Putnam's Handy Law Book for the Layman Part 14

The law requires some kinds of contracts to be executed in a particular manner. Thus, by statute, many munic.i.p.alities can make contracts, or those of a particular kind, only on sealed bids or proposals and after proper advertising for bids, etc. If these things are not done, the contract made in disregard of them is invalid. The courts of this country have got into deep confusion in applying this rule to private corporations. Suppose a corporation makes a loan without proper authority and receives the money, can the lender recover it? The corporation had no right to borrow, of this the lender knew as well as the borrower. Both parties are in the wrong. The highest court in this country has been more consistent than many of the state courts, and holds that a contract it cannot make for lack of legal power is not made and cannot be ratified. "No performance on either side can give the unlawful contract any validity, or be the foundation of any right of action upon it." Nevertheless though a contract is unlawful and void because the corporation was unable to make it, a court strives to do justice between the parties by permitting property or money, parted with on faith of the unlawful contract, to be recovered back, or compensation to be made therefor.

The lack of another legal requirement in making contracts gives rise to serious consequences. We have learned that the Statute of Frauds requires for the validity of many contracts that a memorandum of them be made in writing and signed by one or both contracting parties. By English law the statute provides a rule of evidence, that a writing must be shown as proof of a contract before the courts will consider it as having been made; by some of the American courts a contract that does not meet the requirements of the statute is held to be void; by other courts they declare that though the contract is not void it cannot be enforced.

While the Statute of Frauds in some states is regarded as completely nullifying contracts not conforming to its requirements, they are not anywhere held to be illegal, that is, are not made in violation of law. "There appears," says Woodward, "to be no reason of policy, therefore, for denying to a party thereto in a proper case, the aid of the court in obtaining quasi contractual relief, or the right to establish the justice of his quasi contractual demand by proving the terms of the unenforceable agreement. True, the evidence of the agreement in such a case, must be oral; but since the evidence is for the purpose of proving, not a contract as such, but a transaction resulting in an unjust benefit to the defendant, its introduction would seem not to contravene the statute."

A purchaser of land under an oral contract, who is given possession and subsequently fails to pay, is liable for the use of the land to him while he has occupied it. Though the act of the seller in giving the purchaser possession without conveying the t.i.tle may not be regarded as a part performance of the contract of sale, yet the benefit resulting to the purchaser creates an obligation to make rest.i.tution which the courts will enforce. The improvement of land by the purchaser under an oral contract is an act which enables him to enforce the contract in equity. Improvements made by a lessee under an oral lease within the statute are governed by the same rules as those of improvements made by a purchaser.

If no benefit has been derived from the contract, nothing can be recovered. Thus, a son worked for his father on his father's farm under an unenforceable contract with his uncle. The latter was under no quasi contractual obligation to pay the value of such service, since he had derived no benefit from them. Likewise one who, relying on an unenforceable contract, constructed a wood-chopping machine that was not accepted could not recover for the value of his labor and materials.

Again, where one party by his own act or default has prevented the other party from fully performing his contract, the party thus preventing performance cannot take advantage of his own act or default, and screen himself from payment for what has been done under the contract. Thus, if one party agrees with another to work on a house the law implies that the employee owns the building in which the work is to be done. This is a part of the contract whether the house is clearly specified or not. Therefore, an employer who does not own the house, or parts with it before the work is completed, is liable to the other party.

The destruction of a thing in the course of alteration or repair without the fault of the bailee is a case like that above mentioned.

The labor and materials are expended in response to the desire of the owner of the property, and therefore it is just that he should pay for the property he destroyed. In one of the old cases a horse was sent to a farrier to be cured and was burnt before a cure was completely effected. Nevertheless, the farrier was ent.i.tled to payment for what he had done. Likewise, the owner of a ship that is destroyed by fire a few hours before the completion of repairs, cannot escape payment on the ground that he has reaped no advantage.

As the illness or death of a contractor does not, like fire or shipwreck, deprive the other party of the fruits of what has been already done, the benefit resulting to him is more obvious, and the element of hardship is wanting that appears in many of the cases. The value of his services or the materials he may have used may therefore be recovered. In one of the cases A agreed that he and his wife should live in B's house and maintain him for life. As A's wife died the contract could not be performed. Nevertheless, A recovered the value of the service he had rendered to B during the lifetime of his wife.

Wagering contracts either by statute or judicial decision are illegal and void in most or all the states. In many of them the statute permits the recovery of the money from the stakeholder or the winner.

Payment over to the winner after notice or demand by the loser is not a good defense in an action against the stakeholder. Again, the winner is liable who, when receiving the money, knows that the stakeholder has been notified not to pay it over, or has received notice not to take it.

The legality of contracts made or to be performed on Sunday is determined generally by statute. Generally, when a contract is made on Sunday, or is fully performed on both sides, the money paid or other thing done in execution of it cannot be recovered. Again, one who is induced by fraudulent representations to enter into a contract which is in violation of a Sunday law is not so much in the wrong as the other, and consequently may recover a benefit he has conferred on the other party in performing the contract.

If a member of a firm gives a promissory note signed by the partnership name, for a debt of his own, which his partner is compelled to pay, he may recover the money from the other. So, if a carrier by mistake delivered goods to the wrong person who keeps them, and the carrier is obliged to pay for their value, he can recover the amount of the other person who thus wrongfully keeps them.

Whenever a person makes a payment to another under such a mistake of the material facts as to create a belief in the existence of a liability which does not really exist, the money may be recovered back. Such an obligation arises where money is paid as due on the basis of erroneous accounts, and on a true statement of account is found not to have been due. A voluntary payment with knowledge of all the facts cannot be recovered, even though there may have been no obligation to pay.

A person cannot recover money paid under a mistake of fact who has received the equivalent for which he bargained, because there is no failure of consideration. Nor is the fact immaterial that he need not, and would not have made the payment had he known the true state of things. A bank, for example, that pays the check of a depositor under the erroneous belief that it has sufficient funds, may not recover from the payee the excess to the depositor's credit. But if the purchaser of goods has paid the price, and the seller fails to deliver them, the purchaser may recover his money. And in any case, a person who has paid money under an agreement which he may rescind and does so, because there was a failure of consideration, may recover what he has paid. An action will lie against a person who sells goods as his own, but which do not belong to him, whenever the real owner claims them from the purchaser. In like manner an action will lie against a person who sells bills, notes, bonds, stock or other securities which prove to be worthless, or against a person who agrees to transfer the t.i.tle to land which, for lack of t.i.tle or other reason, cannot pa.s.s.

As a rule, the consideration of a contract must totally fail to ent.i.tle a person to recover back the money he has paid. If the consideration has only partly failed, the remedy, if there is any, is for a breach of the contract, and not to recover back the money he has paid. Thus, if an article is sold with a warranty of its quality, and it is not worthless, his remedy is an action to recover damages for a breach of the warranty, and not an action to recover back the money paid for the thing purchased.

A liability cannot be imposed on a person without his act or consent.

One man cannot force a benefit on another without his knowledge or consent, and then compel him to pay for it. "If a person," says Clark, "intentionally and knowingly performs services for another or otherwise confers a benefit on him without his knowledge, so that he has no opportunity to refuse the benefit, the law will not create a liability to pay for it. So, where a person supplies another with goods, the latter supposing that he is being supplied by another person with whom he had contracted for the goods, the law will not even imply a promise to pay for the goods." Where benefits are conferred by one person on another under such circ.u.mstances as to raise no promise in fact or in law to pay for them, he may, nevertheless, become liable by retaining them. Thus, if a person were to receive goods from another reasonably but mistakenly believing them to be intended as a gift, and, after learning of his mistake, should retain them, when he might return them, or if he should receive part of the goods purchased from another, and retain them after failure of the latter to supply the rest of the goods, the law would compel him to pay for them. And the same rule applies where benefits are in any other way received under such circ.u.mstances as to create no contractual obligation, and are retained when they should in justice be returned. If, however, the benefits thus received are incapable of being returned, as where they consist of services, or of materials which have been used in repairing a house, no liability is created.

=Sale.=--By a contract to sell goods the seller agrees to transfer the property in them to the buyer for a consideration called the price.

There is an important distinction between a contract to sell in the future and a present sale. The first is called an executory, the other an executed, sale. If the goods are to be transferred, there is an executed sale even though the price is not to be paid at the same time. But if the price is paid, and the goods are not then to pa.s.s, the transaction is a contract to sell, or an executory sale. Both kinds of sales may be by deed or sealed contract as well as by parol or orally.

Sales and contracts to sell are based on mutual a.s.sent, the intent, therefore, of the parties fixes the nature and terms of the bargain.

If the offerer understood the transaction to differ from that which his words plainly expressed, it is immaterial, "as his obligation must be measured by his overt acts." Thus, if an offer to buy or sell is sent by telegraph, and is improperly transmitted by the telegraph company, an acceptance by the offeree creates a binding bargain. By using the telegraph as an agency of communication, the offerer makes himself responsible for the offer actually delivered. Of course the telegraph company would be responsible to the offerer for any damage he may have suffered unless relieved by some neglect or fault of the sender of the message.

A contract of sale may be conditional, for example, that the property shall not be transferred until the price is paid. Though the property is transferred by the sale, promises or obligations may still be unperformed by the seller. Or the transfer of the t.i.tle may be conditional on payment of the price. In such sales the goods are delivered to the buyer, but the t.i.tle is retained by the seller until payment.

The capacity to buy and sell is regulated by the general law concerning the capacity to contract, transfer and acquire property.

When necessaries are sold and delivered to a minor, or to an insane or drunken person, or to a married woman, who is lacking in mental capacity to make a contract, he must, by the general Sales Act, pay a reasonable price therefor. Necessary goods by this act mean those suitable to the condition of the life of the minor or other persons above mentioned at the time of their purchase and delivery.

As we have seen (See _Minor_) a minor may avoid his contracts. The right to do this is given for his protection, and should not be stretched beyond his needs. Therefore the right is confined to himself or his legal representatives. Neither creditors, nor trustees, nor a.s.signees in bankruptcy can do this, but his heirs can do this, and probably his guardian. By the common law a purchaser for value who did not know that the seller bought them of a minor could not retain them if the minor wished to reclaim them as his own. This rule has been changed by the Sales Act, and a bona fide purchaser is therefore safe in purchasing such goods even though the seller did buy them from a minor.

As a minor may disaffirm his contract, any act clearly showing this intent is sufficient. "It was early settled," says Williston, "that an infant's conveyance of realty could be avoided only after he attained his majority. In the case of personal property a sale may be avoided during his minority by an infant seller or buyer. Though an infant may thus avoid his sales, purchases or contracts during infancy, he can make no effective ratification until he becomes of age, for an infant's ratification clearly can be no more effective than his original bargain."

In the Sales Act the Statute of Frauds (See _Statute of Frauds_) has been reenacted, and provides that in a sale or contract to sell goods amounting to five hundred dollars or more, it cannot be enforced unless the buyer shall accept a part of the goods, or give something in earnest to bind the contract, or in part payment, or makes some note or memorandum in writing of the sale which is signed by the party or his agent against whom the other party seeks enforcement.

This statute applies to a contract for goods that may be intended for future delivery, but not to goods that are to be manufactured by the seller especially for the buyer and are not suitable for sale to others in the ordinary course of the seller's business.

The Sales Act contains an important section relating to the sale of an undivided share of goods. If the parties intend to effect a present sale, the buyer becomes an owner in common with the owner of the remaining shares. How important is this section may be easily learned.

The grain of many owners is often mingled in an elevator. It is delivered to those who call for it, the kinds and quant.i.ties mentioned in the receipts given to them at the times of storing it. The grain in the elevator may be delivered many times before a particular depositor makes his demand. The elevator company must keep on hand enough grain to meet all outstanding receipts. Each depositor thus retains t.i.tle to some portion of the grain in the elevator. The company is the bailee with the power to change the bailor's separate ownership into an ownership in common with others of a larger ma.s.s, and back again.

At any given moment all the holders of receipts for the grain are tenants in common of the amount in store, each owning a share and all owning the entire amount, each having the right to sell his share and demand its separation and delivery in accordance with custom and the terms of the receipt.

When a party has specific goods which, without his knowledge, have perished partly or wholly, the buyer may treat the sale as avoided, or as transferring the property in all of the existing goods and as binding him to pay the full agreed price if the sale was indivisible, or if divisible the agreed price for the goods in which the property pa.s.ses. One can readily imagine trouble when none of the goods have been destroyed but all are in a condition inferior to that supposed at the time of the bargain. In such a case the "only question is whether the article has been so far destroyed as no longer to answer the description of it given by the contract."

The price may be fixed by the contract or in such a manner as the parties may agree, and may be made payable in personal or real property. When the price is not determined in the way mentioned in the Sales Act, the buyer must pay a reasonable price. This is a question of fact in each case. Usually, the price, either in an executed sale or in a contract to sell, is fixed by the parties at the time of making the bargain. In the agreement to sell there must be a consideration on both sides to sustain it. Sometimes the parties agree that the amount of the price shall vary according to the happening, or failure to happen, of a future event. Such a contract may be a wager, which is forbidden by law, or it may be legal, as we shall soon learn.

Whenever no price has been fixed the law has established a rule, a reasonable price. It is the intention and understanding of the parties that a buyer who orders a barrel of flour from his grocer will pay a reasonable price. Likewise a buyer who orders a carriage to be made for him and says nothing about the price.

What is a reasonable price? Generally the market price at the time and place fixed by the contract or by law for delivering the goods, but not always. Under unusual conditions the market price does not furnish the only test. Said the court in one of these cases: a reasonable price may or may not agree with the current price of the commodity at the place of shipment at the precise time of making it. The current price of the day may be highly unreasonable from accidental circ.u.mstances, by the action of the seller himself in purposely keeping back the supply.

With respect to warranties the Sales Act provides that when the sale is made on a condition which is not performed, the party for whose benefit the condition was made may refuse to proceed with the contract or sale, or may waive performance of the condition. The nonperformance may be treated as a breach of warranty. Thus time may be an important element in a contract, and an agreement to deliver goods by a specified time is a condition or warranty. And if there is a delay in delivering, unless it may be a trifling one, the buyer may refuse to accept the goods.

A common condition in more recent times qualifying the obligation of the buyer is that the goods shall be satisfactory to him. By this is meant the satisfaction of the buyer after the exercise of an honest judgment. In New York and some other states a somewhat different rule prevails. Unless the things covered by the contract involve personal taste, the contract imposes on the seller the requirement only that a reasonable man would be satisfied with performing it, thus not leaving the question of its satisfactory performance entirely to the buyer.

This, Williston says, is an arbitrary refusal of the court to enforce the contract that the parties made and seems unwarranted.

Warranties may be express or implied. By the Sales Act any affirmation of fact or any promise by the seller relating to the goods is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the goods, and if the buyer purchases the goods relying thereon.

In a contract to sell or a sale, unless a contrary intention appears, there is an implied warranty on the part of the seller that in the case of a sale he has the right to sell the goods, also, in the case of a contract to sell them, he will have the right to do this at the time of pa.s.sing the property. More briefly the seller warrants the t.i.tle to the property which is the subject of sale. Whether the seller is in or out of possession of the property, he can by appropriate words sell such interest as he may have therein. But persons also sell property not owned by themselves by authority of others or of the law.

Unless they expressly warrant the t.i.tle they are not liable for lack of it. Sales of this nature are made by a sheriff, or other judicial officer, auctioneer or mortgagee, a.s.signee in bankruptcy, executor or administrator, guardian, or simply an agent.

When there is a contract to sell, or a sale of goods by description, there is an implied warranty that they shall correspond with the description; and if the contract or sale is by sample, as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if these do not also correspond with the description. The Sales Act contains elaborate provisions relating to implied warranties of the quality of things sold. There is no implied warranty of the quality or fitness of goods for any particular purpose unless the buyer makes known to the seller the purpose for which they are required, and he also relies on the seller's judgment of their fitness for the use he intends to make of them. Again, if the buyer has examined the goods there is no implied warranty of the defects which such an examination ought to have revealed. An implied warranty as to quality or fitness for a particular purpose may also be annexed by the usage of trade. There is an implied warranty that the bulk shall correspond with the sample in quality, and that the buyer shall have a reasonable opportunity of comparing the bulk with the sample.

When does the transfer of ownership occur? When there is an unconditional contract to sell them the property therein pa.s.ses to the buyer on the making of the contract, regardless of the time of payment or delivery or both. When goods are delivered to the buyer "on sale or return," giving the buyer an option to return them instead of paying the price, the property pa.s.ses to the buyer on delivery, but the property may go back to the seller by returning or tendering the goods within the time specified in the contract. When the goods are delivered to the buyer on approval or on trial or other similar terms, the property pa.s.ses to the buyer, (1) when he signifies his approval or acceptance of them, (2) or if he retains them beyond the time fixed for their return, or if none has been fixed, beyond a reasonable time.

It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, the seller, therefore, must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be willing and ready to pay the price in exchange for the possession of the goods.

Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer, is a question depending in each case on the contract, express or implied, between the parties. Apart from contract, or usage of trade to the contrary, the place of delivery is the seller's place of business, if he have one, and if not, his residence. Again, when by the contract of sale of goods no time for sending them has been fixed, the seller must send them within a reasonable time.

Vast quant.i.ties of goods are bought and sent forward to buyers, which are not to be delivered until payment. The Sales Act provides that where goods are shipped and by the bill of lading that is given for them they are to be delivered to the order of the buyer or of his agents, but possession of the bill of lading is to be retained by the seller or his agent, he thereby reserves his right to the possession of the goods as against the buyer. Very often a buyer of wheat, for example, will draw a bill of exchange on his princ.i.p.al or company living in the place where the goods are to be delivered and will have it discounted by a bank using the money to pay the seller. The wheat may be in an elevator, or it may be in transit. In either case the bank receives a doc.u.ment, elevator receipt, or bill of lading, and thus becomes the real owner of the wheat, and can control it afterward until it is actually delivered to the consignee, whoever he may be.

This is the bank's security for making the loan. The bank sends forward the bill of exchange to its correspondent bank in the place where the consignee lives and the wheat is to be delivered with instructions to deliver it when the bill is paid.

With respect to speculative sales of stock, so well known by every one, a contract, says Williston, giving one party or the other an option to carry out the transaction or not at pleasure, is not a wager, unless forbidden, as in some states is done by statute. A contract to sell goods in the future, which the seller does not own at the time is, aside from the statute, not only legal but common. "The test," says Williston, "adopted in the absence of statute, distinguishes between contracts to buy and sell in which the actual delivery of the property is contemplated, and similar contracts in which it is contemplated merely that a settlement shall be made between the parties based on fluctuations in the market price. A contract of the former kind is legal; one of the latter kind is a wagering contract, and illegal."

=Shipping.=--The federal statutes require that every ship or vessel of the United States shall be registered or enrolled in the office of the collector of customs of the district that includes the home port of the vessel. None but citizens of the United States can have their vessels registered. Consequently the sale of a vessel to a foreigner denationalizes her. If sold to an American, she must be registered anew. On arriving at a foreign port masters of vessels must deposit their registers with the consul or commercial agent at that port.

Enrollment is the term used to describe the registry of a vessel engaged in coastwise or inland navigation or commerce. Registration is applied to vessels engaged in foreign commerce. License means the same as enrollment, but is applied to small vessels of twenty tons burden or less. The federal laws on this subject do not apply to vessels that are used on nonnavigable waters of the country.

The t.i.tle to a vessel may be acquired by purchase or building. If a vessel is built for a party no t.i.tle thereto pa.s.ses until she is ready for delivery and has been approved and accepted by him. This, however, is no arbitrary rule, and is often modified especially when payment is made in installments and during the construction of the vessel.

Nowadays many vessels are owned by corporations, and the rules that apply to corporations of course determine the ownership of their property. In other cases the several owners of a vessel are tenants in common, and not co-partners, unless by agreement they have established other relations among themselves. They may, of course, become partners and be governed by the rules that apply to persons thus related. When they are related as tenants in common one part owner has no power to bind the others in any way beyond the necessary and regular use of the vessel. He cannot sell or mortgage the interests of the others, draw drafts or notes in their name, apply the freight money earned to pay his individual debt, or procure insurance for the other owners.

The majority rule governs in employing the vessel. The majority therefore have the right to control the use of the vessel on giving security to the minority, if required, to bring back and to restore to them the vessel, or if lost to pay them for the value of their shares.

The minority owners in like manner may use the vessel if the majority are unwilling to employ her. A court of admiralty will in such a case act for the parties.