Commercial Law Part 12

EFFECT OF ACCEPTING DEFECTIVE GOODS.--Another matter that has caused considerable litigation in regard to warranty and the obligation of the seller in regard to the quality of goods, is the effect of acceptance by the buyer of goods which are offered to him. Suppose a certain quant.i.ty of Manila sugar is offered to one who has agreed to buy, and he takes from the seller that quant.i.ty of sugar, but finds it is not of as good quality as it ought to have been. The buyer subsequently objects, but the seller says, "You should have objected to that at the outset and refused to take it. Your taking it is an a.s.sent or acceptance of it as a fulfillment of the contract, and any right you may have had is now gone." It is settled law that if the defect was not observable with reasonable care, the buyer does not lose any right by taking the goods, provided he gave prompt notice of the defect as soon as it was discovered. Further, even though at the time of delivery the buyer observed the defect or might have observed it, it is the law of most but by no means all States, that taking the goods does not necessarily indicate a.s.sent to receive them as full satisfaction of the seller's obligation. The buyer may receive the defective goods as full satisfaction, but the mere fact of taking them does not prove it. It is advisable, however, for the buyer as soon as he sees the defect to protest against it. He may in most States safely take the goods if he says in taking them, "These goods are defective and I do not take them in full satisfaction;" or, if he does not discover the defect immediately on taking the goods, he ought to give notice as soon as he does discover that the goods are defective, and state that, though he proposes to keep them, he does so subject to a claim for their defective quality.

SELLER'S RIGHTS WHERE BUYER FAILS TO ACCEPT GOODS.--Now the seller has some rights, also, that should be referred to. In the first place, if the buyer refuses to take t.i.tle to the goods when they are tendered to him, the seller has a right to recover damages. The amount of damages will be the difference between the value of the goods which the seller still retains, because the buyer will not take them, and the contract price which was promised. If the goods are worth as much as the price promised for them, the seller's damages will be only nominal, for he still has the goods and may sell them to somebody else for as good a price as was stipulated in the original bargain.

SELLER MAY RECOVER PRICE WHERE t.i.tLE HAS Pa.s.sED.--If the t.i.tle to the goods has pa.s.sed, the seller may sue for the price. This right to the price is secured by a lien on the goods as long as the seller retains possession of them. If the seller has parted with possession and with t.i.tle, he cannot get the goods back except in one narrow cla.s.s of cases.

STOPPAGE IN TRANSIT.--If the goods are in the hands of a carrier, or other intermediary between the seller and buyer, even though t.i.tle pa.s.sed on delivery to the carrier, the seller may stop the goods in transit if the buyer becomes insolvent before they are actually delivered to the buyer. The right is exercised by notifying the carrier to hold the goods for the shipper since the buyer has become insolvent.

The right of lien and of stoppage in transit is given the seller to enable him to secure the price, which is the thing of interest to him in the contract.

LEGAL AND EQUITABLE t.i.tLES.--A legal t.i.tle is a full right of ownership against everybody. The legal owner can take his goods wherever he finds them. An equitable t.i.tle is a right to have the benefit of the goods or property, and, also, it frequently involves a right to have the legal t.i.tle transferred to the equitable owner, making him full legal owner.

The peculiar feature of an equitable t.i.tle, however, is that it is good only against the particular person who, as the phrase goes, is subject to the equity, and also against any person who has acquired the property, either without giving value or with knowledge of the equity.

To put the matter conversely, an equitable t.i.tle is not good against a purchaser for value without notice, or, in the language of the Negotiable Instruments Law, against a holder in due course.

FRAUDULENT SALES.--This principle is important in other branches of the law besides that governing negotiable instruments. The most common case of equitable rights in sales arises in fraudulent sales. Where a sale is induced by fraud of the buyer, he gets the legal t.i.tle to the goods, but the seller has an equitable t.i.tle or right to get the goods back. Let us see how this works out. The buyer procures goods by fraud and he sells them to A. Now, the defrauded seller cannot get the goods back from A if A paid value for them in good faith. If A did not pay value in good faith, then the defrauded seller may get the goods from him or anybody who stands in the same position. If the defrauded seller can reach the goods before they have left the hands of the fraudulent person, he may replevy them or he may seize them if that is possible. It is not worth while to go into the various kinds of fraud that may be practiced in the sale of goods, but there is one specific kind that comes up very commonly which is worth mentioning; that is, buying goods with an intention not to pay for them. Generally, in order to create a fraudulent sale, it is necessary that the fraudulent person shall have made some misrepresentation in words, but here is a case where, though it may be said there is a misrepresentation, it is not put in words. It may be said there is a misrepresentation, for it is fair to say that every buyer when he buys goods not only promises to pay but represents that his intention is to pay for the goods, and perhaps that his financial condition is not so hopeless as to make the expectation utterly impossible of fulfillment. If the situation actually was that the buyer either had a positive intention not to pay, or was so hopelessly insolvent that any reasonable person would know he could not pay for the goods, the transaction is fraudulent; the seller still retains an equity, and may reclaim the goods from the buyer who has acquired a legal t.i.tle or from any other person except a bona fide purchaser. (A draft of a statute to punish the making or use of false statements to obtain property or credit, jointly prepared by the General Counsel of the American Bankers a.s.sociation and Counsel for the National a.s.sociation of Credit Men, has been enacted in the form recommended, or with more or less modification, in a majority of the States. This statute provides, in substance, that "any person who shall knowingly make or cause to be made any false statement in writing, with intent that it shall be relied upon, respecting the financial condition, or means or ability to pay, of himself, or any other person, for the purpose of procuring in any form whatsoever, either the delivery of personal property, payment of cash, making of a loan, extension of credit, etc., for the benefit of either himself or of such other person, shall be guilty of a felony, and punishable, etc.") This question often arises in bankruptcy: Suppose the buyer goes bankrupt and the goods come into the hands of the buyer's trustee in bankruptcy. The trustee in bankruptcy is in legal effect, in such a case, the same person as the bankrupt; he is not a bona fide purchaser from him, and thus the seller may reclaim the goods from the trustee in bankruptcy just as he might from the bankrupt. In the case supposed the seller has been fraudulently induced to part with his t.i.tle and may reclaim it. A case may be supposed, however, where the seller fraudulently retains his t.i.tle, and here the buyer's creditors may seize the goods as if the t.i.tle were in the buyer. Thus it is a fraud to make a conditional sale of goods to a person who intends, and who is understood to intend, to sell the goods again. The reason why it is a fraud is because it is inconsistent on the part of the wholesaler to say, "I retain t.i.tle to the goods until paid for, yet I give them to you, knowing that you are going to put them in your stock of trade."

DESTRUCTION OF GOODS SOLD.--The question sometimes arises as to the effect of the destruction of the goods sold or contracted to be sold.

The Sales Act in Sections 7 and 8 governs this:

Section 7. (1) Where the parties purport to sell specific goods, and the goods without the knowledge of the seller have wholly perished at the time when the agreement is made, the agreement is void.

(2) Where the parties purport to sell specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale:

(a) As avoided, or

(b) As transferring the property in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the full agreed price if the sale was indivisible, or to pay the agreed price for the goods in which the property pa.s.ses if the sale was divisible.

Sec. 8 (1) Where there is a contract to sell specific goods, and subsequently, but before the risk pa.s.ses to the buyer, without any fault on the part of the seller or the buyer, the goods wholly perish, the contract is thereby avoided.

(2) Where there is a contract to sell specific goods, and subsequently, but before the risk pa.s.ses to the buyer, without any fault of the seller or the buyer, part of the goods perish or the whole or a material part of the goods so deteriorate in quality as to be substantially changed in character, the buyer may, at his option treat the contract:

(a) As avoided, or

(b) As binding the seller to transfer the property in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the full agreed price if the contract was indivisible, or to pay the agreed price for so much of the goods as the seller, by the buyer's option, is bound to transfer if the contract is divisible.

CONDITIONAL SALES.--Certain transactions in which personal property is held as security, which are somewhat a.n.a.logous to mortgages and which are very common, may now be referred to. They may be cla.s.sed thus: Conditional sales, consignments, leases and chattel mortgages. A conditional sale, as that term is commonly used, is a transfer of the possession of personal property under an agreement to sell, the seller expressly retaining the t.i.tle. Here we have possession and t.i.tle divided. If it were not for the express agreement that t.i.tle should remain in the seller, the delivery of the goods to the buyer, with his agreement to pay for them, would indicate a transfer of t.i.tle to the buyer. The purpose of the seller in making a conditional sale is to retain security for the price which the buyer cannot pay all at once.

Conditional sales are most common in regard to furniture and machinery of various kinds. Creditors of the buyer naturally suppose that the goods in his possession are his, and it is to avoid deception, or possible deception, that most States require that the conditional sale be recorded, so that creditors and everybody else may have notice that, although the buyer seems to be owner of this property, he is not so in reality. But, in Ma.s.sachusetts, record is not required, and conditional sales, other than those of household furniture, need not even be in writing. The seller is secured by this sort of bargain in several ways.

If the buyer does not pay the price when it is due, the seller may take the goods back. They are his goods and therefore he may reclaim them. Or the seller may conclude that it is better to sue for the price, and may decide to let the buyer keep the goods and himself collect a judgment for the price by levying on any property the buyer may have, including that which was conditionally bought. Even though the buyer has paid a large part of the price of the goods, the seller may, nevertheless, reclaim the goods. The seller's course will be dictated largely by how much of the price has been paid. If a large part has been paid, the seller will very likely prefer to reclaim the goods unless they are household furniture. Why, it may be asked, does a buyer enter into a conditional sale, which is rather a poor bargain as far as he is concerned? The reason, of course, is that he cannot pay cash and he wants the use of the goods at once, and the conditional sale enables him to get them. By statute, in some jurisdictions, the conditional buyer is protected after he has paid a considerable portion of the price; either by extending the time within which he may pay the balance due, or by requiring a sale of the goods and the return to the buyer of any surplus.

CONSIGNMENT.--How does a consignment differ from a conditional sale?

When goods are sent or consigned it means that the person to whom they are sent is agent for the person who sends them. The consignment is like the conditional sale in this respect, that the person who has possession of the goods has not the t.i.tle. The consignment differs vitally from a conditional sale in this respect, however, that the consignee is not a debtor for the price. If the consignee sells the goods, then he, of course, must turn over the price to the consignor less such commission as he takes, or if the transaction was not on commission, then the consignee must pay to the consignor the price it was bargained the consignor should receive. But until the goods are resold they remain the consignor's and at his risk. If goods conditionally sold are destroyed, the conditional buyer must, nevertheless, pay for them. They are at his risk and he is an absolute debtor for the price; but the consignee merely holds the goods as agent until a purchase takes place.

LEASES OF CHATTELS.--Sometimes goods are leased. Here, again, we have the same point of similarity, that the person who has possession of the goods is not the owner. The lessee, like a consignee, is not a debtor for the price; he is a debtor for rent, but he is not a debtor for the price of the goods. Often leases contain an option to purchase, and a lease with an option to purchase is used by piano dealers and others as an alternative mode of dealing with customers unable to pay cash, instead of a conditional sale; but it is not the same thing, for if a piano were destroyed without fault of either party after it had been leased with an option to purchase, the loss would be on the seller. If the option to pay had been exercised, of course, the loss would be on the buyer.

CHATTEL MORTGAGES.--The goods are here owned originally by the mortgagor, and they ordinarily remain in his possession after he has transferred them by the mortgage. The fundamental principles governing chattel mortgages are the same as those which govern mortgages of real estate. Chattel mortgages must be in writing and recorded, or the mortgaged property must be delivered to the mortgagee; otherwise they are invalid against the creditors or trustee in bankruptcy of the mortgagor; that is, one may mortgage his chattels, either by delivering them to the mortgagee or by making a writing and having that recorded.

Even without record or delivery it is good between the parties, but it is not good in case of bankruptcy against the trustee in bankruptcy of the mortgagor, nor is it good against attaching creditors if there is no bankruptcy.

MORTGAGES OF FUTURE GOODS.--An agreement is sometimes made to make a mortgage of goods which do not at the time exist, or are not at the time defined. This is especially common in regard to a stock of goods. A wants to borrow money on his stock of goods in his shop. His stock may be worth $25,000 and A has not capital enough to get along without mortgaging it. Of course, he can mortgage the existing stock of goods without difficulty, but the trouble is he wants to keep on doing business, and sell in regular course of business the mortgaged stock of goods. That, too, would be easy enough if the mortgagee were willing to agree to it, but the mortgagee is not willing to agree unless equal security is subst.i.tuted for any goods that are sold. What they would like to provide is that the mortgagor shall have power to sell the existing goods if he chooses in the ordinary course of business, provided he always keeps a stock of goods on hand equal to that on hand at the time the mortgage was made, the idea being that as one thing is released from the lien of the mortgage other things, of at least equal value, shall replace it. It is not an unreasonable transaction, from a business standpoint, but the law generally does not allow it validity except to this extent. It is valid as between the parties so far as to give the mortgagee a power at any time to take possession, and when he does take possession the mortgage is valid as to the goods of which he takes possession against creditors or anybody else. The mortgagee may thus take possession right up to the time of the mortgagor's bankruptcy, or at any time prior to actual seizure of the stock of goods on an attachment. This gives the mortgagee some security if the mortgagor will be good enough to give the mortgagee a hint when it is wise for the mortgagee to take possession, because, as the mortgagee can take possession just before bankruptcy or just before an attachment, the mortgagee will be protected. But, of course, there is a chance that the mortgagee may not get the goods, and therefore this form of security, in most States, is not now advised, although it has been much attempted in the past. In some States, however, such a mortgage gives a right against goods afterwards acquired, which is superior to that of attaching creditors or of a trustee in bankruptcy, even though the mortgagee does not take possession.

GIFTS.--A gift is the immediate voluntary transfer of personal property.

To make a valid gift, therefore, it must be voluntary, gratuitous, and absolute. As has been explained, a gift is distinguished from a sale or a contract to sell by the fact that it is gratuitous. Gifts are usually divided into two cla.s.ses: gifts "inter vivos" and gifts "causa mortis."

There is no distinction between these two kinds of gifts, so far as the necessity of the intent to deliver t.i.tle and delivery of the property are concerned, but the distinction lies in the fact that in gifts "causa mortis," the change in t.i.tle is defeasible upon certain conditions. The ordinary gift "inter vivos," "between living people" is irrevocable when completed. The gift "causa mortis," that is, one made by a person in immediate apprehension of death, is always subject to the condition that if the person recovers, the t.i.tle to the property, which he has given away, reverts to him. For A, who is in his last illness, to say to B, who is sitting near his bedside, "I wish you to have my gold watch when I am gone, but my brother is wearing it now in Europe" would not be a gift "causa mortis." There is no delivery. It would not pa.s.s t.i.tle, upon his death, to his friend because in order to dispose of property after one is dead, a will is necessary. Even between the parties gifts are invalid unless accompanied by delivery, or made by deed under seal. The transaction without delivery or deed is, in effect, a promise to give, and there being no consideration the promisor may subsequently refuse to keep his promise. If a savings-bank book, a bond, a stock certificate, a life-insurance policy, a note or check of a third person (but not one made by the giver), or any chattel property is delivered to the donee, the gift is binding and irrevocable; but otherwise the donee gets absolutely nothing and the donor's executor is ent.i.tled to the property attempted to be disposed of by gift, and must treat it as part of the a.s.sets of the estate.

ILl.u.s.tRATION.--A recent case in New Jersey shows clearly the effects of the application of the rules just described. In Bailey v. Orange Memorial Hospital, 102 Atl. 7, the facts were that the testatrix died about June 10, 1893, leaving a will, which had been duly probated, and under which the complainants had qualified as executors. Among the papers, which the executors found in the testatrix's safe deposit box after her death, was a certificate made in her name for fifty shares of the capital stock of the United N. J. Railroad and Ca.n.a.l Co., bearing the following indors.e.m.e.nt, "For value received I hereby a.s.sign and transfer unto the Orange Memorial Hospital fifty shares of the capital stock represented by the within certificate and do hereby irrevocably const.i.tute and appoint ................ attorney to transfer the said stock on the books of the within named corporation with full power of subst.i.tution in the premises.

Mary Campfield.

"Dated Oct. 28, 1911.

"Witnessed by James C. MacDonald."

In the same envelope containing this certificate the executors also found the following letter in the handwriting of Mrs. Campfield: "To my executors: The accompanying certificate of fifty shares of the United, etc. Co. is my gift to the Orange Memorial Hospital for a bed to be called the 'Mahlon Campfield Bed.' The stock has been retained since its date of transfer because I desire to be benefited by the dividends thereon as long as I live.

Mary Campfield.

"Dated Oct. 28, 1911."

In this box Mrs. Campfield kept her bonds and mortgages, stock certificates, and other valuable papers relating to her own property and to the estate of her husband, of which she was executrix. There were two sets of keys to the box, one of which was in Mrs. Campfield's possession, and the other in the possession of one of her executors, who a.s.sisted her for some time in the management of her affairs. Shortly before the indors.e.m.e.nt on the certificate was made, and the letter written, Mrs. Campfield requested Mr. Everett, the executor, to take the stock certificate from her box and deliver it to her attorney, stating that she would let her attorney know in a few days what to do about it.

A few days later the attorney handed Mr. Everett an envelope containing the stock certificate, and told him there was a letter with it. Mr.

Everett saw the certificate but did not see the letter, and he placed the envelope containing the certificate in the safe deposit box. The attorney had sealed the envelope after showing him the certificate.

After Mr. Everett had told Mrs. Campfield what had been done, she said, "Well, that is for the hospital and that settles it," and she added: "It is in an envelope, as you probably saw, and addressed to my executors, and they will find a letter inside telling them what to do with it."

After this, Mrs. Campfield continued to receive the dividends paid on these shares, and there is some evidence to indicate that she had access to the safe deposit box and examined its contents during the winter preceding her death. The court, in its opinion, said: "I do not think there can be any doubt of Mrs. Campfield's donative intention regarding these shares of stock, and it is equally clear that she never consummated that intention to make the gift, by the actual delivery of the stock to the hospital, or to any one as trustee for it; and it also appears that she intended the gift should be effective only after her death. She expressly retained the ownership and dominion over the stock for the purpose, at least, of collecting and enjoying the dividends paid thereon. * * * The gift of the stock not having been completed by delivery, or by the relinquishment of control over the certificate representing it, the stock must be declared to be an a.s.set of the estate."

CHAPTER IX

Real Property

DISTINCTION BETWEEN THE LAW GOVERNING SALES OF REAL AND PERSONAL PROPERTY.--The main distinction between the law governing real and personal property is the increased formality necessary in transactions governing real estate. Contracts for the sale of real estate must be in writing and actual conveyances of an interest in land must not only be in writing, but, except where seals have been abolished by statute, must be executed under seal. In order to make the transaction valid against third persons, record in the Registry of Deeds in the county where the land is situated is also requisite. Unless a contract for the sale of real estate is recorded, a subsequent conveyance to a purchaser, for value and without notice, will destroy the right of the buyer under the first contract to get the land, though he will still have an action for damages against the seller. So, in many jurisdictions, creditors of the man contracting to sell may by attaching the land as the seller's property satisfy their claims from it to the detriment of the buyer's right. Therefore, an actual conveyance of real estate must be recorded in order to protect the grantee. As a pre-requisite for record it is generally required that contracts and deeds of real estate shall be acknowledged before a notary public or other official authorized by law.

DUTIES OF BUYER AND SELLER UNDER CONTRACT TO CONVEY REAL ESTATE.--The primary duty of the seller in a contract to convey real estate is to transfer a good t.i.tle. It is important for the buyer to determine before the time for performance whether the seller's t.i.tle is good in order to determine whether he himself will accept the deed and pay the price.

Accordingly, the buyer has the t.i.tle examined by search in the Registry of Deeds. If the search discloses that the seller's t.i.tle is defective the buyer does not on that account necessarily have a right to rescind the contract. The defect of t.i.tle may be removed before the time of performance, and if the nature of the defect is such that this is possible, the buyer can only give notice of the defect and request its removal. If the t.i.tle of the seller is so defective that it cannot be cured, or if the seller manifests by his conduct an intent to repudiate the contract, as by selling the land to another, the buyer need not wait for the time for performance, but may at once give notice that he rescinds the contract. Unless the seller has expressly contracted to convey by warranty deed, his obligation is generally satisfied by a quit claim deed. It is well, therefore, for a purchaser, when he contracts to purchase a piece of real property, to insert in the contract a clause to the effect that the seller agrees to convey by a sufficient warranty deed. The seller is also bound not to commit waste on the premises between the time of the contract and the time of performance. The rule in regard to accidental injury is stated hereafter, but as to intentional or negligent injury of the premises, the law is clear that such an injury is a breach of duty by the seller. The buyer's duty is to pay the price according to the terms of the contract. The obligations of the seller to convey, and of the buyer to buy, are concurrent, unless the contract expressly provides the contrary; that is, the buyer in order to acquire a right against the seller must tender payment, as he demands a deed; and the seller in order to acquire a right against the buyer must tender a proper deed when demanding payment. The obligation of either party to tender may, however, be excused by circ.u.mstances showing that tender would be useless. Thus, if the buyer is insolvent, the seller need not tender a deed, and if the buyer has repudiated the contract or committed waste to a material extent, or conveyed the premises to a third person, the buyer need not tender payment, in order to acquire a right of action. But if there is any doubt at all, the purchaser or the seller, as the case may be, should make a tender, so as to preserve his legal rights.

DOWER AND CURTESY.--By the common law a wife on her marriage acquired a right in her husband's land, which, though not vesting until his death, enc.u.mbered the t.i.tle immediately. On his death she became ent.i.tled to a life estate in a one-third interest of all the lands of which he had been possessed since the date of their marriage. Accordingly, where the common law rule of dower still prevails, a husband cannot give an unenc.u.mbered t.i.tle to real estate unless his wife joins in the conveyance. Similarly a husband was ent.i.tled at common law to a life interest in the lands of his deceased wife if they had had a child born alive. This was called the estate by curtesy. Its extent, it will be observed, is not the same as that of dower. The husband's life interest extended to all the lands of the wife, but on the other hand, it did not arise at all unless there was a child born alive; whereas the wife's dower right arose immediately on marriage. The rules of dower and curtesy have been changed by statute to a greater or less extent in most States, but it is still almost universally important that a wife should join in her husband's conveyance of real estate, and that a husband should join in a wife's conveyance of her real estate.

DEFAULT IN PERFORMANCE.--The law regards more leniently a default in time in carrying out contracts for the sale of real estate than it does a similar default in the sale of personal property. In sales of personal property, especially if it is of a character which rapidly fluctuates in value, time is said to be "of the essence;" that is, the failure of either party to perform at or about the agreed day is fatal to his rights to enforce the contract; but in the case of real estate it is generally held that time is not of the essence of the contract unless it is either expressly so provided in the contract, or the circ.u.mstances of the case are such as to show that time was a matter of vital importance.

DESTRUCTION OF PREMISES.--Where personal property, which the owner has contracted to sell, is destroyed, the loss is the seller's provided the t.i.tle is still in him, and the buyer has committed no default; but in most jurisdictions, if real estate is similarly destroyed, the buyer must nevertheless pay the price. In the absence of special provisions in a contract of sale, if a house on the premises sold has burned between the time of the contract and the time for its performance, without fault of the seller, the seller can compel the buyer to accept a deed of the land without the house and pay the full price. This rule has been much criticized, and it is not universally in force; for example, it is not the law of Ma.s.sachusetts. In some other States the loss will not fall upon the buyer unless possession of the premises has been delivered to him under the contract, but in New York, and probably a majority of the States, even though the seller still has possession, as well as t.i.tle, the risk of accidental loss rests upon the buyer. Where risk of destruction of the premises is thrown on the buyer, immediately after he has made a contract to purchase, it is of obvious importance that he should immediately insure the premises. The insurance of the seller, unless transferred to the buyer at that time with the company's a.s.sent, will not protect the buyer. Insurance is a contract of personal indemnity, and the seller's insurance only protects the seller's interest. The result is that if the premises are destroyed, the insurance company will not be obliged to pay the seller his insurance, since the seller, under the contract of sale, can recover from the buyer; and even if the insurance were paid to the seller, the buyer could not claim the benefit of it.

SPECIFIC PERFORMANCE.--In addition to the ordinary remedy for a breach of contract, namely an action at law for damages, another remedy, that of specific performance, is permitted in the case of contracts for the sale of land; that is, the court will actually compel one who has contracted to sell land to make a conveyance thereof on receiving the agreed price, and will similarly compel one who has contracted to buy to pay the agreed price on receiving a deed of the premises. Specific performance of such contracts is granted on the theory that money damages are an inadequate remedy, and that the nature of the situation is such that it is possible to compel the actual performance of the contract. In contracts for the sale of personal property, damages are generally considered adequate, but contracts for the sale of a painting or a race-horse would be specifically enforced. Sometimes the seller is unable fully to perform his agreed contract. He may not be able to give a t.i.tle free from enc.u.mbrances, or he may have committed waste on the premises. In such a case, though the buyer need not carry out the contract unless he wishes, he can if he chooses get a conveyance decreed to him and an allowance deducted from the price commensurate to the injury caused by the enc.u.mbrance or waste. Specific performance will be granted not only against the seller, but if the seller in violation of his contract has conveyed the land to a third person who had notice of the contract or who did not give value in exchange for the land, the court will compel the grantee of the premises to convey them to the person who had the original contract to buy. If, however, one who has agreed to sell the premises actually sells and conveys them to another who is a purchaser for value without notice of the prior contract, such a purchaser gets an indefeasible t.i.tle, and the person having the prior contract to buy must resort, for his only relief, to an action for damages against the seller. For this reason it is important to record a contract to buy or sell. This record operates as notice to all the world, and no purchaser subsequent to the record will have the rights of a purchaser for value without notice.

VENDOR'S LIEN.--In some States a seller of land who has not been paid the price is ent.i.tled to what is called a vendor's lien on the land.

This enables him to compel a sale of the property to satisfy his claim for the purchase money unless the land has been conveyed, before proceedings are brought to enforce the lien, to a purchaser for value without notice that the original vendor is still unpaid. In many States, however, the seller has no vendor's lien and must take a mortgage back for any unpaid portion of the purchase price if he desires security for its payment.

DEFINITION OF MORTGAGE.--A mortgage is a transfer of property to a creditor to secure a debt. Unless there is a debt there can be no mortgage, and the original idea of a mortgage, still preserved in the forms of conveyance in many States, is that the mortgagor or debtor transfers the t.i.tle to the mortgagee or creditor. In popular understanding the mortgagor owns the mortgaged premises but the mortgagee will take or sell them if the debt is in default. The theory of the common law, however, was that the mortgagee became the owner of the premises as soon as the mortgage was made, but that the mortgagor was ent.i.tled to re-acquire the ownership by payment of the debt at maturity. Indeed, early mortgages were often made by two separate instruments: (1) an absolute deed of conveyance to the mortgagee, and (2) an instrument called a defeasance which provided that on payment of the amount of the debt, on a given day, the property should revest in the mortgagor.

MODERN AMERICAN MORTGAGES.--At the present day in many jurisdictions a mortgage still remains, both in the form of the instrument and in the legal conception of the rights of the parties fundamentally, the same as under the early doctrines just outlined. In other jurisdictions, of which New York may be taken as a typical State, the theory is no longer that the mortgagee has t.i.tle to the property, but that he has only a lien on it, which he may enforce if the debt is not paid. The difference in actual results under the two theories, however, is less than might be supposed. Where the mortgagee is still regarded as having the t.i.tle, his power to make use of that t.i.tle is limited so that he can only make use of it for the purpose of securing payment of what is due him. On the other hand where the mortgagee is regarded as having only a lien, the lien is a legal right against the real estate which enables the creditor to enforce his claim against it in practically the same way which he would do were he the owner of the real estate.