Commercial Law Part 4

EFFECT OF a.s.sIGNMENT OF RIGHTS.--It may be supposed that the effect of an a.s.signment of a right, though the result may be worked out by treating the a.s.signee as an agent or attorney of the a.s.signor, is the same as if the a.s.signee were fully subst.i.tuted in the position of the a.s.signor as owner of the claim, but this is not quite true. a.s.suming that the claim is not represented by negotiable paper, the legal owner of the claim is still the a.s.signor. This is shown by the fact that if the debtor pays the a.s.signor in ignorance of the a.s.signment, the debt is discharged and the a.s.signee can only go against his a.s.signor for the latter's fraudulent conduct in collecting the claim after having a.s.signed it. So, too, if the a.s.signor makes a subsequent a.s.signment, this subsequent a.s.signee also has a power of attorney to collect the claim and keep the proceeds; so that if the second a.s.signee in good faith collects the claim in ignorance of the prior a.s.signment, he can keep what he has collected; nor is the debtor liable to the first a.s.signee who must as before seek redress from his a.s.signor. It is, therefore, always important for the a.s.signee of a non-negotiable chose in action to give immediate notice of his a.s.signment to the debtor. If after such notice the debtor should pay the a.s.signor or a subsequent a.s.signee, such payment would not discharge the debtor, and the first a.s.signee could collect the claim from him.

NON-a.s.sIGNABLE RIGHTS.--Rights cannot be a.s.signed which are personal in their nature. The one who has contracted to paint a picture cannot delegate the duty to another, no matter how skillful. One who has a right to the personal services of an employee cannot a.s.sign that right to another. A publisher who has a right to publish all books written by a certain author cannot a.s.sign his right to another publisher.

a.s.sIGNMENT OF DUTIES.--The duties under a contract are not a.s.signable under any circ.u.mstances. That is, one who owes money or is bound to any performance can not by any act of his own or by any act in agreement with any other person except his creditor, divest himself of liability and subst.i.tute the liability of another. This is sufficiently obvious when attention is called to it; for otherwise debtors would find an easy practical way of escaping from their debts by a.s.signing the duty to pay to irresponsible persons. But the principle is not always recognized. A person who is subject to a duty, though he cannot escape liability, may delegate the performance of his obligation provided the duty is of such a character that performance by an agent will be substantially the same thing as performance by the obligor himself. Thus if a contractor engages to build a house, he may delegate the actual building to another, but he cannot escape responsibility for the work. One who owes a mortgage may delegate the payment of the mortgage to a purchaser of the land who a.s.sumes and agrees to pay the debt. If the purchaser of the land actually pays, the debt is discharged; but if he fails to do so, the mortgagee may sue the original mortgagor and the latter will be obliged to bring another action against the purchaser who promised to pay the debt and failed to do so. So where a partnership is changed and a new firm formed, it is very common for the new firm to a.s.sume the obligations of the old firm.

ORIGINAL DEBTOR NOT DISCHARGED UNLESS THERE IS A NOVATION.--Though a creditor cannot be deprived of his right against his original debtor without his consent, he may consent. If he does thus consent to take in lieu of the obligation of his original debtor that of the person who a.s.sumed the debt, what is called a novation is created. That frequently happens where a new firm succeeds an old one. The new firm goes on dealing with the old creditors, and they impliedly, if not expressly, a.s.sent to taking the new firm instead of the old firm as a debtor. But in order to make out a novation you have got to find as a fact that the creditor agreed to give up his right against the old debtor. If the creditor does not a.s.sent to a novation then the situation is that the creditor retains his claim against the old debtor, but the person who has a.s.sumed the debt has contracted to pay that debt. If he keeps his contract he will pay it and the debt will be cancelled. If he does not keep his contract the creditor will sue the original debtor and the original debtor will sue the man who a.s.sumed the debt.

a.s.sIGNMENT OF BILATERAL CONTRACTS.--In bilateral contracts each party is under a duty to perform his promise, and also has a right to the performance of the other party. If an attempt is made to a.s.sign such a contract the effect is this: the a.s.signor delegates to the a.s.signee the duty of performing the a.s.signor's promise, but the a.s.signor himself still remains liable if his agent, the a.s.signee, fails to carry out the duty. Further, the a.s.signor authorizes the a.s.signee to receive the payment or performance due from the other party to the contract and to keep it for himself.

WHAT AMOUNTS TO AN a.s.sIGNMENT.--No particular words are necessary to const.i.tute an a.s.signment. Any words which show an intention that another shall be the owner of a right are sufficient to const.i.tute the latter an a.s.signee. Especially it should be observed that an order directed to a debtor of the drawer ordering him to pay the debt to a named payee, is an a.s.signment of the debt when delivered to the payee. This case must be sharply distinguished from a bill of exchange or check. A bill of exchange or check is an order to pay a certain amount unconditionally, irrespective of the existence of any particular fund. It is only an order to pay from a particular fund, that is, an order which is conditional expressly or impliedly on the existence of that fund, which const.i.tutes an a.s.signment.

PARTIAL a.s.sIGNMENT.--A creditor may not only a.s.sign his whole claim to an a.s.signee, but he may a.s.sign part of it. Such a partial a.s.signment authorizes the a.s.signee to collect the portion of the claim a.s.signed and keep it for himself. But the debtor is not bound to pay the claim piecemeal; he may insist on making but a single payment unless his contract with his creditor provides otherwise. A bank in accepting a deposit contracts to pay that deposit in such amounts as the depositor may indicate on the checks drawn by him, but an ordinary debtor who owes $100 cannot be required to pay in such amounts as his creditor may see fit to demand. For this reason a few courts hold that even if the debtor has notice of a partial a.s.signment, he may pay the whole debt to the original creditor though that results in defrauding the partial a.s.signee. Most courts hold, however, that the debtor when notified of the facts cannot do this, and if he objects to paying fractional parts of his indebtedness he must pay the whole sum into court to be distributed by it among the parties ent.i.tled. So, on a question of this character, the local statute should be examined.

a.s.sIGNMENT OF FUTURE CLAIMS.--a.s.signments of future claims, as well as of existing claims, may be made, but there are in many States some special provisions of statute law in regard to a.s.signing future wages.

Such a.s.signments must often be recorded, and there are certain other special statutory provisions in regard to them. The a.s.signment of future debts is also subject to this qualification: The law does not allow the a.s.signment of a future claim unless the contract or employment out of which the claim is expected to arise has already been made or is already in existence.

DISCHARGE OF CONTRACTS.--Contracts are discharged in much the same way as they are made. The simplest way of discharging a contract is by performing it. When both parties do exactly what they agreed to do the contract is discharged by performance. Where seals still retain their common law effect, it may be discharged without performance by agreement under seal that it shall be discharged, just as a contract may be made by an agreement under seal. The agreement under seal to discharge a contract is called a release. You may release any right that you have--a right for money, a right to have work done or any right. Just as contracts may be made either under seal or by an agreement with consideration, so they may be discharged not only by a release under seal but by an agreement for rescission of the contract. But this agreement must have consideration.

ILl.u.s.tRATIONS.--Suppose A has promised to build a house and B has promised to pay $10,000 for it. Before anything has been done, A and B agree to call that contract off. This is a valid agreement for rescission, because each party agrees to give up something--one party to give up his right to have the house built, the other party to give up the right to get $10,000 pay. So an agreement between employer and employee that a contract shall be terminated before the time originally agreed has sufficient consideration--the employer gives up his right to the employee's services, the employee gives up his right for future pay.

But compare with these this case: A owes B a thousand dollars; it is simply a debt. A and B agree to call that square. That agreement is of no validity, for here only one party agrees to give up anything. The creditor agrees to give up his thousand dollars, and he does not get any promised amount in return for it. But that obligation, that debt, could be satisfied if valid consideration were given for the surrender of the claim; and anything agreed upon, as a horse, or ten shares of stock, or anything else the parties agreed to, would be good consideration for the agreement to surrender the claim, so long as one did not get into the difficulty alluded to under the heading of consideration, of trying to surrender a right to a larger liquidated sum in consideration of the payment of a smaller sum of money.

SENDING A CHECK AS FULL PAYMENT.--It is very common for a debtor in making payment by check of his debt to seek to make the check operate as a receipt in full of all claims by the creditor against him. He may do this by writing on the check itself that it is "in full of all demands"

or "in full payment" of a certain bill; or he may by a letter accompanying the check state that the check is sent as full satisfaction. The acceptance by the creditor of the check under either of these circ.u.mstances is an a.s.sent by him to the proposition stated on the check or in the accompanying letter, that the check is in full payment. Such an a.s.sent, however, does not necessarily prove that the debtor is discharged; consideration as well as mutual a.s.sent is essential to the validity of any agreement which is not under seal.

Accordingly if the debt was a liquidated and undisputed one, and the check was for less than the amount due, the agreement of the creditor to take it in full satisfaction is not supported by sufficient consideration under principles previously considered. On the other hand, if the debt was an unliquidated one, or there was an honest dispute in regard to the amount due, the creditor's claim is fully satisfied.

RECEIPT IN FULL.--It may be said generally that though a receipt in full is often thought by business men to be a discharge irrespective of consideration, like a release, this is not true in most States. A receipt in full is good evidence, if payment has been made in full, that it has been so made; but where payment has not been made in full a receipt will not be effectual without consideration, as a release under seal would be.

RENUNCIATION OF OBLIGATION ON NEGOTIABLE INSTRUMENT.--There is one case where the law allows a party who has a right to surrender it without consideration. This is by virtue of the Negotiable Instruments Law, which provides that the holder of a note may discharge any party to it by a written renunciation of his claim. No particular form of words is necessary, but the renunciation must be in writing. No consideration is necessary.

ALTERATION OF WRITTEN CONTRACTS.--The alteration of a written contract in a material particular with fraudulent intent by a promisee in effect discharges the contract so far as he is concerned. He cannot enforce it either in its original form or its altered form, though the other party to the contract may enforce it against him. If the alteration is not material, the contract may be enforced even by the party who altered it whatever the motive of the alteration may have been. If the alteration is material but not fraudulently intended, that party is generally allowed to enforce the contract in its original form. No alteration by a third person affects the rights of a party to a contract. By material alteration is meant one which if given effect would alter the legal obligations of the parties to the contract. The rule of the Negotiable Instruments Law in regard to alteration of negotiable instruments, it should be observed, is somewhat more severe than that generally prevailing in regard to other contracts.

SUGGESTIONS FOR DRAFTING CONTRACTS.--While it is unwise to attempt the drafting of any contract at all complicated, without the services of an attorney, there are certain times when it may be necessary to act suddenly, and a few fundamental facts should be kept in mind. If you are called upon to draft a contract for two other people, the first requisite is to obtain as full information as possible from both parties as to the plans they have in mind. After obtaining this, the details should be arranged in writing, gone over carefully by the draftsman, and submitted to the parties for their approval. A most common mistake made by laymen is to fail to cover contingencies which are more or less likely to happen. For example, what effect would the death of either party have on the contract? This should be provided for. The careful draftsman, whether he be a layman or a lawyer, should draw contracts with the idea of making them so plain that litigation will not result.

Contracts should always be drawn in duplicate, so that each party may have a copy, and it is well, if you are the draftsman, to keep a copy for yourself. It is not necessary to appear before a notary public unless you are dealing with a deed, or a similar formal doc.u.ment. If there is good consideration for the contract, no seal is necessary, but under some statutes, a sealed contract is good for a longer period of time, so that there is an added advantage in having the contract under seal.

QUASI CONTRACTS.--The term quasi contract is one which has appeared within the last thirty years. The law in this branch of contracts is still in the process of development and the field of quasi contracts is still not one of settled limits. For our purposes we confine ourselves to those obligations arising from "unjust enrichment," that is, the receipt by one person from another of a benefit, the retention of which is unjust. The term "enrichment" has recently been criticized by one of the ablest writers on this topic, as there are many cases where it is sufficient to show that the defendant has received something which he desired, although the question whether he is thereby enriched, is immaterial. In Vickery v. Ritchie, 202 Ma.s.s. 247, we find that where A renders services, and furnishes materials and supplies for the erection of a building for B under a supposed contract and the contract itself is invalid, B is under a supposed quasi contractual obligation to pay A for the services he has rendered and the material he has furnished, regardless of whether B's property is increased in value. We may state the point to be emphasized in quasi contract is the fact that the retention of the benefit received by the defendant would be unjust rather than "enrichment."

DISTINGUISHING CHARACTERISTICS.--There are four characteristics which distinguish quasi-contracts: 1. The obligations of quasi contracts are imposed by law without reference to the a.s.sent of the obligor. 2. They are imposed because of a special state of facts and in favor of a particular person and do not rest upon one at all times and in favor of all persons. 3. Although equitable in their origin they are enforced by a common law court. 4. They require that the obligee shall be compensated for the benefit which he has conferred upon the obligor and not for any loss suffered by the obligee.

APPLICATION OF THE PRINCIPLE.--The following are the more common ill.u.s.trations of the application of the principles of quasi contracts.

Where there has been a mistake, and hence the minds of the parties never really met, yet benefit has really been conferred; or, where the attempted contract cannot be enforced as a contract, because it did not comply with the statute, or was illegal, and yet one of the parties has received a benefit; or, where a benefit has been conferred under compulsion or duress.

MISTAKE.--Where parties have attempted to make a contract and a mistake of fact occurs, no contract results. The minds of the parties never really meet. Yet if benefits have been conferred, justice requires that the benefit should be returned, or compensation given, and this, in fact, is just what the law seeks to do when there has been such a mistake that upon the attempted contract itself no suit can be brought.

The essentials of mistake, and the way in which a mistake usually arises, are:

(1) It would not be a mistake if a party had paid money when he had any reason to suppose it was not due. A recovery of money under such circ.u.mstances cannot be allowed.

(2) The payment must have been induced by mistake in order to allow the recovery. This rule prevents the recovery of money paid in settlement of a disputed matter; but it must be a.s.sumed that it was to the party's interest to make the payment. However, suppose that a compromise settlement has been made in the belief that certain facts were different from what they really were. Here the mistake would have induced the payment, and, hence, in such a situation a recovery will be allowed.

(3) The fact regarding which a mistake has been made must also be a material fact, and the fact must have been a part of the transaction itself, not collateral to it in any way. A mistake as to the value of an article purchased, for instance, is not a material fact.

(4) Ordinarily, money paid under mistake of law cannot be recovered, although it is against conscience for the defendant to retain it. A mistake as to the law of another State, however, is a mistake of fact, and money paid under such a mistake can be recovered.

(5) Where the party who mistakenly parted with the money did so because of his own negligence, and to allow a recovery would throw a loss on the other party, he cannot recover what he parted with. One party cannot make another suffer because of his own negligence. Where a party paid money under mistake, and the payee was negligent, the party paying may recover.

(6) When parties suppose they have made a contract, and money has been paid, or services rendered, under that supposed contract, but in fact there was no valid contract at all, or there was a mutual mistake as to a term, this money, or the value of the services, may be recovered.

(7) When money has been paid for the transfer of something by defendant, whether recovery will be allowed in case it should turn out that the defendant had no t.i.tle, depends on the nature of transaction. If the defendant made a warranty that he had t.i.tle, a recovery may be had. If, however, the defendant simply sold what he had, whether that was something or nothing, a recovery cannot be allowed unless, as is the law in some States, a vendor impliedly warrants his t.i.tle by the fact of having possession.

(8) In the case of parties mistaking the existence of a subject matter of sale, if the understanding was that A was purchasing an existing thing, then he can recover the money paid if it should turn out that the thing was not in existence. But if he bought simply a chance, he cannot recover.

BENEFITS CONFERRED UNDER COLOR OF CONTRACT.--Aside from the cases of mistake, there are other grounds for allowing recovery under the principle of quasi contract. A group of these is made up of cases where there cannot be a recovery upon the contract itself, although the parties have come together and agreed without any mistake or misunderstanding, because of the absence of some essential necessary to create an enforceable contract obligation; yet a benefit has been conferred upon the one party who, but for the lack of that essential, would have been liable in an action upon the contract itself. Such cases arise largely where there has been a partial performance of an illegal contract, or of a contract unenforceable because of non-compliance with the statute of frauds, or where full performance is excused by impossibility. Some States also allow recovery on the theory of benefits conferred, where, after partial performance, a party defaults under circ.u.mstances not excusing default.

BENEFITS CONFERRED WITHOUT CONTRACT.--We next take up that cla.s.s of relations where there has been an absence of distinct offer and acceptance, and yet a benefit has been conferred resulting in an unjust enrichment of the other party. If A confers benefit on B, though at B's request, it may be merely a gift. A cannot afterward change his mind and recover for that, as if there had been a contract. A may have paid B's debt in order to prevent a sale of his own property. He may then recover the amount so paid. For example, A left his property with B to have some repairs made. A third party recovered a judgment against B, and A's property was seized on an execution. A paid the judgment in order to release his own property. It was held that he might recover the money so paid from B, who should have paid the judgment. Or A may have paid B's debt because he was surety for B. He then may recover from B the amount so paid; or, if B had two sureties, A and C, and A paid the whole or more than his share, he could recover the share of such payment which C should have paid, on the principle of contribution that equality is equity. But A must have actually made the payment of more than his proportionate share.

CHAPTER IV

Princ.i.p.al and Agent; Master and Servant

THE IMPORTANCE OF AGENCY.--Now that we have finished our discussion of the general principles of contract law, it remains for us to apply these principles to the specific topics of commercial law. Of these, the law of agency is one of the most important. It is perfectly obvious that a man can be in only one locality at a given time. Under modern business conditions he may wish to perform acts in different places at the same time. When business men were first confronted with problems of this kind, the principles of the law of agency began to develop. They resorted to the simple expedient of having others represent them. If these representatives were properly instructed in their duties and faithful in discharging them, there was, of course, no reason why the will of the person who had appointed them was not as fully accomplished as if he had performed the act himself. The Latin maxim, "Qui facit per alium facit per se," that is, "He who acts through another, acts himself," is the basis of the law of agency. The growing importance of the law of agency is strikingly apparent in one branch of modern business. Fifty years ago, the great majority of business operations were conducted either by individuals or by partnerships. To-day, especially in conducting large business enterprises, corporations have replaced individuals and partnerships. Although (as we shall see later in the chapter on corporations) in law a corporation is deemed a separate, legal ent.i.ty, distinct from the stockholders, in actual practice we know that there is no such distinct physical being as a corporation. It follows, therefore, that every act performed by a corporation must be performed through an agent. With the enormous increase in the number of corporations in the last twenty-five years, and that increase still continuing, we can see that the law of agency is a most important branch of commercial law and very closely connected with corporation law.

AGENCY DEFINED.--Merely for purposes of convenience, it may be best to divide the whole subject of agency into three branches: Princ.i.p.al and agent; master and servant; employer and independent contractor. The term "agency," when used in the broad sense, indicates a relation which exists where one person is employed to act for another. At the outset, we should keep in mind the distinctions between the agent, the servant, and the independent contractor. It is difficult to indicate these distinctions with absolute certainty by definition. An ill.u.s.tration, however, will show clearly what the difference is. I own an apartment house in New York, but as I am not in the city, except infrequently, I employ the real estate firm of Smith & Jones to manage the apartments and collect the rents. They are, of course, my agents, to act in the premises. I own an automobile and I employ a chauffeur to operate the car for me. He is my servant. I own a vacant lot in New York and on it plan to erect an office building. I employ the Smith Construction Company to erect the building. It is an independent contractor. What is the rule, then, to determine the distinction between these three persons? All three persons represent the princ.i.p.al, or the master, or the employer, but the line of distinction lies here: An agent is employed to bring the princ.i.p.al into new contractual obligations; a servant represents his master in the performance of ministerial, or mechanical acts or services, with no thought of bringing his master into new contractual relations with third persons. A person who is employed to perform ministerial or mechanical acts for another, as we have said, is a servant, but there are cases where the master retains no control or right of control of the means or methods by which such work is to be accomplished. In this latter case, the person performing the work is not a servant, but is an independent contractor.

HOW AGENCY MAY ARISE.--Although agency undoubtedly originated from the relationship of master and servant, and that relationship from the enforced service rendered by slaves to their master, to-day the law of agency in the broad sense is a contractual relationship. The agent or servant or independent contractor becomes such upon the express or implied request of the princ.i.p.al. Although agency may exist, in so far as third persons are concerned, without any formal contract between the princ.i.p.al and the agent, yet, in the great majority of cases, there is an actual contract between the parties to the relation. Compensation, although usually an element in the contract, is not necessarily a requisite. For instance, I may be liable for the negligent act of my son in running my automobile in connection with my business, although he is acting without any compensation. There are four methods by which the relationship of agency arises: (1) By contract; (2) by ratification; (3) by estoppel; (4) by necessity.

WHO IS OR MAY BE AN AGENT.--The law of agency, as between princ.i.p.al and agent, is simply an application of the general law of contracts, but as between third parties and the princ.i.p.al, or agent, new questions arise.

The first question is, who is an agent and who is a princ.i.p.al? Any employer is a princ.i.p.al and any employee is an agent. The employer is a princ.i.p.al whether he employs the employee for a single act or whether he employs him for a period of time. Besides the ordinary cases that you will think of under the head of employer and employee, an officer of a corporation is an agent, the corporation being the princ.i.p.al. The president of a corporation is as much an agent as a clerk in the employ of the corporation. A partner is an agent--of the firm. These different kinds of agents are distinguished chiefly in the different scope of the authority which they possess.

DISABILITY.--In our discussion of contracts, we found that certain persons were under disability so far as making contracts was concerned.

We mentioned the case of infants, married women, insane persons, and the like. The same disabilities do not exist in the law of agency, so far as the agent is concerned. Any person may act as an agent or servant. So infants, married women, slaves, and even lunatics, may be agents or servants whose acts will bind their princ.i.p.als. It has been held that even a dog may be an agent. As to who may be a princ.i.p.al, the ordinary rules of contracts, as we have discussed them, may be relied upon as giving the correct rule.

AGENCY BY CONTRACT.--Concerning agency which arises by contract, little need be said. A contract of agency must possess all of the elements of the ordinary contract, such as mutual a.s.sent, consideration, competent parties, legality of object, and in some cases, a particular form. The general principles of contract law as we have discussed them are applicable to this method of forming the agency relationship.

POWERS OF ATTORNEY.--In connection with the formation of agency by contract, special attention must be given to powers of attorney. A power of attorney must oftentimes be given in order to convince third persons that the agent really is an agent, with the powers which he claims to possess. A power of attorney is nothing more than a written statement that a particular person is the agent of another person, with the powers stated in the doc.u.ment. A power of attorney may be very broad, giving the agent very wide powers, or may be narrow, giving the agent or attorney power to do only a specific thing. Now, many powers, so far as the law itself is concerned, might just as well be oral as written, but you could not induce third parties to deal with the agent and believe that he had authority unless he showed as proof of it a power of attorney. That is why a power of attorney is generally given; not that the law requires it, but that the agent may have evidence of his agency which will satisfy third persons that he is really the agent. A corporation would not transfer stock without a written power presented to it; yet, if it chooses to run the risk, there would be nothing illegal in doing so. But it does not choose, and an attempt to compel it to transfer would be held unreasonable unless the authority of the person claiming to be empowered to transfer the stock were in writing and shown to it.

WITNESSED AND SEALED POWERS OF ATTORNEY.--A witness is not necessary on a power of attorney. A witness on a power of attorney has the same effect as on any other doc.u.ment where a witness is not absolutely required, and that is this: if the signature of a doc.u.ment is called in question and the signature is witnessed, the way which the law requires proof of the signature is by calling the witness to testify, and no other evidence is permissible until the witness is produced or his absence accounted for; that is, some adequate reason given and proved for not producing the particular man who witnessed the signature. For this very reason it is sometimes more difficult to prove a signature which is witnessed than one which is not. A signature which is not witnessed may be proved by anybody who has seen the person sign, or who is familiar with his signature, and who can testify that the signature in question is his. The object of a witness is to provide certain evidence that a signature is genuine. The testimony of a witness may be more convincing in case of a dispute than testimony of one who merely recognizes the signer's handwriting. A witnessed power of attorney might be, however, more difficult to prove if the power of attorney were contested than if it was not witnessed, that is, if the witness could not be found. On the other hand, if you had your witness within reach it would be easy to prove the signature by him. The whole matter of witnesses to deeds and other doc.u.ments, where a witness is not absolutely required, may be thus summarized: it is a good thing to have a witness if the witness is a reliable, well-known person who can always or generally be reached. It is a bad thing to have a witness who is a servant or a person whom you may lose sight of after some time has elapsed. The question may also be asked: How does a power of attorney, when given under seal, compare with one without a seal? One is as good as the other, except that if it is desired that the attorney or agent shall execute any instrument under seal, such as a deed of real estate, the power must itself be under seal; but a power to do anything which does not require the execution of a sealed instrument is just as good without a seal as with one. This, however, is true; if the power contains an agreement by the princ.i.p.al not to revoke the power, this agreement will not be binding if there is neither seal nor consideration, but will be binding without consideration if under seal, in a State where seals still have their common-law effect. The princ.i.p.al will be able, it is true, even in such a case, to revoke the power, but he will commit a breach of contract if he does.

AGENCY BY RATIFICATION.--Where the a.s.sent of the princ.i.p.al to the act of the agent is given after the act is performed, it is in the nature of a ratification of the act, and is intended to clothe the act with the same qualities as if there had been a previous authority or appointment.

Suppose, for example, A and B are acquaintances. Both are wealthy. A is a good judge of horses and knows B likes good horses. A discovers what he considers a good horse and buys it for B at a very low price. He tells B the next day what he has done and B goes to get the horse and tenders the price, but the dealer refuses to sell, as he has been offered a higher price. B has a cause of action for breach of contract, for by ratifying A's act, he has made a binding contract between himself and the dealer. Suppose in the same ill.u.s.tration, A had selected two horses for B, but when B saw them he decided to take only one of them.

In that case, there would be no contract, for it is fundamental that a ratification, to be effective, must be of the whole contract, and not of a part. A ratification, once it is given, dates back to the original transaction and is irrevocable.

FORMATION OF AGENCY BY ESTOPPEL.--An estoppel may be said to arise where a person does some act which will preclude him from averring anything to the contrary. So, if one holds out another as his agent, he is estopped to repudiate the acts of such a person within the scope of his ostensible authority. In the case of Bradish v. Belknap, 41 Vt. 172, the facts were that for a long time prior to 1863, B was the agent of the defendants in selling stoves. This fact was generally known and was well known to the plaintiff. In 1863 B ceased to be the agent of the defendant, but continued to sell stoves, which he purchased of the defendants. No public notice of the termination of the agency was given, nor was the fact known to the plaintiff. B continued to represent himself as agent of the defendants and was in the habit of taking notes for stoves sold, payable to the defendants, and this was known to the defendants. The plaintiff, believing B to be the agent of the defendant, offered to buy a stove of him and pay him in pine lumber. To this B a.s.sented and the lumber was accordingly furnished to B and the defendants, together with other lumber which the plaintiff charged up to the defendants. The defendants later attempted to escape liability for the lumber furnished in excess of the value of the stove. The court, holding them liable, said: "B during all this time was perfectly poor and irresponsible, and this fact was known by both parties. B represented himself as the agent of the defendants, and the conduct of the defendants was such as to justify the plaintiff in regarding them as the princ.i.p.als; and we can hardly conceive it possible under the circ.u.mstances that the defendants did not understand that the plaintiff so regarded them. And to allow them now to deny the agency and thus defeat the plaintiff's right to recover for the balance of the lumber would be permitting them to perpetrate a palpable fraud on the plaintiff."

ESTOPPEL DEFINED.--This term will occur several times in the different topics of commercial law. An estoppel may be said to arise when a party by conduct or language has caused another reasonably to believe in the existence of a certain state of things and the other party acts on that belief, the first party is precluded from denying the existence of that state of things to any one who has justifiably relied on his language or conduct.