Commercial Law Part 1

Commercial Law.

by Samuel Williston, Richard D. Currier, and Richard W. Hill.

PREFACE

The Inst.i.tute standard course of study in "Commercial Law" is not intended to make lawyers, but simply to impart to bankers sufficient knowledge of law to enable them to act in accordance with established legal principles, and refer doubtful questions to a lawyer. It is not usurping the functions of a lawyer for a banker to know his legal rights and responsibilities. The banker who does not appreciate the importance of this knowledge, eventually learns from experience, sad or otherwise, that he has neglected an important part of the training necessary to carry on his business with safety and confidence. This text-book is based on the splendid work, originally prepared for the Inst.i.tute, by Samuel Williston, Weld Professor of Law in Harvard Law School. To this original matter, however, much new material has been added, cases have been cited, and new chapters on Master and Servant, Estates and Trusts, Bills and Notes, and Torts and Crimes added. The work of preparing "Commercial Law" has been done jointly by Richard D. Currier, President of the New Jersey Law School, and Richard W. Hill, member of the New York Bar and Secretary of the American Inst.i.tute of Banking. The main purpose of this book is to teach bankers to recognize the danger signals in law, when they appear, and thus be able to distinguish between law and law suits.

INSt.i.tUTE PLATFORM

Resolution adopted at the New Orleans Convention of the American Inst.i.tute of Banking, October 9, 1919:

"Ours is an educational a.s.sociation organized for the benefit of the banking fraternity of the country and within our members.h.i.+p may be found on an equal basis both employees and employers; and in full appreciation of the opportunities which our country and its established inst.i.tutions afford, and especially in appreciation of the fact that the profession of banking affords to its diligent and loyal members especial opportunities for promotion to official and managerial positions, and that as a result of the establishment and maintenance of the merit system in most banks a large number of Inst.i.tute members have through individual application achieved marked professional success, we at all times and under all circ.u.mstances stand for the merit system and for the paying of salaries according to the value of the service rendered.

"We believe in the equitable cooperation of employees and employers and are opposed to all attempts to limit individual initiative and curtail production, and, insofar as our profession is concerned, are unalterably opposed to any plan purporting to promote the material welfare of our members, individually or collectively, on any other basis than that of efficiency, loyalty and unadulterated Americanism."

INTRODUCTION

DEFINITION OF LAW.--The term "law" is used in many ways. We speak of moral law, law of gravity, divine law, and the like. In each case we are making proper use of the term, but in no instance are we using it as we shall use it in this book. To ill.u.s.trate: You find a beggar on your front porch when entering your house late at night. Suppose he should ask you for food and lodging for the night. Although there is no other house within five miles of your home, you refuse to take him in, or do anything for him. As a result he contracts pneumonia from exposure, because he is not able to proceed further. You would, nevertheless, not be liable in the sense in which we are using the term "law." But, you say, in an extreme case of this kind, it is one's duty to act. We grant it, but to be accurate, you must preface your proposition with the statement, "under the moral law" or "under divine law it is one's duty to act in such a case." However much it is to be regretted that moral or divine law sometimes does not harmonize with "law" as we shall treat it, we must, nevertheless, recognize that fact. Law, as viewed by the jurist, and this is the way we, as students, are to consider it, is defined by Blackstone to be "A rule of civil conduct prescribed by the supreme power in the State, commanding what is right, and prohibiting what is wrong." Referring again to our ill.u.s.tration, is it not easy to see that it would be impracticable in the present condition of society for the legislature of California, for example, to pa.s.s a law which should, in that State, const.i.tute "a rule of civil conduct" commanding that every one "shall be his brother's keeper" and for a violation thereof "shall be imprisoned for one year, or fined one thousand dollars, or both." However much we recognize the obligation of moral law, jurists and legislators cannot ignore the fact that society is composed of ordinary human beings, still far from perfection. a.s.suming, although perhaps it is doubtful, that it is within the power of the legislature of California to pa.s.s such an act as has been suggested, there are not courts enough in the whole United States to decide the cases which would arise in New York City alone in attempting to apply the provisions of such an act. On second thought, then, it is not such a startling proposition for us to learn that "law" is not synonymous with the same term when used in referring to natural law, moral law, and the like. Much has been written on the essential nature of "law" as we shall use the term. The time-honored definition of Blackstone, which we have quoted, is confessedly imperfect. The last clause, "commanding what is RIGHT, and prohibiting what is WRONG" has been much criticized, and Mr. Chitty has modified it to "commanding what shall be done, and what shall not be done." To-day, to attempt to buy a bottle of light wine at a hotel does not seem to many of us intrinsically WRONG, but legally, under existing laws, it is, and so perhaps Mr. Chitty's modification of Blackstone's definition does bring out the correct idea more clearly.

For our purpose, these two definitions are sufficient.

THE SYSTEMS OF LAW.--There are two chief systems of law in use among civilized peoples to-day, the Roman or civil law, and, the English or common law. The Roman, or civil law (Roman law is spoken of as civil law, from the Latin "civilis," belonging to a citizen) as its name implies, originated in Rome. As the city of Rome developed into the Roman Empire, its law became that of the ancient world. It was finally codified by the Roman Emperor Justinian, in the year 530 A.D., and was eventually absorbed, from the twelfth to the eighteenth century, into the law of modern Europe. It is the basis of the systems of law used in the countries of continental Europe, Central and South America, and all French, Spanish, Portuguese, and Dutch colonies or countries settled by those peoples.

COMMON LAW.--The common law had its roots in the customary law of the Germanic peoples of western Europe, and was developed by the English courts from the thirteenth to the nineteenth centuries. Like the Roman law, it has spread all over the world wherever English-speaking peoples have settled, and founded colonies. The common law now prevails in England, Canada (except Quebec), India, except over Hindus and Mohammedans in certain instances, and the princ.i.p.al British colonies, except those in South Africa. The United States is largely an English settlement, hence the common law prevails with us, except in the State of Louisiana, where the influence of the French and Spanish settlements still remains and makes the basis of the Louisiana law the Roman law, and in the Philippines and Porto Rico, where the law was Roman when we took those possessions from Spain in 1898.

THE SOURCE OF LAW.--Where does this rule of civil conduct we are to study come from? At first blush, the superficial observer might suggest some legislative hall where it is created by a legislative body, a perfect product, to be imposed on men and women as the guide in their every act in civil life. The slightest reference to historical jurisprudence will convince us that this is not the true source of the law. Mr. Justice Holmes of the United States Supreme Court, in his cla.s.sic, "The Common Law," indicates the real source of law when he observes: "The life of the law has not been logic; it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed. The law embodies the story of a nation's development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics. In order to know what it is, we must know what it has been, and what it tends to become. We must alternately consult history and existing theories of legislation. But the most difficult labor will be to understand the combination of the two into new products at every stage.

The substance of the law at any given time pretty nearly corresponds, so far as it goes, with what is then understood to be convenient; but its form and machinery, and the degree to which it is able to work out desired results, depend very much upon its past."

WHERE TO LOOK FOR LAW.--Knowing the source of law does not necessarily tell us where to look for the law. To-day, in the United States, we have three primary sources to which the lawyer goes to seek the law on any particular point. First, the Const.i.tution of the United States and the Const.i.tution of the State in which he is to ascertain the law, including the statutes which have been enacted by Congress and by the State legislature under those const.i.tutions. Second, the decisions of the courts, particularly those of the United States courts and of the State where he wishes to learn the law, and, if need be, the decisions of other States. Third, text-books and treatises on the branch of law to be investigated.

ILl.u.s.tRATION.--Let us suppose you wish to ascertain the law concerning a question that comes up in your own daily life. Take two problems. First: We will a.s.sume you keep a clothing store, and an infant, twenty years old, purchases a suit of winter clothes. His income is $1000 per year.

He already has two perfectly good winter suits. A week after purchasing this suit, he returns it and demands his money back. You wish to know whether you have to give it to him. If you should look in the Const.i.tution of the United States, or of the State of Vermont (a.s.suming this to be a Vermont contract), you would find nothing that would give you any help in answering this question. If you should look through all of the acts of Congress and the laws pa.s.sed by the legislature of the State of Vermont, you would find nothing to give you any help. If, however, you should look in the decisions of the courts, both of the United States and of the State of Vermont, you would find cases, probably many of them, covering this particular situation, and you would find the rule to be laid down as law, that an infant (and by an infant we mean anyone under twenty-one years) is not liable on his contracts, except for necessities, and then only in a quasi-contractual action for their reasonable value. Applying the law to the problem, you would be obliged to admit the legality of the infant's claim, and if you did not refund the money to him, he would be ent.i.tled to sue for it in a court.

Three winter suits are clearly not necessaries at one time for an infant with an income no greater than $1000 per year. This is a comparatively simple problem. Now let us take another case somewhat more difficult.

You live in New Jersey near the plant of an airplane manufacturing company. Machines are constantly being tried out, and they circle over your premises within four or five hundred feet from the ground. You have several children who are using your back yard as a playground and you are much alarmed, fearing that an airplane may fall in the yard and kill or injure a child. You wish to ascertain your rights. You look in the Const.i.tution of the United States, and of the State of New Jersey. You will find nothing in either about airplanes. You look in the acts of Congress and the laws of the legislature of the State of New Jersey. You will find nothing there to help you. You look in the decisions of the courts, both of the United States and of the State of New Jersey. You will find nothing there. You look in the text-books, and, except in the most recent, in all probability you will find nothing there in regard to airplanes. You may search the recent legal publications and you will find articles discussing in a purely theoretical way this interesting topic. You study recent legislation and you will find stray instances of attempts to deal with aerial matters. For example, Connecticut has a statute on airplanes. In fact, your whole search will be most interesting. All you will find, however, is not law in New Jersey, but is simply theory, based on common law principles or statutes having no force in New Jersey. Should you then conclude that you have no rights, that the law cannot help you? Perhaps not. If you turn to treatises relating to the owners.h.i.+p of land as developed in the English common law and as applied by the courts in the United States, you will find that the word "land" is often used as practically synonymous with realty or ground or soil, and you will also find that it includes everything attached to the realty or growing on it. As is commonly said, land has an indefinite extent upward as well as downward, the old books using the Latin maxim: "Cuius est solum, eius est usque ad coelum usque ad orc.u.m."

(To whomsoever the soil belongs, he owns also to the sky and to the depths.)

There are three houses in a row on Smith Street, Nos. 1, 3 and 5. Mary Jones lives in No. 1, and Sarah Green in No. 5. They are friends, and accordingly arrange to stretch their clotheslines from their rear second-story windows across the back yard of No. 3. Under common law principles, this is a trespa.s.s upon No. 3. Should Mary Jones and Sarah Green continue to do this for the required time, usually twenty years, they would acquire by prescription a permanent right to stretch clotheslines over lot No. 3. When the owner of lot No. 3 wished to erect a ten-story building covering all of his lot, he would be seriously interfered with by the right acquired by his two adjoining neighbors. He could have protected himself by proper action in a court when the offense was first committed. Could not, therefore, the court take this principle of the common law as to the owners.h.i.+p of land and apply it to the airplane case? If the owner of lot No. 3 could prevent the owners of lots Nos. 1 and 5 from stretching clotheslines across his land, could you not prevent the airplane from crossing your land, although it is five hundred feet above the surface of the soil? Twenty years'

continuation of that practice would interfere with your ability to build a Woolworth building twenty-five years from now should you desire to do so. It is simply taking an old principle of law recognized for centuries, and applying it to new conditions. This is what we mean when we say that the principles of common law are capable of indefinite expansion; that the common law is always growing, or, as Mr. Justice Holmes puts it, it is the product of "the felt necessities of the time." As soon, however, as you have secured an injunction from the court preventing the airplane factory from practicing its machines over your land, all of the other property owners in the neighborhood of the factory decide to protect their rights, with the result that no airplane can leave the factory through the air. Does this mean that the airplane factory must move, and probably be subjected to the same annoyances in its new location in a short time? We are coming to realize that airplanes are necessities. When a necessity and a principle of law cannot exist side by side, something must be done to remedy an intolerable situation. The ill.u.s.tration here used presents what in the course of a few years, undoubtedly, will become an intolerable situation, unless remedied in some way. It has been suggested that we must modify our principles of the owners.h.i.+p of land, and give airplanes the right of free pa.s.sage over the land of any person, when a certain distance in the air, far enough up to cause no great amount of danger or annoyance. Such a change in the law would have to be accomplished by the State legislature or by an act of Congress for such territory as Congress has jurisdiction over. No doubt, legislation along such lines may be expected soon. It will be simply a repet.i.tion of a situation created by a leading case in New York in 1902.

In Roberson v. The Rochester Folding Box Company, 171 New York 538, the suit was brought on behalf of a living person, a young lady, to restrain a flour company from putting her likeness upon prints advertising its flour. Mr. Justice Parker, writing the opinion of the court, held that there was no principle of law which would authorize the court to issue an injunction restraining this unauthorized use of a photograph. This created the unfortunate situation in the State of New York of allowing anyone to make use of another's photograph without that person's consent, for advertising or other purposes. The court, in its opinion, admitted the unfortunateness of the situation, observing that "The legislative body could very well interfere and arbitrarily provide that no one should be permitted for his own selfish purpose to use the picture or the name of another for advertising purposes without his consent. In such event no embarra.s.sment would result to the general body of the law, for the rule would be applicable only to cases provided for by statute. The courts however, being without authority to legislate, are required to decide cases upon principle, and so are necessarily embarra.s.sed by precedents created by an extreme, and therefore unjustifiable application of an old principle. The court below properly said that: 'While it may be true that the fact that no precedent can be found to sustain an action in any given case is cogent evidence that a principle does not exist upon which the right may be based, it is not the rule that the want of a precedent is a sufficient reason for turning the plaintiff out of court,' provided (I think should be added)," Mr.

Justice Parker continues, "there can be found a clear and unequivocal principle of the common law, which either directly or mediately governs it, or which, by a.n.a.logy or parity of reasoning, ought to govern it."

Relief was denied the young lady. The following session of the legislature corrected the evil by pa.s.sing a law making it a criminal offense to use another's photograph without that person's consent. This has been a long ill.u.s.tration. It has served its purpose best if it has left the very distinct impression that the law is a vital, living, growing thing. True, its roots are in the dim past, but it lives, and moves, and has its being in the problems of to-day. In no field of law is this more true than in our subject, Commercial Law.

WHO KNOWS THE LAW.--The layman is frequently of the opinion that a lawyer ought to be able to give him a definite answer as to just what the law is in a given set of facts. Why is it not possible to go to the sources which we have been discussing and from them ascertain definitely what the law is in a given case? Frequently the lawyer can do this, but one should not lose respect for the lawyer because he is not, in many cases, willing to give a definite answer, but may frame his reply in an opinion beginning "It would seem that the law in this case would be, etc.--" We have already suggested some of the difficulties that in part answer the question we now ask. Let us take one more ill.u.s.tration, a striking example from the United States Supreme Court. Few would question the statement that that Court is the highest type of judicial body in the world to-day. We are familiar with the rent profiteering legislation enacted in the District of Columbia, New York and at least five other States, as a result of the house shortage created by the world war. The United States Supreme Court, in the cases of Block v.

Hirsh, 254 U.S. 531 and Marcus Brown Holding Co. v. Feldman et al., 254 U.S. 539, held the New York and the District of Columbia rent profiteering laws to be const.i.tutional, but this decision is by a vote of five to four, and the arguments advanced in the two opinions, one by Mr. Justice Holmes, representing the majority of the court, and the other by Mr. Justice McKenna, are striking examples of how strongly the ablest body of jurists in the United States can differ on a legal question. Speaking for the majority in Block v. Hirsh, Mr. Justice Holmes says: "The main point against the law is that tenants are allowed to remain in possession at the same rent that they have been paying, unless modified by the commission established by the act, and that thus the use of the land and the right of the owner to do what he will with his own and to make what contracts he pleases are cut down. But if the public interest be established, the regulation of rates is one of the first forms in which it is a.s.serted, and the validity of such regulation has been settled since Munn v. Illinois, 94 U.S. 113. It is said that a grain elevator may go out of business, whereas here the use is fastened upon the land. The power to go out of business, when it exists, is an illusory answer to gas companies and waterworks, but we need not stop at that. The regulation is put and justified only as a temporary measure.

* * * A limit in time, to tide over a pa.s.sing trouble, well may justify a law that could not be upheld as a permanent change." In the case of Marcus Brown Holding Co. v. Feldman, involving a similar New York law, Mr. Justice Holmes says: "The chief objections to these acts have been dealt with in Block v. Hirsh, supra. In the present case more emphasis is laid upon the impairment of the obligation of the contract of the lessees to surrender possession, and of the new lease, which was to have gone into effect upon October 1, last year. But contracts are made subject to this exercise of the power of the State when otherwise justified, as we have held this to be." Mr. Justice McKenna, in writing the dissenting opinion in Block v. Hirsh, supra, and with whom the late Chief Justice White, and Justices Van Devanter and McReynolds concurred, says: "If such exercise of government be legal, what exercise of government is illegal? Houses are a necessary of life, but other things are as necessary. May they, too, be taken from the direction of their owners and disposed of by the Government? * * * An affirmative answer seems to be the requirement of the decision. If the public interest may be concerned, as in the statute under review, with the control of any form of property, it can be concerned with the control of all forms of property. And, certainly, in the first instance, the necessity or expediency of control must be a matter of legislative judgment. * * *

The facts are significant and suggest this inquiry: Have conditions come not only to the District of Columbia, embarra.s.sing the Federal government, but to the world as well, that are not amenable to pa.s.sing palliatives, and that socialism, or some form of socialism, is the only permanent corrective or accommodation? It is indeed strange that this court, in effect, is called upon to make way for it, and through an instrument of a const.i.tution based on personal rights and the purposeful encouragement of individual incentive and energy, to declare legal a power exerted for their destruction. The inquiry occurs, have we come to the realization of the observation that 'War, unless it be fought for liberty, is the most deadly enemy of liberty.'"

In the Marcus Brown Holding Co. case, he again says for the same justices: "We are not disposed to further enlarge upon the case, or attempt to reconcile the explicit declaration of the Const.i.tution against the power of the state to impair the obligations of a contract, or, under any pretense, to disregard the declaration. It is safer, saner, and more consonant with const.i.tutional pre-eminence and its purposes, to regard the declaration of the Const.i.tution as paramount, and not to weaken it by refined dialectics, or bend it to some impulse of emergency because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment." No more striking ill.u.s.tration of the most decided differences of opinion among nine of the ablest jurists in the world can be found. It is no wonder then that a lawyer at times hesitates in giving an opinion as to what the law may be.

THE FUNCTION OF THE COURT.--An infant bought a motorcycle on an installment contract at the agreed price of $325. He made an initial payment of $125, used the machine a month, damaged it to the amount of $156.25, and then returned it in this condition and demanded the return of his $125. These are the facts in the case of Pet.i.t v. Liston, 97 Oregon 464, a case decided in the Supreme Court of Oregon. The case involves the right of an infant to disaffirm a contract made by him, when purchasing an article which is not a necessity. The Oregon court had never before been called on to determine what the law in Oregon was as applied to such a situation. According to the rule in New York, as laid down in Rice v. Butler, 160 N. Y. 578, the infant could not recover the $125, but according to the rule in Pyne v. Wood, 145 Ma.s.s. 558, the infant would be ent.i.tled to his money. It thus became the problem of the Oregon court to refer to the theories back of these two decisions. After doing so, it approved of the New York view, rather than the Ma.s.sachusetts view. This case indicates the function of a court. If a court, from the various sources of law which we have enumerated, can find an exact precedent for the case before it, or can find a general principle of law which can be applied, it renders a decision as to the law, as the Oregon court did. If no law can be found nor any principles which can be applied, the court is forced to deny the relief, as in the Roberson case, 171 N. Y. 538, adding, perhaps, to its opinion, as it did in that case, the suggestion that it is a matter Congress or a State legislature might properly remedy.

THE COURT SYSTEM.--Knowing the function of a court, the student should then have an outline of the court system of his own jurisdiction. We can only sketch, in a book to be used generally throughout the United States, the court systems. Each State has two sets of courts: the Federal and the State courts. We have a Federal and a State Government; it follows that there should be courts to interpret the laws of each of these two Governments. Matters pertaining to the United States Const.i.tution, or matters affecting citizens of different States, are tried in the Federal courts. The same is true of admiralty and bankruptcy. There is at least one United States District Court in each State in the country, and Federal cases are begun in these courts. If either party is dissatisfied with the decision, he may appeal to the next higher court. The entire country is divided into nine Circuit Courts of Appeal, to which appeals from United States District Courts are taken. In case either party is dissatisfied with the decision in that court, he may, in certain cases, appeal to the court of last resort, the United States Supreme Court, presided over by a Chief Justice and eight a.s.sociate Justices at Was.h.i.+ngton. Each State has its own system of courts. Usually that system is more elaborate than that in the Federal Government. There is in each State a court of last resort, which we would expect to find designated the Supreme Court of New York, or whatever State it might be. Frequently there is a misuse of terms, as, for example, the court of last resort in New York is the Court of Appeals, and the Supreme Court is a lower court. This is true in a number of States. In addition to the court of last resort, there will be a court of general jurisdiction, frequently one of these courts for each county of the State, and then courts for the trial of smaller cases in the various cities and towns. The system of appeals is the same as in the Federal courts, either party who is dissatisfied having a right to appeal his case to the higher court. The question as to whether a particular case must be brought in a Federal court or a State court is too complicated to be taken up in detail. Sometimes the suit must be brought in the Federal court, as, for example, a bankruptcy matter, or a matter involving the United States Const.i.tution, while in other cases, perhaps the majority, the suit must be brought in a State court. In other cases a person may have his option of either jurisdiction, as where a citizen of Texas wishes to sue a citizen of Rhode Island, and the amount involved is over $3000, then either the Federal or State courts of either State are open to the parties.

CHAPTER I

Contracts--Mutual a.s.sent

Commercial law is a general term used to cover the legal rules which relate most directly to everyday commercial transactions. It is a term of no exact boundary, but most commercial law is based in one way or another on the law of contracts, which is one of the largest subjects in the law. Bills and notes, for instance, are special forms of contracts.

In order to understand business law at all, therefore, it is necessary at the outset to have some knowledge of the fundamental principles of the law of contracts.

DEFINITION OF CONTRACTS.--What is a contract? Simply a promise or set of promises which the law enforces as binding. Any promise, if it is binding, is a contract or part of a contract. So the law of contracts in their formation resolves itself into this: What promises are binding? A man may make all sorts of promises, but when has he a right legally to say "I have changed my mind, I am not going to do what I said I would,"

and when will he be liable in damages if he fails to do as he agreed?

CONTRACT TERMS EXPLAINED.--There are certain terms in contracts which the student will find repeatedly mentioned and with which he should be familiar at the outset. For example, contracts are spoken of as express contracts, and implied contracts. By an express contract we mean a contract the terms of which are fully set forth. Implied contracts are contracts the terms of which are not fully stated by the parties. There is a mutual agreement and promise, but the agreement and promise have not been expressly put in words. If I say to a man, "I will buy your horse, Dobbin, for $100" and he replies, "I will sell you the horse at that price," there is an express contract. I step into a taxi and simply say to the driver, "Take me to the Union Station." The driver says nothing, but takes me there. Here is an implied contract. By my conduct I impliedly agree to pay him the legal rate for the distance carried.

FORMAL AND INFORMAL CONTRACTS.--Contracts are sometimes also divided into formal contracts, and simple or parol contracts. There are three kinds of formal contracts recognized in our system of law: (1) Promises under seal. (2) Contracts of record, such as judgments and recognizances. (3) Negotiable instruments. Of the three, it may be most difficult to understand why a judgment is included as a form of contract, because a judgment is simply a judicial termination of a fact entered in the office of the county clerk, and generally a lien on the real property owned by the judgment debtor. The sole reason, apparently, for calling a judgment a contract, is that an action of debt may be brought in a court of law upon such a judgment. Sealed contracts and negotiable paper will be taken up in a later chapter. Simple, or parol contracts, are those not embraced in the three previous cla.s.sifications which const.i.tute the formal contracts. The term parol is a little ambiguous, as it is sometimes used as opposed to a written contract, meaning simply an oral one, and at other times it is used as opposed to the three previous formal contracts.

UNILATERAL AND BILATERAL CONTRACTS.--Contracts are also divided into unilateral and bilateral contracts. In a unilateral contract, the contract imposes obligations on one party only. A promissory note is an example of a unilateral contract. In a bilateral contract, obligation is imposed on both parties. John and Mary become engaged to each other.

This is a bilateral contract, and either may sue the other for a breach.

Most important results flow from the distinction between unilateral and bilateral contracts. This we shall consider later.

VOID, VOIDABLE AND UNENFORCEABLE CONTRACTS.--Contracts are also divided into void, voidable and unenforceable contracts. Strictly speaking, a void contract is no contract at all. Some statutes provide that no action shall be brought on certain contracts, and declare them absolutely void. A voidable contract is one which is good until the option of avoiding it is availed of by the party who has the option. For example, an infant with an income of $2000 a year contracts for the delivery of a Packard automobile on June 1. The car, being a luxury, makes the contract with the infant voidable on his part, and he may, before June 1, repudiate the contract and not be liable in a suit for breach of contract, or he may, if he choses, abide by the contract, take the car, and pay the purchase price when it is delivered. An unenforceable contract is one which in itself is perfectly good as a contract, but because of some rule of law cannot be enforced. For example, A agrees, orally, with the owner of 1 Broadway, to buy that property for $1,000,000. The terms of the contract are understood by both parties. This contract is not enforceable, because, as we shall see later, the Statute of Frauds requires every contract for the sale of real property to be in writing.

CONTRACTS UNDER SEAL.--There are two ways of making promises binding, and unless the promisor fulfils the requisites of one or the other of these two ways his promise will not be binding. The first of these ways relates to the form in which the promise is made; the second relates to the substance of the transaction, irrespective of the form. The way to make a promise binding by virtue of its form is to put it in writing and attach a seal to the writing. It is often thought that written promises are binding in any event, or that a promise that is not written is not binding in any event. Neither of these propositions, however, is true. A promise is not binding merely because it is in writing; it is necessary that something more shall be done. Not only must it be written, but a seal must be attached in order to make the promise binding by virtue of its form. Everyone is familiar with the common ending in written contracts--"witness my hand and seal," that is, my signature and seal.

WHAT IS A SEAL?--A seal may be--and was originally--made with sealing wax stamped with a crest, initial or what not. This is still a sufficient seal, but the common kind of seal is simply a wafer attached by mucilage to the writing. Another kind of seal, in use by corporations and notaries especially, consists simply of an impression made on paper without attaching any foreign substance whatever. Any of these methods of sealing a promise is good. In most States a written or printed scroll with the letters "L. S." written or printed within, or the word "Seal"

written or printed may also be a seal if so intended. It may seem a ridiculous formality for the law to attach importance to this lapping a wafer and attaching it to the end of a writing. In a way it is ridiculous, but it is desirable to have some method by which a promise may be made binding. One method, as an original question, may be as good as another so long as it is an easy method, and attaching a seal is an easy method, and one which makes it possible to make a promise binding whenever you wish.

CHANGE BY STATUTE OF THE LAW AS TO SEALED CONTRACTS.--There has been in this country a certain hostility to the law of sealed instruments. It has been thought, with reason, that some of the rules governing contracts under seal have by their technicality promoted injustice. This has certainly been true of an old rule that contracts under seal could not be altered or discharged by any agreement not itself under seal. The rule, however, that a seal avoids the necessity of consideration is a desirable rule, since it is important to have some means by which those who so intend may make gratuitous promises binding. It would be better then to abolish undesirable incidents of sealed contracts by statute rather than to destroy totally the legal effect of a seal. However, in many States the distinction between sealed and unsealed contracts is totally abolished. In a number of other States the common-law rule has been changed by the enactment of statutory provisions to the effect that sealed contracts shall be presumed to have been made for a sufficient consideration, but this presumption is only prima facie, and lack of consideration may be affirmatively proved, even in the case of a sealed instrument. And under such statutes unsealed contracts remain as at common law, i. e., the burden of proving consideration rests upon the plaintiff who seeks to enforce such a contract.

REQUISITES OF SIMPLE CONTRACTS.--Sealed contracts are comparatively easy to understand. Simple contracts, which are promises made binding by virtue of their substance rather than their form, though called simple, are more difficult to understand, and more complex. They are also much more common than sealed contracts. A simple contract is a promise, or promises, to which the parties have a.s.sented, and for which a price called consideration has been paid. One may promise as much as he wishes, orally or in writing so long as he does not attach a seal to his signature, and then say he does not care to keep his promise, unless he has both been paid for the promise and there has been an a.s.sent by the promisor and promisee to the terms of the transaction. Mutual a.s.sent and consideration are, then, the requisites of simple contracts.

INTENT TO CONTRACT.--In the law of contracts, intention, as we ordinarily understand that term, plays little part. In fact, the Supreme Court of Connecticut, in the case of Davidson vs. Holden, 55 Conn. 103, said: "It is of no legal significance that the defendants did not intend to be individually liable, or that they did not know or believe that as a matter of law they would be."

It is our overt acts that count in contracts. Or shall we put it this way: In the eyes of the law overt acts manifest legal intention. A says to B: "I will sell you my watch for $25, and you may have until 9 o'clock to-morrow morning to decide." A meets B the next noon and says to him: "I am sorry you did not take the watch. It was a bargain." B replies: "Here is the price, I will take it. I intended to call you this morning but have been so busy I did not have an opportunity to do so. I told my wife last night I was going to accept your offer and I can produce five witnesses who were in the room and heard me say so."