Mm 488 f*^s e-T* ^ HEMtti \ /> , ? BOOK OF COMMKRCIAL AS KXISTINQ AND K. F*. DESIGNED FOR USE IN COMMERCIAL SCHOOLS AND BY BUSINESS MEN. NINTH EDITION REVISED PUBLISHED BY HEALD'S BUSINESS COLLEGE^ SAN FRANCISCO. CAL. 1910 Copyri K lited, 1884, by 'S BUSINESS EDUCATION - 1 -. 1 / .- -;> PREFACE. THE object which has been steadily kept in view in the preparation of the following pages, is the presentation, in a compact and yet clear form, of those general principles of law as existing in Cali- fornia, a knowledge of which is most necessary to the business man. The point of view is that of the merchant, and not of the lawyer, and there* fore scientific arrangement has been sacrificed to simplicity. In the gen- eral arrangement, and in the presentation of each topic, the aim has been a statement of general principles, in logical sequence, and in such form that they will be easiest of application. Lack of space has prevented any attempt at applying these principles; that must be the work of those who use the book. In law, more than in any other science, originality is not to be attained* Every principle in this book has been stated before, and perhaps stated better than it is here. The standard text-writers have been liberally con- sulted. Kent's Commentaries, Smith's Mercantile Law, Parson on Con- tracts, and the California Codes, have been most freely referred to. The arrangement, the presentation of each subject, and the statement of principles are, however, new, and whatever of merit there may be hi these is all that can be claimed for this book. 5411*78 CONTENTS. INTRODUCTION THE GENERAL PRINCIPLES OF LAW AND OF PROPERTY 7 PART I. GENERAL FEATURES OF CONTRACTS. CHAPTER L FORMATION AND CLASSES 13 CHAPTER II. CONSTRUCTION 23 CHAPTER III. EXTINCTION 26 PART II. PARTIES TO CONTRACTS. CHAPTER I. PARTIES GENERALLY 36 CHAPTER II. TRUSTEES l>lk-ntion? 53. What is the result ol the breach of a subsequent condition? 54. What conditions are vukl ? 55. \\ hat other conditions are void? 56. Waat others? 57. How is a condition involving forfeiture interpreted ? CHAPTER II. CONSTRUCTION OF CONTRACTS. THE CONSTRUCTION OF A CONTRACT Is "THE MEANING WHICH WILL BE GIVEN TO THE ENTIRE AGREEMENT. The construction, which looks at the spirit rather than the letter, "is broader than a mere interpretation. The following rules of construction are prepared from those laid down in the Code. RULES OF CONSTRUCTION. I. That construction, will be given to a contract, which, without violating the rules of law, or of language, will most nearly express *THE INTENTION OF THE PARTIES, at the time of entering into the contract. II. If a contract is plain and certain when the words are taken 4 in their ORDINARY AND POPULAR SENSE, all its words shall be so taken; unless "the instrument itself shows that they were used in a TECHNICAL SENSE, when such technical sense will be given to them. III. When, through FRAUD, MISTAKE OR ACCIDENT, the written instrument fails to express the intent of the parties, 'that intent is to be regarded and the erroneous parts dis- regarded. IV. The construction of a contract is to be FAVORABLE; f. c., T such as will make it lawful, reasonable and capable of being carried into effect. V. *The WHOLE of a contract, and EVERY PART thereof should be made effective; but a part must be subordinated to the intent of the whole. VI. REPUGNANCIES "must, if possible, be reconciled by (23) 24 CONSTRUCTION OF CONTRACTS. such construction as will give effect to the repugnant clauses in accordance with the general intent of the contract. Where they cannot be so reconciled, "they must be rejected. VII. GENERAL AND SWEEPING CLAUSES are to be limited and controlled n by special ones. VIII. In cases of AMBIGUITY AND UNCERTAINTY the con- tract should be interpreted "most strongly against the prom* IX. LEGAL PRESUMPTIONS "will supply the want of ex- press provisions, but cannot control that which is expressed. X. USAGE OR CUSTOM becomes a part of a contract "only when it is so far established and known to the parties that it must be supposed that the contract was made with reference to it. XI. When a contract is plain and intelligible EXTRINSIC EVIDENCE ls may be admitted to explain, but not to vary its terms. When the contract is uncertain, 16 the intention may be ascertained by extrinsic evidence, but, if such intention be in- compatible with a fair and rational interpretation of the words, the contract is void. XII. Those parts of a contract which are "ORIGINAL con- trol those which are copied 5rom a form. XIII. A WRITTEN INSTRUMENT '"supersedes all oral ne- gotiations or stipulations, which preceded or accompanied the execution. XIV. "A contract is to be construed according to the law and usage of the PLACE OF PERFORMANCE; or, if no place of performance is indicated, the law of the place of making controls. XV. 28 If the TIME OF PERFORMANCE is not expressed, a reasonable time is allowed; if the obligation is capable of imme- diate performance it must be done instantly. QUESTIONS. 1. What is meant by the construction of a contract? 2. How does construction differ from interpretation? 3. What is the thing sought for in the construction of a contract ? 4. In v. hat sense are the words of a contract taken ? 5. Wher. will they be taken in a technical sense? 6. When through fraud, mistake or accident the instrument fails to express the intent, what is done ? 7. What is a "favorable" construction of a contract? 8. What part of a contract should be made effective? 9. What must be done with repugnancies ? 10. When they cannot be reconciled, what must be done? 11. How are general and sweeping clauses controlled? 12. How should the contract be interpreted in cases of ambiguity and uncertainty ? 13. What about legal presumptions? 14. When does usage or custom become a part of a contract? 15. What is the rule as to extrinsic evidence when the contract if plain and intelligible ? 16. When the contract is uncertain, what is the rule? 17. When the contract is partly original and partly copied from form, which controls ? 18. What is the force of a written instrument? 19. What is the law of place ? 20. What is the rule as to time of performance? (26) CHAPTER III. EXTINCTION OF CONTRACTS. The obligation created by a contract may be extinguished by: Performance, Offer of Performance, Release, Rescission, Set-off, or the lapse of a certain time, as provided in the Stat- ute of Limitations, of these each in their order. Performance. Performance, according to the contract, of course extinguishes the obligation. WHO MAY PERFORM. Performance may be by l the party whose duty it is to fulfill the obligation, or by his agent, or by any third person on behalf of such party. But in the last case v there must be a subsequent ratification of the act by the party bound. Performance may be to 'the creditor, or to his agent au- thorized to receive it. It is necessary that the receipt of the goods or money, as the case may be, should be within the scope of the agent's authority or the obligation will not be ex- tinguished. Where the obligation exists in favor of several persons jointly, a performance to one would extinguish it as to all. How MADE. Where the obligation is to pay money, a delivery of a promissory note or a check is 6 not an absolute payment, until the note or check is paid. A payment may be by letter 6 when that is the ordinary Bourse of business, or when a request or agreement by the other party to that effect can be shown. A payment so made is complete 7 when the letter is put into the post, whether it ever reaches its destination or not. Where the promise is in the alternative, as to deliver (26) EXTINCTION OF CONTRACTS. 27 pxxls or pay a sum of money, "the party who is to do the first art has the choice. If he does not select 'before the time for performance has passed, the other party is entitled to demand the money. TIME. If no time of performance is specified, it must be "within a reasonable time. What would be a reasonable time is to be determined "from the circumstances of each case. If it is capable of instant performance, "it must be done im- mediately. If the time of performance is specified, "it must be at that time, within reasonable hours, and not before or after. Where work is to be performed within a givon time, a failure to perform within that time is 14 not an absolute breach of the contract, but "renders the party liable for damages. The time in which any act is to be done is computed ie by excluding the first day, or day of making the contract, and in- cluding the last. When the last day falls on Sunday, or a holiday, "the act must be performed on the following business day. Fractions of a day are "not recognized in law. PLACE. t ln the absence of an express provision to the contrary performance may be "to the creditor, wherever he is to be found, or at any place appointed by him. If the creditor cannot be found within the State, *per- formance may be at his residence or place of business. Where there are several debts owed by one person to an- other, and a payment is made which is not sufficient to extin- guish all, al the person paying has the first election as to how the money is to be applied. Should he not elect the creditor may apply it "to any debt due at the time of payment. If neither elect within a reasonable time the law will apply it '^ac- cording to the equity and justice of the case. PART PERFORMANCE. A partial performance, the benefit of which is voluntarily retained by the other party, is a "satisfac- tion of the indebtedness pro tanto. ''Where the benefit cannot be rejected without injury, the retention is not considered volun- tarv 28 EXTINCTION OF CONTRACTS. A partial performance, made before the obligation is due, or in any mariner more beneficial to the creditor, if accepted, 26 would extinguish the obligation. ' A partial performance, made after the breach of the obli- gation, and 27 expressly received in writing, in satisfaction, ex- ishes tbe debt. |Fer of Performance. An offer of performance, when properly made, is as effectual as an actual performance, even when refused by the creditor. However, an offer of perform- ance must be kept good, i. e., 33 the party must be at all times ready and willing to perform. An offer of performance may be by and to 28 the same per- sons as in an actual performance. How MADE. The offer must be made 29 in good faith, and in such manner as would be most likely to benefit the creditor, and it must be free from any conditions which the creditor is not. bound to perform. If the obligation is to pay money, 30 the amount must be deposited in a bank of good repute, to the credit of the other party, and notice must be given to him, in order to extinguish the obligation; but an offer without deposit is sufficient to 31 stop the running of interest. An offer of more money than is due is sufficient unless accompanied by a demand for the bal- ance, and the offer is refused on that ground. That an offer of chattels may be sufficient it must be sepa- rated and identified from all other goods of the same kind, so that the other party has nothing to do but to signify his ac- ceptance. If the obligation is in the alternative, at the option of the creditor, 32 the offer must be of both. TIME. An offer of performance may be on the very day that the obligation is due, when the time is fixed. But 34 if a delay in performance is capable of exact and entire compensa- tion, and the time has not been expressly declared to be of the essence of the contract, an offer of performance with compensa- EXTINCTION OF CONTRACTS. 29 tion for the delay, would be sufficient if made 3o at any time after it is due and before suit is brought. PLACE. An offer of performance may be made at the same places as a valid performance. THE EFFECT of an offer of performance is 88 not to pass the title to the property, unless the person making it so desires. The creditor is tv^ bound to return anything, which he receives by way of performance but refuses to accept as such, "until a returc \s demanded, but he holds it subject to such de- mand WHAT EXCUSES. There are certain things which excuse a performance or offer of performance. Where the performance is impossible 88 it will be excused. But if one, for a valuable consideration, promise to do that which is impossible, but which does not appear so on its face, he is liable for damages for its breach in the same manner as if it were possible. , i A declaration by one party that he will not perform his part of the contract, 39 if not withdrawn before the time of per- formance, excuses performance by the other party. So also where peiformance is prevented by act of law, or of the other party; and this, even though there may be an agreement to the contrary in the contract. Where the performance is prevented by act of the other party, the debtor is entitled **to all the benefits which he would have obtained under the contract. Release. A RELEASE Is 4I AN AGREEMENT BY THE PARTY IN FAVOR OF WHOM THE OBLIGATION EXISTS, TO DIS- CHARGE THE PARTY UPON WHOM THE OBLIGATION RESTS. A release may be 42 in any words or form, so that the in- tention clearly appears. It may be in writing or oral; but a a written release does not require a consideration to support it, while an oral release does. A general release "would not be extended to include mat- ters not connected with its subject-matter; nor would it include EXTINCTION OF CONTRACTS. any claims unknown to the person making it, at the time of execution. A release may also result "from the substitution of a new obligation in the place of the old one. A material alteration in a contract, made without the consent of the party upon whom the obligation rests, "would release the obligation. The alteration must be material, how- ever, or the obligation would not be affected. A contract may be altered * 7 by the consent of the parties if the consent is in writing in the case of an oral contract; and *if the alteration itself is in writing in the case of a written contract. ,/ Rescission. "If the consent of one of the parties to a contract was obtained through fraud, duress, menace, undue influence or mistake, it may be set aside or rescinded. Undue influence is **such as destroys the party's freedom of action, and makes the act, in reality, more the act of another than of himself. Mistake may be of law or of fact. A mistake of law is ground for a rescission "only when the same mistake is made by all of the parties, all supposing that they knew and understood it; or when one party makes a mistake of law, which the others are aware of and do not attempt to rectify. In all other cases a mistake of law is no defence. A mistake of foreign law is a mistake of fact. When the consideration for the promise becomes entirely roid from any cause; or, through the fault of the party as to whom rescission is sought, in whole or in part, 6a the contract may be rescinded. Rescission of a contract must be "prompt upon the dis- covery of the facts justifying it The party rescinding must **return everything of value which he has received under the contract. \ Set-off. Where the obligation is for the payment of money, and there is a counter obligation between the same EXTINCTION OF CONTRACTS. 31 parties, one may be set-off against the other, and would extin- guish it pro tanto. The Statute of Limitations. The Statute of Limita- tions is an enactment which provides M that, if an obligation is not enforced within a stated time, the Court will not aid in its enforcement. The effect of the statute is not to extinguish the obliga- tion absolutely, but M to bar the remedy. The statute therefore is no bar to an action unless set up in defence. The principal periods prescribed by the Statute of this State, within which actions must be brought, are as follows: Within "FIVE YEARS any action connected with the title to real estate, whether for possession or to recover the profits. "Any action upon the judgment or decree of any Court in the United States. ""Within FOUR YEARS any action based upon a written contract executed in this State. Mortgages come under this class, and the limitation ex- pires at the end of four instead of five years. Within THREE YEARS, w any action for taking, detaining and injuring personal property, including actions for the spe- cific recovery thereof. Any action for relief on the ground of fraud or mistake. Where the action is for rescission it must be commenced im- mediately. /// Within TWO YEARS "any action upon a contract obligation or liability not founded upon a written instrument; or founded upon an instrument in writing executed without the State. Actions upon an open book account are included in this class. To an action brought to recover money or other property deposited with any bank, banker, trust company or Savings and Loan Society, "there is no limitation. THE STATUTE BEGINS TO RUN ""from the time when a cause of action first exists; /. i., as soon as a suit could be brought. 32 EXTINCTION OF CONTRACTS In an open book account the statute begins to run "from the date of each charge. The statute does not begin to run 66 against a minor, insane person, or one deprived of civil rights until the removal of the disability. Where the person to be charged is absent from the state when the cause of action accrues, the running of the statute is suspended until his return. Where the statute has commenced to run ""its running is r.^t suspended by any subsequent disability or absence from the State. The statue may be waived CT by the party to be charged. A promise to pay a debt barred by the statute of limitations need not be supported by a new consideration. A party sued upon an obligation barred by the statute is deemed to have waived the statute if he does not plead it at his very earliest opportunity. QUESTIONS. EXTINCTION OF CONTRACTS. 1. Who may perform the obligation of a contract ? 2. When performance is by an unauthorized third party what U accessary ? 3. To whom may performance be made ? 4. Where there are several joint obligees, to whom may performance ^e made ? 5. Is a delivery of a promissory note or a check, a payment ? 6. When may payment be by letter ? 7. When is such a payment complete ? 8. When the promise is in the alternative, who has the choice ? 9. When must he make his choice ? 10. When must the performance be made, if no time is fixed? 11. How is a "reasonable time" determined? 12. If it is capable of instant performance, what is the rule? 13. What is the rule when the time of performance is specified? 14. Is a failure to perform within the specified time a breach of the contract ? 15. What is its effect? 16. How is time computed ? 17. When the last day falls on Sunday or a holiday what is done? 18. Are fractions of a day considered in law? 19. Where must an obligation be performed, in the absence of an ex- press provision to the contrary ? 20. If the creditor cannot be found within the State what is done ? 21. Who has the first election in applying a part payment of several debts? 22. How is the creditor limited in his application of the money? 23. If neither elect, how will the law apply the payment ? PART PERFORMANCE. 24. What is the effect of a partial performance of an obligation ? (83, 84 QUESTIONS. 25. When is the retention of the benefit of a partial performance in* voluntary ? 26. What is the effect of a part performance made in a manner more beneficial to the creditor ? 27. In what form must a part performance be received after a breach, hi order to extinguish the obligation ? OFFER OF PERFORMANCE. 28. By and to whom may an offer of performance be made ? 29. How must it be made ? 30. If the obligation is the payment of money what must be done to extinguish it? 31. What is the effect of a simple offer of money, without deposit? 32. When the obligation is in the alternative at the option of the creditor, what must the offer be? 33. What is meant by keeping the offer good ? 34. When is an offer after the date of performance good ? 35. When may such an offer, with compensation, be made ? 36. What is the effect of an offer of performance ? 37. How long may an article be kept which is received by way of performance, but not accepted as such ? 38. When performance is impossible what is done ? 39. What is the effect of a declaration by one party that he will not perform ? 40. Where performance is prevented by the other party, to what is the debtor entitled? RELEASE. 41. What is a release? 42. In what form may a release be ? 43. What is the difference in force of a written and an oral release ? 44. How would a general release be interpreted ? 45. From what may a release also result ? 46. What is the effect of a material alteration in a contract, made without consent? 47. How may an oral contract be altered ? 48. How in the case of a written contract ? RESCISSION. 49. When may a contract De rescinded .- 50. What is undue influence ? 51. When is a mistake of law ground for rescission? QUESTIONS. 35 52. What is the effect when the consideration becomes void ? 53. When must rescission be made ? 54. What must the party rescinding do ? STATUTE OP LIMITATIONS. 55. What does the Statute of Limitations provide ? 56. What is its effect? . 57. Within what time must an action connected with the title to real tttate be brought ? 58. Upon the judgment or decree of any Court in the United States? 59. When must an action based upon a written contract be brought? 60. What actions must be brought within three years ? 61. What actions within two years ? 62. What is the limitation to actions brought to recover property de- posited with a bank, etc. ? 63. When does the statute begin to run? 64. When in an open book account ? 65. Against whom does the statute not run ? 66. When is the running of the statute suspended? 67. How may the statute be waived ? 68. By whom must the new promise be aigned? PART 3. PARTIES TO CONTRACTS. CHAPTER I. PARTIES GENERALLY. IN order that there should be a contract it is necessary that there should be two or more parties. The general rule is that a any person may enter into a con- tract. The exceptions to this rule are made with a view to pro- tecting those who, through want of mental capacity or judgment, or through dependence upon others, are liable to be imposed upon. The persons thus protected are included in the following classes: 2 Minors, Insane Persons, and Idiots, Persons under Duress, and Married Women. Minors. In this State s all males under the age of twenty- one years and all females under the age of eighteen years are minors. The law presumes a minor to be lacking in judgment and therefore throws its protection around him. A minor cannot give a delegation of power, nor *under the age of eighteen, make a contract relating to "real property, or relating to any personal property not in his immediate possession or control. Such con- tracts would be absolutely void. A minor may make other contracts subject to ( 'his power of disaffirmance. The minor may enforce or not at his election. PARTIES TO CONTRACTS. 37 This power of disaffirmance is the personal privilege of the minor, or his representatives in the case of his death, and T cannot be ex- ercised by any other person. Contracts made by a minor, whilst he is under the age of eighteen years, may be disaffirmed either "before his majority or within a reasonable time thereafter. If the minor was over the age of eighteen years 9 he may likewise disaffirm but will be re- quired to restore the consideration to the party from whom it was received or pay its equivalent. What is a 10 reasonable time would be determined from the circumstances of each case. NECESSARIES. There is one exception to the minor's privilege of disaffirmance : "a minor's contract for necessaries is binding on him and he cannot disaffirm it. NECESSARIES ARE "THOSE THINGS WHICH IT Is NECESSARY AND PROPER FOR A MINOR TO HAVE IN VIEW OF His STATION IN LIFE, AND THE MANNER IN WHICH HE WAS BROUGHT UP. A minor's contract for necessaries cannot be so drawn as to prevent an inquiry as to the reasonableness of the price, and he cannot be held for more than 18 a reasonable price. RATIFICATION. A minor's contracts may be ratified "after he has reached his majority, and such ratification would render the contract binding. Such ratification "must be a direct and express confirmation, and, substantially, a promise to fulfill the obligation or to pay the debt. It must also be made with a knowledge of the fact that it was discharged, and 16 with the in- tention of renewing it. LIABILITY OF PARENTS. As to how far a minor has power to bind his parents by a contract, "if the minor is living with his parents, and the contract is not for necessaries, the authority of the parents must be proved. 18 If the contract is for necessaries, the authority would be presumed. But, under these circumstances, "only such things as are necessary to re- **> PARTIES TO CONTRACTS. lieve the minor from absolute want, and which are not fur. rushed by the parents, would be considered necessaries. When the minor is living away from his parents volunta. nly, "the authority to contract must be proved in all cases. When the minor is deserted, or driven away from home by his parents, "the authority to contract for necessaries is continued. Insane and Idiots. An insane person is one whose intellect has become deranged; an idiot is one born without the power of thought. AN INSANE PERSON "may rescind any contract which he has made before his insanity was judiciously determined, by offering to return everything of value received under the con- tract. After his insanity has been judiciously determined, an insane person M can enter into no contracts. AN IDIOT 24 can enter into no contracts. A contract made while intoxicated may be rescinded, unless *made for necessaries, or for goods which were retained after the purchaser became sober. Married Women. With regard to her separate property, a married woman ^may enter into any contract in this State, without any power of interference on the part of her husband. The husband and wife may contract with each other ; n the same manner as if they were single. The community property is "under the absolute control of the husband; except that he cannot give it away or convey it without a valuable consideration, unless the wife consent t'.ifret > in writing. It is always advisable, to prevent future questions as to the consideration, that the wife should join in all conveyances of real property. As a^ent for the husband, the wife may bind him '*only for necessaries, and for those contracts where she has express or implied authority to act for him. Such authority will be implied "on very slight evidence, as seeing the wife use the goods purchased, without raising any objection. PARTIES TO CONTRACTS. 39 Where the husband and wife are living apart, and the fault is with the wife, "the husband is not liable, even for her necessaries. Where they are living apart by consent, "if the wife has other means of support, the husband is not liable foi her necessaries. Joint Parties. When severaf parties are all bound by the same obligation, the question arises, on a breach, whether the obligation must be enforced against all together, or against each one separately. The obligation, in this case, is presumed to be joint, i. *., to be enforced against //, unless w all, who are joined, receive some benefit from the consideration. In the latter case it is joint and several, and may be enforced against all together, or against any one or more separately. "Where the contract is in the singular number, but signed by several, the obligation is joint and several. Where the obligation is joint, it is subject to the incidents of joint owner- ship. "Where a contract has been enforced against any number less than all of the parties joined, those paying are entitled to recover from each of those not paying his proportion of the indebtedness. This is called the right of contribution. The right of contribution does not exist "where the payment is vol- untary. QUESTIONS. 1. Who may enter into a contract ? 2. Who are excepted ? MINORS. 3. Who are minors in this State ? 4. What are the two classes of minors in this State ? 5. What contracts of minors of the first class are void ? 6. What is the force of other contracts? 7- Does this right pass to the successor in interest of the minor? 8. When may a minor disaffirm ? 9. In what particular do minors of the second class differ from those of the first class ? 10. Can a minor give a power of attorney? 1 1 . What exception is there to the minor's power of disaffirmance ? 12. What are necessaries ? 13. What limit is there to the price which a minor may be compelled to pay for necessaries? 14. When may a minor's contracts be ratified ? 15. What are the requisites of such ratification? 16. With what intention must it be made ? 17. When must authority to bind parents be proved by the minor? 18. When would authority be presumed ? 19. What are necessaries under these circumstances ? 20. What is the rule when the minor is living away from his parents voluntarily ? 21. What when the minor is deserted or driven away from home? INSANE AND IDIOTS. 22. What are the privileges of an insane person before insanity has been judicially determined ? 23. What after judicial determination ? 24. What are the powers of an idiot ? 25. What contracts made while intoxicated may not be rescinded ? (40) Q(JE\T/O>VS. 41 MARRIED WOMEN. 26. What are the privileges of a married woman with regard to hei separate property? 27. Under whose control is the community property ? 28. To what extent may the wife hind the husband as his agent ? 29. How will authority to contract be implied ? 30. Where the husband and wife are living apart and the fault is with the wife, what are her privileges ? 31. If living apart by consent, whit is the husband's liability ? JOINT PARTIES. 32.. When is an obligation resting upon several presumed .o be joint and several ? 33. In what other case is the contract presumed to be joint and sev- eral ? 34. What is the right of contribution ? 35. When does the right of contribution not exist? CHAPTER II. TRUSTEES. 'Definition and Nature. A TRUSTEE Is *ONE IN WHOM THE LEGAL TITLE TO CERTAIN PROPERTY Is VESTED, FOR THE PURPOSE OF CARRYING OUT CERTAIN OBJECTS WITH RE- GARD TO IT. THE PERSON FOR WHOSE BENEFIT A TRUST Is CREATED Is CALLED THE BENEFICIARY; *THE PERSON CREATING THE TRUST Is THE TRUSTOR. Whenever a person is charged with the duty of carrying out certain acts for the benefit of another, a trust is created. Where a trust is created the title to the property is in reality divided into two parts, the one being vested in the trustee, and the other in the beneficiary. Trust relations, or 'fiduciary relations, as they are com. monly called, are of frequent occurrence in business transac- tions. Classes. With regard to their creation trusts are either 'express or implied. AN EXPRESS TRUST Is "ONE WHICH Is CREATED BY THE INTENTIONAL ACT OF THE PARTIES. AN IMPLIED TRUST Is 7 ONE WHICH Is RAISED BY LAW FROM THE ACTS OF THE PARTIES, THOUGH AN INTENTION TO CREATE A TRUST DOES NOT APPEAR. Express trusts may be either- "public or private. A PUBLIC TRUST is "one in which the beneficiary is some body or class of persons, the individuals of which are not identified. In private trusts the beneficiary is clearly identified. The chief difference between public and private trusts is (42) TRUSTEES. 43 that 10 the time during which the latter may continue is limited, while public trusts may continue indefinitely. A private trust cannot be created for a longer period than "during the lives of persons in existence at the time of the creation of the trust. There is no limit as to the number of lives, provided all are in existence at the time the trust is created. How CREATED. No particular form of words is necessary in the creation of a trust. The words trust, or trustee, are not essential so that the intention clearly appears. Either 12 real or personal property may be made the subject of a trust; and, where the subject-matter is personal property, the trust may be created 13 for any purpose for which it is lawful to contract. Trusts in real property are limited to certain specified kinds. An express trust in real property must be created 14 by an instrument in writing. An express trust in personal property may be created 18 by any words or acts of the trustor showing with reasonable certainty the intention to create a trust, the subject-matter, the object for which it is created and the bene- ficiary. It is not necessary. that it should be in writing, though it is generally better that it should be so evidenced. Besides being created by the trustor 16 a trust must be ac- cepted by the trustee. Any words or acts indicating such ac- ceptance would be sufficient. Implied trusts. Implied trusts arise in five cases: (1) "where property is conveyed in trust for some particular pur- pose, and that purpose fails, a trust is raised in favor of the original trustor; (2) where the conveyance of property is to one party but the consideration is paid in whole or in part by another, a trust is raised in favor of the person paying the con- sideration; (3) where property is received by one party which properly belongs to another, a trust is raised in favor of that other; (4) where property is purchased by one in a fiduciary position with trust funds, and no trust is declared; and (5) in other cases where justice demands it. 44 TRUSTEES. The right of the beneficiary in implied trusts is 18 to have the property conveyed to him. Who may be trustees. A trust may be created "l>y any person, who has the title to the property, and "any person may be a trustee or beneficiary. But if the trustee is unable to act, from any cause, as minority, etc., 21 the Court would appoint another in his place. PuWKRS OF TRUSTEES. With regard to the powers and dutie.s of trustees, trusts are either "active or passive. Active trusts are ^those in which the trustee has some active duty to perform with regard to the trust; passive trusts are "those in which the trustee has no duty to perform beyond holding the title to the property and conveying it according to the directions ot the beneficiary. (Venerally the powers of the trustee are expressed in the nstru mem creating the trust, but in addition to these express powers he has ^such implied powers as are reasonable and necessary to carry out the trust. He has a certain limited dis- cretion in choosing between different courses the one likely to be most beneficial to the trust. In active trusts the control of the trustee over the trust property is limited, by the duty of carrying out the trust. He may not deal with it, except 28 as provided for by the instrument creating the trust. If the property is conveyed in violation of the provisions of the trust, "the trustee becomes liable to the beneficiary for damages. ^A purchaser paying a valuable con- sideration, and without notice, express or implied, of the viola, tion of the trust, would obtain a good title to the property. In all other cases the beneficiary might recover the property itself, when it could be identified. The office of a trustee is one of personal confidence and "cannot be delegated to another, whether that other is the regular agent of the trustee or not, without the consent of the beneficiary. This does not prevent the trustee, however, from employing an agent or servant to do the work, "provided the trustee retains the supervision and control. TRUSTEES. Where there are several trustees they hold the property "as joint owners, and the right of survivorship (see page 10) exists. They must all join in signing a conveyance of the property which is required to be in writing, and 3>2 one may not leave the general control of the trust business to the others. DUTIES OF TRUSTEES. The first duty of the trustee is "to carry out the trust in accordance with the directions. In carrying out the directions of the trust, the trustee must "exercise CARE AND DILIGENCE, and, for a failure to do so, he is liable M to pay damages, even though there is no breach of good faith. He must exercise diligence in obtaining the trust property and retaining it under his control. Where there are debts due the trust estate he must collect them with diligence; and he must exercise care in the protection of the trust property while it is under his control. As to the degree of care and diligence required, the gen- eral rule is that 36 a trustee must exercise the same care and dili- gence in his management of the trust property, which a reason- able man would employ in the conduct of his own private affairs. The trustee must act in "GOOD FAITH with regard to the trust property. Absolute and extreme good faith, if there can be any degrees in good faith, is the very essence of the trustee's duty. M He must not deal with the trust funds to his own ad- vantage; he may not sell anything to the trust estate, nor may he buy anything from it. The beneficiary is 39 entitled to all the benefits actually gained by such action of the trustee and to hold them for his own benefit. The trustee "must not mingle the trust funds with his own. If deposited in a bank it must be in the name of the trust es- tate, or in the name of the trustee, as trustee. * ! He may not borrow the trust funds, nor may the trust property be given as security for a loan to the trustee individually. For any loss resulting from so mingling the funds, "the trustee is liable, with interest on the amount. Even where 40 TRUSTEES, there has been no loss "the trustee must prove conclu- sively what part of the mingled funds are his own, and what he cannot prove to be his own goes to the trust, even though he might have shown that the trust funds did not amount to so much. Lastly, under the head of good faith, "the trustee must not enter into any relation, accept any position, or do any act in- consistent with the interests of the beneficiary; and he must in- form the beneficiary of any facts which may come to his knowl- edge with regard to the trust property. It is the trustee's duty ^to RENDER THE PROPERTY AS PRODUCTIVE AS POSSIBLE. He must therefore invest the funds in some good securities, and he is liable 46 to pay interest on all funds not so invested. But the investment must be in good securities, and not in speculations; the law permits a man to be reckless with his own money, but not with that of other peo- ple. For any loss resulting from an investment of the trust funds in accordance with his duty, the trustee is not liable. Trust funds may be deposited in a bank of good credit * 7 for a reasonable time, but if they are allowed to remain in the bank longer than is necessary, ^the trustee is liable for any loss resulting from a failure of the bank, etc. The trustee *'MUST ACCOUNT fully for all his acts as trustee, even though this may not be expressed in the creation of the trust, and he must keep full and separate accounts of his re- ceipts and disbursements of trust funds, and must render state- ments periodically. He must also restore the property re- maining in the estate at the end of the trust. RIGHTS OF TRUSTEES. The trustee is entitled w to have refunded to him out of the trust property, all advances which he may make for the benefit of the trust, provided they were proper and reasonably necessary. When they are not neces- sary the trustee is entitled to have refunded to him "such ad- vances as result to the benefit of the trust. As compensation for his services, where no amount is fixed TRUSTEES. in the instrument creating the trust, the trustee is entitled to a "'reasonable sum of money to be fixed by the court, and where the trust is likely to continue for a number of years the court mav rinke an annual allowance to the trustee as compensation for his services. RIGHTS OF THE BENEFICIARY. The beneficiary has no legal title to the property comprising the trust, but only ^an equitable interest therein. He can exercise no control over the trust property nor interfere with the actions of the trustee except to compel the trustee to carry out the terms of the trust. If the trustee violates his trust or fails in the performance of his duty, the beneficiary w can go into court and compel him to dj his duty or have him removed if he refuses. If the trustee sells the trust property, or puts it out of his control in any way, in violation of his duty, the beneficiary may recover it from any person chargeable with the trust, as long as the specific property can be identified. 85 Any person who has notice of the fact that the conveyance is a violation of the trust, or who does not pay a valuable consideration, is chargeable with the trust. To identify the property 66 the beneficiary must show that it is the identical property, or the fruit or product thereof. "The interest of the beneficiary may be transferred, or sold, in the same manner as other property, and no condition can be annexed to the trust which would render it inalienable. The interest is also liable for the debts of the beneficiary, and may be attached by his creditors. How EXTINGUISHED. A \rust is extinguished K by the entire fulfillment of its object, or by such object becoming impossiMe, or unlawful. A trust cannot be revoked by the testator after its accept- ance by the trustee and beneficiaries, except ro by the consent of all the beneficiaries, unless a power of revocation is expressly reserved. Where so reserved the power must be strictly pur- 48 TRUSTEES. sued, and will not be extended beyond the expressions of the reservation. The 60 law will not allow a trust to fail for ra want of a trustee. If a vacancy occur for any cause the court will appoint a trustee. DUTIES OF TRUSTEES. As the duties of a trustee are important, as entering, more or less, into many of the relations of life, they are here tabu- lated : CARRY OUT THE TRUST ACCORDING TO DIRECTIONS. I. EXERCISE CARE AND DILIGENCE in 1. Obtaining trust property. 2. Collecting debts. 3. Protecting trust property. II. EXERCISE GOOD FAITH. 1. Must not deal with trust funds to his own advantage. 2. Must not buy from or sell to the trust estate. 3. Must not mingle trust funds with his own. 4. Must not borrow trust funds. 5. Must not do any act inconsistent with the interests of the beneficiary. 6. Must inform beneficiary. IV. RENDER PROPERTY PRODUCTIVE. V. RENDER ACCOUNTS. 1. Keep separate accounts. 2. Render statements. 3. Turn over property at conclusion of trust QUESTIONS. 1. What is a trustee ? 2. Who is the beneficiary ? 3. The trustor ? 4. What are trust relations commonly called ? CLASSES. 5. How are trusts divided with regard to their creation ? 6. What is an express trust ? 7. What is an implied trust? 8. What are the two classes of express trusts ? 9. What is a public trust ? 10. What is the chief difference between public and private trusts ? fi. How long may an express trust, where there is no power of sale, continue? HOW CREATED. 12. What may be made the subject of a trust? 13. For what purposes may a trust in personal property be created? 14. How must an express trust in real property be created ? 15. In personal property? 16. What is necessary besides the creation of the trust by the trustor? IMPLIED TRUSTS. 17. In what five cases do implied trusts arise? 18 What is the right of the beneficiary in implied trusts? WHO MAY BE TRUSTEES. 19. F>y whom may a trust be created? 20. Who may be a trustee ? 21. If the trustee is incompetent what is done ? POWERS OF TRUSTEES. 2a. How are trusts divided with regard to the powers and duties of trustees ? (49) 4 00 QUESTIONS. 23. What is an active trust ? 24. A passive trust ? 25. What powers has a trustee, in addition to those expressed? 26. How may the trustee deal with the trust property ? 27. What results from a conveyance of the property in violation of the trust ? 28. Who would obtain a good title to the property ? 29. Can the powers of a trustee be delegated to another? 30. When can the trustee have the work done by another ? 31. How do several co-trustees hold the property? 32. May one trustee leave the control of the trust property to others ? DUTIES OF TRUSTEES. 33. What is the first duty of a trustee ? 34. What is the second ? 35. What is the liability for a failure in this duty? 36. What is the general rule as to the degree of care and diligence? 37. What is the third duty of a trustee ? 38. May a trustee have transactions with the trust estate ? 39. What are the rights of the beneficiary in this case ? 40. May the trustee mingle trust funds with his own? 41. May he borrow trust fu id- ? 42. What is the trustees liability in this case, where there has been, resulting loss ? 43. Where there has been no loss ? 44. What is the last duty, under the head of good faith * 45. What is the fourth duty of a trustee ? 46. What is his liability on uninvested funds? 47 For how long may trust funds be deposited in a bank of good credit ? 48. What is the liability of the trustee if they remain longer? 49. What is the fifth duty of the trustee ? RIGHTS OF TRUSTEES. 50. What is the right of the trustee, witn regard to advances ? 51. What unnecessary advances must be refunded ? 52. What compensation is the trustee entitled to ? RIGHTS OF BENEFICIARY. 53. What is the right of the beneficiary ? 54. What is the remedy of the beneficiary when the trustee violate* Ms duty? QUESTIONS. 61 55. Who is chargeable with the trust ? 56. What is necessary to identify the property? 57. May the interest of the beneficiary be transferred ? HOW EXTINGUISHED. 58. How is a trust extinguished ? 59. How may a trust be revoked after acceptance? 60. What happens on the death of a trustee? 61. Of a co-trustee ? CHAPTER III, AGENTS. Definition and Nature. AGENCY Is *A CONTRACT BY WHICH ONE PERSON, WITH GREATER OR LESS DISCRETIONARY POWERS, UNDERTAKES TO REPRESENT ANOTHER IN CERTAIN BUSINESS RELATIONS. The person so represented is called 2 the principal; the person representing him is called s the agent. *Any person who may do an act in his own right may delegate authority to another to do that act for him, but a mi- nor cannot appoint an agent. An agent cannot sign an ac- knowledgment to take a case out of the Statute of Limitations. How Created. Authority may be conferred upon an agent bv express words, or it may be implied from the acts of the principal. Where the authority is express it may be conferred either in writing or orally. Generally "where the agent is to bind the principal by an instrument in writing, the appointment must be in writing. In order to complete the contract of agency, 7 the appointment must be accepted by the agent. The authority of an agent may be implied "from any acts of the principal which would lead persons acting with the agent to believe that such authority existed. Thus we have seen [p. 38] that the wife sometimes has an implied authority to act as the agent of her husband. Authority is implied 'from the general custom in the special branch of business in which the agent is employed, or from a prior course of dealing between the parties. AGENTS. 53 The express authority of an agent is generally enlarged by "such implied powers as are necessary to carry out the bus- iness for which the agency is created. A contract made by an agent who had no authority at the time of contracting may be made binding u by ratification by the principal. But in order that a ratification shall be effect- ual, "the principal must be cognizant of all the facts. A rati- fication need not be by express words; 13 an acceptance of the fruits of the contract would generally be considered a ratifica- tion. WHO MAY BE. "Any person able to contract for himself may be an agent; a person not able to act for himself may be an agent for another 15 where he has sufficient understanding to obey instructions. POWERS OF AGENTS. To a contract entered into by an agent there are three parties : the principal, the agent, and the third party. The powers of the agent would therefore be di- vided into two classes, 16 the power to bind the principal and the power to bind the third party. To BIND THE PRINCIPAL. "Any act done by an agent, within the scope of his express or implied power, binds the principal in the same manner as if the act had been done by the principal himself. Whether or not an act is within the scope of the agent's authority is to be determined from each case. Representations, made by the agent "when among the in- ducements to the contract, and made in the course of his em- ployment, would bind the principal. But if these representa- tions are "made before the employment has commenced, or after it has ended, they would not be binding. "Notice to an agent of any fact in respect to a matter con- cerning which he is authorized to treat; or "payment to an agent authorized to receive it is as binding as if to the principal. Payment to an agent not authorized to receive it "is of no effect, and does not discharge the obligation. 64 AGENTS. Besides being bound by the contracts of the agent, the principal is rendered liable for ^wrongs committed by the agent, while he is acting within the scope of his authority. If the agent goes outside of his authority the principal is not bound. It sometimes happens that an agent enters into a contract without disclosing the fact that he is acting as agent, or with- out disclosing the name of his principal; in such case "the principal isbound in the same manner as if disclosed, if found before the time of performance has passed. To BIND THIRD PARTY. Where the agent has acted for and in the name of the principal, the third party is liable M to the principal alone, and to the same extent as if he had con- tracted with him personally. "Where the contract is in the name of the agent himself not as agent but is within the scope of his authority as agent, the principal may enforce it; but the third party may enjoy the same rights against the principal which he might have exercised against the agent. Where the agent exceeded his authority, "the principal cannot enforce the contract. Where the fact of agency is disclosed, though the name of the principal may not be, M any claims against the agent can- not be set off against the principal. Duties of Agent. To THE PRINCIPAL. The relation of agency being a fiduciary one, the duties of an agent are "the vuue as those of a trustee. When an agent's instructions are ambiguous, he may act **on any probable construction which he adopts in good faith. And where the instructions become impracticable, "the agent need not follow them. To THE THIRD PARTY. Where the agent acts as agent and for a known principal, w he incurs no liability to third par- ties. Where the name of the principal is not disclosed it be- comes a question of evidence as to whom the credit is given, and the "person to whom credit is given is bound by the con- AGENTS. 55. tract. Of course where the principal and also the fact of the agency are both undisclosed, the credit is given to the agent, and he alone is bound by the contract. But if the principal is afterwards discovered, the person so dealing has his election to hold either the agent or the principal. ' Where the agent does any acts outside of the scope of his authority, express or implied, 84 he is liable to the third party. And for all wrongs done by him 8B he is responsible, either jointly with the principal or separately. An agent doing an illegal act, cannot defend himself on the ground that it was done as agent, for an agreement to do anything unlawful is void. 36 For his own fraud the agent is also personally responsible. Rights of Agents. AGAINST THE PRINCIPAL. As against the principal the agent is entitled to "compensation or com- mission for the work performed, but ^the transaction must have been completed before the commissions are earned, and an agent stopping the work before completion ^is not entitled to any com- missions. When the commissions are not fixed by the terms of the agreement, they may be 40 by the custom or usage in that business, or the agent might recover a reasonable amount. But it is necessary that "the express or implied employment of the agent should be proved, before a liability for commissions would arise ; voluntary services would not raise such a liability. An agent is also "entitled to reimbursement for his out- lays, and where he has made advances he is entitled to interest thereon. The principal or employer 48 is not liable to his agent or servant for injuries in consequence of the ordinary risks of the business in which he is employed, nor in consequence "of the negligence of another person employed by the same employer in the same general business, unless the negligence causing the injury was caused in the performance of a duty the employer 56 AGENTS. owes b^ law to the employee, or unless the employer has neglected to use ordinary care in the selection of the culpable employee. The principal or employer shall, however, be responsible for injuries caused by the negligence of officers, foremen, superior employee or a co-employee engaged in another department of work, or for furnishing unsafe, insufficient or defective material or machinery, Any contract or agreement between employer and employee whereby the employee waives the benefits of the above paragraph are null and void. Contributory negligence on the part of the employee will avoid a recovery for damages, except such as are the result of willful negligence of the employer. AGAINST THIRD PARTY. Where the contract is in the name of the principal the agent has no right under it. Where the contract is in the name of the agent, even though the fact of the agency is disclosed, 45 the agent may enforce it to the same extent as the principal. How Ended. A contract of agency may be dissolved by mutual consent, or <6 by revocation of the principal. Insanity, or death of the principal "will also immediately put an end to the agency. Where the agency is revoked by the principal without cause, "the agent is entitled to the same compensation which he would have received if the agreement had been carried out. The agency may also be ended by 49 the renunciation, in- capacity or death of the agent. QUESTIONS. 1. What is agency? 2. What is the person represented called? 3. The person representing him ? 4. Who may be a principal? HOW CREATED. 5. How may an agency be created ? 6. What is the general rule as to the written authority of an agent } 7. What is necessary to complete the contract of agency besides the appointment ? 8. From what may the authority of an agent be implied ? 9. From what particular circumstances is authority implied ? 10. What implied powers has an agent in addition to those expressly given? 11. How may an unauthorized contract of an agent be made binding ? 12. What is necessary that a ratification should be effectual? 13. From what acts would a ratification be implied? WHO MAY BE. 14. Who may be an agent ? 15. When may a person not able to contract for himself be an agent? POWERS OF AGENTS. 1 6. What are the two classes of powers of agents? 1 7. What bind the principal ? 1 8. When do the representations of an agent bind the principal? 19. What representations do not bind the principal ? 20. What is the effect of notice to the agent? 21. Of payment to an agent? 22. What is the effect of payment to an agent not authorized to re- ceive it ? 23. For what wrongs of the agent is the principal liable ? 24. What is the effect of the discovery of an undisclosed principal? i QUESTIONS. '$ 25. To whom is the third party liable when the agent has acted for and in the name of the principal ? 26. When may Che third party set off claims against the agent? 27. Where the agent exceeded his authority what are the rights of the principal ? 28. Where the fact of the agency is disclosed, but not the name of the principal, what are the rights of the third party ? DUTIES OF AGENTS. 29. What are the duties of an agent to the principal ? 30. When instructions are ambiguous, how may an agent act? 31. Where the instructions become impracticable, what may the agent do? 32. Where the agent acts as agent and for a known principal, what ishi.s ii Ability to the third party? 33. Who is bound when the name of the principal is not disclosed? 34. What is the agent's liability when he exceeds his authority ? 35. What is his liability for wrongs done by him ? 36. Is an agent responsible for his own illegal and fraudulent acts ? RIGHTS OF AGENTS. 37. What are the agent's rights against the principal ? 38. What is necessary before commissions are earned ? 39. What are the rights of an agent who voluntarily fails to finish the work? 40. When the commissions are not fixed by agreement, how would they be determined ? 41. Whai is necessary before a liability for commissions would be .raised ? 42. What is an agent's right as to advances? 43. What is the principal's liability for injuries caused by the negli- gence of a felloA- sjrvant ? 44. lor \\ hat negligence of the principal does a liability exist ? 45. What rights has an agent where the contract is in his own name? 46. By what acts of the principal may the agency be dissolved ? 47. What is the effect of the insanity or death of the principal? 48. What are the rights of the agent where the agency is revoked without cause ? 49. What acts on the part of the agent will end the agency ? CHAPTER IV. PARTNERS. Definition and Nature. A PARTNERSHIP Is *AN AGREEMENT WHEREBY Two OR MORE PERSONS AGREE TO COMBINE THEIR CAPITAL AND LABOR, OR EITHER OF THEM, IN THE TRANSACTION OF SOME BUSINESS FOR THEIR COMMON PROFIT. A partnership is also called a firm, or a co-partnership. The persons entering into the agreement are called partners. The essential feature of a partnership is 2 the sharing of profits. A joint purchase of goods to be divided would simply create a joint ownership. The sharing in profits must also be *as principals; an agent or employee of any kind would not be- come a partner by merely receiving as compensation a certain proportion of the profits. The rights, duties and liabilities arising out of a partner- ship are governed 4 by the principles of joint ownership and of agency; as to the firm property they are joint owners; as to transactions with third parties they are agents for each other. How CREATED. A partnership is created 5 by an agree- ment, written or oral, entered into by all the parties. It is necessary that all the partners should enter into the agree- ment, for the relation is one so extremely confidential that unanimous consent is required. When the agreement is in writing it is called 6 the articles of co-partnership. ny name may be adopted as the firm name; it may con- sist of the names of all of the parties, or any number of them, or of none of them. When the firm name does not show the names of all of the individual partners, 7 a certificate must be filed with the county clerk, showing the names in full of all (59) 60 PARTNERS. the members of the firm, with their place of residence. The certificate must also be published once a week for four succes- sive weeks, in some newspaper published in the county. This certificate must be signed by all the partners and acknowl- edged before a notary public. *Any person capable of entering into any other contract may enter into the contract of partnership. Any person who 9 allows himself to be held out to the world as a partner is held liable as such, even though he may not share in the profits or have any interest in the partnership property. Powers of Partners. Each partner M is agent for the others in the transaction of all partnership business, and has all the necessary and usual authority as such. "Any agreement of the partners among themselves would be ineffectual to change or limit this authority, except as to parties to whom such agreement was actually communicated. The transactions of a partner must be 12 within the scope of the business to carry on which the partnership was created, or the others will not be bound. Where any partner acts in bad faith the others are not bound, unless "the third party acted in good faith and paid a valuable consideration. 14 In most transactions which are in writing, as in note, etc., the firm name may be signed by any one of the partners, and all of the others are bound; but 15 where real property be- longing to the firm is to be conveyed, the conveyance should be signed by all of the partners individually. All of the partners may abandon the control of the busi- ness to one of their number, when he has authority to do any act connected with the partnership business. In the absence of any such agreement, no partner may do any of I6 the follow- ing acts, without the consent of the others: 1. Make an assignment of partnership property for the benefit of creditors. 2. Dispose of the good-will of the business. P.4KTNERS. 3. Dispose of the whole of the partnership property at once, unless it consists entirely of merchandise. 4. Do any act which would make it impossible to carry on the partnership business. 5. Confess a judgment, or submit a claim to arbitration. 6. Make any change in the nature of the business carried on by the firm. Duties. To EACH OTHER. Partnership is one of the most strictly confidential of all business relations, and the duties of partners to each other are "the same as those of trustees to the beneficiary. Good faith in the transaction of all firm busi- ness is the foundation of their mutual relations. Partners may engage in a separate business 18 where that business does not compete in any way with the partnership busi- ness; but if any business is entered into similar to that of the firm, 19 the other partners are entitled to share in the profits. To THIRD PERSONS. Each partner is liable to third persons for all the debts 20 and obligations of the partnership, jointly with his partners. Partnership debts must first be paid out of the partnership property before any of it is available to pay the in- dividual debts of a partner. The ^individual property of a part- ner must be exhausted before resort can be had to his interest in the partnership property. Where the individual property of a partner is taken for partnership indebtedness such partner 22 can claim reimbursement from the partnership property or contri- bution from the other partners. The liability for debts contracted during the continuance of the partnership or before ^notice of its dissolution, does not cease on its dissolution; but for any debts contracted after notice of the withdrawal of any partner, that partner is not liable. Rights of Partners. Partnership being the result of a contract, the mutual rights of the parties are governed primarily "by the terms of the agreement, but in addition to the express stipulations the law declares certain rights and obligations which rest upon all partners as such. 2 PARTNERS. The partnership property is held ^by all of the partners as joint owners; each partner having an undivided interest in all of the property. The partnership property includes 26 all that was contributed to the capital stock of the partnership at the time of its formation, and all subsequent additions and ac- cumulations. It may consist "of real or personal property, or both. The share of each partner in the partnership property is "the proportion of existing assets to which he would be en- titled if the whole property were converted into money and the firm debts were paid. In order that a partner should obtain his share it is necessary that there should be a liquidation. The profits of the business, 2f in the absence of any agree- ment to the contrary, are equally divided among the partners, and beyond this no partner is entitled to any compensation. But ""advances by a partner from his private funds, and extraor- dinary expenses in the partnership business, as in protecting the stock from fire, are to be repaid to him. . Unless there is an express agreement to the contrary, "a majority of the partners control in the conduct of its business, but 8a they are limited to the general scope of the partnership business, and they must consider the best interests of the firm in their decisions. A majority of the partners, however, M may not expel a m ember of the firm without his consent. For any breach of his agreement, or any act not in ac- cordance with his duty, a partner is 3 *liable to the others for damages. ''The share of a partner in the partnership property is lia- ble to attachment by his individual creditors. But in case of such attachment an accounting must be had, and the attach- ment creditor gets the liquidated share of the partner. How Dissolved. Where the partnership is limited by the terms of the agreement to continue for a certain time, it is dissolved by the expiration of that time, and may not be dis solved before except *by mutual consent or a decree of dissolu- tion by a Court PARTNERS. 61 Should any partner withdraw before the time fixed, 87 he becomes liable to the others for resulting damages, unless he would have been entitled to a decree of dissolution. A decree of dissolution will be granted "when any of the partners be- come legally -incapacitated, when one is guilty of a breach of his duty as a partner, or when the business can be carried on only at a permanent loss. The withdrawal of a partner 3> \vorks a dissolution per se. If no time for its continuance is fixed by agreement, a partnership may be dissolved "at any time by any of the part- ners. When one partner sells his interest to another person, 41 the firm is thereby dissolved. If the other partners agree to accept the new member * 2 a new firm is thereby created; if they refuse to accept him an accounting must be had. The death of any partner would also * 3 work a dissolution, and his legal representatives would be entitled to an accounting. Where a dissolution of a partnership has been ordered or an accounting is to be had, * 4 the authority of the partners is limited to those acts which may be necessary for such dissolu- tion or accounting, and therefore they may collect the debts, or sell the pro} erty of the concern, but they may not create any new indebtedness. Special Partners. SPECIAL PARTNERS ARE ^THOSE WHOSE LIABILITY FOR FIRM DEBTS Is LIMITED TO THE AMOUNT SUBSCRIBED BY THEM TO THE CAPITAL STOCK OP THE PARTNERSHIP. Special partnerships may be created to carry on any busi- ness except * 6 insurance or banking; and may consist of both general and special partners. How Created. A special partnership is created by agreement in the same manner as a general partnership, but in order to limit the liability of the special partners as to third persons, there are certain provisions which must be strictly complied with. PARTNERS. "Certificates in duplicate must be prepared, acknowledged by each of the partners, and filed with the county clerk and the recorder. These certificates must set forth "the firm name, the nature of the business, names and residences of the partners, specifying those who are general and those who are special, the subscriptions of each special partner, and the time during which the partnership is to continue. To each certificate must be attached "affidavits by each partner, stating that the sum specified has been actually subscribed by him in good faith. This certificate, or the substance of it, must be published at least 5 "once a week for four successive weeks in a newspaper published in the county. Powers. A special partner "may investigate the affairs of the partnership at any time, and may advise, but the general partners only have authority to transact the business of the firm. A special partner may lend or advance money to the part- nership, and as to such advances he has 82 the same position as other creditors of the firm; but in case of insolvency 53 all other claims of special partners against the firm must be postponed until after the other creditors are satisfied. A special partner may not withdraw any part of his capi- tal from the firm during the continuance of the partnership, and if he does so "he immediately becomes liable as a general partner. A special partner may receive "interest on his capital and may share in the profits of the concern, and he is not bound to refund any profits which he may have received to meet sub- sequent losses. 66 Any failure to comply with the requirements as to form- ing a special partnership, any fraud or willful misstatements in the certificate, or any violation of his duty as such, renders a special partner liable as a general partner. Any change in the membership of the firm renders a new certificate, etc., neces- sary, or all of the partners become general. PARTNERS. M A certificate of the dissolution of a special partnership by consent of the parties must be filed and published in the same manner as the original certificate of special partnership QUESTIONS. 1. What is partnership ? 2. What is the essential feature of a partnership ? 3. How must the profits be shared ? 4. By what principles are these rights, duties, etc., of partnership governed ? HOW CREATED. 5. How is a partnership created ? 6. What is the agreement called when in writing? 7. When the firm name does not show the names of all the partners, what must be done? 8. Who may be partners ? 9. When is a person, not actually a partner, liable as such ? POWERS OF PARTNERS. 10. What relation does each partner bear to the others in the tf ant- action of partnership business ? 11. Can the partners change this by agreement? 12. Within what limits must the partner act? 13. Under what circumstances are the partners bound when one acts in bad faith ? 14. When may the firm name be signed ? 15. When must the individual names be signed? 1 6. What acts may a partner not do without the consent of the others ? DUTIES OF PARTNERS. 17. What are the duties of partners to each other? 1 8. When may partners engage in a separate business ? 19. If the business competes with the partnership business, what arc the rights of the other partners? 20. To what extent is each partner liable for the firm indebtedness ? 21. In what case may the private fortune not be attached before the firm property? 22. When the private property of a partner is taken what are his rights ? 23. When does the liability of a partner cease ? (66) QUESTIONS. 67 RIGHTS OF PARTNERS. 24. By what are the mutual rights of the partners governed primarily ? 25. How is the firm property held ? 26. What does the partnership property include ? 27. Of what may it consist ? 28 What is the share of each partner ? 29. How are the profits divided ? 30. What may a partner have repaid to him ? 31. Who control in the conduct of business? 32. What limit is there on their actions ? 33. What is beyond the power of a majority ? 34 What is the liability of a partner for breach of duty ? 35. Can the share of a partner be reached by his creditors ? DISSOLUTION. 36. How may a partnership be dissolved before the time set for dis- solution ? 37. What is the liability of a partner withdrawing ? 38. When will a decree of dissolution be granted ? 39. What is the effect of the withdrawal of a partnei ? 40 If no time is fixed how may a partnership be dissolved? 41. What is the effect of a sale by a partner of his interest ? 42. What results from the acceptance of the new partner ? 43. What is the effect of the death of a partner ? 44. What is the authority of partners where a dissolution has been ordered? SPECIAL PARTNERS. 45. Who are special partners? 46. What business may not be carried on by a special partnership ? 47. What is the first step in creating a special partnership ? 48. What must be contained in such certificates ? 49. What must be attached to each certificate ? 50. How often must the certificate be published ? 51. What powers have special partners ? 52. What position does a special partner hold as to advances by him to the firm ? 53. What rights have they in case of insolvency ? 54. What is the result of withdrawing capital from the firm ? 55. What may a special partner receive ? 56. What renders a special partner liable as a general one ? 57. In case of the dissolution of a special partnership, what is aeces- .ary? CHAPTER V. CORPORATIONS. De^nition and Nature. A CORPORATION Is *AN AR- TIFICIAL BEING CREATED WHOLLY BY LAW, FOR THE PURPOSE OF CARRYING OUT CERTAIN OBJECTS EXPRESSED IN ITS CREATION. A corporation exists in legal contemplation "entirely sepa- rated from the individuals which compose it; the members in- dividually are lost in the corporate existence. A corporation differs from a partnership in many particu- lars; 8 a partnership is merely the individuals of which it is composed, and, while for convenience a firm name is used to represent all of the partners, the law considers them merely as individuals acting collectively; a corporation has a separate ex- istence and being created by law to continue for a specified time exists for that period without reference to any changes in the individuals composing it. In certain respects and for certain purposes corporations are considered as persons, and are governed by the laws apply- ing to persons. The general rule is that Corporations are entitled to the rights conferred upon persons if they fall within the general reason or design of the act conferring the right upon persons. Corporations are created 5 in order to gain the united aid of many persons for the successful promotion of some design for the public good. 6 On account of their continued existence in spite of changes in membership, and of the superior secu- rity of members of a corporation to partners, as will be seen later, corporations are much favored. (68) CORPORA TIONS, How Created. 7 A corporation cannot be created by act of the parties alone, some action by the Legislature is neces- sary in order to bring it into existence. In this State a private corporation may not be formed by special act of the Legislature, but the code provides means for 8 any body of persons not less than three, a majority of which must be residents of the State ot California, to form themselves into a corporation, 9 for the pur- pose of carrying out any lawful objects. Corporations for profit must provide 10 for issuing shares of stock, each share representing a proportional interest in the corporation. When a corporation is to be formed, ^Articles of Incorpo- ration must be prepared, 12 filed with the county clerk of the county in which the principal place of business is to be ; and certified copies must be filed with 13 the Secretary of State, and the clerk of every county in which the corporation holds real property. The Articles of Incorporation must set forth the name, object, principal place of business, number and names of the directors, capital stock and number of shares, and the names of subscribers, with amount subscribed. A Certificate of In- corporation is then issued by the Secretary of State. Powers of Corporations. The powers of a corporation are set forth I4 in its charter. The charter includes 15 the gen- eral law under which it is organized, and the Articles of In- corporation filed at the time of organization. These powers are 18 such as are necessary to carry out the objects of incorpo- ration. A corporation may make contracts, and take, hold and transfer 17 such real estate as may be necessary to carry out its objects. A corporation may not indorse accommodation paper, unless the loaning of its credit is one of the objects of its existence. A corporation by the very fact of its existence has power 18 to admit members, to elect, and, for cause, to remove officers, and to hold meetings. In business corporations new mem- 70 CORPORA TIONS. bers are admitted 19 by the purchase of stock, and having once acquired an interest they cannot be expelled unless the power has been expressly reserved in the charter. A subordinate officer or agent of a corporation may be re- moved without cause; but 20 a superior officer must be notified and there must be sufficient cause for removal. 21 No notice to stockholders of a regular meeting is re- quired, but of any special meeting 22 personal written notice of the time and place of such meeting must be given. Where there is no provision as to meetings 23 notice must be given of all meetings to be held. How EXERCISED. A corporation being a fictitious entity, all of its powers must be exercised 24 through the medium of its officers or agents, and the power to appoint agents is therefore incidental to all corporations. The administration of the ordinary affairs of a corpora- tion is committed 25 to a body of members called directors or trustees. The law is, that the number of directors cannot be less than three, but may be any number more than three. It is necessary that 27 all of the directors should be bona fide mem- bers, and a transfer of stock to a person simply to render him eligible would not be sufficient The board of directors, being trustees, are bound by all of 28 the duties of ordinary trustees, but they are not entitled to compensation unless there is ex- press provision to that effect. The officers of a corporation, president, secretary, etc., are also agents for the corporation 29 to perform such acts as are generally included in the duties -of such officers. 30 Where any power in excess of his ordinary powers is given to an officer or body of officers, the authority thus given can- not be transferred to a sub-agent The power to convey the land of a corporation is not within the duties of any officer, and 31 rr,flSt be specially granted in writing. The corporation, as a principal, is responsible for 32 any acts of its agents, committed in the performance of their regu- lar duty. CORPORATIONS. 71 Rights of Stockholders. A stockholder is a member of the corporation and has all the rights appropriate to such membership. A share of stock, however, "does not represent an ownership in the property of the corporation, but a right to receive a certain proportion of the profits and product of such property. The title to the property rests "solely in the corpora- tion itself. It is on this principle that stock in a corporation is per- sonal property even though it may be the business of the cor- poration to deal in real estate. "Certificates of stock are not negotiable instruments, however, and a transfer by indorse- ment only is valid between the parties to the transfer, but is not as to other parties until the change has been made on the books of the company. "Where the directors or other officers are guilty of any action tending to injure the property of the corporation, or are guilty of any breach of duty, a stockholder may have them restrained by a court, or may recover damages from them. When a stockholder has been induced to purchase stock in the corporation by false statements, made by the directors with intention to deceive, 37 he may recover damages therefor; and this without reference to whom he purchases the stock from. Each stockholder in a private corporation is ""individually liable for such proportion of all the debts of the corporation as the shares of stock which he held at the time of the indebtedness was incurred, bore to the whole body of stock, and he may be sued therefor independently of any suit against the corporation for the same debt QUESTIONS. 1. What is a corporation ? 2. How does a corporation exist in legal contemplation ? 3. IIov. does a corporation differ from a partnership? 4. What is the general rule as to when a corporation will be con- ulered as a person? 5. What is the object in creating corporations ? 6. W T hy are corporations favored ? HOW CREATED. 7. What is necessary to create a corporation ? 8. I low many persons may form a corporation ? 9. For what object may a corporation be formed ? 10. What must business corporations provide for? 1 1. What is the first step in forming a corporation ? 12. What must be done with the articles of incorporation? 13. To whom must certified copies be sent? POWERS OF CORPORATIONS. 14. In what are the powers of a corporation set forth? 15. What does the charter include ? 1 6. What are these powers ? 17. How much real estate may a corporation hold ? 1 8. What powers has a corporation by the very fact of its existence ? 19. How are new members admitted in business corporations? 20. What is necessary to remove a superior officer of a corporation ? 21 Is a notice to stockholders of a regular meeting necessary ? 22. What notice must be given of a special meeting ? 23. What is the rule where there is no provision as to regular meet- ing ? 24. How must the powers of a corporation be exercised ? 25. To whom is the administration of the ordinary affairs of a corpora- tion committed ? 26. How many directors must there be ? (72) QUESTIONS. 73 27. What is necessary that a person should be eligible as director ? 28. What are the duties of directors ? 29. To what extent are the officers of a corporation agents? 30. When may an officer not delegate his authority ? 31. How must power to convey land be given ? 32. For what acts of its agents is a corporation responsible ? RIGHTS OF STOCKHOLDERS. 33. What does a share of stock represent ? 34. In whom does the title to the property rest ? 35. Are certificates of stock negotiable instruments? 36 When are directors liable to a stockholder ? 37 What are the rights of a defrauded purchaser of stoc* ? 38. What is the liability of stockholders ? FART 3. CERTAIN SPECIAL CASES OF CON- TRACT. CHAPTER I. SALES OF PERSONAL PROPERTY. Definition and Nature. A SALE Is *A CONTRACT BY WHICH, FOR A PECUNIARY CONSIDERATION, ONE PERSON TRANSFERS TO ANOTHER THE GENERAL OR ABSOLUTE OWNER. SHIP OF A THING. A sale being a contract, all of the elements of a contract must be present. PARTIES. The parties to a contract of sale are 2 the seller, or person transferring the ownership, and the buyer. 'Any person owning personal property may sell it, and any person capable of entering into any other contract may become a pur- chaser. But *a person who has obtained possession of prop- erty by theft cannot convey a good title to it, and the owner may recover it as long as it can be identified. Any number of changes of ownership after the theft would not affect this right. CONSIDERATION. The consideration in a sale is always *a pecuniary one. When the consideration is anything besides money, the agreement is called 6 an exchange, or barter. Ex- change is governed by very much the same rules as sale, but they are considered as separate forms of contract. SUBJECT MATTER. As in all other contracts the subject of a sale must be clearly identified and distinguished. If it is (74) SALES OF PERSONAL PROPERTY. 75 not so distinguished, or if it has ceased to exist, 7 the sale is void. The thing sold must also have an actual or potential ex- istence, or the agreement would amount only to an agreement to sell and not to an actual sale. A thing is said to have a potential existence 8 when it will come into existence at some future time as the natural product or increase of something to which the seller has a present vested right; as the crop of grain to be grown on a certain field; the wool to be clipped from sheep, or the young of a band of sheep or herd of cattle. Delivery. The first duty of the seller in the perform- ance of a contract of sale is 'the delivery of the thing sold. Delivery, in this sense, does not mean an actual passing over of the corpus of the chattel, but w any act by which the chattel is placed under the absolute control of the buyer. In the ab- sence of any agreement to the contrary u the seller is not bound to do more by way of delivery than to put the article in such condition that the buyer has nothing to do but to take it away. Where the thing sold is part of a larger quantity "it should be separated, but the delivery is to be 13 at the place where the article was at the time of sale. If the seller agrees, however, to deliver at any certain place, u he must do so, and must follow the directions of the buyer as to the manner, etc., of sending. Where no time for delivery is expressed, it must be ls within a reasonable time. Delivery may be 16 at any hour sufficiently early to give the buyer time to examine the goods before midnight, but the buyer is not compelled to wait for them after sunset, and if he is not there there can be no delivery. Delivery may be to the buyer or to his agent, or any per- son authorized by him to receive the goods. Delivery to a common carrier or to a drayman is sufficient to pass the title. If the sale is for cash, i. e., if the payment is a concurrent condition, the delivery must be "on payment or tender of the price; if the sale is on credit the delivery must be immediate If the delivery is of a less or greater quantity than that 76 SALES OF PERSONAL PROPERTY. contracted for, 18 the buyer may refuse to accept, and if a part has been received, it may be returned; but should the buyer accept the amount offered 19 he is bound to pay for it. Delivery being merely a placing of the goods under the control of the buyer, it may be by symbol, as the delivery of the key of the place in which the goods are, or the bill of lad- ing, a warehouse receipt, etc. A delivery to be valid against the creditors of the seller must be followed by M an actual and continued change of pos- session. Where there is no such change of possession "the sale is presumed to be in fraud of such creditors and may be .set aside. Warranty. A warranty is 22 a collateral undertaking, form- ing a part of the agreement of the parties. In popular lan- guage it is more commonly called a guarantee, but in law, .0 distinguish it from an agreement to answer for the debt of an- other, it is known only as a warranty. Warranties may be either express or implied. AN EXPRESS WARRANTY is "ONE BY WHICH THE SELU R COVENANTS AND UNDERTAKES TO INSURE THAT THE CHATTF. L WHICH IS THE SUBJECT OF THE CONTRACT IS AS GUARANTEE! . AN IMPLIED WARRANTY is "ONE WHICH NOT BEING EX- PRESSLY MADE, THE LAW IMPLIES BY THE FACT OF THE SAL ;. Every affirmation made at the time of the sale is a war- ranty, provided it appear to have been so intended. And it would be determined from the circumstances of the case whether a warranty was intended. The affirmation must have been made ^at the time of the sale, for if made before that time it would be ineffectual, and if made after that time, it would require 26 a new consideration to support it. Where an article is expressly warranted as to one particular, "all implied warranties as to other particulars would be excluded. An ex- press warranty of the quality of the article sold would not be extended to defects which were plainly visible to the ordinary senses of the buyer at the time of the sale. SALES OF PERSONAL PROPERTY. 77 In regard to implied warranties the tendency is not to raise them in the case of executed contracts. Where an ar- ticle is to be delivered at some future day, however, there is an implied warranty that it will be merchantable. Where goods are sold by sample there is an implied warranty that they are equal in quality to the sample; and provisions for do. mestic use are warranted to be fit for consumption. Where the seller has the goods in his possession, there is an implied warranty ^that the title is in the seller. A warranty differs from a fraud ulent representation in that "there is a knowledge of the falsity, or its equivalent, in the latter case and not in the former. When the Property Passes. Where there is a com. plete and valid sale, the ownership of the property passes '"im- mediately on the completion of the sale, and the buyer has a right of possession, irrespective of the delivery. The seller if he retains possession, holds the property 31 as belong- ing to the buyer, and must deliver it to him on demand. If the sale is not complete, but is merely an agreement to sell at some future time, or is conditioned on any act or event, the ownership does not pass, and here again the transfer of possession does not alter the case. If the goods have been delivered into the possession of the buyer, he holds them 32 un- til the sale is completed, as the property of the seller. In any of the following cases the contract would amount only to an agreement to sell, and not to an actual sale: 33 (i) where the promisor has possession of the property and agrees to sell it at some future time; (2) where he has not possession but agrees to obtain the property and then sell it; (3) where he agrees to manufacture an article and sell it, or (4) where the agreement is to sell some unidentified or indefinite article. :) Where there is any condition precedent to be performed by either the buyer or the seller, the sale is not complete and the property does not pass until the condition is performed. The condition may be waived, however, and, where it relates 78 SALES OF PERSONAL PROPERTY. to the delivery, a delivery, without exacting the performance of the condition would be a waiver. Auction Sales. A SALE BY AUCTION Is M A PUBLIC SALE WHKRE GOODS ARE OFFERED TO BE SOLD TO THE HIGH- EST BIDDER. In an auction sale the auctioneer is the agent of both parties, the buyer and the seller, and in order to make a bind- ing sale 3D he must, at the time of the sale, make an entry in his books showing the thing sold, the name of the buyer, the terms of the sale, and the price. Where there are published conditions of sale 86 if they have been brought to the notice of the buyer they will form a part of the contract and will be binding upon the parties. An auction sale is complete "on the falling of the ham- mer. Before that the goods may be withdrawn from sale, or the bid may be withdrawn. After the fall of the hammer the sale is binding, and only M where the terms of the sale are contrary to the understanding of the buyer, and he refuses on the spot to be bound, can it be set aside. An auction sale may be set aside for fraud in the same manner as any other contract, and where a " puffer " is engaged to bid the goods up, S9 if his bidding mislead the buyer, the sale may be re- scinded QUESTIONS. DEFINITION AND NATURE. 1. What is a sale? 2. Who are the parties to a sale? 3. Who may sell and buy personal property? 4. Who may not convey a good title ? 5. What is the nature of the consideration in a sale ? 6. When the consideration is anything besides money, what is the agreement called? 7. If the subject of the sale has ceased to exist, what is the result r 8. When has an article a potential existence ? DELIVERY. 9. What is the first duty of the seller in the performance of a sale ? 10. What is meant by delivery ? 11. In the absence of agreement what is the seller bound to do'' 12. Where the thing sold is a part of a larger quantity, what should be done ? 13. Where should the goods be delivered ? 14. Where the seller agrees to deliver at a certain place, what must he do? 15. When must delivery be made ? 1 6. At what hour may delivery be made ? 17. When the sale is for cash, when must the delivery be made? 1 8. If the delivery is not of the quantity contracted for, what may the buyer do? 19. What if the buyer accepts the amount offered ? 20. To be valid against creditors what must delivery be followed by ? 21. What is the presumption where there is no such change of posses- sion ? WARRANTY. 22. What is a warranty ? 23. What is an express warranty? 24 What is an implied warranty ? 25. When must the affirmation have been made ? (79) W) QUESTIONS. 26. What would an affirmation, made after the sale, require to sup- port it ? 27. What is the result of an express warranty as to one particular? 28. Where goods are in possession of the seller, what implied war- ranty is raised ? 29. In what does a warranty differ from a intudulent representation ? WHEN THE PROPERTY PASSES. 30. When does the ownership pass in a complete sale ? 31. If the seller retains possession, how does he hold the property? 32. If there is only an agreement to sell, and the goods have been delivered, how does the buyer hold them ? 33. What are the four cases of an agreement to sell ? AUCTION SALES. 34. What is a sale by auction ? 35. What is necessary to make a sale by auction binding ? 36. When do the published conditions of sale become a part of the agreement ? 37. When is an auction sale complete ? 38. When may an auction sale be set aside after the fall of the ham- mer? 39. What is the effect of t " puffer*'? CHAPTER II. NEGOTIABLE INSTRUMENTS. Definition and Nature. A NEGOTIABLE INSTRUMENT Is WHICH TRANSFERS THE LEGAL RIGHT SECURED BY IT, BY ITS DELIVERY FROM ONE PERSON TO ANOTHER. There are six different classes of Negotiable Instruments. These are 2 Bills of Exchange, Promissory Notes, Bank Notes. Checks, Bonds, and Certificates of Deposit. A BILL OF EXCHANGE Is 3 A WRITTEN ORDER FOR THE PAY- MENT OF A CERTAIN SUM OF MONEY UNCONDITIONALLY. A PROMISSORY NOTE Is 4 A WRITTEN PROMISE TO PAY A CERTAIN SUM OF MONEY UNCONDITIONALLY. BANK NOTES ARE PROMISSORY NOTES ISSUED BY A NATIONAL BANK, AND CIRCULATE AS MONEY. CHECKS ARE ORDERS ON BANKS, OR BANKERS, AND ARE ALWAYS PAYABLE ON DEMAND. BONDS ARE PROMISSORY NOTES TO PAY MONEY, USUALLY OF LARGE DENOMINATIONS, AND HAVE ATTACHED TO THEM SEPAR- ATE PROMISES CALLED COUPONS, TO PAY THE INTEREST ON THE BONDS. CERTIFICATES OF DEPOSIT ARE WHAT THE NAME IMPLIES. THEY ARE ISSUED BY BANKS TO PERSONS WHO DEPOSIT MONEY, AND THEY ARE NOT SUBJECT TO CHECK. The parties to a Bill of Exchange are 5 the drawer, or per- son drawing the order; the drawee, or person on whom the order is drawn, and the payee, or person to whom the sum of money called for by the bill is to be paid. The parties to a Promissory Note are 6 the maker, or person promising, and the payee, or person to whom it is to be paid. The holder of a bill or note 7 is the person owning it. 8 A11 persons may be parties to bills or notes except those specially disabled, as minors, those mentally incapacitated, etc. NEGOTIABILITY. The distinguishing feature of this class of contracts is their negotiability, i. e., 9 the power which they con- fer upon the holder to enforce them against any person, whether maker, drawee, or indorser, without any consideration passing between the parties directly. There are eight essentials to every (") 6 82 NEGOTIABLE INSTRUMENTS. negotiable instrument: (1) In writing; (2) an unconditional promise, or request, except that it may provide for the payment of attorney's fees and costs of suit; (3) negotiable in form; (4) payable in money only; (5) for a definite sum; (6) to a desig- nated payee, who is ascertainable ; (7) a definite, or certain time for payment; (8) a proper signature. Transfer. Negotiable paper is made payable either to bearer or to order; when payable to bearer it may be transferred "by delivery alone. When the instrument is payable to order, 12 in addition to delivery it must be indorsed by the payee. An in- dorsement is 13 a writing on the back of a negotiable instrument sighed b'y the payee for the purpose of transferring it. Indorse- ments are in blank or in full. An indorsement in full is 1 *orie which mentions the name of the party in whose favor it is made. Its effect, when fol- lowed by delivery, is 15 to render the person named a new payee, andjthe indqrser liable in the same manner as the drawer of a bill --of exchange. An indorsement in blank is made by the payee signing his name on the back of the instrument, which renders it payable to bearer. There may be several successive indorsements, but after an instrument has once been indorsed in 'blank, it cannot be restricted by a subsequent indorsement in full. But the payment of an instrument indorsed in blank cpn tie , restricted 16 by writing a special indorsement over the - 4 hrst indorsement in blank. An instrument . may' be so indorsed as to restrain its ne- ^gptiabiHty, as,; "pay to John Doe only;" when its negotiability : would be at- an end. Such .an indorsement is called a re- > strictive .indorsement. An indorsement "without recourse" ^transfers rf tlje instrument without the person transferring as- suming the liability of an indorser. \o ;-.t An ..instrument -may be indorsed 18 at any time before it -Becomes ,4ue; or 3 ater ,it is due, but a person taking a negotia- ble fiustFument after, it has become due takes it subject to any claims ? whicji /there may be on it._ An indorsement may even ^fore.lhe instrument was .(irawn. NEGOTIABLE INSTRUMENTS. 83 An indorser undertakes "to the indorsee and to every sub- sequent holder that the instrument will be discharged by the drawee or maker when it becomes due; and if it is not so dis- charged he becomes liable to pay it, if the proper steps are taken to charge him. Where a negotiable instrument is trans- ferred by delivery only there is no such undertaking. Acceptance. AN ACCEPTANCE Is '""AN UNDERTAKING IN WRITING BY A DRAWEE THAT HE WILL PAY THE BILL OF EXCHANGE AT MATURITY. The making of a promissory note is equivalent to the ac- ceptance of a bill of exchange, both being promises to pay, and an accepted bill is governed by much the same rules as a promissory note. On the other hand the provisions in regard to acceptance do not apply to promissory notes. .<<[ On receipt of a bill of exchange, or a draft as it is often called, the payee should present it to the drawee for accept T ance. Presentment for acceptance is necessary "only in the Case of bills payable a certain time after sight, but it is always advisable. A bill payable at a specified time after sight mus{ be presented ^within ten days after the time which would suf? fice with ordinary diligence to forward it to the drawee for ac T ceptance. i j,!; , Where a bill is payable at a fixed time after date, it may be presented for acceptance at any time before it is due. When a bill is presented for acceptance the drawee may be allowed "twenty-four hours in which to decide whether he will accep$ or not. If more time is given, 24 all prior parties must be nqtit fied or they will be discharged. .- ";.. T u,fa .,. v . >t f } Acceptance may be in any form, no particular words be- ing necessary, so .that the intention clearly appears. ,It nee$ hot even be upon the bill itself, provided the bill is descr^b^ci with sufficient certainty for identification. But it; must: be,, in writing, ^and an oral acceptance would be; ineffectual,; , 7 $. written promise to accept, 36 even whe n made befpre, the , b jlj was drawn, would be binding as an acceptance in ; favor p(f ; any 84 NEGOTIABLE INSTRUMENTS. person who, upon the faith of such promise, has taken the bill for value. 27 An acceptance may be conditional, as where thepaymenl is restricted to a certain place, or time, or upon the happening of a certain event, and when the payee takes such conditional acceptance he is bound by it. But a8 the payee is not bound tc take anything but an absolute acceptance, and may refuse tc do so. An acceptance admits the signature of the drawer tc be genuine, and therefore the drawee after accepting cannot set up the defense that the name of the maker has been forged. When an acceptance is once complete and issued it cannot be withdrawn, but before it is issued it may be revoked at any time. ACCEPTANCE FOR HONOR. Where acceptance has been refused by the drawee, another person may, with the consent of the holder, accept the bill for honor; but the holder may refuse to receive such an acceptance. An acceptance for honor is ^an agreement by some person other than the drawee, that if the note is not paid by the drawee at maturity, he will pay it. "It is made for the purpose of preserving the credit of some party to the bill, and the acceptor for honor must write on the bill for whose honor he accepts it, and notify such party of his ac- ceptance. Generally there cannot be two acceptances of a bill, but after it has been accepted for the honor of one party it may be accepted for the honor of another. As an accept- ance for honor is merely an undertaking to pay if the drawee do not, the bill must be presented to the drawee at maturity, and the acceptor must be notified of the dishonor if the drawee then refuses to pay. Presentment for Payment. The undertaking of the maker of a promissory note or the acceptor of a bill of ex- change is absolute, and it is not necessary that the instrument should be presented at maturity in order to bind them. Even where the instrument is payable on demand, the com- mencement of a suit is considered a sufficient demand. Where the instrument is payable at a certain place, and the NEGOTIABLE INSTRUMENTS. 8ft maker or acceptor is at that place ready to pay, this would only amount to an offer of payment to stop the running of inter- est. But the undertaking of "indorsers, the drawer of a bill of ex- change, and acceptors for honor being to pay in case of a default of another, presentment for payment is necessary in order to fix their liability. Presentment must be by the holder, S2 to the maker, acceptor, or where the instrument is payable at a certain place, to the person in charge at that place. Where no place of payment is expressed it may be M to the maker or acceptor wherever he may be found, or at his residence or place of business, at the option of the holder. 54 Where the instrument is payable on a certain day, present- ment must be made on that day during business hours. No days of grace are allowed in this State. There are certain circumstances which will excuse pre- sentment for payment. ^Where the drawee of a bill of ex- change has not the capacity to accept, or where he has been actually forbidden by the drawer to accept or to pay, present- ment would be an idle act, and therefore unnecessary. But these circumstances must exist, and the payee merely thinking the facts to be so would not excuse presentment, unless they actually were so. 36 When the drawee is out of the State, and his residence or place of business cannot, with reasonable diligence, be found, or when the drawer at the time of draw- ing the bill had no reason to believe that the drawee would pay, presentment would be unnecessary. Presentment is also excused as to any person who, within ten days before maturity, informs the holder that it will be dishonored. But I7 the insolvency of the drawee is no excuse for not presenting the bill; and, in all cases, presentment is advisable. Notice. In case of the refusal to pay or to accept a negotiable instrument, or its dishonor as it is called, notice must be given M to all parties who are to be held bound on it. Notice does not mean merely knowledge of the fact of dis- NEGOTIABLE INSTRUMENTS. honor, and a failure to give notice is not excused by the fact that the party knew of the dishonor. The object of notice is two-fold: to notify the party to be bound of the dishonor of the instrument, and to notify him that he will be held for the payment. Notice may be given 3 'by the holder or by any per- son who may be compelled to pay the instrument, and a valid notice given by any party enures to the benefit of all parties whose right to give such notice has not been lost. No particular form of notice is necessary, and it may be written or oral, provided the instrument is described with rea- sonable certainty, and the fact of dishonor is set forth. Any error in describing the instrument, which does not mislead the party notified, is immaterial. Notice may be given **by delivering it to the person to be charged personally; to any person of discretion, at the resi- dence or place of business of the party to be noti fied and ap- parently acting for him; or by sending it by mail to his last known address. Where the party to be notified, is dead, notice must be sent to his personal representatives. But a notice sent in good faith after the death of the party is valid. Notice must be sent "before the close of the day succeed- ing the dishonor, but where notice is sent by mail it must be placed in the post-office before noon of that day. The holder must notify all prior' parties whom he intends to hold, within this time, but each person notified has until the day after his notification to notify prior unnotified parties. Where the holder is the agent for a principal for collecting the instru- ment, as in the case of a bank, he has the same time to notify the principal as in the case of notifying an indorser. Notice is excused "when the party to be notified, or his residence or place of business cannot, with reasonable diligence, Jbe found, or \vherc there can be no post-orrice communication with him. When anjndorser has received full security for the r^a^n|ent of the instrument before maturity, notice is excused, If any party, within ten days before maturity, notifies the holder NEGOTIABLE INSTRUMENTS. 87 that the instrument will be dishonored, notice will be excused as to him. Notice and presentment may be expressly waived, and, where presentment is waived the notice is also waived; though the opposite does not hold true, and the instrument must be presented though notice has been waived. Delay in presentment or in notice, when caused by unavoidable circum- stances, is excused. Protest. A bill of exchange is either inland or foreign. An inland bill is **one drawn and payable within this State; all others are foreign. Notice of dishonor of foreign bills can be given only by notice of its protest. A protest is **a writing by a notary public, setting forth that he has presented the bill to the party bound and de- manded payment, and that payment has been refused. Where a cause for the refusal to pay is given, it must be stated. The protest must be in writing, and must be made in the same city or town where the demand was mad ;. ^Where a notary public cannot, with reasonable diligence, be found, protest may be by any reputable person in the presence of two witnesses. A protest must at least be noted on the day of presentment or on the next business day. Noting consists in making a mem- orandum of the initials of the notary public, or other person protesting, the day, month, and year when the demand was made, and the reason, if any assigned, of non-payment- Where protest is waived, notice may be given in the same manner as in the case of an inland bill. Payment. "Payment extinguishes the obligation on the note as to all parties, subsequent to the person paying; but the note remains in full force and effect as to all prior parties. The holder is entitled to the amount called for by the face of the in- strument, with interest Where interest is 4eclare.d to run from a certain date, it would run from that time; where interest is re- served but no date expressed, it would run from the date of the note. If no interest is expressly reserved it would run at the legal fate (now 7%) from the maturity *>f -the; instrument* 88 NEGOTIABLE INSTRUMENTS. 4T A negotiable instrument always imports a consideration, even though none is stated. Even the words "for value received" are unnecessary. Where one in the due course of trade, in good faith, for value, and before maturity, takes a negotiable instrument, he acquires an absolute title thereto free from all equities. But between immediate parties and between the maker and one who takes after maturity, or with notice, all equitable de- fenses are available, as insufficiency of the consideration. Where the note has gone into the hands of a bona fide purchaser in the dtfe course of trade, this presumption cannot be rebutted. But be- tween immediate parties the holder cannot recover more than the actual consideration paid. A person taking a negotiable instrument after maturity is charged with notice of any facts connected with it, because the date of payment having passed is enough to put him upon in- quiry. Where a note or bill is payable on demand, with interest, it is presumed to mature 48 one year from date, and a person taking it after that time does so at his own risk. If no interest is reserved, a demand note is presumed to mature within six months from date; a sight draft, ten days after date, in addition to the time necessary, with ordinary diligence to forward it for acceptance. PAYMENT FOR HONOR. A bill which has been dishonored may be paid by a stranger for the honor of any one of the parties thereto. In the case of a foreign bill "payment for honor must not be inade until after protest. A person paying a bill for the honor of another must write on the bill for whose honor the payment is made ; and he must declare the same in the presence of a per- son authorized to make protest in the case of a foreign bill. The person paying must also give notice to the person for whose honor the payment is made, and he is then entitled to reimburse- ment. ^ Accommodation Paper. Accommodation notes or bills are made, where there is no consideration passing between the parties, M for the purpose of enabling one of the parties to borrow money. It is a loan of the credit of the party making the accommodation. As there is no considera- tion passing from the party accommodated the paper is with- out value in his hands; but any person taking it for a valuable NEGOTIABLE INSTRUMENTS. 89 consideration, whether with knowledge of its character or not^ acquires the same rights as in other negotiable paper. Although on negotiable paper no party has a right of ac- tion against any subsequent party, in accommodation paper, the party accommodating may sue the accommodated party for the money advanced, though not on the note. "Where accommodation paper is made or indorsed for a particular purpose in which the accommodating party has a legal in- terest, and the accommodated party uses the instrument for another purpose, the holder must show that he took it without any knowledge of the purpose for which the instrument was made or indorsed. Lost, Stolen, and Forged Paper. Where a bill or note is lost the finder acquires no title against the rightful owner or the original parties. If the instrument was indorsed in blank so that it might pass by delivery alone 83 a purchaser in good faith and without notice would acquire a valid title even against the rightful owner. But any notice, actual or im- plied, of the fact that the instrument had been lost would invalidate his title. If the bill or note was not indorsed in blank, it could pass only by indorsement, which would neces- sitate a forgery, and a good title cannot be traced through a forgery. Application for payment and notice of dishonor must be made in the case of lost paper, in the same manner as if it had not been lost. The owner of a lost bill or note may obtain payment M by giving a bond, executed by himself and two sufficient sureties > to indemnify the party paying against any lawful claim thereon. The same rules govern in the case of destroyed or stolen paper as in that of lost paper. Where the name of any party has been forged whether as maker, acceptor, drawer, or indorser M he is not bound, even as to persons taking the paper for a valuable consideration. No holder can sustain a claim which depends upon a forged in- dorsement, or signature. But the signature of any party 90 NEGOTIABLE INSTRUMENTS. admits all prior signatures to be correct, and a person after accepting or indorsing an instrument, cannot set up a defense that the signature of some prior party was forged. While the signature of a party admits all prior signatures to be correct, such a signer is not bound on an instrument which has been raised, or otherwise materially altered after indorsement. Checks. A check is a variety of bills of exchange which differs from others 55 in being always drawn on a bank or banker, and in being always payable on demand. A check does not give a right of action against the bank to enforce its collection. Certifying a check by a bank, or by its agent having authority, is equivalent to 56 the acceptance of a bill of exchange, and a certified check must be paid by the bank whether the drawer has funds there or not. A check must be presented within a reasonable time after its receipt; and one day after delivery, together with the time necessary for transportation to the bank, where the holder lives in another place, would gen- erally be held to be a reasonable time. If the check is not presented within a reasonable time 57 the holder would be liable for any resulting damages to the drawer. The drawer is entitled to a demand and notice in case of non-payment by the bank, in order to fix his responsibility. Demand and notice are excused 58 where the drawer has reason to believe the bank would not pay the check. When checks on another bank are deposited with a bank, they are received 59 for collection, and if not paid, any credit, which may have been made on their account, may be crossed out. fdjKfI&Y ...-:.. ' . ' i . . \ . QUESTIONS. DEFINITION AND NATURE. 1. What is a negotiable instrument? 2. What are the classes? 3. What is a bill of exchange? 4. What is a promissory note? 5. Who are the parties to a bill of exchange? 6. Who are the parties to a promissory note? 7. Who is the holder? 8. Who may be parties to bills or notes? 9. What is negotiability? 10. What are the three requisites of negotiability? TRANSFER. 11. How may paper payable to bearer be transferred? 12. What is necessary where it is payable to order? 13. What is an indorsement? 14. What is an indorsement in full? 15. What is its effect? 16. How may the payment of an instrument indorsed in blank be restricted? 17. What is the effect of an indorsement "without recourse"? 18. When may an indorsement be made? 19. What is the undertaking of the indorser? ACCEPTANCE. 20. What is an acceptance? ., .-; 21. When is presentment for acceptance necessary? 22. When must a bill payable at a specified time. after sight be prc^nted ? . . 23. How loi _ may the drawee be allowed to decide whether he will accept? 24. What must be done where more 'time is given? 25. What is'the effect of an oral acceptance f v/ "' iv/ () ' ' ' QUESTIONS. 26. As to whom would a written promise to accept be binding, and when? 27. May an acceptance be conditional ? 28. Is the payee bound to take such an acceptance ? 29. What is an acceptance for honor ? 30. What is its object ? PRESENTMENT FOR PAYMENT, 31. As to whom is presentment necessary ? 32. To whom must presentment be ? 33. Where no place of payment is expressed, to whom most present- ment be ? 34. When must presentment be ? 35. When is presentment unnecessary ? 36.- In what other car**? 37. What is the effect ot the insolvency of the drawee? NOTICE. 38. To whom must notice of dishonor be given ? 39. By whom may notice be given ? 40. How may notice be given ? 41. When must notice be given ? 42. When is notice excused ? PROTEST. 43. What is an inland bill? 44. What is a protest ? 45. When may a protest be by a person other than a notary public ? PAYMENT. 46. What is the effect of payment ? 47. On what ground may payment be refused ? 48. When is a demand, note or bill presumed to mature ? 49. When may payment for honor of a foreign bill be made ? ACCOMMODATION PAPER. 50. What is the object of accommodation paper ? 51. Where made for a particular purpose, what is the effect of a diversion ? LOST, STOLEN AND FORGED. 52. Who would acquire a good title to indorsed lost paper ? 53. How may the owner of a lost bill or note obtain payment^ 54. What is the liability of a person whose name has been forged? QUESTIONS. CHECKS. 55. How does a check differ from other bills of exchange ? 56. What is certifying a check equivalent to ? 57. What is the effect of not presenting a check within a reasonable time? 58. When are demand and notice excused as to a check ? 59. How are checks on another bank receired by a bank ? CHAPTER III. BAILMENTS. Definition and Nature. A BAILMENT Is *A CONTRACT BY WHICH A SPECIFIC CHATTEL Is DELIVERED BY ONE PERSON TO ANOTHER TO BE HELD ACCORDING TO THF- SPECIAL PUR- POSE OF THE DELIVERY, AND THEN TO BE RETURNED. 'The person delivering the article is called the bailor; the person to whom it is delivered is called the bailee. In order that a contract shall be that of bailment three essentials must be present in the agreement: 3 it must be for the delivery of a certain, specific chattel by the bailor to the bailee; the bailee must agree to return the identical chattel to the bailor; and the absolute ownership of the chattel must remain in the bailor. Where another article, though of the same kind as the thing bailed, is to be returned, the agreement is one of ex- change, and not of bailment; but where the three requisites stated above are present, the contract is a bailment. Closely connected with the subject of bailments, and gov- erned by much the same rules, is the subject of common carriers of passengers, and it will be included under this topic. CLASSES. Bailments are of two classes: Gratuitous and Compensated. Gratuitous bailments are again divided into two classes: those for the benefit of the bailor solely; and those for the sole benefit of the bailee. Compensated bailments are for the benefit of both parties. Gratuitous Bailments. i. FOR THE BENEFIT OF THE BAILOR. Gratuitous bailments for the benefit of the bailor arise in a number of cases. *The bailor may deposit some chattel with the bailee to be held by him without compensa BAILMENTS. 95 i'on, until a redelivery is demanded; or he may deliver the article to have some work performed upon it by the bailee without compensation. In these cases the contract is a vol- untary or express one, but it may also be involuntary or im- plied. As where the property of one person comes into possession of another, without negligence on the part of the owner; or where property is obtained at a fire or shipwreck. In these cases a contract of bailment is raised, and the per- son holding the article keeps it as a bailee. RIGHTS OF BAILEE. A bailee acquires 6 a qualified owner- ship of the chattel bailed, which entitles him to possession against all parties but the legal owner. He may retain the article against the real owner until demand is made for its .return. Where there is no agreement that the article is to be used, the bailee may not use it or permit it to be used, without the consent of the bailor. Where for the care or protection of the article the bailee is obliged to go to any expense, he is entitled to reimbursement therefor. ' But if the expenses were naturally connected with the undertaking of the bailee, he would not be entitled to re- imbursement. As where the bailee agrees to keep the horse of bailor, he would not be entitled to payment for the feed given to the horse. If there were an agreement for reimburse- ment , the bailment would be a compensate^ and not a gra- , tuitous one. Where 7 any injury results to the bailee from vices or defects in the article bailed, and the defect is known to the bailor, the bailee may recover damages for such injury. If the ..chattel bailed is liable to be ; destroyed,: 8 and there is no time to communicate with the bailor, tbe bailee may sell it, and i hold the proceeds on deposit for trje bailor. a: '. - PXTTTiES iQF .BAILEE. r The first duty of , the bailee is 'to /keep the chattel safely* and $p return, %pn jcjjemand. Should any loss: of. damage result; from ;hi$fi>g^gejt!ijce, he would bie liable for the, am^ur^but^liis ^njeglig^nge^wheiiei the bailment is for the sole benefit of the bailor, must of course be moi* BAILMENTS. extreme than where it is compensated or for the benefit of the bailee. When the bailee uses the chattel wrongfully, he is liable for any resulting damage. But if the injury would have been inflicted whether the article had been so used or not, the bailee would not be so liable. If there is any loss or damage to the chattel, and the bailee neglects or refuses to inform the bailor of such loss or damage and of the circumstances connected therewith, "it is presumed to have resulted from his negligence, and the bailee becomes liable therefor. In any case, however, "where the bailor has stated some amount to the bailee as the value of the thing bailed, the liability for damages cannot exceed this sum. Where the agreement is that the bailee shall do some work on the chattel bailed, without compensation, he may re- fuse to carry out the agreement 12 at any time before he has commenced to perform it, for there is no consideration to sup- port it. But after he has commenced to perform his agree- ment, by receiving the article, or commencing on the work, he is bound to finish it in a proper manner. RIGHTS AND DUTIES OF BAILOR. A duty resting upon one person raises a right in another, and therefore ls the rights and duties of bailors correspond with the duties and rights of bailees. 2. FOR THE BENEFIT OF THE BAILEE. The only case of a gratuitous bailment for the benefit of the bailee is in the case of a loan of money or goods. Where the article is loaned to be used in any particular manner, it must be so used, and 14 the bailee is liable for any loss or injury to the chattel, even though such loss or injury was not the immediate result of such wrongful use. Where the bailment is for the benefit of the bailee, he is bound to use extreme care and diligence in the protection of the article, and the least negligence on his part would render him liable. In other respects the rights and duties of bailors and bailees in this class are the same as in the former class. BAILMENTS. 97 Compensated Bailments. Compensated bailments are I8 those which are for the mutual benefit of both parties. They are of two classes "pledge and hiring. PLEDGE. A pledge is "a bailment in which the chattel is transferred as security for some debt, and it is to be rede- livered on the payment of that debt. 18 The person delivering the article is usually called the pledger; the person receiving it, the pledgee. There is sometimes an agreement that the article pledged shall remain in the keeping of some third person; such person is called a pledge-holder. A pledge differs from a mortgage of personal property, which is also a pledging of property for securing a debt, "in requiring a transfer of possession. It is necessary in order that the pledgee may enforce his rights against the property, ""that it should be placed, and should remain under his control. Absolute delivery is not necessary, provided the pledgee obtains control; and he may give up possession, even to the pledger himself, for some special and temporary purpose. RIGHTS OF PLEDGEE. The ownership of the pledgee. while being only a qualified one, is greater than that of bailees in gratuitous bailments. In addition to his right of possession against all other parties, 31 he has a right of possession against the owner, even after demand, until the debt has been paid. If the debt is not paid, the pledgee may foreclose by taking the proper steps. Foreclosure of a pledge may be "either by bringing suit against the pledger, or by sale, of the property without judicial proceedings. M When it is impossible to make demand of the amount due from the pledger, the foreclosure must be by suit. When the foreclosure is by sale, there are certain steps which must be strictly observed. **The pledgee must make demand of the pledger of the amount due, after it has becom e due. A demand made before the amount is due would be in- effectual If payment is refused, notice of the time and place 98 BAILMENTS. of sale must be given, and the article must then be sold at public auction to the highest bidder. The pledgee generally has a right only to hold the chattel, and may not use it any more than is necessary for preserving its integrity. Thus a horse may be reasonably exercised, or a cow milked; but the pledgee must account for any profit which he may derive from this use. Where the pledgee incurs any necessary expense in connection with the article bailed, he is entitled to reinbursement. DUTIES OF PLEDGEE. The pledgee must keep the article safely, and return it on payment of the debt. He must ex- ercise ordinary care in the preservation of the article; and for negligence in this particular, or for a wrongful use of the chat- tel, he is liable to pay damages. The pledgee must not re- pledge any article which has been pledged with him. RIGHTS AND DUTIES OF PLEDGOR. The rights and du- ties corresponding to the duties and rights of the pledgee, rest upon the pledger. HIRING. There are several different classes of bailments of hiring, as the hiring of an article to be used by the bailee, and then to be returned by him; the hiring of labor or services to be performed by the bailee upon the article bailed, which is delivered to him for that purpose; or the hiring of custody or transportation of the article bailed. The question in all cases is whether an article has been delivered by one person to an- other for any purpose to be returned to that person upon the completion of that purpose. The rights and duties of the bailor and bailee in the bail- ment of hiring are 25 similar to the rights and duties in the case of pledge, and it is not necessary to repeat them here. Where work is to be performed upon the bailed article, and it is done in a negligent or unskillful manner, the bailor may refuse to accept it, and may recover for damages. If he accept, however he is liable to pay for the services performed, but he has a counter claim for the damages resulting from the lack of skill or care. BAILMENTS. 99 Hotel Keepers. There are two classes of bailees upon whom, as a mauer of public policy, special duties and liabilities have been imposed. These are hotel keepers and common carriers. A HOTEL KEEPER IS M ONE WHO KEEPS A PUBLIC HOUSE IN WHICH TRAVELERS ARE FURNISHED WITH EVERYTHING WHICH THEY HAVE OCCASION FOR WHILST UPON THE WAY. Hoard and lodging must both be offered to the transient passenger. A mere restaurant would not be classed as a hotel, and a restaurant keeper would not be charged with the liability of a hotel keeper. Nor would the keeper of a boarding-house, which is not open to the general public, be subject to the lia- oilities of a hotel keeper. The hotel keeper 27 is made liable as an insurer of the safety of the baggage of any guest, from everything; but an act of Ciod, or of the public enemy, or the fraud or negligence of the owner of the property. He must pay for any loss, whether it resulted from his negligence or not. And this liability ex- tends ^to all property of the guests which he may receive. But he is not bound to receive everything which the guest may ask him to. He is bound to receive 29 all baggage which is reasonably necessary for the personal use or convenience of the traveler, but anything beyond this he may refuse. The hotel keeper may limit his liability in certain ways. As "where he keeps a fire-proof safe he may notify all guests that he will not be responsible for money, jewelry, documents, or other articles of unusual value and small compass, unless placed in such safe. When such notice is given, he is liable 4l only for loss resulting from his own negligence or that of his servants. As a hotel keeper offers his services to any person who may ask them, he cannot refuse to receive any guest, unless he is disorderly. And guests would include M all persons who apply to the hotel keeper for such services. Common Carriers. A COMMON CARRIER Is 100 BAILMENTS. WHO UNDERTAKES, FOR HIRE, TO TRANSPORT THE GOODS, OF THOSE WHO CHOOSE TO EMPLOY HIM, FROM PLACE TO PLACE. Railroads, oil pipe lines, river and bay steamers, express companies, and draymen in cities are common carriers. Common carriers are either of goods or of passengers. CARRIERS OF GOODS. A common carrier of goods must receive all goods offered to him for transportation on his route, provided they are not dangerous, and must transport them with reasonable diligence; but he may refuse the goods unless the freight is paid in advance. He may not discriminate by giving advantage to one person over another, as to time, price of trans- portation, or otherwise. 34 Common carriers are liable in the same manner as hotel keepers for goods placed in their charge for transportation. He must take extreme care of such goods; but 35 for any loss resulting from such defect inherent in the article itself, or for any loss which care and foresight could not possibly have guarded against, he is not liable. Where goods are to be sent beyond the line of the com- mon carrier 36 he is liable for any loss occurring to the goods while in his possession. But if he can show that the goods passed out of his control into that of some responsible carrier, he is not liable. The liability of a common carrier as imposed by law cannot be limited by general notice on his part, but may be 37 by special contract. Where the bill of lading or contract of carriage, ex- presses 38 any conditions as to the rate of freight, the time, place, and manner of delivery, and the amount of the carriers liability in case of loss or injury, the acceptance of such bill of lading by the owner is an agreement to such conditions. Any other conditions 39 must be signed by the owner of the goods to be binding. And under no circumstances, whether by agreement or otherwise, can the carrier be relieved from 40 liability for the negligence, fraud, or willful wrong of himself or of his serv- ants. BAILMENTS. 101 CARRIERS OF PASSENGERS. Carriers of passengers ate liable "only to the extent of an ordinary compensated Mifee lof in- juries to passengers. They must use the utmost care in the transportation of such passengers; but only when the injury results from the carrier's negligence is he liable. Where the negligence of the passenger is a contributing or proximate cause of the injury, the carrier is responsible only in case of willful negligence on his part. A carrier of passengers is bound to carry "all who apply for transportation, and must provide suitable carriages for them. "He may insist upon the payment of fare at starting or at any subsequent time, and may enforce reasonable regulations. "Any person being carried, unless stealing a ride, is a passenger, whether he has paid his fare or not, and is entitled to all rights and privileges as such. But "any passenger refusing to pay his fare, or to comply with reasonable regulations of the carrier, may be ejected at any regular stopping place, or near any dwel- ling house. A ticket "purchased at full rates is good for passage be- tween the points indicated therein or to or from any intermediate station at any time within six months from the date of the pur- chase; but a ticket sold at less than full fare may be limited to a shorter time and without stop-over privileges. THE "BAGGAGE of passengers is insured in the same manner as the baggage of the guest of a hotel. But "where the passen- ger keeps his baggage in his own possession, the liability of the carrier is that of an ordinary bailee. The carrier, where the vehicle is not fitted up for the carriage of passengers exclusively, must carry, without compensation, 49 one hundred pounds of bag- gage for each passenger. But a stage line is obliged to carry only sixty pounds free. QUESTIONS. DEFINITION AND NATURE. 1. What is a bailment ? 2. Who are the parties to a bailment? 3. What are th to m 7 wife, Mary Smith, upon condilion that she accept the same in lieu of any other claim to or interest in any of the property of which I may die seized, or to which I shall be, at the time of my death, entitled, and in lieu of all claim upon her part as survivor of our community. All the rest and residue of my estate, real and personal, I give and bequeath, in equal shares, to my children, John, Mary, and Alice. I make no bequest to my son James, or to my grandchildren, Thomas and Mary Carroll, the issue of my deceased daughter, Kate, for the reason that I have already made sufficient provision for them by my gifts to them dur- ing the past year. I hereby revoke and annul all wills heretofore made by me. I name and appoint my wife, Mary Smith, and my friend, E. L. Traill, of Oakland, Alameda County, Cal., to be executors of this will, and desire that no bonds of any sort be required of them, or of either of them, in their capacities as such executor and executrix. And I authorize and empower my said executor and executrix to sell any or all of the real estate of which I shall die seized (excepting the Sutler Street lot herein- above described) upon such terms, and at such times as they shall think fit, and without obtaining therefor the order of any court. IN WITNESS WHEREOF, I have hereunto set my hand this first day of October, 1886. JOHN SMITH. The above ins/rument, consisting of two pages besides this one, was, lf)U MISCELLANEOUS INSTRUMENTS. on the said first day of October, 1886, in our presence, subscribed by the said testator, John Smith, who thereupon declared to us that the said instrument is his will, and we thereupon, at his request and in his presence and in the presence of each other, subscribed our names hereto as wit- nesses. JOHN JONES, Residing at San Francisco, CaL THOMAS JONES, Residing at San Francisco, CaL Holographic Will. [SEE PAGB 120.] SAN FRANCISCO, Cal., Jan. 4, 1887. I, John Smith, hereby make my last will. I give all the property of which I die- possessed to my wife, Mary Jane Smith. I appoint my wife executrix of this will, without bonds, and give her power to sell any or all of my estate, without an order of Court. I hereby revoke all the wills heretofore by me made. I declare that this will is entirely written, dated, and signed by my hand. JOHN SMITH. Nuncupative Will. [SEE PAGE i2i.] In the matter of the Nuncupative Will of John Smith, deceased. On the third day of January, 1887, John Smith, being at that tims in expectation of immediate death from an injury received on the said day, in the presence of the subscribers, did declare his last will and wishes concerning the disposition of his property, in the following words, viz. : "I desire that one thousand dollars, now in the Hibernia Savings Bank at San Francisco, California, be given to my sister, Clara Smith, which I will and devise to her." At the time the said John Smith stated the foregoing as his will, h was of sound mind and memory, and not under any restraint; and he at that time desired us to bear witness that such was his wish, desire, and will. Reduced to writing by us, this tenth day of January, 1887. JOHN JONES, WILLIAM GREEN. INDEX. ACCEPTANCE OF DRAFT 83 ACCEPTANCE OF OFFKK 14 ACCEPTANCE (Statute of Frauds} 18 ACCEPTANCE FOR HONOR 84 ACCEPTOR 83 ACCOMMODATION PAPER 88 ACKNOWLEDGMENT OF DEED 105 AGENCY, defined 52 how created 52 how ended 56 AGENT, defined 52 duties of 54 notice to 53 payment to 53 powers .of 53 representations of 53 rights of 55 who may be 53 AGREEMENT 13 AGREEMENT TO SELL 77 ARTICLES OF CO-PARTNERSHIP 59 ARTICLES OF INCORPORATION 69 ASSIGNMENT OF LEASES 109 ASSIGNMENT OF MORTGAGES 107 ATTORNEYS, lien of 115 AUCTION SALES 78 BAGGAGE , 99, 101 BAILEE, defined 94 duties of. - 95 lien of 114 rights of 95 BAILMENTS, classes of 94 defined 04 <***> 158 INDEX. PAGE. BAI ^OR, defined 94 rights and duties .... 96 BARTER 74 BENEFICIARY, defined 42 rights of 47 BEQUEST 122 BILLS OF EXCHANGE 81 CARRIERS OF GOODS 100 CARRIERS OF PASSENGERS 101 CERTIFYING CHECKS 90 CHATTEL MQRTGAGE 115 C HECKS 90 CODE 8 CODICH 121 COMMISSION MERCHANT, lien of 114 COMMON CARRIERS, defined 99 liability of .. loo COMMON LAW 7, 8 COMMON LAW LIENS 113 COMMON, ownership in , . 10 COMMUNITY PROPERTY 10 COMPANY (See Corporation). COMPENSATED BAILMENTS 94, 97 CONDITIONAL CONTRACTS 19, 20 CONDITIONAL SALES 77 CONSIDERATION 14 CONSTITUTION 8 CONSTRUCTION 23 CONSTRUCTIVE FRAUD 17 CONTRACTS AGAINST PUBLIC POLICY... 16 classes of 19 defined 13 elements of 13 CO-PARTNERSHIP 59 CORPORATIONS, defined , 68 bequest to 122 how created 69 officers of 70 powers of 69 COVENANTS, in deeds 105 in leases 108 INDEX. 159 CREDITORS, fraud against 17 CUSTOM, effect of : 24 DAYS OF GRACE : 85 DEEDS, delivery of 105 requsites of. ... \ 104 DELIVERY OF GOODS 75 statute of frauds 18 DEVISES 122 DIRECTORS OF CORPORATIONS 70 DUTIES OF AGENTS... 54 of bailees 95 of partners 61 of pledgee 98 of pledger 98 of trustees 45, 48 ENFORCEMENT OF LIENS 116 EQUITABLE LIENS 113, 1 14 ESCROW 106 EXECUTED CONTRACTS 19 EXECUTORY CONTRACTS 19 EXPRESS AGENCY 52 EXPRESS CONTRACTS 19 EXPRESS TRUSTS 42 EXPRESS WARRANTY 76 FIRM 59 FIXTURES no FORECLOSURE, chattel mortgage 115 mortgage 106 pledge 97 FORGED PAPER 89 FORMS OF LAW 7 FRAUD 16 GENERAL PARTNERS 59 GIFT 14 GOOD CONSIDERATION 15 GRANTOR'S LIEN 115 GRATUITOUS BAILMENTS 94 HIRING 98 HOLOGRAPHIC WILL 120 HOTEL KEEPERS, liability of 99 lien of 113 160 INDEX. PACK. IDIOT 32, 38 IGNORANCE OF LAW 7, 30 ILLEGAL CONTRACTS 16 IMMORAL CONTRACTS 16 IMPLIED AGENCY 52 IMPLIED CONTRACTS 19 IMPLIED TRUSTS 43 IMPLIED WARRANTY 76 IMPOLI nc CONTRACTS 16 IMPOSSIBLE CONSIDERATION 15 IMPOSSIBLE CONTRACTS 29 IMPROVEMENTS no INCOMPLETE SALE 77 INDORSEMENT 82 IMFANT 36 INSANE 38 INSANE (STATUTE OF LIMITATIONS) 32 INTEREST 87 INTERPRETATION OF CONTRACTS 23 JOINT OWNERSHIP 10 JOINT PARTIES 39 LANDLORD, rights of 109 LANDLORD AND TENANT 107 LAW, defined 7 LAWYERS, lien of 114 LEASE 107 LEGACY 122 LEGAL RATE OF INTEREST 87 LETTER, Contract by 14 LIABILITY OF COMMON CARRIER 100 LIABILITY OF HOTEL KEEPER 99 parents 37 > stockholders , 71 LIEN 113 LIMITATION OF TIME TO SUE 31 LIMITED PARTNERSHIP (See Special Partnership}. LOAN 9 6 LOST PAPER 89 LUNATIC : 38 MAIL, Contract by 14 MAKER OF NOTE 81 INDEX. 161 MARRIED WOMEN 3^ deed of 10$ MEETINGS OF CORPORATIONS 70 MEMBERS OF CORPORATIONS 69 MINORS, contracts of 36 STATUTE OF LIMITATIONS 32 MISTAKE 30 MORAL DUTY 15 MORTGAGE, chattel 115 of real property 106 effect of 106 MUNICIPAL LAW 7 NECESSARIES 37 NEGOTIABILITY 81 NEGOTIABLE INTSRUMENTS 8 1 NOTICE, of dishonor 85 of meeting 7 to agent 53 NUNCUPATIVE Will 120, 121 OFFER AND ACCEPTANCE 13 OFFER OF PERFORMANCE, effect of 29 how made 28 place of 29 time for 28 what excuses (See Performance}. OFFICERS OF CORPORATIONS 70 OFFSET (See Set- Off). OPEN BOOK ACCOUNT 32 ORAL CONTRACT 19 OWNERSHIP 9 OWNERSHIP IN COMMON 10 PARENTS, Liability of 37 PARTNER, death of 63 defined 50 duties of 6 1 powers of 60 rights of 6 1 who may be 60 PARTNERSHIP, how created 59 how dissolved 62 property , ,..,,.,, ...... IQ, 6? 162 INDEX. PACK. PART PERFORMANCE 27 PAYMENT FOR HONOR 88 of notes 87 to agents 53 PERFORMANCE 26, 27 what excuses (See Offer of Performance) PERSONAL PROPERTY 9 PLEDGE 97 PLEDGEE, defined 97 duties of 98 lien of 113 rights of 97 PLEDGOR, rights and duties 98 POWERS OF AGENTS 53 corporations 69 partners 60 special partners 64 PRESENTMENT FOR ACCEPTANCE 83 for payment 84 what excuses 85 PRINCIPAL AND AGENT 52 PROMISSORY NOTES 81 PROPERTY 9 PROTEST 87 RATIFICATION (agency) 53 of minor 37 REAL PROPERTY 9 RECORDING 107 REDEMPTION OF LIEN i it RELEASE 29 REPAIR OE LEASED PREMISES 108 REPRESENTATIONS OF AGENTS 53 REQUISITES OF A WILL 121 RESCISSION 3 RESTRICTIVE INDORSEMENT 82 REVOCATION OF WILLS 121 RIGHTS OF AGENTS 55 bailees 95 landlords i9 partners * ' INDEK. It* RIGHTS ( Continued]. Pledgee 97 pledger 68 stockholders 71 SALE, fraudulent 16 personal property 74 real property 104 requisites of 74 when complete 77 when should be written 17 SELLER, Lien of 113, 1 14 SET-OFF 30 SPECIAL PARTNERS 63 STATE 7 STATUTE 8 STATUTE OF FRAUDS 17 STATUTE CF LIMITATIONS 31 STATUTORY LIE'NS 113 STOCK CORPORATIONS 69 STOCKHOLDERS 70 rights of 71 liability of , 71 STOLEN PAPER 89 STOLEN PROPERTY, sale of 74 STOPPAGE IN TRANSIT 1 14 SUBJECT-MATTER OF A CONTRACT 15 SUB-LEASE 109 SUBSEQUENT WILL 121 TENANT 107 TENDER (See Offer of Performance]. TESTATOR 119 TRANSFER OF NOTES 82 TRUSTEE, classes 42 creation of 43 defined 42 duties of 45, 48 extinction of 47 powers of 44 rights of 45 who may be 44 TRUSTOR 42 164 INDEX. .UNDUE INFLUENCE, contracts 30 wills 119 UNWRITTEN CONTRACT ig UNWRITTEN LAW 7, 8 VALUABLE CONSIDERATION 15 VENDOR'S LIEN 115 vVARRANTY 76 WHO MAY MAKE A WILL 119 WIFE (See Married Women). WILLS, classes 120 defined 119 how made 120 requisites of 120 revocation 121 who may make 119 WITHOUT RECOURSE 82 WRITTEN CONTRACTS 19 WRITTEN LAW 7, 8 INDEX OK FORMS. FACE. AGREEMENT FOR RENEWAL OF PARTNERSHIP 151 AGREEMENT FOR TERMINATION OF PARTNERSHIP 151 ARBITRATION, agreement of. 154 ASSIGNMENT OF A DEBT 155 ASSIGNMENT OF LEASE 144, 145 ASSIGNMENT OF MORTGAGE 140, 141 BILLS OF EXCHANGE 129, 130 BILLS OF SALE 153 BOND, common form of 133 for a deed of land 134 of an employ^ 135 of indemnity for lost note 134 of officer of a corporation 134 CERTIFICATE OF PARTNERSHIP 150 CHATTEL MORTGAGE 152 CHECK 129 COLLATERAL NOTE 131 CONTRACT, general form of 153 for services 154 DEED,bondfor 134 of gift 13? of grant, bargain, and sale 136 of quit-claim 136 of partition 138 DRAFTS 129 DUE-BILLS 127, 128 GUARANTY OF RENT 144 HOLOGRAPHIC WILL 156 INDORSEMENTS, forms of 131, 132 INSTALLMENT NOTE 130 JOINT AND SEVERAL NOTE 131 LEASE OF FARM 142 of house 143 assignment of 1^4, 145 notice to change terms of 145 notice to terminate 145 166 INDEX OF FORMS. MORTGACK, chattel 52 of rcui caiate 1 38 assignment of 140, 141 partial release of 141 satisfaction of 141 NEGOTIABLE INSTRUMENTS 128 NON-NEGOTIABLE NOTE i2i NOTICE OF DISSOLUTION OF PARTNERSHIP 151 NOTICE OF DISHONOR TO INDORSER OF NOTE 1 33 NOTICE OF QUITTING BY TENANT 1 4.0 NOTICE OF PROTEST OF BILL OF EXCHANGE 1 32 NOTICE TO INCREASE RENT 1 45 NOTICE TO QUIT BY THE LANDLORD 1 15 NUNCUPATIVE WILL 1 56 PARTIAL RELEASE OF MORTGAGE i \\ PARTNERSHIP, articles of 1 19 agreement for renewal of. 151 agreement for termination of i S I certificate of, i So notice of dissolution of 151 POWERS OF A FTORNEY, general i j.6 special i \"] short form of I \% to vote stock at election i \& revocation of i j-9 substitution of attorney I }.8 PROMISSORY NOTES 130, 151 PROTEST OF NOTE OR BILL OF EXCHANGE 132 notice of 132 PROXY 148 REAL PROPERTY CONTRACTS 136 RECEIPTS 126, 127 REVOCATION OF POWER OF ATTORNEY 149 SATISFACTION OF MORTGAGE 141 SU BSTITUTION OF ATTORNEY-IN-FACT 148 WTLL, ordinary 155 holographic i$6 nuncupative 156 YC 4493 3r UNIVERSITY OF CALIFORNIA LIBRARY ^t&2P*'^V^6^7 d