Copyright
Ernest W. (Ernest Wilson) Huffcut.

The elements of business law : with illustrative examples and problems online

. (page 1 of 32)
Online LibraryErnest W. (Ernest Wilson) HuffcutThe elements of business law : with illustrative examples and problems → online text (page 1 of 32)
Font size
QR-code for this ebook


MRPP*



ELEMENTS
BUSINESS

HUFFCUT





. .,' ***'■



9<"




THE ELEMENTS OF
BUSINESS LAW



WITH ILLUSTRATIVE
EXAMPLES AND PROBLEMS



BY



ERNEST W. HUFFCUT



REVISED BY

GEORGE GLEASON BOGERT

PROFESSOR OF LAW IN THE CORNELL UNIVERSITY COLLEGE OF LAW



GINN AND COMPANY

BOSTON • NEW YORK • CHK \<;<> • LONDON
ATLANTA ■ DALLAS • COL1 MB1 FRAN< ISCO



T

1917



COPYRIGHT, 1905, BY
KRNEST W. HUFFCUT






COPYRIGHT, 1917, ISY
LILLIAN HUFFCUT



ALL RIGHTS RESERVED
519.11



gbt Sthtnsum $regg

I. INN AND COMPANY- 1'KO
PK1UTOKS • UUSION • U.S.A.



N

6 PREFATORY NOTE

An effort has been made in this book to state as concisely
and clearly as possible the leading and fundamental principles
of business law, and in place of extended abstract explanations
of them to substitute simple concrete examples showing them
in their actual application to business transactions. In order
that the conclusions drawn in these examples may be verified
and not rest upon mere conjecture, the examples have for the
most part been taken from cases decided in the courts. At the
end of each chapter are given a number of concrete problems
without the conclusions, intended to afford an exercise in the
application of the principles drawn from the text and the exam-
ples. These also have been taken mainly from the decided
cases. The drill in the examples and problems should be con-
stant and thorough, and will be found far more interesting and
instructive and far better calculated to develop intelligent think-
ing and reasoning than the memorizing and repeating of abstract
dogmatic statements.

The arrangement of the book has kept in view a logical anal-
ysis and unfolding of the subject. But if for any reason it
should be thought desirable to deal with negotiable instruments
earlier in the course, it would do equally well to interchange
Parts II and III, giving the latter first.

Should the book prove too extended for the time allotted,
Parts V and VI may be omitted, although it would be well to
cover, if possible, the chapter on partnership. The last three
chapters do not fall clearly within the scope of business law, and
for this reason, and because it lias been the object not unduly
to extend them, the examples and problems have been for t In-
most part omitted and numerous facsimiles of formal documents
substituted. While these chapters deal with somewhat technical
matters, the subjects involved arc of great importance to all who
have property interests.

iii



IV



PREFATORY NOTE



The glossary of legal terms should be constantly referred to,
in order that the nomenclature of the law may be correctly
understood. While the glossary has been made as complete as
practicable, it would be well to supplement it by a good law
dictionary, in which more extended definitions and explanations
may be found.

The work is based necessarily upon the common law. While
the nature of statutory changes has been indicated, the precise
provisions of statutes are rarely given, because these vary so
widely in the different states that such a course would prove
misleading. The difficulties of an accurate statement of the
statutory law in a book of this size are in fact insurmount-
able. Should the teacher be fortunate enough to secure the
cooperation of a local attorney, some progress in this direction
might be made.

It will be found in setting examinations that concrete prob-
lems are better calculated to disclose the practical value of the
student's work than questions calling mainly for definitions,
rules, or abstract statements. E W H

Cornell University College of Law
July 3, 1905



PREFACE TO SECOND EDITION

During the eleven years which have elapsed since the first
edition of this book was published there have occurred many
changes in American law which render desirable a revision.
Numerous alterations in the seventeenth section of the Statute
of Frauds; the increasing importance of the antitrust legislation;
several amendments to the federal bankruptcy law ; the adoption
by many states of the various uniform laws, notably the Uniform
Sales Act, Uniform Warehouse Receipts Law, Uniform Bills
of Lading Act, and Uniform Stock Transfer Act ; the recent
amendments to the Interstate Commerce Act regarding carriers ;
the approval by the Interstate Commerce Commission of a new
form of bill of lading ; the passage of the Federal Reserve Act ;
changes in the rates of interest, especially in the Western states ;
the almost complete abolition of days of grace ; the rapid spread
of the Negotiable Instruments Law ; the revolution in the law of
master and servant caused by the Employers' Liability and Work-
men's Compensation acts ; and the increase in the popularity of
the Torrens system of land registration — all have necessitated
changes in the text. Many other minor alterations in the interest
of accuracy and completeness have been occasioned by the growth
of the law.

It would be difficult to improve upon the admirable lucidity
and compactness of Dean Huffcut's style. Hence the new mat-
ter introduced relates largely to substance and not to diction.

I desire to add that it is a particular satisfaction to be
accorded the privilege, by this revision of the work of the
late Dean Iluffcut, of paying a meed of gratitude to a teacher
for whom I entertained a warm personal regard, and whose
legal exposition, in classroom or in printed text, was distin-
guished by remarkable analytical power and by singular clarity

and accuracy <>{ expression.

GEORGE G. BOGERT
Cokni n. ' 1 1 v Colli gb oi Law

I m \< \, New York



CONTENTS

CHAPTER I. PRELIMINARY TOPICS
Business Law and Cognate Subjects

SECTION PAGE

1. Business l

2. Law '

3. Business law 2

4. Divisions of the law 3

5. Property 4

6. Legal obligations 4

7. Courts "

8. Procedure °

9. Scope of this work 9

PART I. THE PRINCIPLES OF CONTRACT
CHAPTER II. FORMATION OF CONTRACTS

10. Definition of contract IT

11. Essentials of enforceable contract i 2

I. Agreement

1 2. Contracts begin in agreement ! -

13. Classes of agreements r 3

14. Agreements originate in some form of offer and acceptance ... 13

II. Competent Parties

15. Infants l 7

|6. Insane persons I"

17. Married women '9

in. Consideration

18. Necessity of consideration '9

19. The consideration need not equal the promise in value 20

20. A past consideration will not support a promise 21

21. The consideration must be legal 22

vii



viii CONTENTS

IV. Form : Writing ; Seal

riOH PAGE

22. Statute of Frauds 23

Contracts under seal 25

V. Legality of Object

24. Contracts made illegal by statute 27

25. Wagering contracts 28

26. Contracts illegal at common law 30

27. Effect of illegality upon contracts in which it exists 32

VI. Reality of Consent

28. Mistake 33

29. Fraud and misrepresentation 35

30. Duress 36

31. Undue influence 37



CHAPTER III. OPERATION AND DISCHARGE OF CONTRACTS

I. Liabilities and Rights of Third Parties

32. Liability of third parties 45

33. Rights of third parties 46

II. Assignment of Contracts

34. Assignment by act of the parties 46

35. Negotiability of certain contracts 47

36. Assignment by operation of law 48

III. Discharge of Contracts

37. Discharge by agreement, including performance 49

38. Discharge by impossibility of performance 5 1

39. Discharge by breach 53

40. Remedies for breach of contract 54

IV. Discharge in Bankruptcy

41. Insolvency laws not discharging debtor 56

42. Bankruptcy laws discharging debtor 56

43. The state insolvency laws 57

44. National Bankruptcy Law of 1898 57



CONTENTS ix

PART II. PARTICULAR CONTRACTS CONCERNING

GOODS

CHAPTER IV. SALES OF GOODS
I. The Contract

SECTION PAGE

45. Definition and analysis 61

46. Statute of Frauds 66

II. The Title

47. When does title pass ? 69

4S. Specific or ascertained goods 7°

49. Unascertained goods 7 2

50. Who has the risk? 74

III. Performance

51. Duties of the seller 75

52. Duties of the buyer 75

1Y. Warranties

53. Definition and classification 76

54. Express warranties 76

55. Implied warranties 77

56. The rule of caveat emptor 79

57. Remedies for breach of warranty 80

V. Remedies

58. Rights of unpaid seller against the goods 81

59. Rights of unpaid seller by way of action for breach of contract . . 83

60. Remedies of the buyer ... 84

CHAPTER V. BAILMENT OF GOODS

61. Definition and distinctions 90

Classification of bailments 91

I. BaILMENI SOLELY i"r Ill NEFIT OF < >NE PARTY

63. Bailments for sole benefit of bailor 93

64. Bailment ■ for bailee's sole benefit 95



x CONTENTS

II. Mutual-Benefit Bailments

PAGE

65. Pledge <t pawn 97

66. Bailee hires an article of bailor 99

(■~. Bailor engages bailee to keep, repair, or transport an article . . . 101

III. Special Cases of Bailment kor Keeping or Transportation

68. Innkeepers 104

69. Common carriers of goods 107

IV. Cases not Strictly of Bailment

70. Public carriers .if passengers and baggage 116

71. Telegraph and telephone companies 118

CHAPTER VI. INSURANCE CONTRACTS

72. Nature and kinds of insurance 122

73. Kinds of policies 123

74. Definitions 123

75. Characteristics 125

76. The insured must have an insurable interest 127

77. The contract of insurance is one requiring the highest good faith . 128

78. Warranties 129

79. Statutory or standard policies 131

80. Marine insurance 132

PART III. PARTICULAR CONTRACTS CONCERNING

CREDITS

CHAPTER VII. CREDITS AND LOANS

81. Capital and credit ; money and exchange ; payment 135

82. Interest and usury 140

S3. Banks 142

84. Bank deposits 144

85. Loans and discount; security 145

CHAPTER VIII. THE CONTRACT OF GUARANTY

86. Guaranty defined 149

87. A guaranty must be in writing 150

88. Consideration 150

89. Notice of acceptance by guarantee 151



CONTENTS XI

SECTION PAGE

90. Notice to guarantor of the default of the principal 151

91. What will discharge the guarantor 152

92. Guarantor's liability 155

93. Guarantor's remedies l 55



CHAPTER IX. NEGOTIABLE INSTRUMENTS

I. Nature and Characteristics

94. Kinds of negotiable instruments 1 5*9

95. Characteristics of negotiable instruments 161

96. Definitions 163

97. Negotiable Instruments Law ... 1 70

II. Form

98. What a negotiable instrument must contain 1 70

99. What a negotiable instrument must not contain 172

100. Nonessentials 1 73

101. Effect of blanks 1 74

102. Delivery 1/4

III. Negotiation

103. Negotiation; indorsement; delivery 175

104. Holder in due course 1 77

105. Rights of holder in due course 1 79

IV. Maker's and Acceptor's Contract

106. Maker's contract on a promissory note 181

107. Acceptor's contract on a bill of exchange 181

108. Presentment of bill of exchange for acceptance 185



109
1 10

I 1 1

I I 2

"3

114

l«5



V. Drawer's and Endorser's Contract

Drawer's contract on a bill of exchange 186

Endorser's contract on a bill or note 186

Presentment for payment l88

Notice of dishonor '9'

Protest M| l

Checl '9 8

Position of indorser after liability is fixed 199



xii CONTENTS

PART IV. AGENCY: THE CONDUCT OF BUSINESS
THROUGH REPRESENTATIVES

CHAPTER X. PRINCIPAL AND AGENT

ion PAGE

tl6. Agency: its divisions and problems 205

I. Appoin i mk\ i' of Agents

117. Who may appoint agents 207

1 1 S. Who may be an agent 208

119. Form of appointment 210

120. Ratification 210

121. Agency by necessity 212

[22. Termination of agency 212

123. Irrevocable agencies 213

II. Obligations of Principal and Agent to Each Other

124. Obligations of principal to agent 213

125. Obligations of agent to principal 214

III. Liability of Principal to Third Parties

126. General Rules 217

127. Agent's apparent authority 217

128. Agents following customary calling 219

1 29. Undisclosed principal 220

130. Frauds by agent 222

IV. Liability of Agent to Third Parties

131. Where agent alone is liable 222

132. Where both principal and agent are bound 223



CHAPTER XI. MASTER AND SERVANT

I. Injuries to Third Persons

133. Negligent torts by servants 227

134. Willful torts by servants 227

II. Injuries to Servants

135. Injury to one servant by another 228

136. The master's nonassignable duties 229

137. Employers' liability acts 229

138. Workmen's compensation and insurance acts 230



CONTENTS xiii
PART V. BUSINESS ASSOCIATIONS

CHAPTER XII. PARTNERSHIPS AND JOINT-STOCK

COMPANIES

SECTION PAGE

139. Forms of conducting business 235

I. Partnerships

140. What constitutes a partnership 236

141. Rights and duties of partners as to each other 238

142. Powers of partners 239

143. Liabilities of partners 240

144. Rights and remedies of creditors 241

145. Dissolution 242

II. Joint-Stock Companies

146. How distinguished from ordinary partnerships 243

147. How like ordinary partnerships 244

CHAPTER XIII. CORPORATIONS

48. Definition and classification 24S

49. How a corporation is formed 24S

50. Members 250

51. Directors 252

52. Officers and agents 253

53. Powers of a corporation 254

54. Stockholders' rights 255

55. Liability of stockholders 257

56. Reports of corporations .2",

57. Receivers of corporations -5;-;

5-S. Dissolution of corporations 258

PART VI. PROPERTY IN LAND AND MOVABLES

CHAPTER XIV. RIAL PROPERTY

I. Estates i\ Real Pr< >pi r i \

ISO- Meaning of the term " property " 261

16 1 itates in land ; duration 564

161. Future inland: reversions and remainders 267

t?>2. Estates held jointly <>r in common 268

163. Equitable estates : trusts 269



xiv C< '\ II N I S

II. Land: rrs Constituents, Growths, and Fixtures

[ON PAGB

164. Extent of ownership : soil, air, minerals, waters 270

[65. Vegetable products 270

100. Fixtures 271

III. Relative Rights of Adjoining Owners

i"-. Fences: cattle trespass 273

[68. Air ami waters ; support of land 273

[69. Easements 274

IV. Transfer of Interests in Lands

170. Contract of sale 274

171. Conveyances 276

172. Wills 277

173. Descent to heirs 280

1 74. Adverse possession 282

V. Mortgages and Liens

175. Mortgages of real property 282

1 76. Liens on real property 283

VI. Landlord and Tenant

177. The lease and its covenants 288

1 78. Defects, repairs, and waste 290

179. Assignment and subletting 291

180. Rent and remedies for nonpayment 291

181. Termination of lease 292

CHAPTER XV. PERSONAL PROPERTY
I. Classification : Kinds and Estates

182. Classification 294

183. Property in animals 294

[84. Trademarks; goodwill; names 295

185. Estates in personal property 296

II. Acquisition and Transfer

186. Acquisition by occupancy and by finding lost property .... 297

187. Accession and confusion 298

188. Transfer by gift 300

[89. Other modes of transfer 302

GLOSSARY 3°5

INDEX 3 T 3



THE ELEMENTS OF
BUSINESS LAW

CHAPTER I

PRELIMINARY TOPICS
Business Law and Cognate Subjects

1. Business. Business concerns itself with property, credit,
and services, and with contracts pertaining to these things.

The term " business " embraces every kind of industrial activity
by which men acquire, manufacture, or otherwise produce prop-
erty ; by which they sell or transfer it; by which they store,
transport, or insure it; by which they borrow or lend money
and give or secure credit ; by which they combine with others
to these ends ; and by which they furnish or obtain services in
these and similar enterprises. This is by no means an exhaus-
tive list of commercial operations, but it indicates the variety
and extent of those human activities that pass under the name
of business.

2. Law. The term "law" includes all those rules by which
courts are controlled in the administration of justice. The same
rules must also govern men in their relations to each other,
because if they be violated, the courts will either give repara-
tion to the injured party or refuse to aid the one who has
violated them.

Rules of law arc of two kinds : first, those that have been
worked out by the courts themselves in deciding actual eases
brought before them by litigants; and, second, those enacted
by the legislatures. The first are known as the common law,
and the second as statute law. The common law is sometimes
called the unwritten law, and statute law is sometimes called the
written law.



2 PRELIMINARY TOPICS [Ch. I

i. Common law. The common law is therefore the law declared
by judges in the decision of cases. It rests primarily upon custom,
because in deciding cases the judges seek to give effect to the
prevailing customs of the people in their relations and dealings
with each other. But when a point of law is once decided, sub-
sequent judges in the same jurisdiction follow it as a precedent,
and the point is said to be decisively settled. This is known as
the doctrine of stare decisis, — the doctrine that courts must
stand by decided cases, uphold precedents, and maintain former
adjudications. With the lapse of time, therefore, the greater
number of the ordinary questions that may arise have been thus
settled and the common law established. The rules must be
sought in the printed reports of the decisions of the courts.

2. Statute law. Statute law consists of the enactments of
legislatures. These may be for the purpose of changing some
rule established by the courts when, for example, the develop-
ment of society makes the continuance of the old rule inexpe-
dient, or for the purpose of codifying into a brief statute the
rules scattered through hundreds or even thousands of volumes
of reported cases. The whole law of negotiable instruments has
been thus codified in England and in many of our American
states (see sect. 97 post).

For the law of any state, therefore, one must consult the statutes of that
state and the reports of its courts. In some states the reports are very numer-
ous. For example, there are in New York upwards of one thousand volumes,
in Massachusetts more than two hundred volumes, and in all the states
combined, over ten thousand volumes. A statute or decision is not binding
except in the state where enacted or rendered. Hence it follows that the law
may be one way in Massachusetts and just the opposite in New York. As we
have the federal Congress and courts, and forty-eight state legislatures and
courts, not to mention territories and dependencies, it will be seen that the
American law may present many diverse enactments or decisions upon the
same question. This is what makes it very difficult in this country to present
a statement of the law which is correct for every jurisdiction.

3. Business law. Business law is that portion of the general
law which governs business transactions. While the term is fre-
quently used as if it denoted a distinct body of law susceptible
of accurate definition, it is in reality a term of vague meaning.
One engaged in business transactions may be confronted with



§4] DIVISIONS OF THE LAW 3

legal questions involving almost any topic of the law, and hence
might need advice from an expert or might in simple cases be
able to solve the difficulty for himself. The most that any law
book for business men can well undertake to do is to present
the elementary principles governing the ordinary business trans-
actions, leaving for lawyers the more intricate or technical prob-
lems. The chief aim of such a book should be to inform the
business man how to keep out of difficulties, rather than to enable
him to extricate himself after he is once involved.

Business law is, therefore, merely such a selection from the
general body of the law, and especially the law of contract, as
a particular author may think it profitable for a business man
to know.

4. Divisions of the law. The law may be divided into two
great branches, public law and private law.

1. Public /aw. Public law includes those topics with which
the state, that is, the public as a whole, is especially concerned :
namely, (a) international law, or the law governing the relations
of one nation to other nations ; (&) constitutional law, or the
fundamental law governing a nation or state in its relations to
its citizens ; (c) criminal law, or the law by which the public
protects itself against crimes and offenses prejudicial to its
well-being ; and (d) administrative law, or the law under which
governmental affairs are carried on, as tax laws, highway laws,
and the like.

2. Private law. Private law includes those topics with which
individuals are particularly concerned in their private relations.
These are very numerous but may be roughly grouped under
three main heads: namely, (a) the law of property, including

[uisition, ownership, possession, security, alienation, descent,
and the like; (b) the law of obligation, including contracts, torts,
trusts, and the like ; and (c) the law of procedure, or the law
by which cases are brought into courts and conducted to trial
and judgment.

The topics treated under the head of business law arc those in-
volving either tin- law ol property or the law of obligation. The
acquisition and disposition of property, the making and perform-
ing of contracts, constitute the major part of a business enterprise.



4 PRELIMINARY TOPICS [Ch.1

5. Property. Property consists in the ownership of material
objects, or the ownership of some right in or to a material object,
or the ownership of souk- right against a person, or the owner-
ship of some immaterial right to be exercised to the exclusion of
others. Material objects are either immovable, like land, or mov-
able, like coin, cattle, or merchandise. One may own and pos-
sess these things, or he may own a right in them, as when he
lias a right to cross another's lands or a right to sell another's
goods pledged to him lor a debt. Immaterial property may con-
sist in a right granted by statute or usage to the exclusion of
others, as a right to a patent or to a trade-mark ; or it may
consist of a right against a person, as a right to compel him
to pay a promissory note or to pay damages for a trespass to

property.

The law regards property as either real property or personal

property.

i. Real property. Real property consists of any estate or inter-
est in lands, except a leasehold estate for years or a mortgage or
lien. There are two such estates : an estate of inheritance, or, as
it is often called, an estate in fee, which is an estate that descends
to the owner's heirs ; and an estate for life which terminates at
the death of the owner or of some other designated person (see
sect. 160 post).

2. Personal property. All other property is personal property.
This includes (i) chattels real, that is, leasehold interests in
lands ; (2) chattels personal, that is, all other kinds of property,
consisting of the following classes : (a) corporeal movable objects;
(b) incorporeal rights or privileges, like patents, copyrights, trade-
marks, and good will in a business ; (e) rights of action against
persons, called choses in action {choses is the French for " things ").

The kinds of property with which business is chiefly con-
cerned are corporeal movable objects and choses in action.
The former are goods, wares, and merchandise ; the latter are
negotiable instruments, stocks and bonds, mortgages and liens,
and debts in general.

6. Legal obligations. Legal obligations are those which the
law enforces. They arise either by agreement or by the policy
of the law, independent of an agreement.



§6] LEGAL OBLIGATIONS 5

1. Contract. An agreement enforceable at law we call a con-
tract, and the failure or refusal to carry out the agreement we
call a breach of contract.

Example 1 . A agrees with B that A shall sell and B shall buy A's bicycle
for S30. This is a contract. If either party refuses to carry out his part of it,
the other has a case at law for damages.

Contracts have to do with a great variety of interests, and
many special kinds of contracts may be enumerated, such as
contracts of sale, contracts of bailment, contracts of carriage,
contracts of insurance, contracts of partnership, contracts of
guaranty, contracts for the loan of money, and the like.

2. Tort. The obligations fixed by private law independent
of agreement have no specific names, but the breach of any
of these obligations is called a tort, which is simply the French
word for " wrong." Many of these torts have specific names.

Examples: 2. A strikes B in anger. A has committed the tort called
assault and battery.

3. C goes without permission on D's land. C has committed the tort



Online LibraryErnest W. (Ernest Wilson) HuffcutThe elements of business law : with illustrative examples and problems → online text (page 1 of 32)