension of all contracts between alien enemies in
time of war.
LESSON IV
SUBJECT MATTER
12. IN GENERAL.
13. ACTS AGAINST PUBLIC POLICY.
14. IMMORAL ACTS.
15. FRAUDULENT ACTS.
12. In General. We have discussed the first
element of a contract and now turn our attention
to the second element, namely, subject matter. The
subject matter of a contract is the thing about which
the agreement is made. The only requirement is
that the subject matter shall be lawful. Anything
which is in itself unlawful cannot be the subject of a
legal contract the fulfillment of which would require
the performance of an unlawful act. Among the
acts that are considered unlawful are,
ACTS AGAINST PUBLIC POLICY
(a) Unreasonable restraint of marriage.
(/>) Unreasonable restraint of trade.
(r) Subversion of governmental functions.
IMMORAL ACTS
(a) Bets or wagers.
(b) Acts in desecration of the Sabbath.
(c) Criminal acts.
SUBJECT MATTER 13
FRAUDULENT ACTS
The law will aid neither party to contracts under
any of the above heads, since both are equally guilty
of wrong doing in entering into the contract. This
is true even though refusal to recognize the contract
relation would enable one or more of the parties to
gain an advantage over the other.
13. Acts against Public Policy. (a) Contracts
in restraint of marriage are lawful if they are reason-
able in view of all the circumstances. If, for ex-
ample, a father enters into a contract with his son,
providing for the payment of a specified sum of money
on condition that the son will refrain from marrying
until he is twenty-five years of age, such a contract
is reasonable and would be upheld by the courts.
If, however, the contract had provided that the son
remain single during his lifetime, it would be con-
sidered an unreasonable restraint of marriage con-
trary to public policy, and the law would not recog-
nize it as a valid contract.
(b) The same general principle applies to contracts
in restraint of trade. If a retail meat dealer should
sell his market and agree not to enter into the same
kind of business in the United States, such a contract
would not be upheld by the law as it would be con-
sidered an unreasonable restraint of trade. If,
however, the agreement provided that the seller
should not engage in the same business in a locality
where he would draw any of his old trade, the con-
14 CONTRACTS
tract would be lawful and could be enforced. Only
such contracts in restraint of trade can be made as
will protect the interests of the contracting parties.
(c) A contract, the purpose of which is to interfere
with the natural course of justice, is one subversive
of a governmental junction. For example, A agrees
to pay B $100 if he will testify falsely regarding a
case in which he has been called as a witness. Such
an agreement would be void. Likewise, a contract
for the sale of a public office or any emolument
thereof would be classed under this head.
14. Immoral Acts. (a) In the case of bets or
wagers a court of law will not recognize such con-
tracts as existing. The winner cannot successfully
invoke the law to aid him in collecting the amount
won nor can the loser call upon a court to assist
him in recovering what he has paid as a result of a
wager. In the case of wagering, where the money
has been placed in the hands of a third party, a
court of law will aid either party in recovering from
the stakeholder the amount placed in his hands by
that party. If the stakeholder refuses to pay it over
upon the demand of the party that placed it in his
hands, he is personally liable for the amount so re-
fused. The law will interfere to this extent, not to
undo an illegal contract, but to prevent the consum-
mation of one.
In the majority of states it has been held that
contracts made in the regular course of business on
Sunday may be enforced. If, however, the business
MUTUAL ASSENT 15
transacted in any way interferes with the observance
of the Sabbath by any individual or class of individ-
uals, such contracts will be void.
Any contract which, if carried out, would cause
one or both parties to commit a crime is void.
15. Fraudulent Acts. Any contract, the object of
which is to defraud one or more of the parties in-
terested, the general public, or other persons, is void
as an immoral act.
LESSON V
MUTUAL ASSENT
16. MUTUAL AGREEMENT.
17. OFFER AND ACCEPTANCE.
16. Mutual Agreement. - We now come to the
discussion of the third element of a contract, agree-
ment or mutual assent. The consent of the parties
to the terms of the contract understood alike by all
the parties concerned, must be complete and definite.
Any agreement that is obtained by fraud or com-
pulsion is invalid, since there has been no real con-
sent by the party defrauded or coerced. A mutual
agreement consists of an offer and an acceptance.
17. Offer and Acceptance. - The offer must be
definite and must be made with the intention of
creating a legal obligation. One made in jest or
1 6 CONTRACTS
anger and so understood by the offeree cannot be
made the basis of a contract.
An offerer may make any terms he pleases in his
offer as to the time, place, manner, or condition of its
acceptance, and may insist on an exact compliance
with them. This is true, however unusual or un-
necessary the terms may be, as there would be no
meeting of minds if the acceptance differed in any
respect from the offer. A conditional or qualified
acceptance is the same as a rejection of the offer, and
is in reality the substitution of a new offer which can
be in turn accepted or rejected by the original offerer.
An offer should be accepted in the exact manner in
which it is offered unless some other method is in-
dicated by the offerer.
To be effective, the offer must be communicated
to the offeree with the knowledge and consent of the
offerer. If A renders services for B without B's
knowledge, B is not bound to pay for them as there
is no contract. Also, if A captures a criminal with-
out knowing that a reward has been offered for such
ervices, he cannot claim the reward.
An offer does not remain open indefinitely. If the
offer is made orally, it is understood to be withdrawn
when the parties separate. If it is made by telegram
or by letter, it is withdrawn when a sufficient or
reasonable time has elapsed in which the offeree
might have accepted it, usually the day of its re-
ceipt. The offer lapses upon its refusal by the
offeree or on the death or insanity of either party.
MUTUAL ASSENT 17
When it has once been allowed to lapse it cannot
be revived, but a new offer may be made in its
place/ \An offer may be revoked by giving notice
any time before acceptance.^
Only the one to whom the offer is made can accept'
it unless the offer is a public one, when any one toy
whose attention it is brought may accept. If A
offers to pay B for all the ice B delivers to him, and C
buys B's business and continues to deliver ice to A
who does not know of the change, A is not bound to
pay C for the ice delivered by him, since there was no
contract between A and C. A's offer was to B and
C could not accept it.
An offer may require for its acceptance either an
act or a promise. A contract made up of an offer ac-
cepted by an act is called a unilateral contract, as only
one party is bound. Thus, if A offers to pay B ten
dollars if he will walk five miles in an hour, B is not
bound to perform the act, but if he does, A is bound
to pay the money. The doing of the act is itself an
acceptance of the offer and need not be communi-
cated to the offerer.
An offer accepted by a promise creates a bilateral
contract since both parties are bound. Thus, if A
offers to sell B one hundred horses if B will agree to
pay^ fifty dollars each for them, and B so agrees,
both A and B are bound to perform their respective
agreements. The acceptance of the offer is the
promise to pay, and such an acceptance must be