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Modern  Business 

Editor-in-Chief 

JOSEPH  FRENCH  JOHNSON 

Dean,  New  York  University  School  of  Commerce,  Accounts  and  Finance 
Associate  Editors: 
PETER  P.  WAHLSTAP,  ROLAND  P.  FALKNER  * 


Titles  Authors 

Business  and  the  Man Joseph  French  Johnson 

Economics  OF  Business j  Joseph  French  Johnson 

{ Frank  L.  McVey 

Organization  and  Control Charles W.Gersten berg 

Factory  and  Office  Administration      .      .  Lee  Galloway 

Marketing  Methods       • Ralph  Starr  Butler 

Advertising  Principles Herbert  F.  De  Bower 

Salesmanship  and  Sales  Management     .      .  John  G.  Jones 

Credit  and  the  Credit  Man Peter  P,  Wahlstad 

Accounting  Principles Thomas  W.  Mitchell 

Cost  Finding Dexter  S.  Kimball 

CoRPORATibN  Finance William  H.  Walker 

Business  Correspondence Harrison  McJohnston 

Advertising  Campaigns Mac  Martin 

Inland  Traffic Simon  J.  McLean 

Foreign  Trade  and  Shipping Erich  W.  Ziramerraann 

Banking  Principles  AND  Practice      .      .      .  E.L.Stewart  Patterson 

Domestic  AND  Foreign  Exchange        .      .      .  E.L.  Stewart  Patterson 

tauRANC.  AND  Real  Estate j  ^ar/r'und"";" 

Merchandising John  B.  Swinney 

The  Exchanges  and  Speculation  ....  Albert  W.  Atwood 

Accounting  Practice  and  Auditing  .      .      .  John  T.  Madden 

Financial  and  Business  Statements  .      .      .  Leo  Greendlinger 

Investment Edward  D.  Jones 

Commercial  Law Walter  S.  Johnson 


EcC  '  Modern  buji*\t«4 


COMMERCIAL  LAW 


.A'^ 


BY 


WALTER  s5"Jt)HNSON,  B.A.,  B.C.L. 

Member  of  the  Bar  o/ths  Province  o/Qiisb^,  Lecturer  on  Railway 

Laio,  and  Sometime  Sessional  Lecturer  on  Constitutional 

and  Commercial  Law.  McGill  University 


MODERN  BUSINESS 

VOLUME    24 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


COPYRIGHT,  1914,  17,  BY 

ALEXANDER  HAMILTON  INSTITUTE 


COPYBiaHT  IN  GREAT  BRITAIN,  1914,  17,  BT 

ALEXANDER  HAMILTON  INSTITUTE 


The  title  and  contents  of  this  volume, 
as  well  as  the  business  growing  out  of 
it,  are  further  protected  by  laws  re- 
lating to  trade  marks  and  unfair  trade. 

All  right  reserved,  including  transla- 
tion into  Scandinavian. 


Hegiatered  trade  mark,  Reg.  U.  S.  Pal.  Off., 
Marca  Registrada,  M.  de  F. 

Made  in  U.  S.  A. 


PREFACE 

This  text  on  "Commercial  Law"  must  not  be  deemed 
to  contain  the  whole  of  the  law  of  which  it  treats.  A 
work  more  in  the  nature  of  a  many  volumed  encyclo- 
pedia would  be  necessary  for  that  purpose.  It  does 
contain,  however,  in  simple  form  and  with  abundant 
illusti'ation,  the  fundamental  principles  of  the  gen- 
eral law  of  contracts  more  frequently  encountered  in 
business.  These  comprise  the  contract  of  sale,  con- 
tracts between  principal  and  agent,  master  and  serv- 
ant, shipper  and  carrier,  and  the  important  contracts 
upon  bills,  notes  and  checks. 

It  is  part  of  a  modern  business  man's  education  that 
he  should  know  something  of  law — the  broad  and  uni- 
versal principles — without  being  a  lawyer.  This  is 
necessary  quite  as  much  as  it  is  part  of  his  education 
that  he  should  know  something  of  banking,  insurance 
and  transportation  without  necessarily  being  a  banker, 
an  insurance  manager,  or  a  railway  superintendent. 
The  more  a  man  knows  of  the  many  phases  and  ac- 
tivities of  modern  business,  the  more  readily — one 
might  say  the  more  accurately  and  instinctively — will 
he  recognize  and  adopt  the  precautions  and  safeguards 
that  keep  his  business  affairs  in  a  healthy  and  progres- 
sive condition. 


vi  PREFACE 

"The  Law,"  said  Burke,  "is  in  my  opinion,  one  of 
the  first  and  noblest  of  human  sciences — a  science 
which  does  more  to  quicken  and  invigorate  the  under- 
standing than  all  the  other  kinds  of  learning  put  to- 
gether." 

Walter  S.  Johnson. 
Montreal,  Canada. 
y' 


TABLE  OF  CONTEXTS 

CHAPTER  I 

PRELIMINARY  TOPICS 

SECTION  PACK 

1.  Introduction 1 

2.  Definition  of  Law 2 

3.  Municipal  Law 3 

4.  International  Law 3 

5.  Public  Law 5 

6.  Private  Law 5 

7.  Sources  of  Law 5 

PART  I:  CONTRACTS  IN  GENERAL 

CHAPTER  II 

NATURE   AXD  CLASSIFICATION  OF   CONTRACTS 

1.  Definition  and  General  Features II 

2.  Agreement  in  General 13 

3.  Classification  of  Contracts 14 

CHAPTER  III 

FORMATION  OF  CONTRACTS:  COMPETENCY  OF  PARTIES 

1.  Requisites   of   a  Contract 17 

2.  Capacity 17 

3.  Minors 17 

4.  An  Infant's  Liability  for  Necessaries     ....  18 

5.  Legal  Obligations  of  Minors 19 

6.  Disaffirmance  by  an  Infant 20 

7.  Ratification 22 

vii 
/ 


viii  COMMERCIAL  LAW 

SBCTIOK  PAGE 

8.  InSane  Persons 23 

9.  Disaffirmance  by  an  Insane  Person 23 

10.  Return  of  Consideration  by  the  Insane  ....  24 

11.  Married   Women 25 

CHAPTER  IV 
FORMATION  OF  CONTRACTS:    THE  CONTRACT  ITSELF 

1.  Offer  anfl  Acceptance 2T 

2.  Offer  and  Acceptance  by  Mail  or  Telegraph      .      .  29 
8.  Offer  to  the  Public 31 

4.  Consideration         32 

5.  What  May  be  a  Sufficient  Consideration      ...  3-1 

6.  The  Statute  of  Frauds 36 

CHAPTER  V 

FORMATION  OF  CONTRACTS:     VOID  AND  VOIDABLE 
CONTRACTS 

1.  Legality  of  Object 40 

2.  Wagering  Contracts 42 

S.  Usurious  Contracts 44 

4.  Contracts  in  Restraint  of  Trade 44 

5.  Unlawful   Combinations '    .       .  46 

6.  Contracts  Made  on  Sunday 50 

7.  Contracts  in  Restraint  of  Marriage      ....  51 

8.  Contracts  in  Fraud  of  Third  Persons  ....  52 

9.  Contracts  Against  Liabilitj'  for  Negligence  53 

10.  Effect  of  Illegality 54 

11.  Reality  of  Consent 59 

12.  Mistake  or   Error 60 

13.  Misrepresentation  and  Fraud      ; 62 

14.  Undue  Influence 64 

15.  Duress ;  Violence  and  Fear 66 


CONTENTS  ix 

CHAPTER  VI 

OPERATION  AND  INTERPRETATION  OF  CONTRACTS 


8KCTI0X 


PAGE 


1.  Rights  and  Liabilities  of  Third  Parties      ...  69 

2.  Contracts  Made  for  the  Benefit  of  a  Third  Person  70 
S.  Rules  of  Evidence 72 

4.  Rules  of  Construction 74 

5.  Surrounding  Circumstances  Given  Consideration      .  75 

6.  Matters  Implied  by  Law 76 

7.  Liquidated  Damages 76 

8.  Joint  and  Several  Contracts 77 


CHAPTER  VII 

ASSIGNMENT  AND  DISCHARGE  OF  CONTRACTS 

1.  Definition  of  Assignment 79 

2.  Competent  Parties  to  an  Assignment      ....  79 

3.  Assignment   of  Liabilities 80 

4.  Other  Examples  of  Assignment 81 

5.  Modes  of  Discharging  a  Contract 82 

6.  Discharge  by  Agreement 82 

7.  Discharge  b}'  Payment  or  Performance      ...  82 

8.  Time  and  Place  of  Payment  or  Performance  84 

9.  Composition  with  Creditors 85 

10.  Application  or  Imputation  of  Payment      ...  86 

11.  Tender 87 

12.  Novation 89 

CHAPTER  VIII 

DISCHARGE  OF  CONTRACTS  (Continued) 

1.  Discharge  by  Breach 92 

2.  Breach  Thru  Failure  of  Performance      ....  93 

3.  Independent   Promises 94 

4.  Conditional  Promises 95 


X  COMMERCIAL  LAW 

SECTION'  •  PAGE 

5.  Breach  of  a  Subsidiary  Promise 98 

6.  Breach  by  Renunciation 99 

CHAPTER  IX 

DISCHARGE   OF   CONTRACTS    (Continued) 

1.  Discharge  by  Impossibility  of  Performance      .       .    103 

2.  Destruction  of  the  Subject  Matter 104< 

3.  Legal  Impossibility 107 

4.  Incapacity  for  Personal  Services 108 

5.  Liability  Upon  Refusing  to  Work  Under  Dangerous 

Conditions Ill 

6.  Performance   Impossible  by    the   Fault   of   Either 

Party       .      .      . 112 

7.  Discharge  by  Operation  of  Law 113 

8.  Insolvency;  Proceedings  in  Bankruptcy       .      .      .116 

9.  By  Confusion 117 

10.  By  Compensation 117 

11.  Remedies  for  Breach  of  Contract 117 

12.  Damages  Recoverable  for  Breach  of  Contract  .      .118 

PART  II:     SPECIAL  FORMS  OF  CONTRACT 
CHAPTER  X 

SALES:    THE  CONTRACT 

1.  Definition 121 

2.  Distinguishing  Features 122 

3.  Parties  to  a  Contract  of  Sale 123 

4.  Subject  Matter  of  the  Sale 125 

5.  Statute  of  Frauds 128 

6.  Satisfaction  of  the  Statute 131 

7.  Contracts  for  Work  and  Labor      .      .      .      .      .136 

8.  When  Title  Passes 137 

9.  Conditional  Sale 141 


CONTENTS  xi 

SECTION  PAGE 

10.  When  the  Seller  Retains  Possession      ....    145 

11.  Goods  to  be  Manufactured 146 

12.  Sales  by  Sample 146 

CHAPTER  XI 

SALES:  PERFORMANCE  OF  THE  CONTRACT 

1.  Deliver^'  of  the  Goods 151 

2.  Place  of  Delivery 152 

3.  Delivery  to  a  Carrier 154 

4.  Time  of  Delivery 156 

5.  Quantity  Specified  Must  be  Delivered      .      .      .      .157 

6.  Quality  Specified  Must  be  Delivered      .      .      .      .160 

7.  Symbolic  or  Constructive  Delivery 161 

8.  Warranties :  Definition  and  Classification      .       .       .162 

9.  Implied  Warranty  of  Title 165 

10.  Implied  Warranty  of  Quality,  Caveat  Emptor      .    166 

11.  Remedies  for  Breach  of  an  Express  Warranty     .    168 

12.  Remedies  for  Breach  of  an  Implied  Warranty      .    169 

13.  Rights  of  an  Unpaid  Seller  Against  the  Subject  of 

the  Sale .170 

14.  Vendor's  Right  of  Resale  or  Rescission  ....    174 

15.  Actions  by  Unpaid  Vendor  for  Breach  of  Contract 

of  Sale 174 

16.  Remedies  of  the  Buyer 178 

CHAPTER  XII 

BAILMENTS 

1.  Definitions 180 

2.  Distinctions 181 

3.  Classification  of  Bailments 182 

4.  Extraordinary  Bailment 183 

5.  Contract  of  Bailment 183 

6.  Use  and  Care  of  Bailed  Property 184 


xii  COMMERCIAL  LAW 

SECTION  PAGE 

7.  Obligations  of  Bailor  in  a  Bailment  for  His  Sole 

Benefit 184 

8.  Obligations  of  Bailee  in  a   Bailment   for  the  Sole 

Benefit  of  the  Bailor 185 

9.  Bailment  for  the  Sole  Benefit  of  the  Bailee      .       .186 

10.  Termination  of  Bailment  for  Sole  Benefit  of  one 

Party 186 

11.  Creatioii  of  a  Pledge  or  Pawn      .       .      .      .      .       .  187 

12.  Construction  and  Operation  of  Pledge  .      .      .      .188 

13.  Rights  and  Duties  of  the  Bailor 188 

14.  Rights  and  Duties  of  Bailee 189 

15.  Warehousemen   and  Wharfingers 190 


PART  III:     NEGOTIABLE  CONTRACTS 

CHAPTER  XIII 
NEGOTIABLE  INSTRUMENTS  IN  GENERAL 

1.  Introductory  194 

2.  Negotiability  195 

3.  Presumption  of  Consideration 196 

4.  Days  of  Grace 196 

5.  Bills  of  Exchange  Act 197 

6.  Promissory  Notes 197 

7.  Bills  of  Exchange 199 

8.  Bills  in  a  Set 204 

9.  Checks 204 

10.  Acceptance  or  Certifying  of  Checks      ....  207 

11.  To  Whom  Payable 208 

12.  Certainty  of  Drawee 209 

13.  Blanks 210 

14.  Alteration  of  Bill 211 


CONTENTS  xiii 

CHAPTER  XIV 

TRANSFER  AND  NEGOTIATION 

SKCTIOX  PAGE 

1.  Methods  of  Transfer 214. 

il.  By  Assignment 214 

J3.  By  Operation  of  Law 215 

4.  By  Negotiation 216 

5.  Indorsement 217 

6.  Requisites  of  Indorsement 218 

7.  Kinds   of  Indorsement 221 

8.  Indorsements  in  Blank 221 

9.  Special  Indorsements 222 

10.  Qualified   Indorsements,   or   Indorsements   Without 

Recourse 222 

11.  Conditional  Indorsement 223 

12.  Restrictive  Indorsements 224 

13.  Indorsement  Waiving  Conditions 224 

14.  Irregular  and  Other  Indorsements 225 

15.  Transfer    Without    Indorsement 226 

16.  Delivery      .     < 227 

17.  Holder  in  Due  Course 229 

18.  Regularity  of  Face  of  Instrument 230 

19.  Maturity 231 

20.  Without  Notice  of  Dishonor  or  Defect      .       .      .232 

21.  Consideration 234 

22.  Negotiation  of  Bill 235 

23.  Rights  of  a  Holder  in  Due  Course      ....  236 

CHAPTER  XV 

CONTRACT  OF  PARTIES 

1.  Maker's  Contract 238 

2.  Acceptor's  Contract 239 

3.  Facts  Which  Acceptor  Admits,  and  Facts  Which 

He  Does  Not  Admit 241 


xiv  COMMERCIAL  LAW 

SECTION  PAGE 

4.  Kinds  of  Acceptance 241 

5.  Who   May  Accept 243 

6.  Effect  of  Acceptance  and  Refusal  to  Accept      .      .  244 

7.  Drawer's  Contract 244 

8.  Indorser's  Contract 245 

9.  Warranties  of  Indorser 246 

10.  Liability  of  Indorsers  Among  Themselves      .      .      .    246 

11.  Liability  of  Other  Parties 247 

12.  Damages 249 

♦ 

CHAPTER  XVI 

PRESENTMENT  AND  NOTICE  OF  DISHONOR 

1.  Presentment    for    Acceptance 251 

2.  Presentment  for  Payment 252 

3.  When,  Where  and  How  ^lade 253 

4.  Time  and  Place  of  Presentment  for  Payment      .       .    255 

5.  Presentment  Waived  and  Dispensed  With    .       .       .    256 

6.  Payment  for  Honor 257 

7.  Notice  of  Dishonor 258 

8.  By  Whom  Notice  is  Given 259 

9.  Sufficiency  of  Notice 259 

10.  Time  Within  Which  Notice  Must  be  Given      .      .  2o9 

11.  Place  of  Notice 260 

12.  Notice  Waived   and  Excused 260 

13.  Protest 261 

CHAPTER  XVII 
DEFENCES 

1.  Definition         263 

2.  Fraud  and  Threats  of  Violence 263 

3.  Partial  or  Total  Want  of  Value  or  Consideration     .  264 

4.  Illegality  265 

5.  Release,  Renunciation  or  Payment 266 


COxXTENTS  XV 

SECTION'  PAGE 

6.  Discharge  of  Persons  Secondarily  Liable      .       .       .  26T 

7.  Real  Defences 267 

8.  Cancellation 267 

9.  Forgery 268 

PART.  IV:     CONDUCT  OF  BUSINESS 
THRU  REPRESENTATION 

CHAPTER  XVIII 
PRINCIPAL  AXD  AGENT 

1.  Definitions  and  Distinctions 271 

2.  How   Constituted 273 

3.  Agency  b}-  Estoppel 274 

4.  Agency  by  Necessity 276 

5.  Who  May  be  Principal 276 

6.  When  a  Business  ^lay  be  a  Principal      ....    278 

7.  Who  :May  be  Agent 278 

8.  What  Acts  May  be  Done  by  an  Agent      .       .       .    279 

9.  Co-Agents 280 

10.  What  Acts  May  be  Ratified 280 

11.  Conditions  Necessary  for  Ratification   ....    284 
1,2.  Ratification   Express   or   Implied 285 

13.  Scope   of   Agent's   Authority 285 

14.  General  and  Special  Agent 287 

15.  Authority   in   Ambiguous    Terms 288 

16.  Power  of  Attorney 288 

17.  Implied  Powers 291 

18.  ]Must  Execute  Accepted  Mandate 292 

19.  Delegation  of  Agent's  Authority  to  a  Sub-Agent      .  293 
20.'  Relations  of  Agent,  Sub-Agent   and  Principal      .  295 

21.  Duties  of  Agent 295 

22.  Fiduciary  Obligations 296 

23.  Liability  of  Agent  to  Principal 298 

24.  Measure    of    Damages 301 


xvi  COMMERCIAL  LAW 

SECTION  PAGE 

25.  Agent  Not  Liable  on  Agency  Contracts      .      .      .  302 

26.  Actions  by  Agents 304 

27.  Remuneration  of  Agent 305 

28.  Agent's   Right   to   Indemnity 307 

29.  Lien  of  Agents 309 

30.  Acts  Performed  Within  the  Powers  of  the  Mandate  309 

31.  Acts  Exceeding  the  Scope  of  Authority      .      .      .311 

32.  Tei;mination  of  Agency 312 

CHAPTER  XIX 
MASTER  AND  SERVANT 

1.  Definition         315 

2.  Contract  of  Hire  and  Service 316 

3.  Independent  Contractor 316 

4.  Fellow-Servant  and  Vice-Principal 318 

5.  Master  Liable  for  Servant's  Acts 319 

6.  Servant's    Personal   LiabiHty 320 

7.  Workmen's  Compensation  Acts 321 

8.  Alien  Labor  Act 323 


COMMERCIAL  LAW 

CHAPTER  I 

PRELIMINARY  TOPICS 

1.  Introduction. — In  recent  years  increasing  at- 
tention has  been  given  by  business  men,  and  by  those 
preparing  for  commercial  careers,  to  a  study  of  mer- 
cantile law.  Xot  only  in  commercial  colleges,  but  in 
the  extension  courses  of  the  larger  universities,  a  se- 
rious effort  is  made  to  enable  the  business  man  to  ac- 
quire some  knowledge  of  the  general  legal  principles 
applicable  in  his  relations  with  his  fellow  men.  Apart 
from  the  fact  that  the  study  of  law  affords  an  excel- 
lent training  in  accuracy  of  thought  and  expression, 
it  is  of  the  utmost  practical  value  in  the  conduct  of 
one's  affairs. 

An  extension  course  of  lectures  in  law  or  the  study 
of  a  book  like  the  present  is  not,  of  course,  intended  to 
make  a  man  liis  own  lawyer.  Either  should,  however, 
if  it  has  no  other  benefit,  train  a  man  to  perceive  or 
scent  legal  difficulties  and  suffice  to  warn  him  of  the 
advisability  of  consulting  a  lawyer.  The  man  of  af- 
fairs who  understands  his  position,  his  rights  and  lia- 
bilities, and  the  rights  and  liabilities  of  others,  in  mat- 
ters relating,  for  instance,  to  contracts  in  general,  to 

XXIT— 2  1 


2  COMMERCIAL  LAW 

negotiable  instruments,  to  agency  and  partnership, 
to  corporations,  insurance,  sales,  bailments  and  car- 
riers, is  doubly  armed  for  encounters  in  the  arena  of 
commercial  life.  Ignorance  of  the  law,  it  has  been 
said,  is  no  excuse.  The  adage  supplies  its  own  com- 
mentary. Legal  rules,  it  may  here  be  said,  are 
founded  on  common  sense;  they  have  been  formu- 
lated out  of  the  accumulated  wisdom  and  experience 
of  diverse  peoples  and  countless  generations;  they 
represent  the  striving  of  men  for  just  and  wise  guid- 
ance and  restraints  in  human  relationships. 

Economic,  social  and  political  conditions  thru- 
out  many  centuries  have  molded  the  gi*eat  body  of 
general  law.  The  process  is  going  on  even  now. 
The  student  should  approach  the  study  with  the  de- 
sire to  understand  the  rules  of  law ;  but  he  will  under- 
stand these  better  if  at  the  same  time  he  seeks  to  ap- 
preciate their  historical  background,  their  wisdom, 
justice  and  harmony,  and  the  point  of  view  of  the 
legislator. 

2.  Definition  of  law. — In  its  technical  sense  ( for  we 
are  not  here  concerned  with  laws  of  nature,  with  di- 
vine or  moral  law)  the  term  law  means  a  general  rule 
or  a  body  of  general  rules  of  human  conduct,  en- 
forceable by  the  public  authority  by  which  it  is  pre- 
scribed. In  other  words,  a  law  is  a  general  rule  of 
external  human  action  enforced  by  a  sovereign  po- 
litical authority. 

Technical  law  may  be  divided  into  two  classes: 
(1)  municipal  law  and  (2)  international  law. 


PRELIMINARY  TOPICS  8 

In  another  sense  it  may  be  divided  into :  ( 1 )  pub- 
lic law  and  (2)  private  law. 

3.  Municipal  law. — By  municipal  law  is  meant  the 
body  of  legal  rules,  or  the  system  of  social  order,  which 
is  established  and  enforced  by  the  state.  It  differs 
from  pubhc  international  law,  which  is  not  enforce- 
able by  any  supreme  authority.  The  state — the  su- 
preme authority — makes  and  enforces  laws.  It  may 
delegate  its  authority  in  these  respects:  as,  for  ex- 
ample, where  it  grants  authority  to  a  province,  a  city 
or  a  territory,  to  make  and  enforce  local  laws.  It 
must  not  be  understood  that  the  word  "municipal"  is 
used  to  designate  only  laws  made  by  or  relating  to 
"municipalities."  The  word  is  used  in  a  teclmical 
sense,  to  include  all  laws  enacted  and  enforced  by  a 
state  or  supreme  authority,  whether  they  relate  to 
land,  wills,  partnerships,  criminals  or  otherwise. 

4.  International  latv. — The  affairs  of  nations 
among  themselves  require  and,  by  consent  or  custom, 
are  subject  to  certain  rules  and  regulations.  Public 
international  law,  then,  is  the  body  of  rules  which  na- 
tions have  by  common  consent  recognized  in  the  regu- 
lation of  their  affairs.  We  have  pointed  out  that  it 
differs  from  ordinarj^  law  in  that  it  cannot  be  enforced. 
It  is  then,  properly  speaking,  not  law  at  all  in  the 
technical  sense.  Yet  it  forms  part  of  tlie  common  law 
of  England.  The  courts  of  England,  Canada  and  the 
United  States  would  recognize  it  under  proper  cir- 
cumstances. 

The  field  of  international  law  is  verv  broad.     It 


4  COMMERCIAL  LAW 

covers,  for  instance,  rules  for  the  treatment  of  con- 
traband of  war,  prize-courts,  the  status  of  belligerents 
and  neutrals,  the  laws  of  blockades,  and  so  on.  These 
and  many  similar  subjects  come  within  what  is  called 
public  international  law.  In  more  peaceful  matters, 
rules  of  international  law  may  be  applied  to  the  in- 
terpretation of  contracts,  the  validity  of  documents 
and  agreements  drawn  in  one  country  and  enforce- 
able in  another,  the  determination  of  the  status  of 
individuals,  and  so  on.  These  and  many  similar  sub- 
jects are  governed  by  rules  of  private  international 
law,  A\iiich  A^ill  be  enforced  in  the  countries  where 
they  are  to  be  applied. 

Questions  of  international  law  may  arise  even  as 
between  persons  domiciled  in  different  provinces  of 
Canada.  One  example  will  suffice.  A  person's  ca- 
pacity to  contract  is  governed  by  the  law  of  his  domi- 
cile, i.e.,  of  the  country  where  he  has  his  permanent 
home.  A  minor  is  domiciled  in  Ontario:  his  perma- 
nent home  is  there.  By  the  law  of  Ontario,  a  minor 
cannot  make  a  binding  contract  merely  because  he  is  a 
trader.  In  Quebec,  a  minor  who  is  engaged  in  trade 
may  make  valid  and  binding  contracts  in  connection 
with  his  trade.  The  Ontario  minor  goes  to  Montreal 
and  starts  in  business.  He  gives  promissory  notes  to 
his  creditors,  and  the  notes  are  not  met  at  maturity. 
He  is  sued  in  Montreal,  but  pleads  that  his  capacity 
is  to  be  governed  by  the  law  of  Ontario,  where  he  is 
domiciled.  His  plea  will  be  upheld  and  the  action 
dismissed. 


PRELIMINARY  TOPICS  5 

5.  Public  law. — By  a  "public  person"  is  meant  the 
state,  or  the  sovereign  part  of  it,  or  a  body  or  indi- 
vidual holding  delegated  authority'  under  it.^  Public 
law,  then,  regulates  rights  where  one  of  the  persons 
concerned  is  "public."  Public  law  also  includes  con- 
stitutional and  administrative  law.  The  conquest  of 
Canada,  in  1763,  had  the  effect  of  substituting  the 
public  law  of  England  for  that  of  France. 

6.  Private  law. — WTiere  the  parties  interested  or 
affected  by  a  right  are  private  persons,  they  are  gov- 
erned by  private  law,  which  they  may  invoke  the  aid 
of  the  state  to  regulate  and  enforce.  A  given  act,  it 
must  be  said,  may  violate  both  a  public  and  a  private 
right.  If  one  man  assaults  another,  the  private  right 
of  the  person  injured  to  be  unmolested  is  violated,  as 
is  also  the  public  right  of  the  state  that  the  public 
peace  shall  not  be  disturbed.  Generally  speaking, 
private  law  includes  the  law  relating  to  contracts, 
torts  or  damages,  pleadings,  evidence — in  a  word,  all 
the  subjects  that  we  shall  treat  of  in  this  book,  as  well 
as  many  others. 

7.  Sources  of  law. — The  sources  of  our  law  may  be 
briefly  mentioned.     They  are : 

(a)  The  confederation  act,  and  supplemen- 
tary    ACTS THE     CONSTITUTION     OF     CANADA.      The 

Confederation  Act  was  passed  by  the  British  Parlia- 
ment ]March  29,  1867.  On  the  first  day  of  July, 
1867,  it  came  into  force.  It  is  the  foundation  and  au- 
thority for  our  Federal  system  of  government.     From 

1  Holland,  "Jurisprudence,"  p.  124. 


6  COMMERCIAL  LAW 

it  flows  the  authority  of  the  Dominion  government 
and  of  the  legislative  bodies  of  the  various  provinces 
to  make  laws  and  to  govern  within  their  various  juris- 
dictions. 

(b)  Dominion  statutes.  The  Dominion  Parlia- 
ment may  make  laws  relating  to  the  classes  of  subjects 
assigned  to  it  by  the  constitution.  In  these  matters 
it  is  supreme.  It  must  not  legislate  concerning  a 
matter  within  the  exclusive  jurisdiction  of  the  prov- 
inces. 

(c)  Treaties.  Treaties  are  agreements  made  be- 
tween independent  nations.  These  may  be  treaties 
of  alliance,  treaties  of  peace,  purely  commercial  treat- 
ies, and  so  on.  The  Constitutional  Act  provides  that 
the  Parliament  and  government  of  Canada  shall  have 
all  powers  necessary  for  performing  the  obligations 
of  Canada  or  of  any  province  thereof,  as  part  of  the 
British  Empire,  towards  foreign  countries,  arising 
under  treaties  between  the  Empire  and  such  foreign 
countries.  These  powers  were  exercised  in  the  case 
of  the  Washington  Treaty  of  1871  between  the 
United  States  and  England,  which  settled  disputes 
arising  out  of  the  American  Civil  War,  the  Canadian 
fisheries  and  other  important  matters. 

(d)  Provincial  constitutions.  The  constitu- 
tion of  a  province  is  the  fundamental  law  by  which  it 
exists  and  upon  which  it  builds  its  system  of  govern- 
ment. The  Constitutional  Act  includes  constitu- 
tional provisions  for  the  provinces.  A  province  may, 
within  certain  restrictions,   amend  its  constitution. 


PRELIMINARY  TOPICS  7 

Such  amendments  must  not  conflict,  however,  with 
the  provisions  of  the  Constitutional  Act,  with  Domin- 
ion statutes,  or  with  any  treaties  which  the  Dominion 
must  observe. 

(e)  Provincial  statutes.  Each  province  may 
legislate  freely  concerning  the  classes  of  subjects  as- 
signed to  it  by  the  Constitutional  Act.  Its  statutes 
must  not  conflict  with  Dominion  legislation.  Pro- 
vincial statutes  may  merely  re-enact  pre-existing  laws 
concerning  the  existence  or  scope  of  which  there  is 
doubt,  repeal  existing  laws  or  create  new  laws. 
A  glance  at  the  revised  statutes  of  any  of  the  prov- 
inces will  afford  a  good  idea  of  the  range  and  di- 
versity of  provincial  legislation.  As  between  a  prov- 
ince and  the  Dominion,  the  residuary  power  lies  with 
the  Dominion.  That  is,  where  a  fair  doubt  exists 
whether  the  Dominion  or  the  province  has  jurisdiction 
in  a  given  matter,  the  Dominion  will  get  the  benefit 
of  the  doubt.  Under  the  American  constitution  the 
residuary  power  lies  with  the  various  states. 

(f)  Common  law.  "In  its  largest  sense,"  says 
Sir  Frederick  Pollock,  "the  common  law  means  the 
whole  body  of  legal  principle  and  usage  which  is  com- 
mon to  all  parts  of  England,  and  now  to  all  jurisdic- 
tions whose  law  is  of  English  origin."  Custom  exists 
as  law  in  every  country.  The  existence  of  custom  or 
common  law  is  generally  proved  by  reference  to  de- 
cisions by  which  it  has  been  aflirmed,  or  to  the  writings 
of  commentators  who  have  appealed  to  it  for  guid- 
ance or  authority.     The  common  law  then  does  not 


8  COMMERCIAL  LAW 

depend  for  its  authority  upon  statutes,  treaties  or  con- 
stitutions. It  is  described  as  the  "unwritten  law,"  in 
the  sense  that  the  British  Constitution  is  unwritten. 
It  may  be  found  in  the  written  or  printed  decisions 
of  the  courts  and  in  the  pages  of  legal  authorities,  but 
it  is  still  "unwritten"  in  the  sense  that  it  has  not  been 
reduced  to  statutory  form  or  declared  by  statute  to 
be  law.     y 

In  so  far  as  a  given  rule  of  common  law  is  finally 
embodied  in  statutory  form,  it  ceases  to  exist  as  com- 
mon law  and  becomes  statute  law.  For  instance,  the 
English  Act  relating  to  bills  of  exchange  and  prom- 
issory notes  is  largely  a  codification  of  old  common 
law  rules  found  in  the  customs  and  usages  of  mer- 
chants and  in  the  decisions  of  the  courts.  The  laws 
of  the  United  States,  with  the  exception  of  those  of 
Louisiana,  had  their  origin  in  the  common  law  of 
England.  Many  of  these  laws  have,  of  course,  been 
formulated  in  Acts  of  Congress  or  of  state  legisla- 
tures. The  same  may  be  said  of  the  English  law 
provinces  of  the  Dominion.  It  will  be  found  that 
these  provinces  have  frequently  enacted  that  the  law 
of  England  as  it  existed  at  a  given  date  shall  form 
part  of  the  law  of  the  particular  province.  Thus  in 
Ontario,  the  laws  of  England  as  to  property,  civil 
rights  and  evidence,  in  force  on  October  15,  1792, 
were  adopted.*  In  Manitoba  the  laws  of  England 
as  to  property,  civil  rights,  evidence  and  procedure, 
as  existing  on  July  15,  1870,  were  adopted  by  an  act 

1  Consol.  stats.  U.  C,  1859,  c.  9. 


PRELIMINARY  TOPICS  9 

passed  in  1874.*  In  British  Columbia,  English  laws 
were  declared  to  be  in  force  by  the  proclamation  of 
November  19,  1858,  and  this  so  far  as  those  laws  "are 
not  from  local  circumstances  inapplicable,"  and  as 
modified  by  past  local  legislation. 

It  is  unnecessary  to  go  thru  the  list  of  provinces. 
Since  these  dates,  English  statutes  have  been  ex- 
pressly adopted  in  certain  provinces.  Thus  the  Eng- 
lish Sale  of  Goods  Act  was  adopted  by  the  Northwest 
Territories  and  by  ^Manitoba  in  1896,  and  by  British 
Columbia  in  1897. 

In  Quebec  the  case  is  different.  The  conquest  of 
Canada  in  1763,  while  it  replaced  French  public  law 
by  English  public  law,  did  not  introduce  English  pri- 
vate law.  The  private  law  in  force  in  Canada  at  that 
time  was  of  course  that  of  France.^  Canada  then  in- 
cluded what  are  now  Ontario  (Upper  Canada)  and 
Quebec  ( Lower  Canada ) .  When  Upper  Canada 
was  created  in  1791,  it  at  once  proceeded  to  abrogate 
the  French  laws  then  in  force,  and  introduced  the  laws 
of  England.  In  Quebec,  then,  from  the  first  settle- 
ment by  the  French  in  1608,  the  conmion  law  has  been 
the  C out II  me  de  Paris,  except  in  commercial  matters. 
This  law  has  been  greatly  modified  in  the  course  of 
years  by  statute,  and,  as  modified,  is  now  found  in  the 
Civil  Code  of  Quebec,  which  came  into  force  in  1866. 
In  commercial  matters,  when  no  provision  is  found 
in  the  Code,  English  rules  of  evidence  apply.     Sec- 

1  Man.  38  V.  c.  12,  s.  1. 

2  Walton,  "Scope  and  Interpretation  of  the  Civil  Code,"  56. 


10  COMMERCIAL  LAW 

tions  4  and  17  of  the  English  Statute  of  Frauds,  with 
certain  exceptions  which  will  hereafter  be  explained, 
are  also  in  force.  Quebec  commercial  law,  in  so  far 
as  it  is  codified,  is  a  blending  of  English  and  French 
commercial  law.  The  English  law  and  jurisprudence 
are,  however,  constantly  and  almost  exclusively  fol- 
lowed in  commercial  matters. 

^  REVIEW 

Of  what  benefit  is  the  knowledge  of  legal  rights  and  obliga- 
tions?    How  should  the  study  of  general  law  be  approached? 

Define  law  in  its  technical  sense  and  classify  technical  law  in 
two  ways. 

What  is  meant  by  municipal  law  and  how  docs  it  differ  from 
international  law? 

Explain  public  international  law.  Why  is  it  not  law  in  the 
technical  sense ;  what  is  its  field  ?  Show,  by  an  illustration, 
how  a  question  of  international  law  may  arise  between  persons 
domiciled  in  different  provinces  of  Canada. 

What  is  the  difference  between  public  law  and  private  law? 

What  are  the  six  great  sources  of  Canadian  law  and  what  does 
each  cover?     Differentiate  between  common  and  statute  law. 


PART  I:  CONTRACTS  IN  GENERAL 

CHAPTER  II 

NATURE  AND  CLASSIFICATION  OF  CONTRACTS 

1.  Definition  and  general  features. — A  contract  is 
an  agreement  by  which  one  or  more  persons  bind 
themselves  in  favor  of  one  or  more  other  persons  to 
give  or  to  do  or  not  to  do  something.  It  is  essential 
to  a  contract  that  there  be  an  agreement.  A  contract, 
to  be  valid  and  enforceable,  must  give  rise  to  an  obli- 
gation. An  obhgation  is  a  legal  bond  by  which  one 
person  is  bomid  in  favor  of  another  to  give  or  to  do 
or  not  to  do  a  certain  thing.  A  true  contract  is,  there- 
fore, an  agreement,  but  every  agreement  is  not  a  con- 
tract. 

If  we  may  repeat,  a  contract  must  give  rise  to  an 
enforceable  obligation.  The  word  "obligation"  is  de- 
rived from  the  Latin  word  ohligare,  meaning  to  bind 
together.  Two  persons  are  thus  bound  towards  each 
other  and  in  order  that  they  shall  be  liberated,  the 
bond  must  be  severed  by  pajTnent;  that  is,  by  the 
handing  over  of  money,  or  the  doing  of  something,  or 
the  refraining  from  doing  something.  In  other 
words,  the  contract  must  be  executed. 

When  we  say  that  there  is  an  obligation,  we  mean 

11 


12  COMMERCIAL  LAW 

that  upon  one  of  the  parties  to  the  contract  a  duty  is 
laid,  the  fulfilment  of  which  can  be  enforced  by  the 
other  party.  The  distinction  may  be  made  clear  by 
explaining  that  a  moral  obligation  lacks  this  feature. 
A  moral  obligation  cannot  be  enforced  thru  the 
courts. 

In  a  famous  case  of  Laidlaw  vs.  Sage,^  this  prin- 
ciple was^clearly  brought  out.  Russell  Sage  was  in 
his  office  one  day  when  a  lighted  bomb  was  thrown  in 
thru  the  window.  Terrified,  he  pushed  his  secretary 
between  himself  and  the  bomb,  with  the  result  that 
the  secretary  was  seriously  injured  by  the  explosion. 
The  latter  brought  action  against  Sage,  claiming  in- 
demnity on  the  ground  that  he  had  saved  Sage  from 
gi'eat  injury,  and  that  he  himself  had  been  seriously 
hurt.  The  case  was  thrown  out,  on  the  ground  that 
Sage  acted  in  a  moment  of  extreme  panic,  and  on  tlie 
ground  that  it  was  not  proved  that  the  secretary 
would  not  have  been  as  much  injured  had  Sage  not 
acted  as  he  did.  There  was  no  doubt  that  there  was 
a  moral  duty  on  the  part  of  Mr.  Sage  to  compensate 
his  secretary,  but  the  court  held  that  his  obligation 
was  an  imperfect  obligation. 

In  order  that  a  true  contract  must  exist,  there  must 
be: 

(a)  Parties  legally  capable  of  contracting; 

(b)  Their  consent  legally  given; 

(c)  Something  which  forms  the  object  of  the  con- 
tract ; 

1  52  New  England  Reports,  p.  679. 


NATURE  OF  CONTRACTS  18 

(d)    A  lawful  cause  or  consideration. 

The  matter  may  be  expressed  more  simply  by  say- 
ing that  there  must  be  an  agreement,  and  there  must 
be  a  lawful  obligation;  that  is,  an  enforceable  obliga- 
tion. 

2.  Agreement  in  general. — In  order  that  a  person 
shall  be  bound,  he  must  have  agreed  to  be  bound. 
There  must  be  a  common  intention.  If  the  terms  of 
the  alleged  contract  are  so  doubtful  or  so  contradic- 
tory that  the  court  cannot  ascertain  definitely  what 
the  terms  were,  an  action  to  enforce  the  contract  will 
be  dismissed,  because  of  the  inability  of  the  court  to  de- 
termine whether  there  was  a  contract,  or  what  were 
its  terms.  Thus  if  A  asks  B  whether  he  will  take 
$200  for  a  certain  horse  and  B  replies,  "Very  possibly 
I  will,"  there  cannot  be  said  to  have  been  an  agree- 
ment on  the  part  of  B  that  he  would  seU  A  his 
horse. 

A  person  wiU  be  bound  where  he  authorizes  an  agent 
to  make  a  contract  on  his  behalf,  or  he  will  be  bound 
to  pay  the  debts  of  a  succession  which  he  has  accepted; 
by  accepting  he  has  contracted  to  take  the  assets  and 
to  pay  the  debts  of  the  succession ;  he  has  acted  by  his 
free  choice  and  voluntarily,  and  thus  has  come  under 
an  obligation. 

A  person  may  also  come  under  an  obligation  by 
reason  of  some  quasi  contract.  For  example,  if  in 
paying  an  account  A  overpays,  there  is  an  obligation 
on  the  part  of  the  person  receiving  pajTiient  to  ac- 
coimt  for  such  overpajTnent.     Under  the  French  law. 


14  COMMERCIAL  LAW 

tho  apparently  not  under  the  English  law,  if  a 
person  discovers  that  the  water-pipes  in  the  house  of 
his  neighbor,  which  is  closed  for  the  summer,  are  burst, 
and  he  employs  a  plumber  to  repair  them  and  stop  the 
leak,  he  can  call  upon  the  owner  of  the  house  to  pay 
him  the  cost  of  the  work. 

Similarly,  a  person  may  come  under  an  obligation 
by  reason  of  his  tort,  as  it  is  called  under  the  English 
law,  or  of  his  offence,  or  quasi-offence,  as  it  is  called 
under  the  French  law.  An  offence  of  this  kind  arises 
by  reason  of  a  person's  wilful  wrongful  act  (of- 
fence) ,  and  as  a  result  he  must  pay  the  damages  which 
he  causes,  and  generally  these  damages  will  be 
somewhat  increased  because  of  his  wilful  intention. 
Where  the  act  is  done  involuntarily  or  in  error  (quasi- 
offence),  he  will  be  liable  only  for  the  actual  damage 
caused:  as,  for  example,  where  a  druggist  in  mixing 
a  prescription  makes  a  mistake,  there  has  been  no  wil- 
ful intention,  and  he  will  be  liable  only  for  the  dam- 
ages that  can  be  proved.  The  case  might  be  different 
if  the  mistake  were  due  to  gross  carelessness. 

3.  Classification  of  contracts. — There  are  various 
classifications  of  contracts,  which  may  be  briefly  ex- 
pressed as  follows.  A  contract  may  be  an  executed 
contract:  that  is,  a  contract  the  terms  of  which  have 
been  carried  out;  the  obligation  has  been  fulfilled  or 
paid,  and  as  a  result  has  been  discharged.  The  con- 
tract, in  reality,  by  reason  of  its  execution,  has  ceased 
to  exist. 

The  contract  may  be  executory :  it  has  yet  to  be  per- 


NATURE  OF  CONTRACTS  15 

formed.  The  contract  may  be  bilateral,  and  both 
parties  be  bound  to  fulfil  certain  obligations.  It  may 
be  unilateral,  and  one  of  the  parties  be  bound  to  ful- 
fil his  obhgation.  A  contract  may  be  formal,  in  that 
it  requires  for  vahdity  to  be  made  in  some  solemn 
form,  as  before  a  notary  public  or  under  seal;  or  it 
may  be  informal,  and  be  a  simple  writing  signed  by 
one  or  both  of  the  parties.  An  informal  contract  may 
be  in  writing;  it  may  be  expressed  orally,  in  which 
case  it  will  be  subject  to  certain  strict  rules  as  to  its 
proof.  A  formal  contract  in  solemn  form  proves  it- 
self. 

A  contract  may  be  valid,  void  or  voidable.  If 
vahd,  it  is  binding  upon  the  parties  to  it,  because  it  is 
in  proper  form,  the  proper  consent  of  the  parties  ex- 
ists, and  there  is  a  lawful  cause  and  an  object.  If  the 
contract  is  void,  it  is  a  contract  only  in  name  and  can- 
not be  enforced ;  neither  party  can  hold  the  other  to  it. 
Thus  if  a  person  rents  a  house  for  immoral  purposes, 
such  a  contract  is  void,  and  cannot  be  enforced. 
Where  the  contract  is  illegal  and  void,  no  action  can 
be  brought  to  compel  the  parties ;  damages  camiot  be 
asked  for  breach  of  performance;  and  generally,  if 
money  has  been  paid  over  under  the  contract,  it  can 
be  recovered.  Such  contracts  are  said  to  be  contrary 
to  good  morals  and  public  policy.  A  contract  may 
be  voidable  in  that  one  of  the  parties  may  either  con- 
sent or  refuse  to  be  bound  by  it.  Thus  if  A  sells  a 
horse  to  a  minor,  the  latter  can  buy  it  and  pay  the 
price,  but  he  can  refuse  to  pay  the  price  or  to  carry 


16  COMMERCIAL  LAW 

out  his  obligation  to  complete  the  contract  by  pay- 
ment, or  if  he  has  paid  and  it  can  be  shown  that  he  has 
suffered  injury  by  the  bargain,  he  can  have  it  upset 
and  recover  his  money. 

Contracts  may  be  express,  whether  oral  or  written, 
when  the  terms  of  the  contract  are  in  so  many  definite 
words,  and  there  is  a  distinct  understanding.  But  the 
existence^  of  a  contract  may  be  also  implied,  where 
from  the  conduct  of  the  one  or  the  other  of  the  parties, 
or  from  the  circumstances,  it  can  be  said  that  they  in- 
tended to  be  or  should  be  bound.  Thus  if  a  man  holds 
another  out  as  his  agent  for  the  performance  of  a  cer- 
tain act,  or  the  making  of  a  certain  contract,  and  does 
not  repudiate  the  act  or  contract  made  by  his  agent, 
he  will  generally  be  bound,  in  that  his  consent  to  what 
has  been  done  or  contracted  will  be  implied. 

REVIEW 

Define  a  contract  and  show  what  a  true  contract  must  include. 
What  is  the  difference  between  a  moral  and  a  lawful  obligation? 

What  part  does  agreement  play  in  a  contract?  Is  a  quasi- 
contract  binding?  What  obligation  arises  out  of  an  offense;  a 
quasi-offense. 

Distinguish  between:  (a)  an  executed  and  executory  contract; 
(b)  a  bilateral  and  unilateral  contract;  (c)  a  formal  and  infor- 
mal contract. 

When  is  a  contract  valid;  when  void;  when  voidable? 


CHAPTER  III 

FORMATION  OF  CONTRACTS:  COMPETENCY  OF 
PARTIES 

1.  Requisites  of  a  contract. — We  have  already  said 
that  there  are  four  requisites  to  the  validity  of  a  eon- 
tract,  namely,  parties  legally  capable  of  contracting; 
consent  legally  given;  an  object;  and  a  lawful  cause 
or  consideration.  There  must  not  be  fraud,  error  or 
undue  influence,  such  as  threats  or  violence. 

2.  Capacity. — The  common  law  ride  is  that  every 
person  is  capable  of  making  a  contract,  unless  his  in- 
capacity is  expressly  declared  by  law.  By  capacity  is 
meant  that  a  person  must  be  of  age,  he  must  be  in  his 
right  mind  and  able  to  understand  what  he  is  doing, 
and  he  must  not  be  excluded  as  falling  within  the 
classes  described  as  incompetent.  The  following  per- 
sons are  subject  to  defective  capacity: 

( 1 )  Minors 

(2)  Interdicted  persons 

(3)  ^larried  women  in  certain  cases 

( 4 )  Persons  insane  or  intoxicated,  or  otherwise  un- 
able to  consent,  owing  to  w^eakness  of  understanding. 

3.  Minors. — The  legal  age  of  majority  is  almost 
universally  the  age  of  twenty-one  years.  Persons 
under  that  age,  both  male  and  female,  are  infants  in 
the  eyes  of  the  law,  and  while  they  may  enter  into  con- 

XXIV — 3  17 


18  COMMERCIAL  LAW 

tracts,  they  cannot  as  a  general  rule  be  bound  by 
them. 

The  contracts  of  a  minor  are  voidable  at  his  option. 
He  has  the  privilege  of  refusing  to  be  bound  by  his 
contracts,  the  idea  being  that  as  an  infant  he  needs 
protection,  and  must  be  protected  against  his  own 
acts,  or  against  the  acts  of  persons  better  able  than  he 
to  judge jof  the  benefit  to  be  derived  from  a  particular 
contract.  An  infant  is,  however,  bound  to  pay  for 
necessaries,  tho  no  more  than  the  reasonable  value 
thereof. 

4.  An  infant's  liability  for  necessaries. — The  term 
includes  more  than  the  mere  food  that  will  keep  him 
alive,  or  the  mere  clothes  that  will  keep  him  warm. 
Such  food  and  clothes  as  are  suitable  to  his  station  in 
life  and  to  his  particular  circumstances  at  the  time  of 
the  contract  are  covered  by  the  term.  Necessaries 
may,  therefore,  be  food  and  clothing,  medicines  and 
medical  attendance,  at  least  a  common  school  educa- 
tion— under  certain  circumstances  even  a  college  edu- 
cation, where  this  is  not  unreasonable,  having  regard 
always  to  the  minor's  station  in  life.  But  necessaries 
would  not  include  mere  luxuries,  such  as  champagne, 
unless  ordered  by  a  doctor,  or  a  fancy  waistcoat,  when 
he  already  has  several.  The  term  may  include  a 
watch,  if  the  minor  has  not  already  one,  especially 
if  the  watch  is  within  the  minor's  means.  It  has 
been  held  to  include  a  horse,  a  bicycle  and  a  mod- 
erate amount  of  jewelry,  under  the  same  proviso. 
But  articles  of  mere  ornament  and  luxury,  unless 


FORMATION  OF  CONTRACTS  19 

luxurious  articles  of  utility,  would  certainly  be  ex- 
cluded. 

If  a  minor  buys  a  horse,  under  the  advice  of  his 
doctor,  for  the  purpose  of  exercise,  the  bargain  would 
be  binding  if  the  price  were  reasonable.  If  he 
bought  it  for  use  in  some  business  enterprise,  it  might 
be  hard  to  consider  it  a  necessary.  Articles  which 
he  buys  for  the  mere  pleasure  that  they  may  give  him, 
altho  they  may  be  useful,  are  not  necessaries. 

If  a  minor  is  hving  with  his  father  or  with  a  guar- 
dian who  gives  him  all  reasonable  necessaries  and  sup- 
ports him,  the  minor  will  not  be  liable  if  he  buys  other 
food  and  clothing  on  credit,  and  persons  dealing  with 
him  do  so  at  their  peril.  If  they  sue  bun,  they  must 
be  able  to  show  that  the  minor  really  needed  the 
articles  in  question. 

A  minor  who  is  married  will  be  held  Hable  for  the 
necessaries  supplied  to  his  wife.  A  minor  who  has 
entered  into  the  contract  of  marriage  cannot  be  re- 
leased from  his  contract  on  the  gi'ound  of  lesion — 
that  is,  on  the  ground  that  he  has  suffered  injury. 

5.  Legal  obligations  of  minors. — The  common  law 
rule  is  that  a  husband  is  hable  for  the  debts  of  his  wife 
contracted  before  her  marriage,  and  a  minor  who  is  a 
husband  apparently  could  not  plead  his  infancy  as  a 
defence.  In  certain  cases  a  minor  may  contract  un- 
der the  authority  or  direction  of  the  law  (as,  for  ex- 
ample, if  he  enlists  in  the  army) ,  and  his  contract  will 
be  enforced.  So  also  if  a  minor  is  a  mortgagee,  and 
upon  payment  of  the  debt  he  reconveys  the  property. 


20  COMMERCIAL  LAW 

he  has  performed  a  legal  obligation,  and  is  bound  by 
his  act.  Ordinarily  speaking,  however,  and  with  the 
exceptions  we  have  discussed,  a  minor  may  at  his  op- 
tion carry  out  his  contracts  or  treat  them  as  void,  un- 
less he  has  been  properly  authorized  to  make  the  con- 
tract. If  he  makes  a  contract  for  personal  services, 
or  enters  into  a  partnership,  or  gives  a  promissory 
note,  or  buys  or  sells  either  movable  or  immovable 
property,  he  may  refuse  to  be  bound.^ 

6.  Disaffirmance  by  an  infant. — The  general  rule 
is  that  an  infant  may  avoid  his  voidable  contracts 
either  before  or  within  a  reasonable  time  after  becom- 
ing of  age." 

It  has  been  decided  that  a  minor  cannot  deprive 
himself  of  his  privilege  of  voiding,  after  he  becomes  of 
age,  his  contract  made  during  minority.  If  an  infant 
pays  a  sum  of  money  under  a  contract,  says  Pollock, 
in  consideration  of  which  the  contract  is  partly  or 
wholly  performed  by  the  other  party,  he  cannot  ac- 
quire any  right  to  recover  the  money  by  rescinding  the 
contract  when  he  comes  of  age.^  So  if  he  enters  into 
a  partnership  agreement  and  pays  a  premium,  he  can- 
not, while  he  is  a  minor  or  afterwards,  recover  the 
premium.  He  may  repudiate  his  contract  in  va- 
rious ways;  expressly,  in  wi'iting  or  in  words,  or 
even  by  his  conduct.  If  the  contract  is  executory, 
that  is,  a  contract  under  which  he  is  bound  to  do  some- 

1  This  broad  rule  is  subject  to  qualification  in  Quebec  law,  as  explained 
in  the  next  section. 

2  Pollock,  Contracts,  8th  Ed.,  p.  62. 

3  Pollock,  p.  63. 


FORMATION  OF  CONTRACTS  21 

thing,  he  may  refuse  to  act,  and  if  he  is  sued  he  may- 
plead  the  fact  of  his  minority.  If  he  sells  a  prop- 
erty to  one  person,  it  would  be  a  sufficient  repudiation 
of  his  contract  if  after  becoming  of  age  he  sold  it  to 
another  person,  tho  in  such  case  he  would  have  to  re- 
turn to  the  first  purchaser  the  money  received  from 

him. 

If  it  can  be  shown,  however,  that  the  express  con- 
tract which  he  has  entered  into  is  really  for  his  bene- 
fit, he  will  be  bound  by  it,  or  even  sometimes  where  it 
is  shown  that  it  is  not  manifestly  to  his  prejudice. 
Or  if  he  enters  into  an  agi-eement  of  apprenticeship 
or  employs  himself  with  a  firm  for  a  reasonable  wage, 
he  will  be  bound  if  he  unlawfully  absents  himself  from 
his  employment.  But  it  has  been  held  that  w^here  a 
minor  is  allowed  to  make  frequent  journeys  by  a  rail- 
way on  special  terms,  and  in  consideration  he  waives 
any  claim  for  accident  that  may  occur,  such  a  contract 
is  harmful  to  him,  and  he  is  not  boimd.  But  suppos- 
ing that  he  were  to  buy  goods  on  credit,  in  order  to 
taken  advantage  of  a  rising  market,  his  contract  might 
not  be  manifestly  disadvantageous,  especially  if  he 
were  of  years  of  discretion ;  but  he  could  void  such  a 
contract,  at  least  at  common  law. 

If  a  minor  is  a  shareholder  in  a  company  and  is  in 
arrears  for  calls,  he  may,  upon  reaching  his  majority, 
be  sued  for  the  unpaid  calls,  unless  he  has  repudiated 
his  contract  either  before  majority  or  within  a  rea- 
sonable time  afterwards.  It  has  been  held  in  a  Que- 
bec case  that  a  minor  who  has  attained  his  majority 


22  COMMERCIAL  LAW 

can  be  sued  for  the  recovery  of  the  amount  of  a  prom- 
issory^ note  made  while  he  was  a  minor  in  payment  of 
the  first  premium  on  a  policy  of  insurance  on  his  life, 
where  he  retained  the  policy,  and  where  he  took  no 
procedure  to  annul  the  insurance  contract.  The  in- 
surance premium  having  been  so  paid,  the  insurance, 
it  was  held,  stands  in  force  for  all  purposes;  and  a 
minor,  having  attained  his  majority,  can  avoid  a  con- 
tract entered  into  during  his  minority  only  in  so  far 
as  he  proves  legal  injury  or  prejudice.  That  distinc- 
tion brings  out  clearly  the  difference  between  the  law 
of  the  Province  of  Quebec  and  that  of  Ontario  and 
the  other  English  law  provinces.  In  the  English  law 
provinces,  a  minor's  incapacity  is  greater  than  in  the 
Province  of  Quebec.  He  can,  as  a  general  rule,  get 
any  contract,  into  which  he  has  entered,  set  aside.  In 
the  Province  of  Quebec,  the  general  rule  is  that  he 
must  show  that  he  has  suffered  a  prejudice  by  his  con- 
tract. 

If  he  has  represented  himself  as  being  at  the  age  of 
majority,  it  may  be  said  as  a  general  rule  that  he  must 
restore  any  advantage  he  has  obtained  by  reason  of 
his  misrepresentation,  if  he  chooses  to  void  his  con- 
tract. 

7.  Ratification. — An  infant  cannot  ratify  before 
majority  the  contract  which  as  an  infant  he  could  dis- 
avow, because  his  capacity  for  the  one  is  no  greater 
than  his  capacity  for  the  other.  His  ratification 
should  be  in  writing.  If  he  ratifies  his  contract,  he 
must  ratify  it  as  a  whole ;  he  cannot  merely  ratify  what 


FORMATION  OF  CONTRACTS  23 

he  thinks  will  be  of  advantage  to  him,  and  repudiate 
the  balance.  Thus  if  he  buys  a  piece  of  real  estate 
and  gives  a  mortgage  for  the  unpaid  balance,  he  can- 
not, upon  becoming  of  age,  ratify  the  purchase  and 
repudiate  the  mortgage. 

8.  Insane  persons. — The  general  rule  may  be  laid 
down  that  the  contracts  of  an  insane  person  are  void- 
able. The  old  rule  was  that  he  was  unable  to  void 
them  himself.  If  he  has  been  legally  declared  in- 
sane, or  as  the  result  of  an  inquisition,  he  cannot  deal 
with  his  property  by  deed,  even  in  a  lucid  interval.^ 
But  a  lunatic  who  has  not  been  so  found  may  contract 
during  lucid  intervals. 

A  person  may  be  insane  upon  one  subject,  yet  as 
regards  other  matters  be  quite  capable  of  contracting. 
So  far  as  concerns  the  subject  of  his  insanity  or  de- 
lusion, he  cannot  contract,  tho  in  other  matters  h^ 
may.  A  person,  for  example,  who  is  insane  upon  the 
subject  of  religion,  may  be  quite  sane  enough  to  pro- 
tect his  interests  in  the  purchase  of  a  horse. 

9.  Disaffirmance  by  an  insane  person. — During  a 
lucid  interval,  or  within  a  reasonable  time  after  he  be- 
comes sane,  a  person  who  has  made  a  contract  while 
insane  may  repudiate  it.  If  he  has  a  guardian  the 
latter  may,  during  his  insanity,  repudiate  the  contract 
for  him.  If  he  dies,  his  personal  representatives  or 
heirs  may  do  so.  But  the  other  party  to  the  contract, 
as  well  as  any  third  party,  cannot  disaffirm  the  con- 
tract. 

1  Pollock,  p.  95. 


^84  COMMERCIAL  LAW 

The  marriage  of  a  lunatic  is  void.  That  he  may 
validly  enter  into  the  contract  of  marriage,  the  same 
degree  of  sanity  will  be  required  of  him  as  for  making 
a  will  or  any  other  contract.  But  the  burden  of  prov- 
ing his  insanity  will  be  upon  him.^ 

10.  Return  of  consideration  by  the  insane. — If  an 
insane  person  chooses  to  repudiate  his  contract,  he 
must,  if  he  can,  tender  back  with  his  claim  the  con- 
sideration he  may  have  received.  If  he  cannot,  there 
is  authority  for  the  view  that  he  will  not  as  a  result 
be  bound  by  his  contract.  If,  for  this  reason,  he 
could  not  relieve  himself  of  the  contract  he  made 
while  insane,  the  rule  which  entitles  him  to  void  his 
contracts  would  be  set  at  naught,  and  what  he  could 
not  do  directly  would  be  forced  upon  him  indirectly. 
The  same  weakness  which  led  him  into  the  contract 
may  have  led  him  to  dispose  of  the  consideration,  and 
the  law  undertakes  to  protect  him  against  his  weak- 
ness. So  if  in  a  lucid  interval  he  tenders  back  a 
watch  which  while  insane  he  has  bought,  the  vendor 
is  bound  to  accept  the  watch  and  give  him  back  the 
price.  But  if  meanwhile  he  had  lost  the  watch,  the 
vendor  would  be  bound  to  return  the  price. 

In  Quebec,  generally  speaking,  contracts  by  per- 
sons of  this  class  cannot  be  voided  unless  there  has 
been  lesion,  that  is,  injury  or  loss  suffered  by  such 
person  and  arising  out  of  the  contract.  The  code 
expressly  declares  that  when  minors,  interdicted  per- 
sons (which  would  include  persons  incapable,  because 

1  Pollock,  p.  95. 


FORMATION  OF  CONTRACTS  ^  25 

of  some  mental  weakness,  of  making  a  contract)  or 
married  women  are  admitted  in  those  qualities  to  be 
relieved  from  their  contracts,  the  reimbursement  of 
what  has  been  paid  in  consequence  of  these  contracts, 
during  the  minority,  interdiction  or  marriage,  cannot 
be  exacted,  unless  it  is  proved  that  what  has  been  paid 
has  turned  to  their  profit.  It  is  not  for  the  incapable 
to  prove  that  the  bargain  has  not  turned  out  to  his 
profit,  but  for  his  opponent  to  prove  that  it  has  ac- 
tually turned  out  to  his  profit. 

11.  Married  women. — The  old  rule  of  the  English 
common  law  was  that  a  married  woman  could  not, 
with  rare  exceptions,  make  a  valid  contract  apart  from 
her  husband.  This  has  been  changed  by  statute.  In 
the  Enghsh  law  provinces,  it  may  now  be  said  that  a 
married  woman  may  deal  with  her  separate  property 
quite  as  freely  as  if  she  were  unmarried  and  of  age. 
Her  contracts  will  bind  her. 

In  Quebec,  the  general  rule  is  that  a  wife  cannot 
contract  without  her  husband's  authorization.  If  she 
is  married  without  a  marriage  contract  stipulating 
separation  of  property,  her  property  and  that  of  her 
husband  fall  into  what  is  called  a  community  of  prop- 
erty. In  theory,  this  common  property  belongs  to 
both;  but  the  husband  is  head  of  the  community,  and 
alone  can  say  how  the  property,  goods  or  money  com- 
posing it,  shall  be  spent  or  disposed  of.  His  wife 
cannot,  therefore,  bind  herself  by  contract  without  his 
consent,  for  otherwise  he  might  find  the  property  of 
the  community,  of  which  he  is  the  virtual  master  and 


26  COMMERCIAL  LAW 

owner,  dispersed  or  dissipated  by  the  wife's  contracts. 
In  every  province,  excepting  Quebec,  when  a  woman 
marries  she  retains  control  and  absolute  ownership  of 
all  her  property  and  of  all  she  may  earn  or  acquire. 
In  Quebec,  however,  separation  of  property  may  be 
stipulated  by  marriage  contract,  and  the  wife  will 
thus  be  and  remain  owner  of  all  her  property ;  but  she 
cannot  alienate  her  real  property,  tho  she  may  ad- 
minister it.  She  can  deal  with  and  dispose  of 
her  income ;  but  as  to  capital,  speaking  broadly,  she  is 
subject  to  the  authority  of  her  husband.  In  the  Eng- 
lish law  provinces,  a  wife  may  freely  be  a  public  trader. 
In  Quebec  a  wife  needs  her  husband's  authorization 
to  be  a  public  trader  (tho  his  consent  will  be  implied 
where  he  knows  what  she  is  doing  and  does  not  pro- 
test) ;  if  she  is  separate  as  to  property,  she  binds  her 
separate  property;  if  she  is  common  as  to  property, 
she  binds  her  husband  also.  In  Quebec  a  wife  cannot 
bind  her  separate  property  in  any  contract  with  or 
for  her  husband,  saving  the  rights  of  creditors  in  good 

faith. 

REVIEW 

What  are  the  requisites  of  a  contract?  What  is  meant  by 
capacity?     Who   are   subject  to   defective  capacity? 

Discuss  the  position  of  minors  in  relation  to  contracts.  Are  a 
minor's  contracts  void  or  voidable? 

Discuss  the  liability  of  infants  in  regard  to  necessaries. 

How  may  an  infant  disaffirm  his  contract.^  How  and  when 
may  he  ratify  it? 

What  is  the  general  rule  concerning  contracts  of  an  insane  per- 
son? 

At  common  law  could  a  married  woman  make  a  valid  contract  ? 
Can  she  do  so  by  statute? 


CHAPTER  IV 

FORMATION  OF  CONTRACTS:  THE  CONTRACT 
ITSELF 

1.  Offer  and  acceptance. — It  is  essential  to  a  con- 
tract that  the  parties  thereto  shall  have  come  to  some 
agreement.  By  this  is  meant  that  the  parties  are  of 
one  mind  upon  some  proposed  transaction,  and  that 
they  have  declared  this  fact.  The  purpose  of  both 
must  be  declared;  the  law  cannot  deal  with  the  secret 
thoughts  of  men. 

Hence  if  A  is  willing  to  sell  his  horse  for  $500  to  B, 
and  B  has  made  up  his  mind  to  buy  the  horse,  if  he  can 
get  it,  but  neither  has  referred  to  or  discussed  the  mat- 
ter, A  and  B  are  really  of  one  mind  on  the  subject. 
But  there  is  no  contract,  for  their  wills  have  not  met 
in  a  declaration  of  willingness  to  buy  and  sell. 

So  it  is  the  declared  will  and  not  the  secret  inten- 
tions of  the  parties  that  the  law  will  examine.  If  A 
offers  to  buy  B's  horse  for  $500  and  B  accepts,  A  may 
have  no  intention  of  paying  the  money,  but  there  is  a 
valid  contract.  B  takes  his  chance  of  being  paid  if 
he  has  not  received  cash  or  security.  And  A  cannot 
be  encouraged  and  assisted  in  getting  out  of  his  con- 
tract when  he  declares  that  he  did  not  mean  what  he 
said. 

The  agreement  of  the  parties  is  reached  by  means 

27 


28  COMMERCIAL  LAW 

of  an  offer  and  an  acceptance.  Neither  need  be  in 
express  or  formal  terms.  Some  promise  or  act  or 
some  course  of  conduct  may  be  quite  enough.  If  A 
advertises  that  he  will  pay  a  reward  of  $5  for  the 
return  of  his  lost  watch,  he  makes  an  offer  of  a  prom- 
ise for  an  act,  and  the  finder  upon  presenting  the 
watch  and  claiming  the  reward  accepts  the  offer  and 
is  entitled  to  the  reward.  So  a  cabman  at  his  stand 
must  be  ready  to  convey  people  about  town.  He  of- 
fers an  act  for  a  promise  to  pay  the  amount  which,  by 
tariff,  he  can  charge. 

If  a  piano  firm  offers  a  man  a  piano  for  $300,  and 
the  latter  says  he  will  give  $250,  there  is  no  contract, 
because  the  minds  of  the  two  have  not  met.  But  if  the 
piano  firm  at  once  says  it  will  accept  the  $250,  there 
is  a  contract.  The  acceptance  of  the  offer  clinches  the 
bargain.  Hence  the  acceptance  and  the  offer  must 
agree — the  one  must  conform  to  the  other.  If  the  ac- 
ceptance adds  terms  or  conditions  not  contemplated 
in  the  offer,  the  so-called  acceptance  is  rather  a  rejec- 
tion of  the  offer.  If  A  offered  to  buy  a  house  from 
B  on  certain  terms,  possession  to  be  had  on  July  25, 
B  agreed  to  the  terms,  but  fixed  the  date  of  posses- 
sion as  August  1,  it  would  be  held  there  was  no 
acceptance.  If  A  writes  to  B  that  he  will  pay  him 
$5,000  for  his  house,  but  B  must  accept  by  return 
mail,  and  B  after  waiting  a  week  writes  accepting,  A 
is  not  bound  to  buy. 

There  is  this  to  be  said  also  that  the  offer  must  have 
in  view  the  immediate  formation  of  a  contract  by  an 


THE  CONTRACT  ITSELF  29 

acceptance.  For  instance,  a  call  for  tenders  for  the 
building  of  a  bridge  or  a  warehouse  is  merely  an  invita- 
tion to  builders  or  contractors  to  send  in  proposals 
which  the  person  who  intends  to  build  may  consider. 
Such  an  invitation  is  an  offer  to  treat  rather  than  a 
simple  offer  which  may  be  at  once  accepted.  The 
person  offering  to  treat  is  not  bound  to  accept  the 
lowest  or  any  tender.  A  rather  interesting  and  diffi- 
cult case  was  decided  in  England  in  1893.^  One 
Harvey  telegraphed  to  the  defendant,  Facey,  "Will 
you  sell  us  Bumper  Hall?  Telegraph  lowest  price." 
Facey  telegraphed :  "Lowest  price  £900."  Harvey 
replied:  "We  agree  to  buy  Bimiper  Hall  for  £900." 
Facey  did  not  answer  this  telegram,  and  refused  to 
sell.  He  was  sued,  and  it  was  held  that  tho  Facey 
had  quoted  a  price,  he  had  not  said  he  would  sell. 
There  was  really  no  contract,  because  Harv^ey's  "We 
agree  to  buy  Bumper  Hall  for  £900"  was  really  the 
offer,  and  Facey  did  not  acknowledge  it. 

2.  Offer  and  acceptance  by  mail  or  telegraph. — An 
offer  sent  by  mail  or  telegraph  is  not  complete  until 
it  reaches  the  offeree..  According  to  the  English  law 
it  may  be  revoked  at  any  time  before  it  is  accepted. 
Thus  if  A  writes  B  offering  to  sell  his  house,  A  can 
withdraw  his  offer  by  telegram  or  by  another  letter 
which  will  arrive  before  the  first.  If  when  the  revoca- 
tion arrives  the  offeree  has  not  made  up  his  mind,  the 
offer  stands  revoked.  But  if  the  revocation  is  merely 
on  the  vf2LY  to  the  offeree,  his  acceptance  of  the  offer 

1  Harvey  vs.  Facey,  1893,  A.  C.  552. 


30  COMMERCIAL  LAW 

is  none  the  less  good.  Until  the  revocation  comes  to 
the  mind  of  the  offeree,  he  is  entitled  to  accept  the 
offer  and  to  treat  it  as  expressing  the  mind  of  the 
offerer.  While  the  French  commentators  do  not  as 
a  rule  accept  this  view,  the  French  courts  will  allow 
damages  where  the  revocation  of  an  offer  causes  loss. 
In  Quebec  the  English  rule  would  probably  be  fol- 
lowed, the  balance  of  convenience  in  all  commercial 
transactions,  apart  from  the  strict  theory  of  the  law, 
being  distinctly  in  favor  of  its  application. 

Where,  however,  an  offer  has  been  accepted  and 
the  acceptance  posted,  the  acceptance  cannot  be  re- 
voked. The  acceptance  might  have  gone  by  mail  and 
the  revocation  by  telegraph.  The  telegram  may  have 
arrived  first,  and  the  offerer  known  of  the  revocation 
before  he  knew  of  the  acceptance,  and  he  may  thus 
have  suffered  no  prejudice.  He  can  hold  the  offeree 
to  his  original  acceptance.  Pollock,  commenting  on 
this  rule,  says: 

This  is  a  startling  consequence  at  first  sight,  but  the  hard- 
ship is  less  than  it  seems,  for  a  party  wishing  to  reserve  his 
freedom  of  action  as  long  as  possible  will  still  have  two  ways 
of  doing  so :  he  may  make  his  acceptance  in  writing  expressly 
subject  to  revocation  by  telegraph,  or  he  may  abstain  from 
answering  by  letter  at  all,  and  only  telegraph  his  final  deci- 
sion. 

While  the  revocation  of  an  offer  must  be  made  be- 
fore it  has  been  accepted  and  must  be  received  before 
the  acceptance  is  posted  or  telegraphed,  apparently 
the  offer  is  revoked  by  the  death  or  insanity  of  either 
party. 


THE  CONTRACT  ITSELF  31 

3.  Offer  to  the  public. — An  offer  may  be  made  to 
the  public  in  general.  That  is,  it  need  not  be  made  to 
an  ascertained  person.  But  it  will  be  binding  where 
it  is  accepted  by  an  ascertained  person.  Thus  a  shop- 
keeper who  exposes  a  certain  silk  in  his  window  with 
a  price  affixed,  will  be  bound  to  sell  the  silk  at  that 
price  to  anyone  who  on  the  strength  of  what  he  has 
seen  in  the  window  wishes  to  buy.  The  hotel  keeper 
and  the  common  carrier  make  a  continuing  offer  to 
the  public,  and  unless  they  have  exceptional  reasons 
for  refusing  to  receive  a  certain  person,  they  are  bound 
to  receive  all  comers,  at  least  up  to  their  capacity. 

If  a  reward  is  offered  thru  the  newspapers  for  the 
capture  of  a  fugitive  or  the  finding  of  lost  property, 
the  reward  will  be  due  to  the  person  who  with  knowl- 
edge of  the  offer  captures  the  fugitive  or  finds  the 
property.  A  person  who  had  no  knowledge  of  such 
an  offer  could  not  claim  the  reward  if  before  know- 
ing of  it  he  gave  the  desired  information.  But  if, 
without  knowledge  of  the  offer  of  a  reward  at  the  time 
a  person  finds  lost  property,  before  handing  it  over 
he  learns  of  the  offer,  then  he  can  claim  the  reward. 

Pollock  refers  to  an  interesting  English  case  de- 
cided in  1893.  A  company  called  the  Carbolic  Smoke 
Ball  Company  advertised  an  offer  to  pay  £100  to  any- 
one who  contracted  influenza  after  using  its  smoke 
balls  according  to  directions.  The  plaintiff,  one  Car- 
lill,  read  the  advertisement  and  so  induced  bought  a 
smoke  ball  and  used  it  according  to  directions.  Un- 
fortunately for  him,  or  rather  for  the  company,  he 


32  COMMERCIAL  LAW 

contracted  influenza  after  using  the  remedy,  and  it 
was  held  in  his  favor  that  there  was  a  vahd  contract 
arising  out  of  an  offer  and  an  acceptance. 

An  offer  by  public  advertisement  may,  it  appears, 
be  revoked  by  an  advertisement  equally  public.  The 
Supreme  Court  of  the  United  States  has  so  held,^  and 
even  as  against  a  person  who  afterwards  acts  on  the 
proposal  not  knowing  that  it  has  been  revoked,  "for 
he  should  have  known  that  it  could  be  revoked  in  the 
manner  in  which  it  was  made."  Sir  Frederick  Pol- 
lock says  of  this  decision: 

In  other  words,  the  proposal  is  treated  as  subject  to  a 
tacit  condition  that  it  may  be  revoked  by  an  announcement 
made  by  the  same  means.  This  may  be  a  convenient  rule, 
and  may  perhaps  be  supported  as  a  fair  inference  of  fact 
from  the  habits  of  the  newspaper-reading  part  of  mankind : 
yet  it  seems  a  rather  strong  piece  of  judicial  legislation. - 

4.  Consideration. — In  the  English  law  provinces, 
as  in  England  and  in  the  United  States,  a  contract  is 
valid  only  if  it  is  based  upon  a  valuable  consideration. 
It  may  be  valid,  however,  in  those  jurisdictions  where 
sealing  is  necessary,  if  made  by  a  deed  or  writing  un- 
der seal,  when  the  contract  is  said  to  be  valid  without 
consideration. 

What  may  be  consideration  is  well  defined  in  an 
English  case;  ^  "either  some  Vight,  interest,  profit,  or 
benefit  accruing  to  the  one  party,  or  some  forbearance, 
detriment,  loss,  or  responsibility,  given,  suffered,  or 

1  Shuey  vs.  United  States  (1875),  92  U.  S.  73. 

2  Pollock,  p.  23. 

"Currie  vs.  Misa  (1875),  I..  R.  10,  Ex.  at  p.  162. 


THE  CONTRACT  ITSELF  m 

undertaken  by  the  other."  The  party  who  accepts 
the  consideration  may  or  may  not  get  any  apparent 
benefit.  It  is  sufficient  if  he  accepts  it.  By  some  act 
or  forbearance,  or  the  promise  thereof,  A  buys  the 
promise  of  B,  and  B's  promise  is  thereby  made  en- 
forceable. A  mere  moral  obligation  will  not  support 
a  promise,  and  cannot  be  enforced.  In  this  view  of 
the  law,  therefore,  a  promise  to  contribute  money  to 
charity  is  not  a  contract  at  all,  at  least  under  the  Eng- 
lish law.^ 

The  civil  law  of  Quebec  distinguishes  "cause  or  con- 
sideration" from  "consideration"  as  we  have  just  been 
viewing  it.  In  Quebec  it  is  said  that  if  the  contract 
has  an  object,  it  may  be  enforced,  tlio  the  promise 
was  given  without  consideration.  By  object  is  meant 
'wliat  is  due."  Thus  if  A  lends  a  book  to  B,  the 
object  of  the  loan  is  the  book — what  is  due;  the  cause 
of  the  boiTOwer's  obligation — i.e.,  why  there  is  a  debt 
on  his  part — is  his  receipt  of  the  book.  The  cause  is 
the  immediate  end  of  the  parties — that  which  impels 
every  buyer,  every  seller,  eveiy  lender  and  giver. 
This  "immediate  end"  in  the  case  of  the  seller  is  the 
price;  in  the  case  of  the  buyer  it  is  the  legal  obliga- 
tion of  the  seller  to  give  him  delivery  and  warranty; 
in  the  case  of  the  giver  (and  here  the  theory  is 
strained)  it  is  the  desire  of  the  giver  to  give.  The 
word  "consideration"  is  used  rather  as  an  equivalent 
for  "cause." 

In  actual  practice,  however,  "consideration"  is  used 

1  Pollock,  p.  176. 
XXIV — * 


34  COMMERCIAL  LAW 

almost  exclusively.  It  is  impossible  to  pursue  the 
theoretical  difference  any  further  in  this  book;  to  do 
so  would  perplex  the  layman.  But  a  word  further 
may  be  said  to  show  that  there  is  a  real  distinc- 
tion. 

We  said  above  that  a  promise  to  contribute  money 
to  a  charity — a  pure  gratuity — is  not  a  contract  in 
English  jaw,  because  there  is  no  consideration.  The 
giver  gets  no  quid  pro  quo.  In  the  theory  of  the 
French  and  Roman  law,  there  is  a  contract  because 
there  is  a  cause — the  desire  of  the  giver  to  give  or  his 
satisfaction  or  pleasure  in  giving.  There  is  an  ob- 
ject— that  is,  something  due — the  money  he  has  prom- 
ised. 

5.  What  may  he  a  sufficient  consideration, — It  may 
be  stated  as  a  general  principle  that  the  adequacy  of 
the  consideration  will  not  be  inquired  into.  "The 
value  of  all  things  contracted  for  is  measured  by  the 
appetite  of  the  contractors,  and  therefore  the  just 
value  is  that  which  they  be  contented  to  give."  ^ 

The  consideration  may  consist  in  "some  right,  in- 
terest, profit,  or  benefit  accruing  to  one  party,  or  some 
forbearance,  detriment,  loss,  or  other  responsibilty 
given,  suffered,  or  undertaken  by  the  other."  The 
Supreme  Court  of  the  United  States  has  held  that  the 
release  of  a  supposed  right  of  dower  (a  wife's  interest 
in  her  husband's  real  estate),  which  the  parties 
thought  necessarj^  to  confirm  a  title,  is  a  good  consid- 
eration for  a  promissory  note.     Forbearance  to  prose- 

1  Hobbes,  Leviathan,  pt.  1,  c.  15.    Cited  by  Pollock,  p.  184. 


THE  CONTRACT  ITSELF  35 

cute  a  meritorious  claim  made  in  good  faith  may  also 
be  sufficient. 

But  if  a  person  is  legally  bound  to  do  a  certain 
thing,  a  promise  to  do  it  is  not  a  sufficient  considera- 
tion. Thus  part  paJ^nent  of  a  hquidated  claim  which 
is  due  is  no  consideration  for  a  promise  to  forego  the 
balance.  But  if  A  out  of  charitj'  does  some  kindly 
act  for  B,  and  the  circumstances  are  such  that  B  could 
have  had  no  intention  of  papng  for  what  is  done,  a 
promise  on  his  part  to  pay  will  not  be  implied.  But 
a  promise  will  not  be  binding  if  based  upon  a  consid- 
eration which  fails  or  which  is  non-existent.  The 
rule  may  be  diflPerent  where,  for  instance,  a  piece  of 
property  is  bought,  and  both  vendor  and  purchaser 
understand  that  the  title  is  doubtful,  and  it  proves 
to  be  faulty. 

If  the  consideration  is  illegal,  it  will  not  support  an 
action.  If  the  parties  contract  about  somethmg 
which  they  believe  exists,  but  which  really  does  not, 
there  is  no  contract.  Thus  if  A  in  ^lontreal  sells  a 
horse  which  is  in  Toronto,  but  unknown  to  him  the 
horse  is  dead,  there  is  no  contract.  Similarly  if  A 
insures  B's  life  in  which  at  tlie  time  he  has  an  insurable 
interest,  but  unkno^\•n  to  him  B  is  dead,  the  policy  is 
void.  But  A  who  has  a  ship  at  sea  may  insure  it 
"lost  or  not  lost,"  provided  he  does  not  actually  know 
it  is  lost  at  the  time ;  and  the  insurer  will  be  bound  tho 
the  ship  may  have  been  lost  when  the  contract  was 
made.  A  could  make  a  contract  to  buy  an  auto- 
mobile to  be  made  a  vear  hence:  or  he  could  sell  a 


36  COMMERCIAL  LAW 

crop  of  hay  which  he  expects  next  season.  If  A 
promises  B  $10  provided  he  will  not  drink  or  smoke 
for  a  month,  there  is  a  sufficient  consideration. 

6.  The  Statute  of  Frauds.— The  English  Statute  of 
Frauds  was  enacted  in  1676.  In  the  United  States 
and  Canada,  provisions  similar  to  those  of  the  Eng- 
lish Statute  of  Frauds  are  in  force.  Their  purpose 
is  to  prevent  frauds  and  perjury  in  the  proving  of 
contracts.  The  general  rule  is  that  a  contract  must 
be  proved  by  a  writing.  But  there  are  exceptions  to 
the  rule: 

(a)  A  contract  may  be  proved  orally  if  the  writ- 
ten contract  is  lost  by  unforeseen  accident,  or  is  in  the 
possession  of  the  adverse  party  or  of  a  third  person 
and  cannot  be  produced. 

(b)  A  commencement  of  proof — i.e.,  a  writing 
which,  tho  it  does  not  set  out  the  contract,  makes 
its  existence  probable — may  be  sufficient.  This  is  the 
*'note  or  memorandum"  of  the  English  statute. 

(c)  A  writing  is  not  necessary  if  the  amount  in 
question  does  not  exceed  fifty  dollars. 

(d)  If  the  adverse  party  admits  the  contract  under 
oath,  no  writing  is  necessary. 

There  is  a  further  exception,  that  any  facts  con- 
cerning a  commercial  matter  may  be  proved  orally. 
But  if  the  amount  in  question  is  over  fifty  dollars,  a 
writing  will  be  necessary,  in  Quebec,  even  in  com- 
mercial matters: 

(a)  Upon  any  promise  or  acknowledgment 
wliereby  a  debt  is  taken  out  of  the  operation  of  the 


THE  CONTRACT  ITSELF  3T 

law  respecting  the  limitations  of  actions.  Thus,  by 
the  law  of  Quebec,  for  example,  a  promissory  note  is 
prescribed  or  outlawed  in  five  years.  If  a  plaintiff 
is  to  succeed  in  an  action  upon  a  note  made  more  than 
five  years  before  the  action  is  taken,  then  he  must 
allege  and  prove  by  a  writing  signed  by  the  defend- 
ant that  the  latter  has  acknowledged  his  indebtedness 
and  promised  to  pay  it.  If  an  amount  had  been  paid 
on  account  and  the  amount  was  written  on  the  back 
of  the  note  and  initialed  by  the  debtor,  that  would  be 
sufficient  proof  that  he  regarded  the  note  as  still  un- 
paid and  payable. 

(b)  A  promise  to  answer  for  the  debt,  default  or 
miscarriage  of  another  person  must  be  in  writing. 

(c)  A  minor  after  attaining  his  majority  may 
ratify  a  contract  made  during  his  minority.  His  rati- 
fication cannot  be  proved  unless  it  is  in  writing. 

(d)  In  the  case  of  a  contract  for  the  sale  of  goods 
exceeding  $50  in  value,  the  contract  cannot  be  proved 
unless  the  buyer  has  accepted  or  received  part  of  the 
goods  or  has  given  something  in  earnest  to  bind  the 
bargain. 

The  two  sections  of  the  English  statute  relating 
particularly  to  contracts  may  be  briefly  summarized. 
Section  4  states  that  the  following  promises  or  con- 
tracts to  be  enforceable  must  be  in  writing  and  be 
signed  by  the  debtor: 

(a)  Any  promise  of  an  executor  or  administrator 
to  pay  out  of  his  own  estate  any  debt  due  from  the 
estate  he  is  administering. 


38  COMMERCIAL  LAW 

(b)  Any  promise  to  answer  for  the  debt,  default 
or  miscarriage  of  another  person. 

(c)  Any  promise  to  perform  some  act,  such  as  to 
transfer  property  or  pay  money,  in  consideration  of 
marriage. 

(d)  Any  contract  for  the  sale  of  lands,  tenements 
or  hereditaments,  or  any  interest  in  or  concerning 
them.       ^ 

(e)  Any  contract  which  by  its  terms  is  not  to  be 
performed  within  the  space  of  one  year  from  the 
making  thereof.  For  example,  a  lease  for  more  than 
one  year  must  be  in  writing. 

The  seventeenth  section  provides  that: 

No  contract  for  the  sale  of  any  goods,  wares,  or  merchan- 
dise for  the  price  of  ten  pounds  sterling,  or  upwards,  shall 
be  allowed  to  be  good,  except  (1)  the  buyer  shall  accept 
part  of  the  goods  so  sold  and  actually  receive  the  same;  (2) 
or  give  something  in  earnest  to  bind  the  bargain;  (3)  or 
that  some  note  or  memorandum  in  writing  of  the  said  bar- 
gain be  made  and  signed  by  the  parties  to  be  charged  by 
such  contract,  or  their  agents  thereunto  lawfully  author- 
ized. 

REVIEW 

AVhat  are  the  vital  features  of  offer  and  acceptance? 

When  is  an  offer  sent  by  mail  or  telegraph  complete?  AVhen 
may  it  be  revoked?     May  a  posted  acceptance  be  revoked? 

Must  the  party  to  whom  the  offer  is  made  be  ascertained?  If 
an  offer  is  made  to  the  public,  when  does  a  contract  arise  ?  Must 
the  party  performing  the  service  have  knowledge  of  the  offer? 
How  may  an  offer  by  public  advertisement  be  revoked? 

Define  consideration.  Of  what  importance  is  it?  Is  a  moral 
obligation  enforceable?  What  is  the  law  concerning  considera- 
tion in  Quebec? 

Is   the  value  of  a  consideration  important?     If  a  person  is 


THE  CONTRACT  ITSELF  39 

» 

legally  bound  to  do  a  certain  thing,  is  a  promise  a  sufficient  con- 
sideration? May  an  action  be  supported  by  an  illegal  consid- 
eration ? 

What  is  the  Statute  of  Frauds  and  what  are  its  important  pro- 
visions ? 


CHAPTER  V 

FORMATION  OF  CONTRACTS:  VOID  AND  VOIDABLE 
CONTRACTS 

1.  Legality  of  object. — The  law  may  prohibit  the 
doing  of  certain  things,  or  certain  acts  may  be  con- 
trary to  public  policy.  If  an  agreement  has  an  object 
wliich  is  thus  contrary  to  law  or  public  policy,  an  en- 
forceable contract  cannot  result.  The  contract  can- 
not be  enforced,  damages  would  not  be  allowed  for 
non-performance,  and  what  has  been  paid  under  the 
contract  may  be  recovered.  Hence  if  the  perform- 
ance of  a  given  contract  would  consist  in  doing  such 
forbidden  act,  or  an  act  contrary  to  public  policy,  the 
law  will  not  exact  performance,  nor  will  the  parties 
be  entitled  to  ask  the  aid  of  the  law.  Such  contracts 
are  void,  in  that  they  are  illegal.  If  the  contract  then 
involves  some  violation  of  rules  of  decency,  morals  or 
good  manners,  the  law  will  take  notice  of  the  mischiev- 
ous nature  of  such  an  agreement,  to  the  extent  of  re- 
fusing to  recognize  that  any  legal  right  can  arise  out 
of  it.     As  was  said  in  a  leading  case : 

A  thing  may  be  unlawful  in  the  sense  that  the  law  will  not 
aid  it,  and  yet  that  the  law  will  not  immediately  punish  it.^ 

Such  agreements  are  void  as  being  immoral.     Then 

1  Cowan  vs.  MUbourn,  1867,  L.  R.  2,  Ex.  p.  236. 

40 


VOID  AND  VOIDABLE  CONTRACTS  41 

there  are  agreements  which  are  void  as  being  against 
public  policy:  for  example,  agreements  concerning 
matters  touching  the  good  government  of  the  com- 
monwealth and  the  administration  of  justice,  or 
concerning  matters  affecting  particular  legal  duties  of 
individuals  whose  performance  is  of  public  impor- 
tance, or  concerning  things  which  are  law^ful  in  them- 
selves, but  which  are  such  that  individual  citizens 
cannot,  without  general  inconvenience,  be  allowed  to 
set  bounds  to  their  freedom  of  action  in  connection 
with  them  as  freely  as  they  may  with  regard  to  other 
things.^ 

An  agreement  is  also  void  which  provides  for  some 
act  involving  the  commission  of  a  civil  wrong: 
for  example,  an  agreement  of  a  debtor  to  defraud  his 
creditor,  or  an  agi*eement  to  carry  out  some  fraudu- 
lent scheme  and  divide  the  profits.  A  debtor  in  diffi- 
culties who  makes  a  compromise  with  his  creditors,  at, 
say,  fifty  cents  on  the  dollar,  cannot  secretly  agree 
with  one  creditor  that  the  latter  shall  get  some  prefer- 
ence over  other  creditors ;  such  an  agreement  could  be 
upset.  This  was  well  laid  down  in  an  English  case, 
as  follows: 

Each  creditor  consents  to  lose  part  of  his  debt  in  consid- 
eration that  the  others  do  the  same,  and  each  creditor  may 
be  considered  to  stipulate  with  the  others  for  a  release  from 
them  to  the  debtor,  in  consideraion  of  the  release  by  him. 
Where  any  creditor,  in  fraud  of  the  agreement  to  accept 
the  composition,  stipulates  for  a  preference  to  himself,  his 
stipulation  is  altogether  void;  not  only  can  he  take  no  ad- 

1  Pollock,  p.  288. 


42  COMMERCIAL  LAW 

vantage  from  it,  but  he  is  to  lose  the  benefit  of  the  composi- 
tion.^ 

It  is  a  general  rule  of  public  policy  that  persons 
who  are  of  full  age  and  in  the  possession  of  their 
faculties  should  be  allowed  to  contract  freely.  A 
person  may  make  a  foolish  bargain,  but  the  courts  will 
not,  as  a  matter  of  public  policy,  declare  such  con- 
tracts Void,  tho  of  course  if  the  party  to  the  con- 
tract comes  within  one  of  the  classes  we  have  above 
considered,  for  example,  minors  or  insane  persons, 
the  court  will  then  interfere.  When  a  contract 
is  set  aside  as  being  contrary  to  public  policy,  what 
is  meant  is  that  the  contract  belongs  to  some 
class  of  contract  which  has  long  been  recognized  by 
the  law  as  unlawful.  Lord  Halsbury  said  in  a  recent 
case: 

I  do  not  think  that  the  phrase  "public  policy"  is  one 
which  in  a  court  of  law  explains  itself.  It  does  not  leave  at 
large  to  each  tribunal  to  find  that  a  particular  contract  is 
against  public  policy.  I  deny  that  any  court  can  invent  a 
new  head  of  public  policy.  A  contract  of  marriage  broker- 
age, the  creation  of  a  perpetuity,  a  contract  in  restraint  of 
trade,  a  gaming  or  wagering  contract,  or  the  assisting  of 
the  King's  enemies,  are  all  undoubtedly  unlawful  things ;  but 
it  is  because  these  things  have  been  either  acknowledged  or 
assumed  to  be  by  the  common  law  unlawful,  and  in  case  a 
judge  or  a  court  have  a  right  to  declare  that  such  things  are, 
in  his  or  their  view,  contrary  to  public  policy. 

2.  Wagering  contracts. — Wagering  contracts,  tho 
they  were  at  one  time  enforceable  under  the  common 

iMuUalieu  vs.  Hodgson,  16  Q.  B.  D.  689. 


VOID  AND  VOIDABLE  CONTRACTS  43 

law,  are  now  by  statute  illegal.  A  wagering  contract 
is  one  by  which  one  party  agrees  to  pay  another 
money  or  property  upon  the  happening  of  some  un- 
certain event.  There  is  no  right  of  action  for  the  re- 
covery of  a  bet  claimed  under  a  gaming  contract,  and 
if  the  losing  party  has  paid  over  the  money  he  cannot 
get  it  back,  unless  he  proves  that  there  has  been  fraud. 
The  law  thus  endeavors  to  discharge  gambling. 
Buying  stock  on  margin  has  been  held  not  to  be  a 
gambling  contract,  tho  betting  in  a  bucketshop  is.  In 
a  bucketshop  transaction  the  broker  does  not  buy  the 
stock;  he  merely  makes  a  bet  for  his  client  that  the 
stock  will  rise  or  fall,  and  it  is  a  gaming  contract. 
But  a  broker  who  buys  and  sells  shares  for  a  client, 
altho  on  margin,  actually  buys  the  stock.  The  con- 
tract is  not  a  gaming  contract,  altho  the  broker  may 
know  that  his  client  is  not  investing,  but  is  merely 
speculating,  and  that  the  client  has  really  insufficient 
means  and  should  be  saving  rather  than  risking  his 
money. 

A  contract  of  insurance,  altho  it  is  in  the  nature  of 
a  wagering  contract,  is  enforceable;  so  also  are  con- 
tracts for  the  sale  and  delivery  of  commodities  at 
different  prices.  The  actual  intention  of  the  parties 
will  decide  whether  or  not  the  contract  is  a  gaming 
contract  and,  therefore,  illegal.  Thus  if  goods  are 
bought  subject  to  deliverj^  at  a  future  date  at  a  fixed 
price,  but  it  is  agreed  that  the  goods  shall  not  be  de- 
livered or  the  price  paid,  with  the  understanding  that 
when  the  time  for  purchase  arrives,  the  intention  is 


44  COMMERCIAL  LAW 

merely  to  make  a  settlement  by  one  party  paying  the 
difference  between  the  market  price  and  the  contract 
price,  such  a  contract  is  a  gaming  contract  and  illegal. 
A  note  given  in  payment  of  such  a  settlement  would 
be  void. 

3.  Usurious  contracts. — By  statute  the  legal  rate  of 
interest  in  Canada  is  fixed  at  five  per  cent,  where  the 
agreement  does  not  fix  the  rate.  The  maximum  rate 
is  also  fixed  by  statute,  and  any  excess  over  this  max- 
imum is  usury.  The  Bank  Act  provides  that  a  bank 
may  stipulate  for  any  rate  of  interest  or  discount  not 
exceeding  seven  per  cent  per  annum,  and  may  re- 
ceive and  take  any  advance  in  such  rate,  but  no  higher 
rate  of  interest  shall  be  recoverable  by  a  bank.  By 
the  Money  Lenders  Act,  any  lender  who  shall  stipu- 
late for,  allow  or  exact  on  anj'^  negotiable  instrument, 
contract  or  agreement  concerning  a  loan  of  less  than 
five  hundred  dollars,  a  rate  of  interest  greater  than 
12  per  cent  per  annum,  is  liable  to  one  year's  im- 
prisonment, or  a  penalty  of  one  thousand  dollars.  If 
a  judgment  has  intervened,  the  rate  is  reduced  to  five 
per  cent.  A  bona  fide  holder,  before  the  maturity  of  a 
negotiable  instrument  discounted  by  a  preceding 
holder  at  more  than  12  per  cent,  may  recover  the 
amount  thereof,  but  the  party  paying  may  reclaim  the 
excess  from  the  money  lender. 

4.  Contracts  in  restraint  of  trade. — The  general 
principle  is  that  contracts  which  unreasonably  restrain 
trade  are  void.  It  is  contrarj'  to  public  policy  for  a 
man  to  contract  not  to  engage  in  business  at  all. 


VOID  AND  VOIDABLE  CONTRACTS  45 

There  may  be  circumstances,  however,  which  make  it 
reasonable  that  a  man  should  undertake  not  to  en- 
gage in  a  particular  business  for  a  certain  length  of 
time.  Thus  if  a  man  sells  a  business  and  he  under- 
takes not  to  carry  on  any  business  which  will  compete 
with  that  which  he  has  sold,  he  may  obtain  a  better 
])rice,  and  such  a  contract,  if  not  otherwise  unreason- 
able, wiU  be  maintained.  Even  then,  however,  the 
restraint  must  not  be  wider  than  is  reasonably  neces- 
sary. A  restraint  of  this  kind  may  be  more  reason- 
able now,  with  our  modern  means  of  transportation, 
than  would  have  been  the  case  fifty  years  ago.  Such 
a  restraint  is  not  necessarily  unreasonable  because  it 
is  unlimited  as  to  space.  Thus  in  a  leading  case  in 
England,^  Mr.  Xordenfelt,  who  was  a  manufacturer 
of  guns  and  explosives,  and  who  supphed  them  to  the 
various  governments  of  Europe,  sold  his  business  to 
^laxim  Xordenfelt  &  Company,  Limited,  and  under- 
took not  to  compete  with  the  business  for  twenty-five 
years.  There  was  no  restriction  as  to  space.  The 
sale  was  made  in  England,  and  later  'Mr.  Xordenfelt 
began  business  again  in  Belgium.  The  House  of 
Lords  held  that  the  restraint  in  this  case  was  not  un- 
reasonable, and  that  he  was  bound  by  his  contract. 

So  also  in  another  case  recently  decided  by  the 
House  of  Lords,  where  a  man  was  employed  to  sell 
clothing  on  the  instalment  plan,  and  he  entered  into 
a  contract  for  three  years,  and  bound  himself  that 
upon  lea\Tng  his  present  employ  he  would  not  work 

1  Xordenfelt  vs.  Maxim  Xordenfelt  &  Co.,  1891,  A.  C.  535. 


46  COMMERCIAL  LAW 

for  any  competing  firm  or  in  the  clothing  trade  for  a 
year  at  any  place  within  twenty-five  miles  of  the  em- 
ployer's place  of  business,  or  within  twenty-five  miles 
of  any  place  where  it  might  do  business,  the  contract 
was  held  unreasonable  and  void.  Under  the  contract, 
it  was  pointed  out,  the  employer  might  have  dismissed 
the  man  at  any  time,  and  if  the  contract  were  good 
the  en^ployee  would  find  himself  unable  to  earn  a 
livelihood  by  perhaps  the  only  business  he  knew. 

In  Quebec,  an  injunction  has  been  refused  to  re- 
strain a  bread  driver  from  employing  himself  with  a 
competing  fii-m,  altho  he  had  bound  himself  to  his 
employer  for  a  certain  period,  and  had  agreed  that 
he  would  not  engage  in  the  bread  business  or  in  the 
soliciting  of  orders  for  bread  for  a  certain  period 
in  the  City  of  JNIontreal.  It  was  held  that  his  services 
were  not  of  such  a  unique  and  unusual  character  tliat 
he  could  not  be  replaced,  and  that  any  loss  that  might 
be  caused  by  his  leaving  could  be  reasonably  and 
adequately  compensated  for  in  damages.  Appar- 
ently, however,  it  is  not  a  restraint  of  trade  for  a 
dealer  in  liquors  to  bind  himself  to  sell  only  the  liquors 
of  a  certain  firm.^  The  general  rule,  as  laid  do^vn  in 
the  Nordenfelt  case,  is  that  the  restraint  must  not  be 
greater  than  is  reasonably  necessary  for  the  protection 
of  the  parties,  and  so  as  to  be  contrary  to  public 
policy. 

5.  Unlawful  combinations. — Combinations  in  re- 
straint of  trade  are  unlawful  and  criminal.     Thus 

1  Gervais  vs.  Paquette,  1907,  37  Que.  S.  C.  501. 


VOID  AND  VOIDABLE  CONTRACTS  47 

combinations  between  dealers  in  staple  commodities 
to  control  and  increase  the  price  by  decreasing  the 
production  or  competition  are  illegal  and  void.  The 
law  may  be  stated  as  follows:  Everyone  is  guilty  of 
an  indictable  offence  and  liable  to  a  penalty  not  ex- 
ceeding $4,000  and  not  less  than  $200,  or  to  two  years' 
imprisonment,  or  if  a  corporation,  to  a  penalty  not 
exceeding  $10,000,  who  conspires,  combines,  agrees  or 
arranges  with  any  other  person  or  with  any  railway, 
steamship,  steamboat  or  transportation  company;  (a) 
to  unduly  limit  the  facilities  for  transporting,  pro- 
ducing, manufacturing,  supplying,  storing  or  dealing 
in  any  article  or  commodity  which  may  be  a  subject 
of  trade  or  commerce;  (b)  to  restrain  or  injure 
trade  or  commerce  in  relation  to  any  such  article  or 
commodity;  (c)  to  unduly  prevent,  limit  or  lessen 
the  manufacture  or  production  of  any  such  article  or 
commodity,  or  to  unreasonably  enhance  the  price 
thereof;  (d)  to  unduly  prevent  or  lessen  competi- 
tion in  the  production,  manufacture,  purchase,  barter, 
sale,  transportation  or  supply  of  any  such  article  or 
commodity,  or  in-  the  price  of  insurance  upon  person 
or  property.  This  rule,  however,  is  not  construed 
to  apply  to  combinations  of  workmen  or  employes  for 
their  own  reasonable  protection  as  such  workmen  or 
employes.  As  a  combination  in  restraint  of  trade  is 
illegal,  the  Supreme  Court  of  the  United  States  has 
held  that  parties  to  it  have  no  standing  in  court,  and 
the  court  will  not  assist  in  enforcing  such  contracts. 
In  the  United  States,  however,  it  has  been  held  illegal 


48  COMMERCIAL  LAW 

for  workmen  to  combine  to  enhance  the  price  of  their 
labor.     For  example,  it  was  said  in  an  Illinois  case :  ^ 

All  of  the  members  of  the  association  are  engaged  in  the 
same  business  within  the  same  territory,  and  the  object  of 
the  association  is  purely  and  simply  to  silence  and  stifle  all 
competition  as  between  its  members.  No  equitable  reason 
for  such  restraint  exists,  the  only  reason  put  forward  being 
that,  under  the  influence  of  competition  as  it  existed  prior 
to  the  oi'ganization  of  the  association,  prices  for  stenograph- 
ical  work  had  been  reduced  too  far,  and  the  association  was 
organized  for  the  purpose  of  putting  an  end  to  all  competi- 
tion, at  least  as  between  those  who  could  be  induced  to  be- 
come members.  True,  the  restraint  is  not  so  far-reaching 
as  it  would  have  been  if  all  the  stenographers  in  the  city  had 
joined  the  association,  but  so  far  as  it  goes  it  is  precisely 
of  the  same  character,  produces  the  same  results  and  is  sub- 
ject to  the  same  legal  objection. 

Greenhood,  on  Public  Policy,  points  out,  how- 
ever, that  where  the  means  contemplated  and  the  ob- 
jects sought  are  not  unlawful,  combinations  of 
workmen  to  control  the  price  of  their  labor  or  skill  are 
not  necessary  illegal.     He  says: 

Combinations  of  artisans  for  their  common  benefit,  as  for 
the  development  of  skill  in  their  trade,  or  to  prevent  over- 
crowding therein,  or  to  encourage  those  belonging  to  their 
trade  to  enter  their  fold,  or  for  the  purpose  of  raising  the 
prices  of  labor,  are  valid,  provided  no  force  or  other  unlaw- 
ful means  be  employed  to  carry  out  their  needs,  or  their 
object  be  not  to  impoverish  third  persons,  or  to  extort 
money  from  employers,  or  to  encourage  strikes  or  breaches 
of  contract,  or  to  restrict  the  freedom  of  members  for  the 
purpose  of  compelling  employers  to  conform  to  their  rules. ^ 

1  Moore  vs.  Bennett,  149  111. 

2  Greenhood,  Public  Policy',  Rule  546. 


VOID  AND  VOIDABLE  CONTRACTS  49 

In  an  American  case,  where  a  wallpaper  company 
sued  to  recover  the  price  of  wallpapers  which  it  had 
supplied,  the  defendant  pleaded  that  the  company  was 
a  combination  in  restraint  of  trade, ^  It  was  clear 
from  the  evidence  that  the  company  had  a  monopoly, 
and  that  it  was  really  an  illegal  combination  of  fac- 
tories in  the  wallpaper  trade.  The  Supreme  Court 
pointed  out  that  to  give  judgment  in  favor  of  the 
company  would  be  to  legalize  and  make  effective  the 
illegal  agreement  constituting  the  monopoly,  and  the 
court  said: 

Such  a  judgment  cannot  be  granted  without  departing 
from  the  salutary  rule  long  established  in  the  jurisprudence 
of  both  this  country  and  England,  that  a  court  will  not  lend 
its  aid  in  any  way  to  enforce  or  to  realize  the  fruits  of  an 
agreement  which  appears  to  be  tainted  with  illegality,  al- 
tho  the  result  of  applying  that  rule  may  sometimes  be 
to  shield  a  defendant  who  had  got  something  for  which,  as 
between  man  and  man,  he  ought  perhaps  to  pay,  but  for 
which  he  is  unwilling  to  pay.  In  such  cases  the  aid  of  the 
court  is  denied,  not  for  the  benefit  of  the  defendant,  but  be- 
cause it  should  be  denied  without  regard  to  the  interests  of 
individual  parties. 

A  case  was  recently  decided  by  the  Supreme  Court 
of  Canada,  on  an  appeal  from  ^lanitoba.  Two  junk 
dealers,  who  had  practically  a  monopoly  of  this  trade 
in  ^Manitoba  and  elsewhere  in  the  West,  agreed  to  fix 
the  price  which  they  would  pay  for  junk  of  various 
kinds.  The  agreement  rendered  their  business  more 
profitable  than  ever,  and  under  it  they  were  to  divide 

1  Continental  Wallpaper  Co.  vs.  Voight     Decided  Feb.  5,  1909. 
XXIV— 5 


50  COMMERCIAL  LAW 

the  profits.  One  sued  the  other  to  account  for  profits, 
but  it  was  held  that  no  action  would  lie,  because  the 
agreement  was  really  an  illegal  combination  under  the 
statute.^ 

6.  Contracts  made  on  Sunday, — The  common  law 
rule  is  that  contracts  made  on  Sunday  are  valid. 
In  England,  the  United  States  and  certain  of  the 
Canadian  provinces,  however,  contracts  are  generally 
illegal  if  made  on  Sunday.  The  Bills  of  Exchange 
Act,  for  instance,  provides  that  a  bill  is  not  invalid  by 
reason  only  that  it  bears  date  of  a  Sunday,  or  other 
non- juridical  day;  but  apparently  if  the  bill  were 
given  in  pursuance  of  a  contract  which  under  the 
statute  may  be  illegal  if  made  on  a  Sunday,  it  would 
be  void  as  between  the  immediate  parties,  and  as  to 
any  person  who  takes  it  with  notice ;  but  the  mere  fact 
that  it  is  dated  on  a  Sunday  would  not  be  such  a 
notice. 

Under  a  Dominion  statute  ^  it  was  made  unlawful 
for  any  person  to  carry  on  or  to  transact  any  business 
of  his  ordinary  calling,  except  works  of  necessity  or 
mercy,  on  the  Lord's  day,  but  this  act  goes  on  to  pro- 
vide that  it  shall  not  affect  any  existing  provincial  law 
on  the  subject.  The  act  apparently  would  not  apply 
in  a  particular  province  where,  under  the  provincial 
law,  druggists,  tobacconists  and  fruit  dealers  kept 
open  on  Sunday.  What  may  be  a  work  of  necessity 
or  charity  is  a  question  of  fact  in  each  case,  but  any- 

1  Weidman  vs.  Shragge,  1912,  46  S.  C.  R.,  p.  1. 

2  6  Ed.  7,  Chap.  27  (now  R.  S.  C,  Chap.  153). 


VOID  AND  VOIDABLE  CONTRACTS  51 

thing  done  to  save  life  or  preserve  health  or  property, 
which  must  be  done  on  a  Sunday  or  not  at  all,  would 
probably  be  considered  a  work  of  necessity.  So  also 
any  act,  the  object  of  which  is  to  relieve  distress  or 
suffering,  or  which  relates  to  religious  worship,  would 
be  an  act  of  charity. 

It  has  been  held  in  American  cases  that  notes,  deeds 
and  mortgages  which  are  signed  on  a  Sunday,  but 
which  are  not  delivered  on  that  day,  are  valid ;  but  that 
on  the  contrary,  if  signed  on  a  secular  day  and  de- 
livered on  a  Sundav,  thev  are  void,  savins  the  rights 
of  a  bona  fide  holder  for  value  of  a  negotiable  in- 
strument. 

7.  Contracts  in  restraint  of  marriage. — Contracts 
in  restraint  of  marriage  are  generally  held  to  be 
against  public  policy,  and  are  therefore  void.  A  con- 
tract not  to  marry  a  certain  person,  or  not  to  marry 
anyone  before  attaining  the  age  of  twenty-one,  or 
perhaps  twenty-five,  may  be  valid,  in  that  it  does  not 
restrain  marriage  in  general;  but  a  contract  not  to 
marry  anyone  but  a  particular  person  would  be  void. 
A  widow  or  widower  may  contract  not  to  marry  a  sec- 
ond time,  but  a  person  may  not  contract  to  remain  un- 
married. A  contract  not  to  marry  without  the  consent 
of  parents,  or  during  minority,  would  be  valid,  be- 
cause the  restraint  is  not  unreasonable.  A  contract 
not  to  marry  a  Hebrew  or  a  Roman  Catholic  would 
be  valid.  A  contract  not  to  marry  until  one  has  at- 
tained the  age  of  forty  would  be  invalid,  because  it 
discourages  matrimony.     A  bet  by  one  person  that  he 


52  COMMERCIAL  LAW 

will  not  marry  within  a  certain  time  is  a  wager,  akd 
void. 

Agreements  to  procure  or  negotiate  marriage  for 
reward,  known  as  marriage  brokerage  contracts,  are 
held  to  be  contrary  to  public  policy,  and  therefore 
void.  Pollock  remarks  ^  that  all  such  agi'eements  are 
void,  whether  for  procurement  of  marriage  with  a 
specified  person,  or  of  marriage  generally,  and  serv- 
ices rendered  without  request  in  procuring  or  forward- 
ing a  marriage  (at  all  events  a  clandestine  or  improper 
one)  are  not  merely  of  no  consideration,  but  an  illegal 
consideration  for  a  subsequent  promise  of  reward. 
It  was  said  in  an  English  case:^  "Both  ladies  and 
gentlemen  are  frequently  induced  to  promise  not  to 
marry  any  other  persons  but  the  objects  of  their  pres- 
ent passion;  and  if  the  law  should  not  rescind  such 
engagements,  they  would  become  prisoners  for  life,  at 
the  will  of  the  most  inexorable  jailers — disappointed 
lovers." 

8.  Contracts  in  fraud  of  third  persons. — A  contract 
is  void  if  it  tends  to  induce  some  third  person  to 
commit  a  breach  of  trust,  or  if  it  tends  to  defraud  a 
third  person.  Contracts  are  opposed  to  public  policy 
if  they  are  opposed  to  open,  upright  and  fair  dealing, 
and  contracts  are  void  which  place  a  person  under  an 
inducement  to  violate  a  confidence  reposed  in  him,  or 
which  place  him  under  a  wrong  influence,  or  under  a 
temptation  which  injures  the  rights  of  third  persons. 

1  Pollock,  p.  366.  ^  2  Wilm,  371. 


VOID  AND  VOIDABLE  CONTRACTS  53 

Thus  an  agreement  to  divide  the  profits  of  a  fraudu- 
lent scheme,  or  even  to  carry  out  some  lawful  object 
by  means  of  an  apparent  trespass,  breach  of  contract 
or  breach  of  trust,  is  void.  Thus,  if  A  and  B  are  in- 
terested in  conmion  with  other  persons  in  a  transaction 
which  requires  the  good  faith  of  all  persons  interested, 
and  A  and  B  make  a  secret  agreement  which  is  in- 
tended to  benefit  them  at  the  expense  of  the  others, 
the  agreement  is  void.  Or  if  B,  upon  application  of 
A,  agrees  to  advance  money  to  enable  him  (A)  to  buy 
certain  goods  of  C ;  B  goes  to  C  and  pays  him  the 
money  agreed  upon,  in  order  that  A  may  get  the 
goods ;  A  and  C  agree  that  A  shall  pay  a  further  simi : 
this  agreement  between  A  and  C  is  void,  as  it  is  a 
fraud  upon  B,  who  intended  to  relieve  A  from  paying 
any  part  of  the  price. 

9.  Contracts  against  liahility  for  negligence, — It  is 
difficult  to  express  a  rule  of  universal  acceptance  in 
Canada  upon  this  subject.  According  to  French  law, 
it  is  very  doubtful  whether  a  man  may  stipulate  for 
freedom  from  the  consequences  of  his  ordinary  negli- 
gence. Against  his  wilful  negligence,  which  is  assimi- 
lated to  fraud,  it  is  said  that  he  cannot  stipulate.  A 
person  may  stipulate,  of  course,  that  he  will  not  be 
liable  for  loss  under  circumstances.  Thus  if  a  re- 
pairer of  antiques  is  asked  to  repair  some  very  fragile 
article,  he  may  stipulate  that  he  will  not  be  responsible 
if  the  article  goes  to  pieces  in  the  course  of  repair. 
The  effect  of  the  various  Workmen's  Compensation 


64.  COMMERCIAL  LAW 

Acts,  whatever  may  have  been  the  law  before,  is  to 
prevent  employers  stipulating  against  liability  as 
toward  workmen. 

At  English  common  law,  it  is  said  that  in  the  ab- 
sence of  statute  to  the  contrary,  a  carrier  may  stipu- 
late for  total  exemption  from  liability  for  negligence. 
In  the  English  law  provinces,  this  rule  has  in  several 
instances  been  altered  by  statute.  In  Quebec,  under 
the  authority  of  a  decision  of  the  Supreme  Court,  a 
carrier  may  stipulate  by  express  contract  that  he  shall 
not  be  liable  for  the  negligence  of  his  employees  or 
servants. 

The  rule  laid  down  by  the  Dominion  Railway  Act 
is,  however,  that  a  railway,  that  is,  a  Dominion  rail- 
way, cannot  contract  itself  out  of  liability  for  its  negli- 
gence or  that  of  its  servants  by  any  notice,  condition 
or  declaration.  A  company  may,  however,  with  the 
approval  of  the  Railway  Board,  stipulate  that  its 
liability  be  limited  to  a  fixed  sum,  even  in  case  of 
negligence.  It  may  also  stipulate  that  unless  notice 
of  claim  is  given  to  it  within  a  certain  delay,  it  shall 
not  be  liable.  Ordinarily,  carriers  are  liable  as  in- 
surers of  goods  carried.  In  other  words,  a  carrier  is 
bound  to  deliver  in  good  condition  articles  received 
and  carried  by  it,  tho  there  be  no  negligence  on 
its  part.  It  is  evident  that  the  carrier  may  contract 
against  this  liability. 

10.  Effect  of  illegality. — Whether  an  illegal  stipu- 
lation in  a  contract  will  void  the  contract  as  a  whole 
or  only  in  part  will  depend  upon  the  circumstances. 


VOID  AND  VOIDABLE  CONTRACTS  55 

It  is  not  sufficient  to  assert  merely  that  an  unlawful 
agreement  cannot  be  enforced.  Where  there  is  a  law- 
ful promise  made  for  a  lawful  consideration,  the  con- 
tract is  not  necessarily  void  because  there  is  an  un- 
lawful promise  made  at  the  same  time  for  the  same 
consideration. 

It  is  well  established  that  if  in  a  deed,  for  instance, 
there  are  certain  covenants  or  conditions  which  are 
good  and  lawful,  and  others  which  are  contrary  to 
law,  the  latter  will  be  struck  out  and  the  former  will 
stand  good.  That  is,  where  there  are  distinct  en- 
gagements in  a  contract  by  which  a  party  binds  him- 
self to  do  certain  acts,  some  of  which  are  legal  and 
some  illegal,  at  common  law  the  performance  of  those 
which  are  legal  may  be  enforced,  tho  the  performance 
of  those  which  are  illegal  cannot.^ 

It  has  also  been  laid  down  that  where  a  transaction 
which  is  partly  valid  and  partly  invalid  is  dehberately 
separated  by  the  parties  into  two  agreements,  one  ex- 
pressing the  valid  and  the  other  the  invalid  part,  the 
party  who  is  called  upon  to  perform  his  part  of  the 
agreement,  which  is  on  the  face  of  it  valid,  will  not 
be  allowed  to  urge  that  the  transaction  as  a  whole  is 
unlawful  and  void.  If  the  illegal  cannot  be  sep- 
arated from  the  legal  part  of  the  covenant,  the  con- 
tract is  entirely  void,  but  if  they  can  be  severed,  the 
bad  part  may  be  rejected  and  the  good  part  retained. 

Thus  Kent  lays  do\^Ti  that  "if  the  part  which  is 
good  depends  upon  that  which  is  bad,  the  whole  is 

1  Bank  of  Australasia  vs.  Breillat,  1847,  6  Moo.,  P.  C.  152. 


56  COMMERCIAL  LAW 

void ;  and  so  I  take  the  rule  to  be,  if  any  part  of  the 
consideration  be  malum  in  se,  or  the  good  and  the 
void  consideration  be  so  mixed,  or  the  contract  so  en- 
tire, that  there  can  be  no  apportionment,  the  contract 
is  void." 

Where  any  part  of  a  single  consideration  for  a 
promise  or  set  of  promises  is  unlawful,  and  the  con- 
sideration cannot  be  severed  so  as  to  assign  a  lawful 
consideration  to  any  of  the  promises,  the  contract  as 
a  whole  is  void.  The  immediate  object  or  considera- 
tion may  not  be  unlawful,  but  the  intention  of  one 
or  both  parties  in  making  the  contract  may  be  unlaw- 
ful, in  which  case  there  are  two  possibilities :  if  the  un- 
lawful intention  when  the  contract  is  made  is  shared 
by  both  parties,  or  is  entertained  by  one  to  the  knowl- 
edge of  the  other,  then  the  contract  is  void;  if  one  of 
the  parties,  unknown  to  the  other,  has  an  unlawful 
intention  when  the  contract  is  made,  it  may  be  voided 
by  the  innocent  party,  if  he  discovers  the  intention  be- 
fore the  contract  is  executed. 

Thus  if  the  lessee  of  a  house,  which  he  knows  is  used 
by  the  tenants  for  immoral  purposes,  assigns  the  lease, 
and  he  knows  that  the  person  to  whom  he  assigns  it  in- 
tends to  continue  the  same  use,  he  will  not  be  allowed 
to  recover  on  a  contract  made  by  the  person  to  whom 
he  assigns  the  lease  to  indemnify  him  against  the  cove- 
nants of  the  original  lease. 

A  person  who  owns  a  property  and  who  has 
undertaken  to  sell  or  lease  it,  but  who  finds  that  the 
purchaser  or  lessee  intends  to  use  it  for  unlawful 


VOID  AND  VOIDABLE  CONTRACTS  57 

purposes,  is  entitled  and  may  even  be  bound  to  rescind 
the  contract.  It  has  been  laid  down  that  he  need  not 
even  give  his  reasons  for  doing  so,  as  he  may  justify 
his  refusal  later.  But  where  a  contract  has  been  com- 
pletely executed,  as  for  example  by  the  transfer  of 
property,  the  consideration  may  be  paid  or  the  trans- 
fer may  have  been  made  for  some  unlawful  purpose 
of  which  both  parties  were  aware,  but  once  executed  it 
cannot  be  set  aside.  Thus  in  an  English  case,  where 
two  promissory  notes  were  secretly  given  to  a  creditor 
by  a  debtor  who  was  making  a  compromise  with  his 
creditors,  the  notes  being  in  excess  of  the  amount  of 
the  creditor's  rightful  composition  share,  judgment 
was  given  on  one  of  the  notes;  a  third  person  inter- 
vened and  gave  the  creditor  a  guarantee  for  the 
amount  involved,  upon  the  creditor's  staying  proceed- 
ings.    An  action  on  this  guarantee  was  dismissed. 

If  a  school  teacher  who  has  not  the  proper  license 
undertakes  to  teach  and  does  teach  in  a  school  for  a 
number  of  months  at  a  good  salary,  he  will  not  be 
entitled  to  recover  for  his  services.  A  doctor  who 
practises  without  the  necessary  license  or  qualification 
would  be  in  the  same  position.  The  sale  of  tobacco 
may  be  prohibited  by  statute  on  a  Sunday;  a  tobac- 
conist who  sold  tobacco  on  a  Sunday  on  credit  would 
not  be  entitled  to  collect. 

A  director  of  a  railway  company  cannot  have  a 
private  interest  in  a  contract  with  the  company. 
Thus  if  a  director  of  a  railway  company  which  is  put- 
ting up  a  building  makes  a  secret  partnership  with  the 


58  COMMERCIAL  LAW 

contractor  who  is  doing  the  work,  his  contract  is  il- 
legal, and  he  could  not  sue  his  partner  for  a  division 
of  profits. 

It  is  illegal  to  pay  money  or  undertake  to  pay 
money  to  avoid  or  prevent  the  prosecution  of  a  crim- 
inal. Thus  the  Court  of  Appeals  of  the  Province  of 
Quebec  has  held  that  where  a  bank  clerk  embezzled 
money  and  his  father  gave  the  bank  a  note  to  cover  the 
amount  stolen,  on  the  condition  that  the  bank  would 
drop  the  prosecution,  and  the  bank  accepted  the  note 
and  went  no  further  with  the  case,  the  note  could  not 
be  collected. 

A  contract  by  which  a  IMember  of  Parliament  ac- 
cepted money  in  return  for  his  promise  to  vote  as  he 
might  be  directed  by  another  person  would  be  illegal. 

Contracts  between  a  lawyer  and  his  client  which 
stipulate  that  the  lawyer,  if  the  action  is  successful, 
will  accept  for  his  services  a  share  of  the  money 
recovered,  are  illegal.  Such  contracts  are  deemed 
illegal  because  the  lawyer,  tho  entitled  to  a  reasonable 
fee,  is  able  to  judge  of  the  outcome  of  the  case,  and 
hence  the  client  is  at  a  disadvantage. 

If  a  person  sells  a  grocery  business  and  contracts 
that  he  will  not,  during  a  period  of  five  years,  engage 
in  the  grocery  business  in  the  same  town,  such  an 
agreement  is  reasonable,  is  not  in  restraint  of  trade, 
and  is,  therefore,  valid;  but  if  the  seller  agreed 
that  he  would  not  engage  in  the  grocery  business  for 
the  same  period  in  any  place  in  Canada,  the  contract 
would  be  unreasonable  and  void. 


VOID  AND  VOIDABLE  CONTRACTS  59 

A  loan  to  a  person  to  enable  him  to  run  a  bucket- 
shop,  it  being  agreed  that  the  lender  is  to  receive  a 
share  of  the  profits,  would  be  illegal. 

In  certain  jurisdictions,  steamboat  excursions  may- 
be prohibited  on  a  Sunday.  The  captain  or  engineer 
or  other  person  who  assisted  in  running  the  excursion 
would  be  unable  to  collect  his  wages. 

11.  Reality  of  consent. — As  we  have  seen,  the  con- 
sent of  the  parties  to  a  contract  must  be  expressed  in 
some  way.  The  minds  of  the  parties  must  meet,  but 
there  must  be  something  which  indicates  the  fact.  In 
other  words,  the  consent  must  be  real.  The  consent 
may,  therefore,  be  unlawful  or  defective  owing  to  mis- 
take, misrepresentation,  fraud,  undue  influence  or 
duress. 

Where  a  party  to  a  contract  can  show  that  he  gave 
his  consent  without  understanding  the  nature  of  the 
contract,  or  the  thing  about  which  he  was  contracting, 
or  something  which  was  the  principal  consideration 
for  making  the  contract,  he  may  have  it  set  aside.  He 
may  be  able  to  prove  fraud  or  misrepresentation  by 
the  other  party,  or  show  that  by  some  form  of  violence 
he  was  coerced  into  making  the  contract.  In  a  sense 
the  contract  is  good,  but  a  person  who  has  been  led 
into  it  by  error  or  fraud  may  have  it  declared  void 
if  he  takes  steps  to  do  so  before  his  right  is  pre- 
scribed. 

If  a  person,  who  has  made  a  contract  under  any  of 
the  above  circumstances,  ratifies  the  contract  or  ac- 
quiesces in  it,  he  will  not  then  be  allowed  to  set  it 


60  COMMERCIAL  LAW 

aside.  In  certain  cases,  however,  as  for  example  in 
the  case  of  a  promissory  note,  the  maker  may  have 
signed  in  error,  or  as  a  result  of  some  fraud  or  mis- 
representation, but  if  the  note  gets  into  the  hands  of 
a  third  party  who  in  good  faith  without  notice  of  the 
defect  gives  value  for  it,  the  maker  will  be  bound 
toward  such  third  party. 

12.  Mistake  or  error. — A  mistake  may  be  one  of 
fact  or  of  law.  A  mistake  of  fact  may  be  either 
of  intention  or  expression.  If  the  parties  to  a  con- 
tract do  not  mean  the  same  thing,  or  one  of  them 
forms  an  untrue  conclusion  as  to  the  subject  matter 
of  the  contract,  there  has  been  a  mistake  of  intention 
and  the  contract  is  void,  because  the  minds  of  the  par- 
ties have  not  met. 

Thus  A  may  lend  a  horse  to  B,  and  B  may  think  that 
A  is  giving  it  to  him :  there  is  no  contract  of  gift.  A 
man  may  sign  a  paper  by  which  he  purports  to  sub- 
scribe for  shares  in  a  company,  and  he  paj^s  $500.  At 
the  time  he  thought  that  he  was  subscribing  for  five 
fully  paid-up  shares.  In  the  contract  as  drawn  up  he 
appears  to  subscribe  for  fifty  shares  of  $100  upon 
which  he  pays  $10  each,  or  $500  on  account.  Such 
a  contract  has  been  set  aside.  Or  if  a  man  signs  a 
promissory  note  and  thinks  it  is  merely  an  order  for 
certain  goods,  he  will  not  be  bound  by  his  mistake. 

Where  one  party  is  ignorant  of  the  subject  matter 
of  the  contract,  the  law  requires  the  other  to  disclose 
all  the  material  facts  of  which  he  has  knowledge.  So 
also  if  goods  are  bought  in  reliance  upon  the  judg- 


VOID  AND  VOIDABLE  CONTRACTS  61 

ment  of  the  seller,  and  the  buyer  finds  that  goods  are 
shipped  to  him  which  he  did  not  intend  to  buy,  he  is 
not  bound  by  his  contract.  If  a  man  buys  a  quan- 
tity of  goods  and  he  intends  to  buy  one  hundred 
pieces,  and  the  other  party  thinks  that  he  is  buying 
five  hundred  pieces,  or  the  buyer  thinks  that  he  is  pay- 
ing $1  and  he  is  actually  charged  $2,  there  has  been  no 
consent  as  to  the  subject  matter  of  the  contract,  and 
the  contract  is  voidable.  So  if  a  man  buys  plated 
goods  in  mistake  for  silver,  or  buys  a  modern  repro- 
duction which  he  thinks  is  an  antique,  he  may  have  the 
contract  set  aside.  If  a  person  pays  do^Ti  a  sum 
of  money  for  some  secret  process,  say,  for  the  man- 
ufacture of  ginger  ale,  and  it  turns  out  that  there 
is  no  secret,  he  will  not  be  bound.  It  is  different  if  a 
man  buys  a  picture  from  a  dealer  by  some  unknown 
painter,  and  he  believes  it  to  be  a  Rembrandt,  with- 
out the  dealer's  declaring  it  to  be  a  picture  by  Rem- 
brandt. The  buyer  will  then  be  bound.  There  was 
no  guarantee,  and  the  buyer  bought  in  doubt.  His 
purchase  was  really  a  speculation. 

A  contract  is  not  necessarily  invalid  because  there 
has  been  a  mistake  of  expression.  The  expression 
may  be  corrected,  where  the  minds  of  the  parties  have 
met,  but  their  intention  has  not  been  exactly  set  out. 
A  mistake  of  law  does  not  void  a  contract.  Thus  a 
man  may  make  a  contract  by  which  he  sells  a  certain 
thing,  and  by  law  the  sale  of  it  carries  with  it  its  ac- 
cessories ;  he  cannot  have  the  contract  set  aside  on  the 
ground  that  he  did  not  intend  that  the  accessories 


62  COMMERCIAL  LAW 

should  go  with  the  thing  sold.  He  may  accept  a  suc- 
cession, ignorant  of  the  fact  that  by  accepting  it  he 
accepts  also  the  liabilities  attached  thereto. 

13.  Misrepresentation  and  fraud. — To  constitute 
misrepresentation  or  fraud  sufficient  to  set  aside  a 
contract,  there  must  be  proof  of  an  intention  to  de- 
ceive; there  must  be  proof  that  artifice  was  used  by 
one  party,  or  with  his  knowledge,  to  induce  the  other 
to  contract.  An  innocent  misrepresentation  in  most 
cases  will  not  be  sufficient,  tho  in  a  contract  of  insur- 
ance, and  sometimes  as  between  persons  who  stand  in 
a  confidential  relation,  the  innocent  misrepresentation, 
if  material,  will  render  the  contract  null.  Fraud  gen- 
erally includes  misrepresentation.  If  there  is  present 
a  dishonest  intention  on  the  part  of  the  person  who 
makes  the  misrepresentation,  or  recklessness  equiva- 
lent to  dishonesty,  fraud  will  be  easily  found,  because 
the  mistake  of  the  one  party  has  been  induced  by  the 
deliberate  words  or  conduct  of  the  other. 

Fraud  has  been  defined  as  a  false  misrepresentation 
of  a  material  fact,  made  with  knowledge  of  its  falsity, 
or  in  reckless  disregard  of  its  truth  or  falsity,  intend- 
ing that  it  be  acted  upon  by  another  who  relies  upon 
the  statement,  acts  to  his  injury.  The  failure  to  dis- 
close material  facts,  where  there  was  a  plain  duty  to 
disclose  them,  may  amount  to  fraud. 

The  representation  may  be  made  by  express  words 
or  by  conduct.  It  may  be  a  positive  assertion,  or 
merely  a  suggestion  of  what  is  false,  and  relate  to  a 
particular  fact  or  a  general  state  of  things. 


VOID  AND  VOIDABLE  CONTRACTS  63 

It  is  characteristic  of  a  misrepresentation  tainted 
with  fraud  or  deceit,  that  it  is  made  without  positive 
behef  in  its  truth;  there  may  not  be  positive  knowl- 
edge of  its  falsehood.  Thus  a  person  may,  in  igno- 
rance of  its  truth  or  falsehood,  make  a  material  repre- 
sentation which  proves  to  be  false.  In  such  case,  his 
ignorance  will  be  treated  as  equivalent  to  knowledge 
of  falsehood.  It  was  remarked  in  an  Enghsh  case 
that  "if  persons  take  upon  themselves  to  make  as- 
sertions on  subjects  of  which  they  are  ignorant, 
whether  they  are  true  or  untrue,  they  must  in  a  civil 
point  of  view  be  held  as  responsible  as  if  they  had  as- 
serted that  which  they  knew  to  be  true." 

As  to  the  effect  of  silence,  it  has  been  held  that  it 
is  equivalent  to  misrepresentation,  if  the  withholding 
of  that  which  is  not  stated  makes  that  which  is  stated 
absolutely  false. 

It  was  said  by  Lord  Campbell  that  "a  single  word 
or  nod  or  wink,  or  a  shake  of  the  head,  or  a  smile  from 
the  purchaser,  intending  to  induce  the  vendor  to  be- 
lieve the  existence  of  a  non-existent  fact,  might  be 
fraud."  Thus  if  A  has  a  picture  which  he  considers 
valuable,  and  he  thinks  it  is  a  Rembrandt,  and  takes 
it  to  a  dealer  who,  knowing  that  it  is  a  Rembrandt, 
laughs  at  A's  suggestion,  and  indicates  that  he  does 
not  think  it  is  a  Rembrandt,  and  thus  induces  A  to  sell 
it  to  him  for  a  trifling  amount,  A,  if  he  finds  out  that 
the  picture  is  actually  a  Rembrandt  and  that  the 
dealer  is  disposing  of  it  as  such,  can  recover  his 
picture. 


64  COMMERCIAL  LAW 

A  person  who  complains  of  fraud  or  misrepre- 
sentation must  not  only  prove  it,  but  also  that  it  was 
false  in  fact ;  that  the  person  who  made  it  knew  that  it 
was  false,  or  made  it  recklessly  without  knowing 
whether  it  was  true  or  false;  that  he  was  induced  by 
the  misrepresentation  to  make  the  contract ;  and  that 
within  a  reasonable  time  after  he  discovered  the  fraud, 
he  repu^diated  the  contract.  He  cannot  act  under  the 
contract  after  he  has  knowledge  of  the  fraud,  and  then 
demand  to  have  the  contract  set  aside. 

14.  Undue  influence. — The  consent  of  the  parties 
to  a  contract  must  be  given  freely.  If  it  is  obtained 
otherwise,  the  contract  may  be  set  aside,  if  the  person, 
whose  consent  has  been  forced,  so  desires.  Such  con- 
tract is  voidable,  not  void ;  tho  if  a  person  were  seized 
and  his  hands  were  forcibly  guided  to  sign  his  name, 
say,  to  a  promissory  note,  it  is  probable  that  this 
contract  would  be  void,  because  there  would  be  no  con- 
sent. 

To  secure  consent  by  undue  Influence  would  mean 
that  another's  weakness  of  mind,  his  necessities  or  dis- 
tress, have  been  taken  advantage  of  in  order  to  induce 
his  consent.  It  has  been  said  in  a  case  decided  in  the 
United  States.^ 

Influence  obtained  by  modest  persuasion,  and  arguments 
addressed  to  the  understanding,  or  by  mere  appeals  to  the 
affections  cannot  be  properly  termed  undue  influence  in  a 
legal  sense;  but  influence  obtained  by  flattery,  importunity, 
superiority  of  will,  mind,  character,  or  by  what  art  soever 
that  human  thought,  ingenuity,  art  or  cunning  may  employ 
which  would  give  dominion  over  the  will  to  such  an  extent  as 

I  Schofield  vs.  Walker,  58  Mich.,  p.  96. 


VOID  AND  VOIDABLE  CONTRACTS  65 

to  destroy  the  free  agency  or  constrain  a  person  to  do 
against  his  will  what  he  is  unable  to  refuse,  is  such  an  influ- 
ence as  the  law  condemns  as  undue. 

What  may  be  undue  influence  in  a  particular  case 
it  is  difficult  to  say.  In  attempting  to  discover 
whether  a  person  gave  his  consent  freely  and  deliber- 
ately, the  courts  will  take  into  consideration  the  age 
and  capacity-  of  the  person,  the  nature  of  the  transac- 
tion, and  all  the  other  circumstances  of  the  case.  It 
may  be  that  the  parties  stand  in  such  a  relation  that 
from  habit  the  one  dominates  the  other,  or  that  under 
the  circumstances  one  is  in  a  position  to  use  some 
undue  influence.  Thus  it  has  been  laid  down  in  an 
English  case,  that  "Where  two  persons  stand  in 
such  a  relation  that  while  it  continues,  confidence  is 
necessarily  reposed  by  one,  and  the  influence  which 
naturally  grows  out  of  that  confidence  is  possessed  by 
the  other,  and  this  confidence  is  abused,  or  the  influ- 
ence is  exerted  to  obtain  an  advantage  at  the  expense 
of  the  confiding  party,  the  party  so  availing  himself 
of  his  position  will  not  be  permitted  to  retain  the  ad- 
vantage, altho  the  transaction  could  not  have  been 
impeached  if  no  such  confidential  relation  had  ex- 
isted."    And,  again.  Lord  Eldon  lays  it  down  that: 

In  equity,  persons  standing  in  certain  relations  to  one  an- 
other, such  as  parent  and  child,  man  and  wife,  doctor  and 
patient,  attorney  and  client,  confessor  and  penitent,  guardian 
and  ward,  are  subject  to  certain  presumptions  when  trans- 
actions between  them  are  brought  into  question ;  and  if  a 
gift  or  contract  made  in  favor  of  him  who  holds  the  posi- 
tion of  influence  is  impeached  by  him  who  is  subject  to  that 

XXIV— 6 


66  COMMERCIAL  LAW 

influence,  the  courts  of  equity  cast  upon  the  former  the  bur- 
den of  proof  that  the  transaction  was  fairly  conducted  as 
if  between  strangers,  that  the  weaker  was  not  unduly  im- 
pressed by  the  natural  influence  of  the  stronger,  or  the  inex- 
perienced over-reached  by  him  of  more  mature  intellect. 

15.  Duress;  violence  and  fear. — A  person  may- 
give  his  consent  to  a  contract,  but  that  consent  may 
be  induced  or  extorted  by  fear.  If  actual  violence  is 
used,  or  violence  is  threatened,  the  party  consenting 
under  such  influence  may  have  his  contract  set  aside. 
A  distinction  may  be  drawn  between  duress  which  in- 
volves actual  compulsion,  and  menace  which  means 
the  threat  of  actual  compulsion.  The  term  duress, 
however,  covers  both,  as  would  also  the  terms  violence 
and  fear.  If  a  man  holds  a  pistol  to  another  man's 
head  and  threatens  to  shoot  unless  that  other  sign 
some  deed  in  his  favor,  the  deed  is  signed  as  the 
lesser  evil.  Under  some  of  the  English  decisions,  es- 
pecially the  older  ones,  it  has  been  held  that  to  consti- 
tute duress  or  violence  there  must  have  been  fear  of 
loss  of  hfe  or  hmb  or  of  imprisonment;  other  cases, 
however,  require  that  at  least  there  shall  be  a  reason- 
able and  present  fear  of  serious  injury.  Thus  mere 
idle  threats  which  are  not  intended  nor  understood  in  a 
serious  sense  will  not  ordinarily  be  sufficient. 

The  courts  will  consider  the  age,  sex,  character  and 
constitution  of  the  party  who  is  threatened.  Thus  a 
threat  made  against  a  business  man  might  have  no 
effect,  whereas  it  might  induce  an  ignorant  country- 
man to  enter  into  a  contract.     The  threat  or  violence 


VOID  AND  VOIDABLE  CONTRACTS  67 

that  might  terrify  a  woman  into  signing  might 
be  held  insufficient  to  bring  a  man  to  the  same 
result. 

Physical  violence  may  be  used,  as  for  example 
where  a  girl  was  beaten  by  her  father  until  she  con- 
sented to  marry  a  certain  person.  It  may  consist  of 
threats  of  injury  in  the  future — threats  to  do  physical 
injury,  or  to  injure  the  fortune  or  honor  of  the  victim 
or  even  of  a  relative  or  friend.  In  France  it  has  been 
held  to  be  a  case  of  violence,  where  the  manager  of  a 
company  which  was  in  financial  difficulties  threatened 
several  of  the  employes  with  dismissal  unless  they 
signed  bills  for  it.  Again,  a  young  partner  in  a 
firm  was  informed  by  his  co-partners  that  the  books 
showed  him  to  be  $9,000  short  in  his  accounts;  they 
threatened  him  with  criminal  proceedings  and  refused 
to  let  him  see  the  books.  Believing  that  what  they 
said  was  true  he  paid  them  $6,000.  On  examining 
the  books  it  was  found  that  he  did  not  owe  them  any- 
thing, and  the  judge  held  that  he  was  entitled  to  get 
his  money  back. 

It  is  not  violence  if  a  creditor  threatens  his  debtor 
with  suit,  but  it  would  be  violence  if  he  threatened  the 
debtor  that  unless  he  paid  some  sum  in  excess  of  the 
debt  he  would  sue  him.  If  A  has  stolen  money  from 
B,  B  can  threaten  to  have  him  arrested  unless  he  re- 
turns it.  But  if  A  admits  that  he  has  stolen  $50  from 
the  bank  which  employs  him,  and  the  bank  asserts 
that  he  has  stolen  much  more,  and  induces  his  mother 
to  sign  a  note  for  $400,  this  is  held  to  be  a  case  of  vio- 


68  COMMERCIAL  LAW 

lence.^     The  person  who  alleges  and  proves  duress, 
violence  or  fear  may  have  his  contract  set  aside. 

REVIEW 

What  does  legality  of  object  have  to  do  with  the  making  of  a 
contract?     On  what  grounds  is  legality  of  object  based? 

What  is  the  legal  status  of  wagering  contracts?  Is  a  contract 
of  insurance  enforceable?  Is  a  contract  for  the  sale  and  deliv- 
ery of  commodities  at  different  prices  enforceable? 

What  is  meant  by  usury? 

What  is  the  general  rule  regarding  contracts  in  restraint  of 
trade  ? 

What  do  you  understand  by  unlawful  combination? 

What  is  the  effect  of  illegality  in  a  contract  if  some  of  the 
promises  are  legal;  if  any  part  of  a  single  consideration  for  a 
promise  is  illegal?     What  part  does  intention  play? 

Discuss  the  differences  between  mistakes  of  fact  and  mistakes 
of  law. 

Define  duress.  What  is  the  effect  of  duress,  violence  or  fear 
on  a  contract? 


1  Macfarlane  vs.  Dervey,  1870,  15  L.  C.  J.,  p.  85  (Que.), 


CHAPTER  VI 

OPERATION  AND  INTERPRETATION  OF  CONTRACTS 

1.  Rights  and  U abilities  of  third  parties. — A  con- 
tract is  an  agreement  conferring  rights  and  imposing 
liabilities  upon  the  parties  to  it.  It  is  their  consent 
which  has  made  the  contract.  A  creditor  can  demand 
performance  of  the  obligation  from  the  debtor  or 
his  representatives.  He  cannot,  as  a  rule,  demand 
performance  from  a  third  person,  nor  can  the 
debtor  require  him  to  do  so.  Yet  the  debtor  or  his 
representatives  may  perform  the  duty  by  an  agent. 
Of  course  where  an  agent  makes  a  contract  for  his 
principal  and  acts  within  the  scope  of  his  agency,  the 
person  with  whom  he  contracts  and  to  whom  the  fact 
of  the  agency  has  not  been  disclosed  may,  as  a  general 
rule,  look  to  the  agent  or  the  principal  for  pay- 
ment or  performance.  On  the  other  hand,  if  the 
agent  gave  a  promissory  note  or  a  check  in  payment, 
he  would  not  be  bound.  The  principal  maj^  not  only 
be  held  liable  on  the  contract  made  by  his  agent,  but 
he  may  claim  the  benefits  arising  from  it.  In  Eng- 
land it  is  well  understood  that  a  third  person  who  ma- 
liciously interferes  in  the  performance  of  a  contract, 
as  between  the  rightful  parties  to  it,  may  render  him- 
self liable  in  damages :  for  example,  if  a  third  person 
mahciously  induces  an  employe  to  break  his  engage- 

69 


70  COMMERCIAL  LAW 

ment  with  him  employer,  he  may  be  liable  in  damages 
to  the  employer,  and  under  the  English  cases  this 
doctrine  has  been  made  applicable  to  contracts  in 
general. 

2.  Contracts  made  for  the  benefit  of  a  third  person. 
— In  England  it  is  well  established  that  a  third  person 
cannot  sue  on  a  contract  made  for  his  benefit  by  oth- 
ers, eveh  if  the  contracting  parties  have  agreed  that  he 
may/  In  most  of  the  American  states  the  third 
party,  in  whose  favor  a  direct  benefit  has  been  con- 
tracted for  by  others,  may  recover.  In  New  York, 
however,  the  promise  must  be  for  the  benefit  of  the 
third  party,  and  there  must  also  be  such  a  relation  be- 
tween him  and  the  promise  that  the  promisor's  obliga- 
tion constitutes  a  satisfaction  of  some  duty  of  the 
promisee  to  the  third  party.^ 

In  an  English  case,  which  is  an  exception  to 
the  English  rule,  it  was  held  that  a  provision  in 
a  partnership  contract  to  the  effect  that  a  partner's 
widow  should  be  entitled  to  his  share  of  the  business, 
might  be  enforced  by  the  widow.  But  the  court  in 
rendering  judgment  pointed  out  that  this  provision  in 
the  contract  created  a  trust  for  the  partnership  prop- 
erty in  the  hands  of  the  surviving  partner,  and  that  if 
the  widow  acquired  any  right,  as  indeed  she  did,  she 
acquired  it  because  a  trust  had  been  created  in  her 
favor. 

So  it  has  been  held  in  England  that  an  agreement 
between  A  and  B,  that  B  shall  pay  a  sum  of  money 

1  Pollock,  p.  223.  2  Gerstenberg  &  Hughes,  p.  71. 


•   OPERATION  AND  INTERPRETATION  71 

to  C  (an  agreement  to  which  C  is  not  a  party,  either 
directly  or  indirectly) ,  will  not  prevent  A  and  B  from 
coming  to  an  agreement  to  the  contrary  the  next  day. 
If  the  third  person  is  to  have  any  right,  he  must  be  a 
party  to  the  contract. 

In  Quebec  the  law  is  stated  as  follows :  a  person  can- 
not, by  a  contract  in  his  o\^ti  name,  bind  anyone 
but  himself,  his  heirs  and  legal  representatives;  but 
he  may  contract  in  his  ovm  name  that  another  shall 
perform  an  obligation,  and  in  this  case  he  is  liable  in 
damages  if  such  obligation  be  not  performed  by  the 
person  indicated.  In  like  manner  a  party  may  stipu- 
late for  the  benefit  of  a  third  person,  when  such  is 
the  condition  of  a  contract,  as  the  making  of  a  gift  to 
another;  he  who  makes  the  stipulation  cannot  revoke 
it  if  the  third  person  has  signified  his  assent  to  it. 
Under  the  English  law,  while  a  stipulation  may  be 
made  in  favor  of  a  third  person,  the  latter  camiot  en- 
force it.  Under  the  law  of  Quebec,  however,  it  has 
been  held  that  a  third  person,  in  whose  favor  a  stipula- 
tion has  been  made,  and  who  has  signified  his  accept- 
ance of  it,  may  take  action  to  enforce  performance, 
altho  he  was  not  a  party  to  the  contract.^ 

In  another  case,  heard  in  the  Court  of  Appeals  of 
Quebec,  it  was  decided  that  a  third  party  need  not  in- 
tervene in  case  a  gift  is  made  by  one  person  to  an- 
other, with  stipulations  in  favor  of  the  third  party, 
and  that  mere  acceptance  by  the  person  to  whom  the 
gift  is  made,  confers  on  the  third  person  the  right  to 

1  Brisebois  vs.  Campeau,  21  L.  C.  J.,  p.  16. 


72  COMMERCIAL  LAW 

exact  performance  of  the  charge  or  benefit  stipulated 
in  his  favor/ 

It  may  be  laid  down  as  a  general  rule,  however, 
that  creditors  may  exercise  the  rights  and  actions  of 
their  debtor  when,  to  their  prejudice,  he  refuses  or 
neglects  to  do  so.  Thus  if  a  debtor  refuses  to  recover 
from  third  persons,  goods  belonging  to  him  which  are 
in  their  possession,  creditors  may  take  action  to  re- 
cover them,  in  order  that  their  rights  may  be  pro- 
tected and  creditors  may  attack  fraudulent  contracts 
made  by  the  debtor,  as,  for  example,  a  transfer  of 
personal  property  which  hinders  and  delays  them. 
Such  an  action  will  fail  if  the  goods  which  are  meant 
to  be  recovered  in  this  way,  are  not  really  liable  to 
answer  the  claims  of  the  creditors.  Thus,  it  was  held 
that  when  a  debtor  gave  certain  creditors  an  agree- 
ment for  an  absolute  sale  of  his  property,  as  security, 
with  the  necessary  result  of  surrendering  and  delay- 
ing his  other  creditors  under  circumstances  which 
would  support  the  preference,  the  judgment  credi- 
tors were  held  to  be  entitled  to  such  order  and  direc- 
tions from  the  court  as  would  enable  them  to  reach 
all  the  property  of  the  debtor  that  remained  in  the 
preferred  creditors'  hands  after  the  preferred  claims 
were  paid.^ 

3.  Rules  of  evidence. — When  the  parties  to  a  con- 
tract put  into  writing  what  they  have  agreed  upon, 
this  document  is  the  best  evidence  of  what  they  in- 

1  Pare  vs.  Pare,  3  D.  C.  A.,  p.  359. 

2  Beliveau  vs.  Miller,  20  W.  L.  R.,  p.  96. 


OPERATION  AND  INTERPRETATION  73 

tended.  The  purpose  in  reducing  the  agreement  to 
writing,  and  the  actual  effect  of  doing  so,  are  to  put 
into  definite  and  permanent  form  what  the  parties  in- 
tend, and  to  render  impossible  later  disputes  as  to 
the  terms  of  the  agreement.  Having  put  their  agree- 
ment into  writing,  the  parties  must  be  held  to  have  in- 
tended that  it  shall  fully  express  their  intention  and 
to  have  excluded  the  possibility  of  altering  it  by  any 
oral  evidence.  It  may  be  stated,  therefore,  as  a  gen- 
eral rule,  that  oral  evidence  will  not  be  admitted  to 
contradict  the  terms  of  a  valid  written  instrument. 
If  A  and  B  make  a  contract  in  writing,  neither  can 
show  by  oral  evidence  that  he  means  something  dif- 
ferent from  what  is  stated  in  the  contract  itself. 

Oral  testimony  may  be  allowed  in  certain  cases, 
however,  as,  for  example,  to  explain  abbreviations, 
ambiguous  words  or  phrases;  to  identify  the  subject 
matter  of  the  contract  and  the  parties  to  it;  to  show 
surrounding  circumstances,  usage  or  custom,  a  condi- 
tion precedent,  fraud  or  illegality,  delivery,  a  mistake 
of  expression  and  a  subsequent  oral  agreement. 
Thus  witnesses  have  been  allowed  to  prove  that  by  lo- 
cal custom  "a  thousand"  of  rabbits  was  1,200  (i.e.,  ten 
long  hundreds  of  six  score  each)  ;  to  define  "year"  in 
a  theatrical  contract  to  pay  a  weekly  salary  for  three 
years,  as  meaning  only  the  part  of  the  year  during 
which  the  theatre  w^as  open;  to  identify  the  wool  de- 
scribed as  "your  wool,"  in  a  contract  to  buy  wool.  To 
admit  evidence  of  this  kind  is  not  to  contradict  the 
writing,  but  to  get  something  auxiliary  to  the  writ- 


74  COMMERCIAL  LAW 

ing — supplying,  as  was  stated  in  an  English  case, 
"the  mercantile  dictionary  in  which  you  are  to  find  the 
mercantile  meaning  of  the  words  which  are  used." 
This  is  necessary  in  order  to  assist  the  court  in  its  en- 
deavor to  give  effect  to  the  intention  of  the  parties. 

4.  Rules  of  construction. — When  the  courts  are 
called  upon  to  interpret  a  contract,  they  endeavor,  as 
we  have  said,  to  discover  the  intention  of  the  parties, 
and  will  proceed  by  means  of  certain  rules  of  con- 
struction. When,  for  example,  the  terms  of  a  con- 
tract are  capable  of  more  than  one  meaning,  there  is 
thrown  upon  the  courts  the  task  of  construction,  or  of 
determining  which  meaning  is  to  be  preferred.  The 
following  are  the  general  rules  of  construction: 

(a)  Words  are  to  be  given  their  plain  and  ordinary 
meaning,  unless  the  context  or  surrounding  circum- 
stances show  an  intention  to  use  them  in  a  peculiar 
sense. 

(b)  In  determining  the  intention  of  the  parties, 
the  agreement  is  to  be  construed  as  a  whole ;  in  other 
words,  particular  terms  are  to  be  construed  in  the 
sense  which  is  most  consistent  with  the  general  in- 
tention. The  meaning  must  be  collected  from  what 
is  expressed  in  the  contract,  and  not  from  a  mere  con- 
jecture of  some  intention  which  the  parties  may  have 
had  in  their  minds  and  which  they  might  have  ex- 
pressed had  they  been  better  advised. 

(c)  That  construction  should  obtain  which  will  best 
carry  out  the  intention  of  the  parties. 


OPERATIOX  AND  INTERPRETATION  75 

There  are  certain  subsidiarj'^  rules,  as,  for  example : 

(d)  In  the  case  of  a  contention,  as  between  printed 
and  written  words,  the  written  will  govern. 

(e)  Words  are  to  be  construed  more  strictly 
against  the  party  using  them, 

(f)  Where  words  or  clauses  are  repugnant  to  one 
another,  those  which  are  in  conflict  with  the  manifest 
intention  of  the  parties  should  be  rejected  as  sur- 
plusage. 

(g)  ^Miere  a  contract  is  ambiguous  and  one  inter- 
pretation renders  it  valid  and  another  invalid,  the 
former  will  govern. 

(h)  "Where  one  interpretation  renders  the  contract 
reasonable  and  another  unreasonable,  the  former  will 
govern. 

( i )  Subsequent  acts  of  the  parties,  not  contrary  to 
rules  of  law  or  the  express  terms  of  the  contract,  are 
entitled  to  strong  consideration. 

( j )  Obvious  errors  of  grammar  are  subject  to  cor- 
rection. 

(k)  Words  of  general  meaning  are  subject  to  re- 
striction by  words  of  a  more  specific  character. 

5.  Surrounding  circu instances  given  consideration. 
— The  intention  of  the  parties  may  be  obscure.  The 
court  will  then  be  entitled  to  look  at  the  surrounding 
circumstances.  There  is  a  tendency  in  the  more 
recent  decisions,  especially  in  England,  to  pay 
greater  attention  to  all  admissible  indications  of  what 
the  intention  of  the  parties  actually  was,  and  to  ex- 
amine the  conduct  of  the  parties  themselves  as  an  in- 


76  COMMERCIAL  LAW 

dication  of  their  own  construction  and  of  the  contract. 

6.  Matters  implied  by  law. — Many  contracts  carry 
with  them  certain  unexpressed  obligations  attached 
to  them  by  law.  Thus  a  man  may  sell  another  horse, 
and  tho  he  does  not  warrant  it  sound,  the  law  imports 
that  warranty  into  the  contract.  On  the  other  hand, 
he  may  sell  the  horse  and  stipulate  that  the  sale  is 
made  ^^ithout  warranty.  In  mercantile  contracts 
there  is  a  presumption  that  time  is  an  essential  condi- 
tion, where  time  is  specified ;  but  even  where  time  is  not 
specified,  or  is  not  so  specified  as  to  be  of  the  essence 
of  the  contract,  performance  within  a  reasonable  time 
can  be  required,  and  notice  may  be  given  that  the  con- 
tract will  be  rescinded  unless  performance  is  made. 

If  a  person  contracts  to  do  a  certain  thing  at  or  be- 
fore a  specified  time,  and  fails  to  do  so,  the  contract 
becomes  voidable  in  whole  or  in  part,  as  the  case  may 
be,  at  the  option  of  the  person  in  whose  favor  it  is  to 
be  performed,  provided  that  it  was  the  intention  of 
the  parties  that  time  should  be  of  the  essence  of  the 
contract.  If  time  was  not  the  essence  of  the  contract, 
then  the  general  rule  is  that  the  contract  is  not  void- 
able by  the  failure  to  do  it  at  or  within  the  time 
specified;  and  the  person  in  whose  favor  the  contract 
is  made  may  obtain  damages  for  the  loss  he  has  in- 
curred by  the  delay  in  performance. 

7.  Liquidated  damages. — The  parties  to  a  contract 
may  stipulate  that  a  certain  sum  shall  be  paid  for  dam- 
ages in  case  of  breach  of  execution  of  the  contract,  in 
which  case  such  sum  and  no  other,  either  gi'eater  or 


OPERATION  AND  INTERPRETATION  77 

less,  will  be  allowed  to  the  creditor  for  such  damages. 
This  clause,  at  least  under  the  French  law,  is  fre- 
quently called  a  penal  clause,  or  clause  penale.  The 
Civil  Code  of  Quebec  has  rejected  the  doctrine  laid 
down  by  some  of  the  older  French  writers  to  the  effect 
that  the  amount  payable  under  such  a  clause  might  be 
reduced  by  the  court  as  being  excessive  where  it  was 
shown  that  it  was  larger  than  the  damage  actually 
suflPered.  Under  the  English  law,  penal  provisions 
inserted  in  instruments  to  secure  the  payment  of 
money  or  the  performance  of  contracts  will  not  be 
literally  enforced  if  the  substantial  performance  of 
that  which  was  really  contemplated  can  otherwise  be 
secured. 

8.  Joint  and  several  contracts. — There  may  be  one 
or  more  persons  on  each  side  of  a  contract.  Their  lia- 
bihties  or  rights  may  be  joint  or  joint  and  several. 
For  example,  if  there  are  three  joint  and  several  cred- 
itors of  a  debtor,  each  of  them  may  singly  exact  per- 
formance of  the  whole  obligation,  and  thereupon  give 
a  discharge  in  full  to  the  debtor.  If  the  creditors  are 
merely  joint,  and  not  joint  and  several,  then  only  one 
action  can  be  brought  against  the  debtor,  and  in  this 
they  all  should  join.  There  is  a  joint  and  several  ob- 
hgation  on  the  part  of  co-debtors  when  they  are  all 
obliged  to  the  same  thing  in  such  a  manner  that  each 
of  them  singly  may  be  compelled  to  the  performance 
of  the  whole  obligation,  and  that  the  performance  by 
one  discharges  the  others  toward  the  creditor. 

An  obligation  is  not  presumed  to  be  joint  and  sev- 


78  COMMERCIAL  LAW 

eral;  it  must  be  expressly  declared  as  such.  That  is 
the  general  rule.  A  joint  and  several  obligation  may 
arise  of  right  by  virtue  of  some  provision  of  law  and 
in  commercial  transactions  joint  and  several  liability 
is  the  rule  rather  than  the  exception.  In  a  partner- 
ship, for  example,  the  partners  are  jointly  and  sev- 
erally liable;  and  in  some  jurisdictions  the  obligation 
arising  from  the  common  offence  or  quasi-offence  of 
two  or  more  persons  is  joint  and  several. 

REVIEW 

What  is  the  general  rule  concerning  third  parties  and  con- 
tracts ? 

May  a  third  person  sue  on  a  contract  made  by  others  for  his 
benefit  ?  What  is  the  general  rule  regarding  the  rights  of  a  cred- 
itor when  a  debtor  refuses  to  exercise  his  own  rights  ? 

What  is  the  best  evidence  of  intention?  When  is  oral  testi- 
mony allowed? 

Give  some  rules  of  construction  used  by  the  court  in  interpret- 
ing a  contract. 

Discuss  the  liabilities  or  the  rights  of  persons  under  joint  and 
several  contracts. 


CHAPTER  VII 

ASSIGNMENT  AND  DISCHARGE  OF  CONTRACTS 

1.  Definition  of  assignment. — Persons  other  than 
a  creditor  may  become  entitled  by  representation  or 
assignment  to  stand  in  the  creditor's  place,  to  exercise 
his  rights  under  the  contract;  in  other  words,  the 
creditor  may  transfer  his  rights  against  his  debtor  to 
some  third  person.  An  assignment,  says  another  au- 
thority, is  a  transfer  by  one  party  to  another  of  some 
right,  title  or  interest  in  personal  or  real  property. 
The  instrument  by  which  the  transfer  is  made  is  also 
frequently  called  an  assignment.  The  assignment 
must  not  increase  the  debtor's  burden  or  diminish  his 
remedies. 

2.  Competent  parties  to  an  assignment. — Persons 
who  have  capacity  to  contract  may  make  an  assign- 
ment. Where  a  partnership  has  a  claim  against  some 
debtor,  ordinarily  one  partner  can  assign  this  claim  to 
some  other  person.  A  may  assign  his  claim  against  B 
thru  the  ministry  of  his  agent  C.  A  tenant,  where  he 
is  not  forbidden  by  his  contract  or  by  law,  may  assign 
his  uiterest  in  a  lease.  The  person  to  whom  the  rights 
are  assigned,  under  a  contract  may  bring  action  in  his 
own  name ;  generally,  notice  in  writing  must  be  given 
to  the  debtor  of  the  assignment,  as  he  is  entitled  to 

79 


80  COMMERCIAL  LAW 

know  to  whom  he  can  pay  his  debt.  Thus  if  a  debtor, 
before  receiving  notice  of  the  assignment,  were  to  pay 
his  original  creditor,  he  would  be  discharged.  If  the 
assignee  sues  him,  he  will  be  able  to  raise  against  the 
assignee  any  defence  he  might  have  raised  against  the 
original  creditor.  On  the  other  hand,  the  debtor  may 
consent  to  the  assignment,  in  which  case  no  notice  will 
be  necessary. 

When  there  are  several  competing  assignees,  their 
claims  will  rank  as  between  themselves,  not  according 
to  the  order  in  date  of  the  assignment,  but  according 
to  the  dates  at  which  they  have  respectively  given  no- 
tice to  the  debtor.^  The  debtor,  on  paying  the  first 
who  gives  notice  to  him,  is  discharged.  In  the  case  of 
negotiable  instruments,  these  difficulties  are  overcome 
in  that  the  absolute  benefit  of  the  contract  is  attached 
to  the  ownership  of  the  document,  which  according  to 
ordinary  rules  would  be  the  only  evidence  of  the  con- 
tract. The  instrument  itself  when  it  is  transferable 
by  indorsement  is  an  authentic  record  of  the  succes- 
sive transfers,  and  the  bona  fide  possessor  of  the  in- 
strument is  presumed  to  be  the  true  owner  thereof. 

3.  Assignment  of  liabilities. — In  the  assigning  of 
liabilities  the  converse  of  the  rule  we  have  been  con- 
sidering is  followed.  Ordinarily  speaking,  a  debtor 
may  not  assign  his  liability  to  be  performed  by  some 
third  person.  It  is  a  matter  of  public  policy  that 
the  creditor  should  know  to  whom  he  may  look  for 
satisfaction  after  considering  the  character,  credit  and 

1  Dearie  vs.  Hall,  Pollock,  p.  232. 


ASSIGNMENT  AND  DISCHARGE  81 

substance  of  the  person  with  whom  he  contracted. 
Of  course,  if  the  creditor  consents  to  accept  another 
debtor  a  new  contract  is  formed,  and  the  old  debtor 
will  be  released  to  the  extent  of  the  new  contract. 

Where  a  person  has  undertaken  an  obligation  which 
is  not  purely  personal  and  does  not  require  the  exer- 
cise of  his  own  peculiar  skill,  he  may  have  the  contract 
performed  by  some  other  person,  but  he  will  remain  li- 
able for  its  due  performance  according  to  his  contract. 
Again,  there  may  be  certain  servitudes  attaching  to  a 
piece  of  land,  as,  for  example,  the  servitude  by 
which  low  lying  land  must  receive  surplus  water 
flowing  from  higher  land;  if  the  oTVTier  of  the  lower 
land  assigns  or  sells  it,  the  person  to  whom  he  assigns 
or  sells  must  respect  the  servitude.  If  a  party  to  a 
contract  dies,  his  rights  and  liabilities  pass  to  his  heirs 
or  representatives,  and  while  they  may  take  advantage 
of  the  rights,  they  must  also  carry  the  liabilities  under 
the  contract  made  by  the  deceased. 

4.  Other  examples  of  assignment. — Bonds  and 
mortgages  are  generally  assignable,  as  also  the  bene- 
fits under  judgments,  insurance  policies  and  contracts 
of  suretyship.  Chattel  mortgages  may  also  be  as- 
signed, in  which  case  the  transfer  may  cover  the  legal 
title  to  the  property  mortgaged  and  all  the  rights  of 
the  mortgagor  under  the  mortgage,  or  only  the  equity 
or  equitable  interest  of  the  assignor.  But  if  a  person 
has  a  right  of  action  for  breach  of  promise  to  marry, 
it  is  contrary  to  public  policy  that  this  right  of  action 
should  be  assigned  to  a  third  person.     If  A  con- 

XXIT— 7 


82  COMMERCIAL  LAW 

tracts  with  a  famous  artist  to  paint  his  portrait,  and 
the  artist  assigns  the  contract  to  another  artist  equally 
famous  and  able,  A  is  not  bound  to  accept  the  picture 
by  the  second  artist,  or  to  recognize  him  in  any  way. 

5.  Modes  of  discharging  a  contract. — There  are 
several  modes  of  discharging  a  contract,  all  of  which 
we  cannot  discuss  here.  Among  them,  however,  are 
the  following:  discharge  by  agreement,  by  paj^ment 
or  performance,  by  novation,  by  breach,  by  perform- 
ance becoming  impossible,  by  operation  of  law,  by 
confusion,  by  compensation. 

6.  Discharge  by  agreement. — Naturally  the  parties 
who  make  a  contract  may  in  turn  agree  to  cancel  it. 
The  contract  itself  may  contain  a  stipulation  for  its 
cancellation  under  certain  conditions.  Thus,  in  an  in- 
surance policy  it  may  be  provided  that  if  the  risk  in- 
sured is  increased  or  changed,  the  policy  shall  be  im- 
mediately void.  The  release  of  an  obligation  may  be 
made  either  expressly  or  tacitly.  The  release  would 
be  considered  to  be  tacit  when  the  creditor  voluntarily 
surrenders  to  the  debtor  the  original  title  of  the  obh- 
gation,  unless  there  is  proof  of  a  contrary  intention. 

7.  Discharge  by  payment  or  performance. — By 
payment  is  meant  not  only  the  delivery  of  a  sum  of 
money  in  satisfaction  of  an  obligation,  but  the  per- 
formance of  anything  to  which  the  parties  are  respec- 
tively obliged.  If  a  contract  is  bilateral,  that  is,  in- 
volves the  doing  of  something  by  both  parties,  then 
the  performance  of  obligation  by  one  party  discharges 
that  person,  but  the  contract  is  not  wholly  discharged, 


ASSIGNMENT  AND  DISCHARGE  83 

because  he  is  entitled  to  enforce  performance  by  the 
other  party  thereto. 

Whether  the  pajTnent  or  performance  is  sufficient 
will  depend  upon  the  construction  of  the  contract. 
Generally  speaking,  if  the  debtor  has  substantially 
performed  his  part  of  the  contract,  he  may  recover 
payment,  but  will  be  subject  to  a  deduction  for  such 
damages  as  his  omission  or  deviation  from  the  con- 
tract may  have  caused  the  other  party,  tho  this  omis- 
sion or  deviation  must  be  slight  and  not  such  as  to 
deprive  the  other  party  of  his  rights.  If  the  omission 
or  deviation  cannot  be  adequately  compensated  for  in 
damages,  the  performance  may  be  held  incomplete. 

A  contract  may  provide  that  it  must  be  performed 
to  the  satisfaction  of  the  creditor,  and  the  debtor  will 
be  strictly  held  to  his  obligation  to  meet  the  personal 
taste  or  judgment  of  the  creditor,  where  this  is  in- 
tended. It  has  been  held  in  some  cases  that  under 
such  circumstances  performance  will  be  sufficient  if 
it  satisfies  the  mind  of  a  reasonable  man.  The 
obligation  may  be  to  deliver  a  thing  determined  in 
kind  only;  in  this  case,  the  debtor  need  not  give  a 
thing  of  the  best  quality,  nor  can  he  offer  one  of  the 
worst :  he  must  offer  a  thing  of  merchantable  quality. 

Unless  the  contract  so  stipulates,  a  debtor  must  per- 
form or  pay  his  obligation  as  a  w^hole,  and  not  in 
parts;  and  if  a  creditor  has  a  right  under  his  contract 
to  receive  a  specific  thing,  he  is  not  bound  to  accept 
another,  tho  it  be  of  greater  value  than  the  thing  due. 
If  the  obligation  is  to  do  a  certain  thing,  the  parties 


84  COMMERCIAL  LAW 

to  the  contract  may  agree  that  money  shall  be  paid  in 
lieu  of  such  performance,  and  the  new  contract  dis- 
charges the  old. 

Generally  speaking,  where  a  negotiable  instrument 
is  given  in  payment  of  a  debt  which  is  due,  under  the 
English  law  the  original  obligation  is  only  condition- 
ally discharged,  in  which  case  if  the  instrument  is  not 
paid,  the  creditor  may^sue  on  the  original  contract,  or 
on  the  instrument. 

8.  Time  and  place  of  payment  or  performance. — 
If  the  contract  does  not  fix  a  date  for  performance,  it 
is  implied  that  the  contract  is  to  be  performed  within 
a  reasonable  time;  but  performance  on  a  certain  date 
may  be  of  the  essence  of  the  contract.  If  so,  the  con- 
tract will  be  strictly  construed.  Performance  later 
will  not  be  binding  on  the  other  party,  unless  he 
waives  the  delay,  as,  for  example,  by  agreeing  to  per- 
formance at  a  later  date,  or  by  accepting  perform- 
ance when  it  is  made.  In  mercantile  contracts  the 
assumption  is  that  time,  when  specified,  is  an  essen- 
tial condition,  and  when  a  person  promises  to  do 
a  thing  "as  soon  as  possible,"  he  is  bound  to  do  it 
within  a  reasonable  time. 

Payment  must  be  made  in  the  place  expressly  or 
impliedly  indicated  by  the  contract.  As  a  general 
rule,  if  no  place  is  indicated  and  the  thing  to  be  paid 
or  delivered  is  a  certain  specific  thing,  payment  must 
be  made  at  the  place  where  the  thing  was  at  the  time 
the  contract  was  made.  In  all  other  cases,  as,  for 
example,  where  money  is  to  be  paid,  the  general  rule 


ASSIGNMENT  AND  DISCHARGE  85 

is  that  payment  must  be  made  at  the  domicile  of  the 
debtor.  Thus,  in  a  ^lanitoba  case  it  was  held  that 
when  a  contract  is  silent  as  to  the  place  of  pajnnent, 
and  the  debtor  is  a  contractor  who  has  done  work  in 
another  province,  the  money  will  be  payable  at  his 
residence.^  In  a  Quebec  case  ^  it  was  held  that  the 
domicile  which  determines  the  place  of  payment  is  the 
debtor's  actual  domicile  at  the  place  of  pa\TTient,  and 
not  some  different  domicile  which  he  had  at  the  time 
of  the  contract.  The  fact  that  the  debtor  may  have 
paid  certain  instalments  at  the  domicile  of  the  cred- 
itor is  not  in  itself  of  such  a  nature  as  to  modify  the 
law,  or  the  rights  of  the  parties  in  this  respect.  The 
court  refused  to  hold  that  the  defendant  had,  by  vir- 
tue of  any  such  pa\Tnent  at  the  domicile  of  the  cred- 
itor, waived  his  right  to  pay  the  subsequent  instal- 
ments at  his  own  domicile. 

9.  Composition  mth  creditors. — As  we  have  al- 
ready seen,  a  debtor  may  come  to  an  arrangement 
with  his  creditors  by  which  they  accept  less  than  the 
full  amount  of  their  claims  on  a  compromise  settle- 
ment. If  such  an  agi-eement  is  made,  the  creditors 
have  no  claim  for  any  balance.  In  the  case  of  each 
creditor,  the  consideration  for  accepting  less  than  is 
due  to  him  is  the  fact  that  the  other  creditors  also 
forbear  to  exact  performance  in  full.  If  each  for- 
bears for  part  of  his  claim,  each  receives  a  benefit, 
because  if  one  or  more  exacted  full  pajTiient,  some 

1  Empire  Sash  &  Door  Co.  vs.  McGreew ;  Canadian  Pacific  Ry.  Co., 
22  W.  L.  R.  373. 

2  Coutu  vs.  Auclair,  18  Rev.  de  Juri,  435. 


86  COMMERCIAL  LAW 

would  be  sure  to  lose  thereby.  In  making  such  a 
composition  with  his  creditors,  however,  a  debtor  can- 
not benefit  one  creditor  over  another,  and  an  agree- 
ment to  do  so  would  be  an  agreement  in  fraud  of  his 
creditors  and  would  be  void. 

10.  Application  or  imputation  of  payment. — A 
debtor  of  several  debts  may,  when  paying,  declare 
what  debt  he  means  to  discharge,  and  his  wishes  in 
this  respect  must  be  observed.  His  intention  may  be 
discovered  from  his  conduct,  or  from  the  circum- 
stances under  which  he  pays.  If  the  debtor  does  not 
indicate  what  debt  he  means  to  discharge,  the  cred- 
itor may  apply  the  payment  toward  any  debt  due  to 
him  by  the  person  paying,  provided  the  debt  is  not 
illegal.  Having  made  his  choice,  he  will  be  held  to  it, 
unless  the  debtor  consents  to  another  application  of 
the  payment.  If  the  debtor  has  accepted  a  receipt  by 
which  the  creditor  has  imputed  the  payment  in  dis-. 
charge  of  a  special  debt,  the  debtor  cannot  afterward 
require  the  imputation  to  be  made  upon  another  debt, 
except  upon  the  ordinary  grounds  for  the  avoidance 
of  contracts. 

If  neither  party  makes  a  choice  as  to  which  of  sev- 
eral debts  shall  be  discharged  by  the  payment,  the 
payment  will  be  imputed  in  discharge  of  the  debt 
actually  payable  which  the  debtor  has  at  the  time  the 
greatest  interest  in  paying.  This  is  the  rule  under 
the  English  law,  as  also  in  the  Province  of  Quebec. 
Following  this  rule,  it  was  held  in  a  New  York  case  * 

1  Pattison  vs.  Hull,  9  Cow.  N.  Y.,  p.  747. 


ASSIGNMENT  AND  DISCHARGE  87 

that  tlie  amount  paid  will  be  applied  to  a  debt  se- 
cured by  a  mortgage  in  preference  to  a  debt  which  is 
not  secured. 

The  Supreme  Court  of  the  United  States  has  made 
decision,  in  a  sense  contrar\^  to  this  rule,  namely,  that : 
"If  the  application  is  made  by  neither  party,  it  be- 
comes the  duty  of  the  court,  and  in  its  exercise  a  sound 
discretion  is  to  be  exercised.  It  cannot  be  conceded 
that  this  application  is  to  be  made  in  a  manner  most 
advantageous  to  the  debtor.  It  would  seem  reason- 
able that  an  equitable  application  should  be  made; 
and,  it  being  equitable  that  the  whole  debt  should  be 
paid,  it  cannot  be  inequitable  to  extinguish  first  those 
debts  for  which  the  security  is  most  precarious." 

In  Quebec,  also,  it  is  laid  down  that,  if  only  one  of 
several  debts  is  actually  payable,  the  payment  must 
be  imputed  in  discharge  of  such  debt,  altho  it  be 
less  burdensome  than  those  which  are  not  actually 
payable;  if  the  debts  are  of  like  nature  and  equally 
burdensome,  the  imputation  is  made  upon  the  oldest; 
all  things  being  equal,  it  is  made  proportionately  on 
each. 

11.  Tender. — When  a  creditor  refuses  to  receive 
pajTnent,  the  debtor  may  make  an  actual  tender  of 
the  money  or  other  thing  due.  By  making  a  tender, 
the  debtor  offers  to  carry  out  his  bargain.  When  the 
tender  is  a  sum  of  money  and  it  is  refused,  it  becomes 
equivalent  to  a  payment  on  the  date  of  the  first  tender, 
provided  the  tender  was  unconditional  and  was  made 
at  a  reasonable  time  and  place,  and  that  since  making 


88  COMMERCIAL  LAW 

it  the  debtor  has  remained  ready  and  wilhng  to  pay 
the  money.  If  the  debtor  is  sued,  after  making  his 
tender,  he  should  plead  his  former  tender,  renew  it 
and  deposit  the  money  in  court.  The  tender  must 
be  in  money — a  check  or  note  would  not  be  sufficient. 
The  tender  must  be  made  by  a  person  legally  capable 
of  paying  to  a  creditor  legally  capable  of  receiving 
payment,  or  to  some  one  having  authority  to  receive 
payment  for  him.  If  the  obligation  of  the  debtor  is 
to  deliver  goods,  or  to  perform  an  obligation  other 
than  the  payment  of  money,  and  the  creditor  refuses 
the  tender  made  to  him,  the  debtor  is  discharged. 
Moreover,  if  the  creditor  sues  him  for  breach  of  his 
contract,  he  may  plead  his  tender  as  a  good  defence. 

The  Civil  Code  of  Quebec  lays  down  certain  rules 
for  the  tender  of  specific  things.^  Thus  if  a  certain 
specific  thing  is  deliverable  on  the  spot  where  it  is, 
the  debtor  must,  by  his  tender,  require  the  creditor  to 
come  and  take  it  there.  If  the  thing  is  not  so  deliv- 
erable and  from  its  nature  it  is  difficult  of  transpor- 
tation, the  debtor  must  indicate  by  his  tender  the  place 
where  it  is,  the  day  and  hour  when  he  is  ready  to 
deliver  it,  and  the  place  where  payment  ought  to  be 
made.  If  the  creditor  fails,  in  the  former  case,  to 
take  the  thing  away,  or  in  the  latter,  to  signify  his 
willingness  to  accept,  the  debtor  may,  if  he  thinks  fit, 
remove  the  thing  to  any  other  place  for  safe  keeping 
at  the  risk  of  the  creditor.  These  rules  are  of  general 
application  also  under  the  English  law. 

1  C.  C,  Article  1165. 


ASSIGNMENT  AND  DISCHARGE  89 

12.  Novation. — By  novation  is  meant  that  a  debtor 
contracts  toward  his  creditor  a  new  debt  which  is  sub- 
stituted for  the  old  one,  the  latter  being  extinguished ; 
or  a  new  debtor  is  substituted  for  a  former  one,  who 
has  been  discharged  toward  the  creditor;  or  by  the 
effect  of  a  new  contract,  a  new  creditor  is  substituted 
for  a  former  one,  toward  whom  the  debtor  is  dis- 
charged. In  each  case,,  the  consideration  is  the  crea- 
tion of  new  rights  and  liabilities,  and  the  extinction  of 
old  ones. 

Novation  can  be  effected  only  between  persons 
capable  of  contracting.  It  will  not  be  presumed. 
The  intention  to  effect  it  must  be  evident.  As  Pol- 
lock puts  it,^  whether  there  has  been  novation  in  any 
particular  case  is  a  question  of  fact,  but  assent  to  a 
novation  is  not  to  be  inferred  from  conduct,  unless 
there  has  been  a  distinct  and  unambiguous  request. 
Thus,  it  has  been  held  that  the  mere  acceptance  of  a 
renewal  note  by  a  bank  is  only  a  conditional  payment, 
and  is  not  a  novation  of  the  original  note,  especially 
when  the  bank  retains  the  original  note.  The  bank 
may,  at  its  option,  proceed  on  the  original  note  and 
tender  the  renewal  note  with  its  action,  or  it  may  pro- 
ceed on  the  renewal  note  itself.^ 

It  has  also  been  held  that  when  an  agent,  acting 
on  behalf  of  a  company,  guarantees  a  contract  made 
on  behalf  of  the  company,  and  gives  his  own  promis- 
sory notes  to  accommodate  a  third  person  w^ith  whom 

1  Pollock,  p.  216. 

2  The  Bank  of  British  North  America  vs.  Harte  et  al.,  18  Rev.  de 
Juri,  1834.. 


90  COMMERCIAL  LAW 

the  contract  is  made,  such  giving  of  notes  dfoes  not 
constitute  novation;  a  new  debt  and  a  new  debtor 
would  be  substituted  for  the  previous  debt  and 
the  previous  debtor.^  It  has  also  been  held  that  a 
settlement  of  indebtedness  between  a  debtor  and  a 
creditor,  by  part  payment  and  by  notes  of  the  latter, 
does  not  make  "the  intention  to  effect  a  novation  evi- 
dent," particularly  when  the  creditor  retains  accepted 
drafts  which  he  holds  for  the  original  debt.  He  has, 
therefore,  the  right  to  sue  and  recover  on  the  latter.^ 

It  has  been  held,  however,  that  an  agi'eement  be- 
tween an  employer  and  an  employe,  in  settlement  of 
a  claim  for  damages  caused  by  an  explosion,  operates 
as  a  novation,  whereby  the  delictual  obligation  is  ex- 
tinguished and  a  contractual  obligation  arises  instead. 
If  the  latter  be  conditional,  it  only  becomes  executory 
upon  the  fulfilment  of  the  condition.^ 

An  unpaid  vendor  of  movables,  which  are  delivered 
to  the  purchaser  on  condition  that  the  property  shall 
not  pass  until  the  price,  payable  by  instalments,  is 
fully  paid  up,  has  the  right  to  revendicate  the  mov- 
ables, notwithstanding  the  acceptance  by  him  of  the 
notes  of  the  purchaser,  as  no  novation  has  thereby 
taken  place.^  It  has  also  been  held  that  the  accept- 
ance of  a  draft,  for  the  amount  of  an  overdue  note, 
drawn  upon  the  makers  by  the  holder,  and  the  fact 

1  French  Gas  Saving  Co.,  Ltd.,  vs.  Desbarats  Advertising  Agency,  Ltd., 
1  D.  L.  R.  136. 

2  Sabbath  vs.  Baker,  41  Que.  S.  C.  75. 
sMcKinstry  vs.  Irvine,  39  Que.  S.  C.  426. 

4  Tremblay  vs.  Quinn,  39  Que.  S.  C,  p.  215. 


ASSIGNMENT  AND  DISCHARGE  91 

that  the  latter  afterward  files  a  claim  on  the  draft 
against  the  estate  of  one  of  the  acceptors  who  had 
made  an  assignment,  and  receives  dividends,  does  not 
effect  a  novation  of  the  note.  The  indorsee  could, 
therefore,  recover  from  the  maker  the  amount  due  on 
the  note,  less  the  sum  received  as  a  dividend.^ 

There  is  no  substitution  of  agreements  under 
the  following  circumstances.  A  purchases  from  B  a 
case  of  shoes  to  be  delivered  in  one  week;  at  the  end 
of  the  week  A  requests  B  to  postpone  the  delivery  of 
the  shoes  for  a  week  longer,  and  B  consents;  at  the 
end  of  the  second  week  A  refuses  to  accept  the  shoes, 
owing  to  the  fact  that  the  price  has  very  materially 
decreased  since  he  gave  the  order.  A  must  accept  the 
shoes  and  pay  the  price  agreed  upon. 

A  distinction  must  be  drawn  between  a  voluntary 
forbearance  to  deliver  at  the  request  of  another,  and  a 
substitution  of  one  agreement  for  another.  If  A  re- 
quests postponement  of  performance,  he  must  take  the 
risk  that  in  the  meantime  the  price  of  the  goods  may 

change. 

REVIEW 

Who  are  competent  parties  to  an  assignment?  Under  what 
circumstances  may  a  partner  make  an  assignment  ? 

Are  the  liabilities  growing  out  of  a  contract  assignable  ? 

Give  a  number  of  ways  in  which  a  contract  may  be  discharged. 

Explain  discharge  by  payment  or  performance.  How  impor- 
tant is  the  construction  of  the  contract  in  this  kind  of  discharge  ? 

When  no  time  is  stated  in  the  contract,  what  is  the  rule  applied 
by  the  courts? 

What  is  the  result  when  the  creditor  refuses  to  accept  the  ten- 
der?    How  must  the  tender  be  made? 

1  Saint  Amaud  vs.  Guilbault,  39  Que.  S.  C.  481. 


CHAPTER  VIII 

DISCHARGE  OF  CONTRACTS   (Continued) 

1.  Discharge  by  breach. — The  failure  of  one  party 
to  a  contract  to  perform  his  part  or  undertaking  is  a 
breach  of  the  contract,  and  gives  rise  to  an  action  by 
the  other  party  for  damages  that  he  may  have  sus- 
tained. The  breach  may  also  discharge  the  other 
party  from  the  performance  of  his  obligation. 
Whether  the  breach  will  have  the  effect  of  discharg- 
ing the  other  party  will  depend  upon  the  circum- 
stances of  the  particular  case.  A  creditor  may  in  cer- 
tain cases  demand  specific  performance  of  the  obli- 
gation, or  he  may  be  authorized  to  execute  it  at  the 
debtor's  expense,  or  the  contract  be  set  aside. 
There  are  exceptions  to  the  rule,  however.  For  ex- 
ample, the  seller  of  a  chattel  cannot  demand  the 
dissolution  of  the  sale  because  the  buyer  fails  to  pay 
the  price,  unless  there  is  a  special  stipulation  to  that 
effect  in  the  contract.  But  a  party  to  a  contract  may 
be  estopped  from  seeking  a  recision  of  it  for  non- 
performance, when  he  has  himself  done  something  that 
makes  it  impossible  to  restore  the  debtor  to  his  former 
position.  It  has  been  held  in  Quebec  that  perform- 
ance after  action  brought  to  rescind  a  contract  is  not 
a  valid  ground  of  defence,  and  that  no  notice  of  fail- 
ure to  perform  the  undertakings  of  a  contract  is  re- 

92 


DISCHARGE  OF  CONTRACTS  93 

quired  as  a  condition  precedent  to  an  action  to  rescind 
the  contract  for  non-performance. 

Under  the  following  circumstances  there  will  be  a 
breach  of  contract  and  the  contract  be  discharged ; 

1.  Wliere  one  of  the  parties  does  not  perform  his 
obligation  or  promise; 

2.  AMiere  one  of  the  parties  renounces  his  liabili- 
ties under  the  contract; 

3.  ^Vhere  one  of  the  parties  does  something  which 
renders  performance  of  the  contract  impossible. 

2.  Breach  thru  failure  of  performance. — When  one 
party  to  a  contract  has  failed  in  performance,  as  we 
have  already  said,  the  injured  party  may  or  may  not 
be  discharged  from  the  performance  of  his  part  of  the 
contract.  He  may  merely  have  a  right  of  action  for 
damages.  The  distinction  depends  upon  whether  the 
contract  is  divisible  or  indivisible,  or  whether  the  prom- 
ises in  the  contract  are  independent  of  one  another  or 
mutually  dependent.  Thus,  if  a  contract  is  divisi- 
ble and  the  promises  are  independent  of  one  another, 
as,  for  example,  if  the  contract  as  a  whole  is  made  up 
of  a  series  of  contracts,  a  breach  of  one  of  them  need 
not  discharge  the  others;  but  if  the  contract  cannot 
be  broken  up  into  parts,  and  the  promises  contained 
in  it  depend  upon  one  another,  so  that  if  one  is  broken 
all  are  broken,  a  breach  of  performance  by  one  party 
will  discharge  the  other,  and  also  give  that  other  an 
action  in  damages,  if  he  has  suffered  damages. 

The  courts  differ  in  their  interpretation  as  to 
whether  given  contracts  are  divisible  or  indivisible. 


94  COMMERCIAL  LAW 

The  Supreme  Court  of  the  United  States  has  held 
that  if  A  contracts  to  sell  to  B  600  bushels  of  corn  in 
three  monthly  instalments  of  200  bushels  each,  the  con- 
tract is  indivisible,  and  that  if  A  fails  to  deliver  one 
instalment,  ;the  whole  contract  is  discharged.  In 
England,  the  contrary  is  held  to  be  law.  The  Su- 
preme Court  of  Canada  has  held  that  an  agreement 
between  the  parties  to  several  transactions  involving 
litigation,  to  do  a  series  of  acts  in  settlement  of  their 
differences,  is  divisible,  and  a  performance  of  part  of 
them  will  be  held  binding  and  effective,  notwithstand- 
ing the  failure  to  perform  the  whole,  more  particularly 
as  against  the  party  thru  whom  such  failure  appears. 

A  person  sold  a  restaurant  to  another,  and  part  of 
the  price  was  to  be  paid  at  the  time  of  the  contract, 
part  when  the  license  should  be  transferred,  and  the 
balance  in  monthly  payments ;  the  vendor  turned  over 
the  restaurant  to  the  purchaser,  but  later  re-took  pos- 
session. The  purchaser,  on  the  other  hand,  made  no 
attempt  to  get  the  license  transferred,  and  the  vendor 
did  not  offer  to  assist  him.  Later,  the  purchaser  asked 
that  the  contract  of  sale  be  set  aside  and  that  he  be  re- 
imbursed what  he  had  paid,  alleging  that  he  had  dis- 
possessed himself.  It  was  held  that,  as  both  parties 
had  failed  to  execute  their  promises  and  apparently 
did  not  wish  to  carry  out  the  contract  entered  into  be- 
tween them,  there  was  no  need  to  pronounce  it  dis- 
solved. 

3.  Independent  promises. — It  may  be  difficult  to 
decide  whether  or  not  the  promises  are  independent  of 


DISCHARGE  OF  CONTRACTS  95 

one  another.  It  will  be  sought  to  discover  what  was 
the  intention  of  the  parties,  and  that  intention  may  be 
disclosed  by  the  order  in  which  the  several  promises 
are  to  be  performed.  It  was  held  in  an  English  case 
that  "whether  covenants  are  or  are  not  independent  of 
each  other  must  depend  on  the  good  sense  of  the  case, 
and  the  order  in  which  the  several  things  are  to  be 
done."  Suppose  that  several  different  articles  are 
bought  at  different  prices  and  at  the  same  time.  If  it 
could  be  showii  that  the  purchaser  intended  to  take  all 
or  none,  then  the  contract  would  fail  if  all  the  articles 
could  not  be  delivered.  If  it  could  be  shown,  however, 
that  this  was  not  the  intention,  then  the  contract 
would  be  severable  as  to  each  article. 

4.  Conditional  promises. — A  contract  is  said  to  be 
conditional  when  it  is  made  to  depend  upon  some  event, 
future  and  uncertain,  by  suspending  it  until  the  event 
happens,  or  bj''  dissolving  it  according  as  the  event 
does  or  does  not  happen.  Generally  speaking,  if  the 
contract  depends  upon  some  event  which,  unknown  to 
;  the  parties,  has  actually  happened  when  the  contract  is 
made,  the  contract  is  not  conditional,  but  takes  effect 
or  is  defeated  from  the  time  when  it  is  made. 

The  condition  must  not  be  contrary  to  law,  or  in- 
1  consistent  with  good  morals,  and  the  contract  is  void 
1  if  it  is  made  to  depend  upon  the  doing  or  happening 
of  something  which  is  impossible.  Thus  if  A  con- 
tracts, promising  to  pay  B  $100  if  C  shall  climb  to  the 
moon,  the  condition  is  an  impossibility  and  the  prom- 
ise void.     An  obligation  must  not  be   conditioned 


96  COMMERCIAL  LAW 

merely  on  the  will  of  the  party  promising.  Thus  a 
promise  by  A  to  go  to  Toronto  on  a  certain  day  if  he 
feels  in  the  mood  to  do  so,  is  conditional  purely  on  the 
will  of  A;  tho  A  may  validly  promise  to  pay  B  $100 
if  he  should  go  to  Toronto  on  a  certain  day.  If  no 
time  is  fixed  for  the  fulfilment  of  the  condition,  it  may 
be  carried  out  at  any  time. 

The  condition  will  not  be  deemed  to  have  failed  un- 
til it  becomes  certain  that  it  will  not  be  fulfilled.  The 
condition  may  be  merely  suspensory  or  floating  in  its 
nature,  and  non-performance  will  not  discharge  the 
promisor.  The  actual  carrying  out  of  the  promise  is 
merely  suspended.  Thus  in  a  fire  insurance  policy  the 
liability  of  the  insurer  is  conjectural,  and  fulfilment 
of  the  insurer's  promises  is  suspended  until  the  event 
insured  against  takes  place.  But  if  A  contracts  that 
he  will  buy  a  horse  from  C  if  B  will  buy  one  from  C, 
then  A's  promise  is  conditional  upon  B's  promise,  and 
if  B  does  not  perform  his  contract,  A  need  not  per- 
form his.  These  are  examples  of  the  condition  prece- 
dent. An  action  in  damages  may  lie  for  breach  of  a 
condition  precedent,  which  is  vital  in  its  nature  and 
not  merely  suspensory.  The  injured  party  may  also 
as  a  result  be  discharged  from  his  promise. 

If  the  parties  to  a  contract  agree  conditionally  that 
they  each  must  do  something  simultaneously  ( concur- 
rent conditions),  then  in  order  that  one  shall  have  an 
action  in  damages  for  non-performance,  against  the 
other,  he  must  have  been  ready  and  willing,  at  the  time 
fixed  for  performance,  to  do  what  he  had  undertaken. 


DISCHARGE  OF  CONTRACTS  97 

If  either  party  is  not  ready  and  willing  at  that  time, 
the  other  is  discharged. 

If  a  company  employs  an  agent  mider  a  contract  by 
which  it  can  dismiss  him  by  giving  him  one  week's  no- 
tice, the  condition  is  fulfilled  by  the  giving  of  the  no- 
tice, and  the  contract  is  thereby  definitely  terminated. 
This  is  a  condition  subsequent. 

It  is  a  well-recognized  principle  of  law  that  a  con- 
tract for  personal  services  which  can  be  performed 
only  during  the  lifetime  of  the  part^'  contracting  is 
subject  to  the  implied  condition  that  he  shall  be  alive 
to  perform  them;  if  he  dies,  his  executor  is  not  liable 
to  an  action  for  breach  of  contract  occasioned  by  his 
death. ^  If  an  employer  dies,  his  sers^ant  is  dis- 
charged and  cannot  treat  the  contract  as  in  force 
against  the  master's  personal  representatives.^  Thus 
it  has  been  laid  down  that  "a  contract  by  an  author 
to  write  a  book  or  by  a  painter  to  paint  a  picture  within 
a  reasonable  time  would  be  deemed  subject  to  the  con- 
dition that  if  the  author  became  insane  or  the  painter 
paralytic,  and  so  rendered  incapable  by  an  act  of  God, 
of  performing  the  contract,  he  would  not  be  personally 
liable  in  damages,  any  more  than  his  executors 
would  be  if  he  had  been  prevented  by  death."  In  an 
Enghsh  case,  the  father  of  a  boy  entered  into  a  con- 
tract with  a  firm  tliat  his  son  should  serve  as  an  ap- 
prentice for  a  number  of  years.  The  boy  fell  ill  and 
the  employer  sued  the  father  for  breach  of  the  con- 

1  Jackson  vs.  Union  Marine  Insurance  Co.  1874,  44  L.  J.  C.  P.  27. 

2  Farrow  vs.  Wilson,  1869,  38  L.  J.  C.  P.  p.  36. 

XXIV — 8 


98  COMMERCIAL  LAW 

tract.  It  was  held  that  "it  must  be  taken  to  have  been 
in  the  contemplation  of  the  parties  when  they  entered 
into  this  covenant  that  the  prevention  of  performance 
by  the  act  of  God  should  be  an  excuse  for  non-per- 
formance," and  the  action  was  dismissed. 

5.  Breach  of  a  subsidiary  promise. — If  some  sub- 
sidiary promise  in  a  contract  is  broken,  the  contract 
may  not  be  discharged,  but  an  action  for  damages  may 
arise.  The  parties  may  consider  that  the  subsidiary 
promise  is  of  such  importance  that  its  literal  fulfilment 
is  a  condition  precedent,  and  if  this  is  so  it  will  be 
treated  as  a  condition  precedent.  If,  on  the  other 
hand,  it  is  clear  from  the  surrounding  circumstances 
that  some  subsidiary  promise,  tho  apparently  of  first 
importance  and  on  its  face  a  condition  precedent,  is 
not  really  vital,  and  that  its  non-fulfilment  might  be 
adequately  compensated  for  in  damages,  then,  if  such 
an  intention  or  understanding  is  sufficiently  expressed, 
such  a  condition  will  not  be  treated  as  a  condition 
precedent. 

There  is  a  distinction  to  be  made  between  a  war- 
ranty which  gives  rise  to  an  action  in  damages,  and  a 
condition  the  fulfilment  or  non-fulfilment  of  which  is 
of  the  essence  of  the  contract,  in  that  it  strikes  at  the 
foundation  of  the  contract.  Thus  if  A  sells  a  horse 
to  B,  and  he  believes  it  to  be  sound  and  warrants  that 
it  has  not  the  heaves,  and  B  could  discover  by  having 
the  horse  examined  by  a  veterinary  surgeon  whether 
it  has  or  has  not  the  heaves,  in  some  jurisdictions  B 
would  have  an  action  in  damages  against  A,  if  after 


DISCHARGE  OF  CONTRACTS  99 

the  sale  the  horse  proved  to  have  this  weakness.  If, 
however,  A  sold  a  horse  to  B  on  the  condition  that  it 
should,  with  training  and  within  three  months,  de- 
velop a  certain  speed  as  a  racehorse,  this  would  be  a 
condition  precedent,  upon  the  non-fulfilment  of  which 
B  could  ask  to  have  his  contract  canceled,  and  demand 
the  return  of  the  price  upon  his  handing  back  the 
horse. 

6.  Breach  by  renunciation. — Either  before  or  at 
the  time  that  a  contract  is  to  be  performed,  a  party 
may  declare  that  he  repudiates  or  renounces  the  con- 
tract and  will  not  perform  his  part  of  it.  If  he  so  re- 
nounces before  the  time  of  performance,  the  contract 
may  or  may  not  be  discharged,  accordingly  as  the 
other  party  does  or  does  not  treat  it  as  discharged. 
The  other  part}'  may  treat  the  contract  as  discharged 
and  take  action  at  once  for  any  damages,  or  he  may 
wait  until  after  the  time  for  performance,  in  which 
case  he  is  entitled  meanwhile  to  insist  that  the  relation 
created  by  the  contract  shall  persist  up  to  the  time 
fixed  for  performance.  In  an  English  case,  it  was 
held  that  "the  promisee  has  an  inchoate  right  to  the 
performance  of  the  bargain,  which  becomes  complete 
when  the  time  for  the  performance  has  arrived.  In 
the  meantime  he  has  a  right  to  have  the  contract  kept 
open  as  a  subsisting  and  effective  contract;  its  unim- 
paired and  unimpeached  efficacy  may  be  essential  to 
his  interests." 

The  mere  intention  of  one  of  the  parties  to  renounce 
is  not  sufficient.     The  renunciation  must  be  express, 


100  COMMERCIAL  LAW 

positive  and  unqualified.  The  contract  may  be  in  the 
course  of  performance,  and  then  it  being  renounced, 
the  other  party  may  immediately  take  action  for  dam- 
ages. Thus  it  was  held  in  an  English  case,  that  "when 
there  is  an  executory  contract  for  the  manufacture 
and  supply  of  goods  from  time  to  time,  to  be  paid 
for  after  delivery,  if  the  purchaser,  having  accepted 
and  paid  for  a  portion  of  the  goods  contracted  for, 
gives  notice  to  the  vendor  not  to  manufacture  any 
more  as  he  has  no  occasion  for  them  and  will  not  ac- 
cept or  pay  for  them,  the  vendor  being  desirous 
and  able  to  complete  the  contract,  he  may,  without 
manufacturing  and  tendering  the  rest  of  the  goods, 
maintain  an  action  against  the  purchaser  for  breach 
of  contract."  It  has  been  held  in  a  Quebec  case 
that,  where  a  person  contracts  for  the  manufacture  of 
machinery,  and  afterwards  notifies  the  manufacturer 
that  he  will  not  accept  delivery  of  it  unless  certain 
guarantees  respecting  it,  not  mentioned  in  the  con- 
tract, be  given  to  him,  he  is  thereby  held  to  repudiate 
the  contract  and  he  becomes  liable  for  the  price  of  the 
machineiy,  less  whatever  value  it  may  have  for  the 
manufacturer.^  So  also  if  a  person  contracts  to  give 
his  services  to  a  company,  and  his  personal  services  are 
the  foundation  of  the  contract,  his  refusal  to  give  his 
services  entitles  the  other  party  to  rescind  the  agree- 
ment. 

If  the  parties  to  a  contract  abandon  it  by  mutual 

1  Morgan-Smith   et   al.   vs.   Montreal  Light,    Heat   &   Power   Co.   30, 
Que.  S.  C.  242. 


DISCHARGE  OF  CONTRACTS  101 

consent  after  it  has  been  partly  performed  by  one 
party,  the  latter  is  entitled  to  receive  a  reasonable  price 
for  the  work  he  has  done.  If,  however,  a  board  of 
school  commissioners  employs  a  teacher  for  eight 
months,  and  before  the  school  opens  informs  him  that 
his  serv'ices  will  not  be  required,  the  teacher  may  treat 
the  contract  as  discharged  and  sue  the  board  for  dam- 
ages; or  he  may  wait  until  the  expiry  of  the  eight 
months  and  sue  on  the  contract  for  his  salary.  Of 
course,  meanwhile  he  must  not  refuse  other  work,  and 
what  he  may  earn  in  the  meantime  under  another 
contract  will  go  toward  reducing  the  amount  that  he 
may  claim  under  his  original  contract. 

A  enters  into  a  contract  with  B  for  the  purchase 
of  B's  farm.  Payment  is  to  be  made  in  several  in- 
stalments, and  upon  payment  of  the  last  one  B  is  to 
deliver  to  A  the  deed  of  the  farm.  A  refuses  to  pay 
the  second  instalment  when  due,  and  B  sues  him  for 
it.  B  may  recover.  A's  promise  to  pay  each  instal- 
ment, other  than  the  last  one,  is  independent  of  the 
covenant  to  convey;  hence  B  may  sue  him  for  each 
instalment  other  than  the  last  without  offering  to  con- 
vey the  farm.  But  in  order  that  one  party  may  de- 
mand the  rescission  of  a  contract  which  is  in  the  course 
of  being  performed,  the  other  party  must  be  actually 
in  default  to  fulfil  his  contract.  It  is  not  sufficient 
for  the  other  party  to  allege  merely  that  under  the 
circumstances  it  is  impossible  for  the  party  perform- 
ing to  fulfil  or  complete  his  contract  within  the  delay 
specified. 


102  COMMERCIAL  LAW 

REVIEW 

What  is  a  breach  of  contract? 

When  does  failure  of  performance  discharge  the  contract? 
How  does  the  distinction  between  divisible  and  indivisible  con- 
tracts affect  discharge  by  failure  of  performance  ? 

When  is  a  contract  conditional?  What  restrictions  are  put  on 
the  conditions  of  a  contract?     What  is  a  condition  precedent? 

Of  what  effect  is  the  breach  of  a  subsidiary  promise? 

What  is  meant  by  breach  of  renunciation?  Must  the  renuncia- 
tion be  express? 


CHAPTER  IX 

DISCHARGE  OF  CONTRACTS   ^Continued) 

1.  Discharge  hy  impossihility  of  performance. — A 
contract  may  be  void  or  become  discharged  under  cer- 
tain circumstances,  when  performance  is  impossible  at 
the  time  the  contract  is  made,  or  becomes  impossible 
afterward.  Whether  a  contract  is  discharged  be- 
cause of  impossibility  of  performance  or  otherwise  will 
depend  upon  the  circumstances  surrounding  the  par- 
ticular contract.  Because  of  impossibility  of  per- 
formance, the  contract  may  never  exist,  or  it  may  be 
discharged.  If  the  impossibility  of  performance  ex- 
ists when  the  supposed  contract  is  made,  the  contract 
is  not  discharged,  as  it  is  void  to  begin  with,  it  is  not 
formed.  The  doing  of  some  impossible  thing  is  not  a 
proper  consideration.  The  thing  which  is  contracted 
to  be  done  may  in  itself  be  impossible,  as,  for  example, 
if  a  man  made  a  contract  to  run  a  river  up-hill, 
or  to  do  some  other  impossible  thing.  AA^e  have  said 
that  the  contract  may  be  impossible  of  performance 
when  it  is  made.  Thus  if  a  person  contracts  to  dig 
1,000  tons  of  a  certain  kind  of  clay  on  a  certain  prop- 
erty where  there  is  no  such  clay,  or  if  the  subject 
matter  of  the  contract  is  no  longer  in  existence  when 
the  contract  is  made,  the  contract  is  void.     So  if  A 

103 


104  COMMERCIAL  LAW 

sells  a  horse  to  B,  and  unknown  to  A  the  horse  is  dead, 
there  is  no  contract. 

After  the  contract  is  made  performance  may  be- 
come impossible,  and  the  contract  may  or  may  not 
be  discharged,  according  to  circumstances.  It  may 
become  impossible  by  law  as  being  inconsistent  with 
some  legal  principle,  or  by  reason  of  the  existence  of 
a  particular  state  of  things  which  renders  perform- 
ance impossible.  The  courts  will  examine  the  inten- 
tion of  the  parties  to  discover  whether  they  really  in- 
tended that,  should  performance  accidentally  become 
impossible,  the  contract  should  be  altogether  dis- 
charged; for  it  must  be  taken  into  consideration  that 
so  far  as  possible  a  valid  contract  will  be  maintained, 
and  that  under  certain  conditions  a  person  will  be 
bound  to  fulfil  the  duty  he  has  undertaken,  altho  some 
accident  may  intervene,  against  which  he  might  have 
provided  bj'-  his  contract. 

2.  Destruction  of  the  subject  matter. — Perform- 
ance of  the  contract  may  depend  on  the  existence  of 
some  specific  thing.  If  performance  becomes  impos- 
sible by  reason  of  its  destruction,  the  contract  will,  as 
a  rule,  be  discharged,  unless  there  is  some  warranty 
express  or  implied,  that  the  subject  matter  shall  con- 
tinue to  exist.  In  a  leading  English  case,^  the  de- 
fendants agreed  to  let  the  plaintiffs  have  the  use  of 
a  music  hall  on  certain  days  for  the  purpose  of  giv- 
ing entertainments.  Before  the  hall  was  used  for 
this    purpose,    however,    it   was   destroyed   by   fire, 

1  Taylor  vs.  Caldwell,  3  B.  &  S.  826. 


DISCHARGE  OF  CONTRACTS  105 

neither  party  being  in  fault.  It  was  held  that  the 
defendants  were  excused,  and  the  general  principle 
was  laid  do^vn  that  "where,  from  the  nature  of  the 
contract,  it  appears  that  the  parties  must  have  known 
from  the  beginning  that  it  could  not  be  fulfilled 
unless,  when  the  time  for  the  fulfilment  of  the  con- 
tract arrived,  some  particular  specified  thing  con- 
tinued to  exist,  so  that  when  entering  into  the 
contract  they  must  have  contemplated  such  con- 
tinued existence  as  the  foundation  of  what  was  to  be 
done ;  there,  in  the  absence  of  any  express  or  implied 
warranty  that  the  thing  shall  exist,  the  contract  is 
not  to  be  considered  a  positive  contract,  but  subject 
to  the  implied  condition  that  the  parties  shall  be  ex- 
cused in  case,  before  breach,  performance  becomes 
impossible  from  the  perishing  of  the  thing,  without 
default  of  the  contractor." 

The  rule  of  the  English  law  is  that  where  the  prop- 
erty in  a  specified  thing  which  is  to  be  delivered  at  a 
future  date  has  passed  by  bargain  and  sale,  and  the 
thing  is  destroj^ed  before  delivery  without  the  fault 
of  the  vendor,  he  is  excused  from  performing  his 
contract  to  deliver.  The  Civil  Code  of  Quebec  lays 
down  that,  when  the  certain  specific  thing  which  is 
the  object  of  an  obligation  perishes,  or  the  delivery  of 
it  from  any  other  cause  is  impossible,  without  any  act 
or  fault  of  the  debtor  and  before  he  is  in  default,  the 
obligation  is  extinguished.  It  is  also  extinguished, 
altho  the  debtor  be  in  default,  if  the  thing  would 
equally    have    perished    in    the    possession    of    the 


106  COMMERCIAL  LAW 

creditor ;  unless  in  either  of  the  above  mentioned  cases 
the  debtor  has  expressly  bound  himself  for  fortuitous 
events.     The  rules  are  therefore  similar. 

Thus  in  an  English  case,  where  A  agreed  with  M 
to  erect  an  engine  and  other  machinery  on  M's  prem- 
ises, at  certain  prices  for  the  separate  parts  of  the 
work,  and  no  time  was  fixed  for  payment,  but  while 
the  work  was  being  done  and  before  completion  of 
any  part  the  premises  and  the  uncompleted  work 
and  materials  were  accidentally  destroyed  by  fire, 
without  fault  of  either  party,  it  was  held  that  there 
was  no  promise  or  warranty  by  M  that  the  premises 
should  at  all  times  continue  fit  to  receive  the  machin- 
ery; that  the  burning  of  the  building  was  a  misfor- 
tune equally  affecting  both  parties,  excusing  both 
from  further  performance  of  the  contract,  but  not  giv- 
ing a  cause  of  action  to  either. 

It  has  also  been  held  in  England  that  a  contractor 
for  work,  to  be  paid  for  in  a  lump  sum,  can  recover  for 
part  only  if  he  has  been  prevented  from  completing 
the  work  thru  the  other  party's  default,  or  if  there  is 
a  new  contract  to  pay  for  what  has  been  done.  Pol- 
lock remarks  that  in  the  United  States,  however,  re- 
covery for  the  work  is  generally  allowed.  But  if  A 
agrees  to  make  certain  goods  in  a  particular  factory 
for  B  and  before  they  are  made  the  factory  is  acci- 
dentally destroyed  by  fire,  the  contract  is  dis- 
charged on  the  principle  that  it  was  the  intention 
of  the  parties  that  the  contract  should  depend  upon 
the   continued  existence   of  the   particular  factory. 


DISCHARGE  OF  CONTRACTS  107 

In  the  same  way,  if  A  sells  B  a  crop  of  rye  to  be 
grown  on  a  particular  piece  of  land,  and  the  crop  is 
destroyed  by  a  hail-storm  before  it  matures,  the  con- 
tract is  discharged,  because  the  subject  matter  is 
destroyed. 

The  rule  arising  out  of  the  case  of  Taylor  vs.  Cald- 
well has  in  England  been  extended  to  cover  cases 
where,  altho  some  material  object  is  not  destroyed,  a 
state  of  things  which  the  parties  had  in  mind  as  es- 
sential for  performance,  ceases  to  exist. 

A  number  of  cases  arose  out  of  the  fact  that  vari- 
ous contracts  were  made  in  preparation  for  the  cor- 
onation of  King  Edward  VII,  the  arrangements 
having  to  be  cancelled  owing  to  the  postponement  of 
the  coronation.  The  general  principle  laid  down  by 
the  Court  of  Appeals  to  govern  these  cases  was,  that 
the  contract  was  not  voided  when  the  failure  of  the 
condition  assumed  as  its  foundation  was  ascertained, 
but  all  outstanding  obligations  under  it,  and  those 
only,  were  discharged ;  that  is,  payment  already  made 
could  not  be  recovered  back,  and  any  payment  which 
was  actually  accrued  could  be  recovered.^ 

3.  Legal  impossibility. — The  obligation  of  a  per- 
son under  a  contract  is  discharged  if  performance  is 
rendered  impossible  by  law.  The  performance  may 
be  forbidden,  or  be  impossible  by  a  judgment  of  the 
court,  or  by  the  passing  of  some  statute,  or  otherwise. 
In  an  English  case,  a  lessor  covenanted  with  a  lessee 
that  neither  he   (the  lessor)   nor  his  assignee  would 

1  Pollock,  440,     Bailey  vs.  DeCrespigny. 


108  COMMERCIAL  LAW 

allow  any  building  on  an  adjoining  piece  of  land. 
Later,  acting  under  an  Act  of  Parliament,  a  railway 
company  bought  the  land  and  built  a  station  upon  it, 
while  the  lease  was  still  in  force.  An  action  against 
the  lessor  by  the  lessee  was  dismissed,  as  it  was  held 
by  the  court  that  the  lessor  could  not  perform  his 
covenant.  The  principle  of  the  decision  was  that  by 
the  Apt  of  Parliament  the  lessor  had  really  been 
compelled  to  part  with  his  land  to  the  railway  com- 
pany; that  under  the  circumstances  he  was  unable  to 
impose  restrictions  upon  the  company,  and  that  the 
company  was  not  an  assign  direct  from  him,  but  a 
new  kind  of  assign,  such  as  was  not  contemplated 
by  the  parties  when  the  contract  was  made.  Pol- 
lock points  out,  in  commenting  upon  this  decision, 
that  if  the  lessor  had  secured  the  passing  of  a  private 
act  upon  his  own  initiative,  he  would  probably  have 
been  bound  by  his  contract  toward  the  lessee. 

It  has  been  held  in  an  interesting  American  case, 
that  if  an  employe  contracts  to  work  for  a  definite 
period,  and  to  give  two  weeks'  notice  of  his  intention 
to  leave,  or  in  lieu  thereof  to  forfeit  two  weeks' 
wages,  and  he  is  imprisoned  for  some  crime  which  he 
commits,  the  giving  of  the  notice  becomes  impossible, 
and  he  is  entitled  to  his  wages. 

4.  Incapacity  for  personal  services. — A  contract 
for  personal  services  may  depend  for  performance 
upon  the  life  or  continued  health  of  the  person  who 
promises  them.  Contracts  for  personal  services, 
therefore,  which  can  be  performed  only  during  the 


DISCHARGE  OF  CONTRACTS  109 

lifetime  of  the  person  who  promises  them  are  subject 
to  an  implied  condition  that  performance  will  be  pos- 
sible and  will  be  made  only  if  he  lives  or  retains  his 
health.  If  he  dies,  his  executors  or  personal  repre- 
sentatives cannot  be  sued  for  breach  of  the  contract, 
because  the  contract  has  been  discharged.  Of 
course  the  contract  may  have  provided  just  the  con- 
trary, and  it  may  have  been  stipulated  that  upon  his 
death  or  incapacity  certain  other  persons,  among 
whom  might  be  his  executors  or  legal  representatives, 
should  be  bound  to  performance. 

This  point  arose  in  an  English  case,^  where  it  was 
held,  (a  person  having  been  under  contract  to  give  a 
pianoforte  recital,  and  being  disabled  by  illness) : 
"This  is  a  contract  to  perform  a  service  which  no 
deputy  could  perform,  and  which,  in  case  of  death, 
could  not  be  performed  by  the  executors  of  the  de- 
ceased; and  I  am  of  the  opinion  that  by  virtue  of  the 
terms  of  the  original  bargain,  incapacity  of  body  o,* 
mind  in  the  performer,  without  default  on  his  or  hei 
part,  is  an  excuse  for  non-performance.  Of  course 
the  parties  might  expressly  contract  that  incapacity 
should  not  excuse,  and  thus  preclude  the  condition 
of  health  from  being  annexed  to  their  agreement. 
Here  they  have  not  done  so,  and,  as  they  have  been 
silent  on  that  point,  the  contract  must,  in  my  judg- 
ment, be  taken  to  have  been  conditional,  and  not  ab- 
solute." 

On  the  same  principle  a  servant  is  discharged  by 

1  Robinson  vs.  Davison,  L.  R.  6  Ex.  269. 


110  COMMERCIAL  LAW 

the  death  of  his  master,  and  cannot  bring  action  to  en- 
force the  contract  against  the  master's  personal  rep- 
resentatives. In  the  case  of  Robinson  vs.  Davidson, 
to  which  we  have  referred,  the  defendant's  wife 
was  a  well-known  piano  player.  She  made  a  con- 
tract to  play  at  a  certain  concert.  Just  before  the 
concert  was  to  take  place  she  fell  ill  and  was  unable 
to  appjear.  The  person  who  had  employed  her  sued 
for  the  loss  he  had  suffered  by  having  to  put  off  the 
concert,  and  judgment  was  rendered  in  his  favor  for 
a  small  amount,  on  the  ground  that  tho  the  illness  dis- 
charged the  contract,  she  had  not  given  notice  of  her 
inability  to  play  within  a  reasonable  time.  The 
amount  awarded  was  intended  to  cover  the  expenses 
of  the  plaintiff  in  giving  notice  of  postponement  to 
the  public  and  to  subscribers,  in  excess  of  what  it 
might  have  cost  him  had  she  notified  him  by  tele- 
graph, instead  of  by  the  longer  method  of  writing  a 
letter.  It  was  laid  down  in  the  same  case  that  the 
contract  became  void  by  her  inability  to  play,  and  was 
not  merely  voided  at  her  option.  She  could  not  have 
insisted  on  performing  her  engagement  when  she  was 
really  not  in  a  condition  to  do  so  properly.  On  the 
other  hand,  if  the  performer  had  suffered  some  ac- 
cident immediately  prior  to  the  hour  of  engagement, 
say  while  on  her  way  or  during  the  daj^  notice  would 
hardly  be  of  any  use,  and  there  would  probably  be 
no  damages  which  could  be  assessed  against  her  for 
lack  of  notice.  Contracts  which  are  not  so  personal 
that  they  cannot  be  performed  by  a  deputy  or  an 


DISCHARGE  OF  CONTRACTS  111 

agent,  will  not  be  discharged  for  such  a  cause,  unless 
the  parties  have  agreed  that  such  shall  be  the  case. 

5.  Liability  upon  refusing  to  work  under  danger- 
ous conditions. — There  is  a  good  deal  of  authority'  for 
the  view  that  a  person  who  has  contracted  to  do  a 
certain  thing  will  be  discharged  from  his  contract  if 
the  performance  would  bring  him  into  positive  dan- 
ger, and  that  under  such  circumstances  he  will  not  be 
liable  for  a  breach  of  his  contract  if  he  refuses  to  per- 
form it.  If,  however,  an  employer  stops  work  tem- 
porarily, as,  for  example,  in  the  presence  of  an  epi- 
demic of  scarlet  fever,  it  has  been  held  that  he  will  be 
held  liable  for  the  wages  of  his  employes  during  such 
time. 

Thus  if  some  employes  in  a  mill  quit  work 
because  they  fear  infection  owing  to  an  epidemic  of 
disease,  it  has  been  held  that  they  may  recover 
the  value  of  the  work  they  have  done,  and  as  they 
were  justified,  under  the  circumstances,  in  refus- 
ing to  court  danger,  they  will  not  be  liable  for  dam- 
ages for  having  broken  their  contract.  In  a  case 
decided  in  Elaine  ^  it  was  laid  down:  "The  plaintiff 
was  under  no  obligation  to  imperil  his  life  by  remain- 
ing at  work  in  the  vicinity  of  a  prevailing  epidemic 
so  dangerous  in  its  character  that  a  man  of  ordinary 
care  and  prudence,  in  the  exercise  of  those  qualities, 
would  have  been  justified  in  leaving  by  reason  of  it, 
nor  does  it  make  any  difference  that  the  men  who  re- 
mained there  at  work  after  the  plaintiff  left  were 

1  Lakeman  vs.  Pollard,  43  Me,  463. 


112  COMMERCIAL  LAW 

healthy,  and  continued  to  be  so.  He  could  not  then 
have  had  any  certain  knowledge  of  the  extent  of  his 
danger.  He  might  have  been  in  imminent  peril,  or 
he  might  have  been  influenced  by  unreasonable  ap- 
prehensions. He  must  necessarily  have  acted  at  his 
peril  under  the  exercise  of  his  judgment." 

An  epidemic  broke  out  in  a  school  district  and 
the  school  authorities  closed  the  school.  A  teacher 
was  held  entitled  in  a  IVIichigan  case  to  recover  his 
salary,  and  the  decision  laid  down  that  "the  plaintiff 
continued  ready  to  perform,  but  the  district  refused 
to  open  its  house  and  allow  the  attendance  of  pupils, 
and  it  thereby  prevented  performance  by  the  plain- 
tiff. Admitting  that  the  circumstances  justified  the 
officers,  yet  there  is  no  rule  of  justice  which  will  en- 
title the  district  to  visit  its  own  misfortune  upon  the 
plaintiff.  He  was  not  at  fault.  He  had  no  agency 
in  bringing  about  the  state  of  things  which  rendered 
it  eminently  prudent  to  dismiss  the  schools.  It  was 
the  misfortune  of  the  district,  and  the  district  and  not 
the  plaintiff  had  to  bear  it."  ^  , 

6.  Performance  impossible  by  the  fault  of  either 
party. — The  person  promising,  the  promissor,  may 
by  his  own  act  make  it  impossible  to  perform  his  con- 
tract. If  so,  he  is  not  discharged,  and,  as  he  has 
committed  a  breach  of  his  contract,  he  will  be  liable 
in  damages.  If,  however,  by  the  fault  or  act  of  the 
promisee,  the  promissor  is  prevented  from  perform- 
ing his  contract  or  some  part  of  it,  the  promissor  is 

1  Dewey  vs.  Alpena  School  District,  43  Mich.  480. 


DISCHARGE  OF  CONTRACTS  113 

discharged  to  that  extent.  The  promissor  may  in 
such  case  sue  for  damages;  he  may  also  bring  action 
to  rescind  the  contract  and  to  recover  what  he  may 
have  paid.  Thus  if  a  contractor  undertakes  to  put 
up  a  building  and  have  it  completed  by  a  certain  date, 
and  it  is  stipulated  that  for  every  day  beyond  that 
date  that  he  is  still  engaged  on  the  work  he  will  pay  a 
penalty  of  $25,  he  will  not  be  liable  to  the  penaltj^ 
or  for  damages  if  the  delay  has  been  caused  by  the  de- 
fault or  act  of  the  other  party. 

It  has  also  been  held  in  an  English  case  ^  that  if  a 
person  orders  a  machine  designed  to  do  certain  work, 
and  the  contract  provides  that  the  machine  is  to  be 
accepted  only  if  it  prove  satisfactory  after  test,  the 
buyer  will  be  found  to  accept  and  pay  for  the  machine 
if  he  does  not  provide  a  fit  occasion  to  make  the  test, 
or  if  he  deals  with  the  machine  in  such  a  way  as 
to  prevent  a  fair  test  being  made,  according  to  the 
spirit  of  the  contract.  So  also  if  A  makes  a  contract 
to  buy  1,000  barrels  from  a  manufacturer  who  agi-ees 
to  manufacture  them.  The  manufacturer  makes  and 
delivers  500,  when  he  receives  a  notice  from  A  not  to 
make  any  more,  as  he  does  not  need  them  and  will 
not  take  them.  It  has  been  held  that  A  will  be  liable 
in  damages  to  the  manufacturer  for  the  breach  of  his 
contract. 

7.  Discharge  by  operation  of  law. — Under  certain 
conditions,  by  operation  of  law,  a  contract  will  be 
discharged,  as,  for  example,  where  a  contract  under 

iMackay  vs.  Dick,  1881,  H.  L.  (S.  C.  6  A.  C.  351). 
XXlV— 9 


114   ,  COMMERCIAL  LAW 

private  signature  is  replaced  by  a  contract  in  notarial 
form,  provided  the  latter  is  not  intended  as  a  mere 
collateral  contract  or  security.  The  first  is  said  to 
be  merged  in  the  latter  and  extinguished.  If  A  and 
B  enter  into  a  contract,  and  B,  because  of  A's  de- 
fault, sues  him  and  secures  a  judgment  against  him, 
the  judgment  replaces  the  contract — the  contract  is 
merged  in  the  judgment.  No  further  action  can  be 
taken  upon  the  contract  itself,  tho  proceedings  may 
be  continued  upon  the  judgment.  Where  a  written 
contract  is  made  embodying  the  terms  of  an  oral  con- 
tract, the  latter  is  not  merged  in  the  former.  The 
written  contract,  provided  it  is  not  under  seal  or  in 
solemn  form,  is  a  contract  of  no  higher  nature  than 
the  oral  contract,  but  the  written  contract  is  better 
evidence  of  what  the  parties  intended,  and  is  given 
priority  over  the  other. 

A  contract  may  be  discharged  when  some  material 
alteration  or  change  has  been  made  in  it.  If  it  can  be 
shown  that  the  alteration  was  made  before  the  docu- 
ment was  signed,  the  parties  will  be  held  bound.  It 
may  be  made  after  the  contract  is  signed,  and  the 
parties  will  be  bound  by  it,  if  it  can  be  shown  that 
they  consented  to  the  change.  If,  however,  after  the 
contract  is  made  and  signed,  one  of  the  parties  inten- 
tionally makes  some  change  in  it  by  an  erasure  or 
otherwise,  or  gets  a  third  person  to  make  it  for  him, 
without  the  knowledge  and  consent  of  the  other  party, 
then  the  general  rule  is  that  the  contract  is  discharged, 
and  the  person  who  has  not  given  his  consent  will  not 


i 


DISCHARGE  OF  CONTRACTS  115 

longer  be  bound.  Occasionally  a  third  person,  with- 
out the  consent  of  either  party,  may  make  some  alter- 
ation in  a  written  docmnent,  and  under  the  later  de- 
cisions, if  the  terms  of  the  original  contract  can  be 
established,  the  contract  will  not  be  discharged.  Gen- 
erally speaking,  in  order  that  the  contract  may  be  dis- 
charged, the  alteration  must  be  material,  in  which  case 
it  will  not  be  any  question  of  prejudice. 

What  may  be  a  material  alteration  must  be  de- 
cided in  each  case.  As  we  shall  see  later  when  dis- 
cussing negotiable  instruments,  when  a  bill,  note 
or  other  negotiable  instrument  is  materially  altered 
without  the  consent  of  all  parties  liable  on  it,  the  in- 
strument is  voided,  except  as  against  a  party  who  has 
himself  authorized  or  assented  to  the  alteration.  If, 
however,  a  negotiable  instrument  has  been  so  altered 
that  the  alteration  is  not  apparent,  a  person  who  in 
good  faith  gives  value  for  it  before  maturity,  and  with- 
out notice  of  the  alteration,  may  enforce  payment  of 
it.  A  material  alteration  is  one  which  alters  the  op- 
eration of  the  instrument  or  the  liabilit}^  of  the  parties, 
whether  the  alteration  be  prejudicial  or  beneficial. 
Thus,  a  defendant  indorsed  a  note  for  the  accommoda- 
tion of  the  makers ;  afterwards  they  inserted  the  words 
"with  interest  at  10  per  cent,"  without  his  knowledge. 
He  was  not  liable  for  value  on  the  note  to  a  bona  fide 
holder.  In  an  Ontario  case,  it  was  held  that  a  note  is 
discharged  by  the  insertion  of  the  words  "jointly  and 
severally,"  even  tho  the  holder  erased  the  words  before 
the  objectors  became  aware  of  the  change.     In  an- 


116  COMMERCIAL  LAW 

other  case  decided  in  England,  a  draft  was  materially 
altered  by  the  son  of  the  person  who  accepted  it. 
The  next  day  the  acceptor  gave  her  son  full  authority 
to  draw,  accept  and  indorse  for  her.  It  was  held 
that  the  bill  was  voided  by  the  alteration. 

If  the  alteration  was  made  by  accident  or  mis- 
take, the  instrument  is  not  necessarily  voided,  in 
which:  case,  of  course,  the  burden  of  proof  will  be  on 
the  person  who  alleges  that  the  alteration  was  not 
intentional.  It  has  been  laid  down,  however,  that  if 
the  alteration  is  intentional,  but  is  made  under  a  mis- 
taken idea  of  the  rights  of  the  person  making  the 
alteration,  the  instrument  is  void.  Thus  it  has  been 
lield  that  if  a  banker  cancels  a  bill  by  mistake,  with- 
out any  want  of  due  care,  he  does  not  incur  any  lia- 
bility; but  if  there  is  negligence,  he  will  be  held  liable 
for  any  loss  which  results  therefrom.  The  mere  fact 
that  a  written  contract  is  lost  does  not  discharge  it, 
because,  upon  the  loss  being  proved,  oral  evidence 
maj^  be  made  of  the  terms  of  the  contract.  Thus 
it  has  been  held  that  where  a  will  is  lost,  oral  evidence 
may  be  given  that  a  will  was  made,  and  also  a  state- 
ment of  its  provisions. 

8.  Insolvency;  proceedings  in  bankruptcy. — A 
debtor  may  become  insolvent,  and  his  assets  may  be 
realized  and  used  to  pay  his  debts,  in  whole  or  in  part. 
If  there  is  not  sufficient  to  pay  his  creditors  in  full,  he 
is  not  discharged  because  of  insolvency.  Under  the 
Confederation  Act,  Section  91,  the  subjects  of  bank- 
ruptcy and  insolvency  are  within  the  exclusive  legis- 


DISCHARGE  OF  CONTRACTS  117 

islative  jurisdiction  of  the  Dominion  Parliament,  and 
there  is  no  Dominion  bankruptcy  law.  In  the 
United  States,  however,  where  there  is  a  bankruptcy 
law,  a  debtor  who  makes  a  general  assignment  under 
the  National  Act  for  the  benefit  of  his  creditors  is 
discharged  from  further  liability  for  his  existing 
debts.  If  he  turns  over  all  his  property  for  the  ben- 
efit of  his  creditors,  he  can  begin  business  again  with- 
out fear  of  being  called  upon  to  pay  old  debts.  This 
is  not  the  case  in  Canada. 

9.  By  confusion. — Wlien  the  qualities  of  creditor 
and  debtor  are  united  in  the  same  person,  there  arises 
a  confusion,  which  extinguishes  the  obligation.^ 
Thus  if  A  owes  B  $1,000,  and  B  dies  and  A  is  his 
universal  heir,  or  B  has  by  will  left  him  all  that  he  has, 
A's  obligation  is  discharged.  Or  if  B  had  been  in- 
debted to  A,  and  A  was  B's  miiversal  heir,  the  debt 
would  be  extinguished. 

10.  By  compensation. — When  two  persons  are  mu- 
tually debtor  and  creditor  of  each  other,  both  debts 
are  extinguished  by  compensation.  Compensation 
takes  place  by  the  sole  operation  of  law  between  debts 
which  are  equally  liquidated  and  demandable,  and 
have  for  object  a  sum  of  money  or  a  certain  quantity 
of  indeterminate  things  of  the  same  kind  and  quantity. 
But  compensation  does  not  take  place  to  the  preju- 
dice of  rights  acquired  by  third  parties.^ 

11.  Remedies  for  breach  of  contract. — It  would  be 

1  Quebec  Civil  Code,  Art.  1198. 

2  Quebec  CivU  Code,  Arts.  1188,  1189  and  1196. 


118  COMMERCIAL  LAW 

unfair  that  where  a  contract  is  violated  by  the  act  of 
one  of  the  parties  thereto,  the  other  party  should  suf- 
fer loss.  The  innocent  party  is  therefore  relieved 
from  performance,  and  if  he  has  suffered  loss  he  may 
bring  an  action  to  recover  the  amount  thereof.  If 
the  innocent  party  has  in  part  performed  his  side  of 
the  bargain,  he  may  treat  the  contract  as  cancelled, 
and  sue  for  a  reasonable  compensation  for  the  part  he 
has  performed,  as  also  for  damages,  if  he  has  suffered 
any.  In  some  cases,  as  we  have  seen,  specific  per- 
formance of  the  contract  in  full  may  be  demanded. 

12.  Damages  recoverable  for  breach  of  contract. — 
Where  a  breach  of  the  contract  cannot  be  justified, 
the  innocent  party  is  entitled  to  recover  such  damages 
as  he  has  suffered.  He  may  not  have  suffered  any 
damages,  but  in  many  cases  he  will  be  allowed  a 
nominal  amount.  If  his  loss  can  be  assessed  in 
money,  he  is  entitled,  as  was  said  in  an  English  case, 
to  be  placed,  so  far  as  money  can  do  it,  in  the  same  situ- 
ation, with  respect  to  damages,  as  if  the  contract  had 
been  performed.  The  damages  must,  however,  be 
approximate,  and  they  must  be  capable  of  being 
proved  with  reasonable  certainty.  Thus  if  a  Jewish 
merchant  in  Toronto  ordered  a  barrel  of  special  Pass- 
over rum  from  a  merchant  in  New  York,  to  be  deliv- 
ered in  Toronto,  and  the  consignment  was  delayed  in 
transit,  as,  for  example,  by  heavy  storms,  but  under 
such  conditions  that  had  the  carrier  been  informed 
that  if  the  rum  was  not  in  Toronto  within  a  reason- 
able time  before  the  Passover  season  it  would  be  use- 


DISCHARGE  OF  CONTRACTS  119 

less,  it  would  have  made  special  efforts  to  forward  the 
rum  in  preference  to  other  consignments  not  required 
for  a  special  date,  the  Toronto  merchant  could  not  re- 
cover more  than  a  reasonable  amount  for  damages. 
He  would  not,  under  such  conditions,  be  entitled  to 
recover  speculative  damages,  namely,  the  amount 
which,  in  excess  of  ordinary  prices,  he  might  have  ob- 
tained for  the  rum  because  of  its  special  character. 
It  was  laid  down  in  an  English  case  that: 

Where  a  party  has  broken  his  contract,  the  damages  which 
the  other  party  could  recover  should  be  (1)  such  as  may 
fairly  and  reasonably  be  considered  to  arise  naturally,  that 
is,  according  to  the  usual  course  of  things,  from  the  breach, 
or  such  as  may  reasonably  be  supposed  to  have  been  in  the 
contemplation  of  both  parties  at  the  time  they  made  the 
contract  as  the  probable  result  of  its  breach;  that  (2)  if  the 
damages  arose  out  of  special  circumstances,  communicated 
and  so  known  to  both  parties  when  the  contract  was  made, 
the  damages  which  the  parties  would  reasonably  contemplate 
would  be  the  amount  of  injury  which  would  ordinarily  fol- 
low from  the  breach  of  a  contract  under  those  special  cir- 
cumstances so  known  and  communicated;  but  (3)  if  the  spe- 
cial circumstances  were  wholly  unknown  to  the  party  break- 
ing the  contract,  he,  at  the  most,  could  only  be  supposed  to 
have  had  in  his  contemplation  the  amount  of  injury  which 
would  arise  generally,  and  in  the  great  majority  of  cases  not 
be  affected  by  any  such  special  circumstances. 

This  reasoning  applies  fully  to  the  case  of  the  Jew- 
ish merchant,  and  is  sound  law  and  sense. 

REVIEW 

What  is  the  effect  of  impossibility  of  performance  and  when 
may  it  occur?     When  does  it  discharge  the  contract? 


120  COMMERCIAL  LAW 

What  is  the  effect  of  the  destruction  of  the  subject  matter? 

On  what  does  a  contract  for  personal  service  depend  ?  Give  an 
example. 

When  is  a  person  justified  in  refusing  to  carry  out  a  contract 
under  conditions  of  danger  ? 

What  is  the  effect  on  a  contract  when  the  promissor  prevents 
performance?  When  the  promissor  is  prevented  from  perform- 
ing? 

Give  some  methods  of  discharging  a  contract  by  operation  of 
law. 

When  one  party  commits  a  breach  of  contract,  what  are  the 
remedies  of  the  other  party  to  it? 


PART  II:  SPECIAL  FORMS  OF 
CONTRACT 

CHAPTER  X 

SALES:     THE  CONTRACT 

1.  Definition. — A  sale  is  a  contract  by  which  one 
party  gives  a  thing  to  the  other  for  a  price  in  money, 
which  the  latter  puts  himself  under  obligation  to  pay. 
Benjamin  defines  sale  as  a  transfer  of  the  absolute  or 
general  property  in  a  thing  for  a  price  in  money. 

That  there  may  be  a  valid  sale  there  must  be: 

(a)  Parties  competent  to  contract. 

(b)  Mutual  assent. 

(c)  A  thing,  the  absolute  or  general  property  in 
which  is  transferred  from  the  seller  to  the  buyer. 

(d)  A  price  in  money  paid  or  promised. 

The  difference  between  the  absolute  and  general 
property  in  the  thing  sold  may  be  explained  in  a  few 
words.  In  the  theory  of  the  law,  there  may  be  in  a 
sense  two  owners  of  a  thing,  one  of  whom  has  the  gen- 
eral and  the  other  a  special  property  in  it.  The 
transfer  of  the  special  property  is  not  a  sale  of  the 
thing.^  Thus  a  factor  in  New  Orleans  bought  a 
cargo  of  corn,  with  his  ot\ti  money,  on  the  order  of  a 

1  Benjamin,  "Sale,"  5th  Ed.,  p.  3. 

121 


122  COMMERCIAL  LAW 

London  correspondent.  He  shipped  the  goods  for 
account  of  his  correspondent,  wrote  letters  of  ad- 
vice to  that  effect,  sent  invoices  to  the  correspond- 
ent, and  drew  bills  of  exchange  on  him  for  the  price ; 
but  he  took  bills  of  lading  to  his  own  order,  and  in- 
dorsed and  delivered  them  to  a  banker,  to  whom  he 
sold  the  bills  of  exchange.  This  transaction  was  held 
to  be  a  transfer  of  the  general  property  to  the  London 
merchant,  and  therefore  a  sale  to  him ;  and  a  transfer 
of  a  special  property  to  the  banker  by  the  delivery  to 
him  of  the  bills  of  lading,  which  represented  the 
goods.^  Benjamin  gives  as  a  further  illustration  the 
case  where  goods  are  delivered  in  pawn  or  pledge ;  the 
general  property  remains  in  the  piossession  of  the 
pawnor  (which  he  may  transfer  to  a  third  person, 
subject  to  the  rights  of  the  pawnee),  and  a  special 
property  is  transferred  to  the  pawnee. 

2.  Distinguishing  features. — A  sale  must  be  dis- 
tinguished from  a  contract  or  promise  to  sell.  If  A 
sells  a  certain  horse  outright  to  B,  of  course  there  is 
a  binding  contract  of  sale;  but  if  A  merely  promises 
to  sell  a  certain  horse  to  B,  no  sale  has  taken  place,  and 
the  title  to  the  horse  is  not  vested  in  B — the 
title  remains  in  A.  B's  right  is  to  demand  that 
the  sale  be  made  absolute.  Hence  an  agreement  to 
sell  becomes  a  sale,  when  the  time  elapses  or  the  con- 
ditions are  fulfilled,  subject  to  which  the  property  in 
the  goods  is  to  be  transferred.  The  price  must  be  in 
money,  which  is  either  paid  or  promised.     If  goods  be 

1  Jenkyns  vs.  Brown,  14  Q.  B.  496. 


SALES  123 

merely  exchanged  between  the  parties,  there  is  no  sale, 
but  a  barter.  If  a  man  does  a  piece  of  work  and  he 
receives  in  consideration  thereof  certain  goods,  there 
has  been  a  transfer  of  the  general  and  absolute  prop- 
erty in  the  goods,  but  no  sale  has  taken  place.  So 
also  if  a  person  transfers  certain  goods  or  things  to 
another,  and  receives  no  consideration  in  return,  there 
has  been  a  gift  and  not  a  sale.  There  may  be  a 
transfer  of  the  possession  of  property,  but  not  of  the 
ownership,  in  which  case  there  is  a  bailment. 

3.  Parties  to  a  contract  of  sale. — The  general  rule 
is  that  the  parties  to  a  sale  must  be  competent  to  con- 
tract, and  to  transfer  and  acquire  property.  Only 
the  owner  of  the  thing  or  his  authorized  representa- 
tive can  give  a  title,  and  thus  transfer  the  ownership ; 
otherwise  the  buyer  gets  no  better  title  than  the  seller. 
Thus  if  A  buys  a  watch  from  B  which  B  has  stolen 
or  found,  A  may  pay  the  full  value  and  be  in  good 
faith,  but  he  cannot  claim  that  he  is  the  owner  as 
against  the  true  owner  who  seeks  to  recover;  nor 
could  A  make  a  valid  sale  of  the  watch  to  some  other 
person. 

The  rule  apparently  does  not  apply  to  money  which 
is  stolen.  If  it  is  paid  over  by  the  thief  to  other  parties 
who  have  given  value  in  good  faith,  they  cannot  be 
compelled  to  repay  it ;  nor  would  the  rule  apply  to  ne- 
gotiable instruments  which  are  payable  to  bearer  or 
indorsed  in  blank,  if  the  person  who  has  signed  them 
has  been  guilty  of  negligence  which  has  rendered  the 
wrongful  appropriation  more  easy.     But  where   a 


124  COMMERCIAL  LAW 

blank  acceptance  was  stolen  from  the  desk  of  the 
signer  and  filled  up,  it  was  held  that  he  was  not  liable 
to  a  holder  in  due  course,  that  is,  to  a  person  who  took 
the  bill  for  value  before  maturity,  and  without  any 
knowledge  of  the  facts.  The  signer  was  not  guilty  of 
negligence,  and  had  not  intended  that  his  signature 
should  be  used  without  his  knowledge  and  without  de- 
livery of  the  instrument  by  him. 

A  person  may  make  a  valid  agreement  to  sell  a 
thing  which  is  not  his  at  the  moment,  and  which  may 
not  even  be  in  existence.  Thus  a  person  may  sell  the 
crop  of  wheat  which  he  expects  his  farm  will  produce 
during  the  next  season,  or  he  may  contract  to  sell 
1,000  head  of  cattle,  which  he  must  first  go  out  and 
buy. 

But  a  person  who  finds  or  steals  the  goods  of  an- 
other does  not  get  a  good  title.  The  general  rule  is 
that  the  person  to  whom  he  transfers  the  goods,  even 
tho  this  person  is  an  innocent  purchaser  for  full  value, 
does  not  get  a  good  title.  The  English  rule  is  that 
where  goods  are  sold  in  market  overt  (that  is,  an  open, 
public  and  legally  constituted  market),  according  to 
the  usage  of  the  market,  the  buyer  acquires  a  good 
title  to  the  goods,  provided  he  buys  them  in  good 
faith  and  without  notice  of  any  defect  or  want  of 
title  on  the  part  of  the  seller. 

In  Quebec,  the  rule  is  that  if  a  thing  lost  or  stolen 
is  bought  in  good  faith  in  a  fair  or  market,  or  at  a 
public  sale,  or  from  a  trader  dealing  in  similar  arti- 
cles, the  owner  cannot  reclaim  it  without  reimbursing 


SALES  125 

to  the  purchaser  the  price  he  has  paid  for  it.  If  the 
thing  lost  or  stolen  be  sold  under  the  authority  of  law, 
it  cannot  be  reclaimed.^  Apparently  the  Enghsh 
rule  of  market  overt  does  not  prevail  in  the  United 
States.  Hence,  in  the  United  States,  if  B  buys  a 
horse  in  a  pubhc  market  from  one  who  is  not  its  owner 
and  who  has  no  authority,  either  actual  or  apparent, 
from  the  owner  to  sell  it,  the  buyer  gets  no  title  which 
he  can  oppose  to  the  owner.  B  has  redi'ess  only 
against  the  seller. 

4.  Subject  matter  of  the  sale. — Everji:hing  may  be 
sold  which  is  not  excluded  by  its  nature  or  destination, 
or  by  special  provision  of  law  from  being  an  object 
of  conmierce.  A  general  rule  may  be  stated  to 
the  effect  that  a  present  or  actual  sale  can  be  made 
only  of  things  which  actually  exist  at  the  time  and  are 
owned  by  the  seller.  This  is  now  the  rule  in  Eng- 
land, tho  it  was  not  always  so.  The  English  rule 
would  probably  be  followed  in  the  Enghsh  law  prov- 
inces. Following  that  rule,  then,  one  does  not  sell  fu- 
ture goods,  but  makes  an  agreement  to  sell  them — tho 
the  contract  may  be  called  a  sale. 

In  the  United  States  and  in  Quebec,  on  the  other 
hand,  one  may  make  a  present  sale  of  future  goods 
which  have  a  potential  existence — and  this  rule  was 
formerly  recognized  in  England.  Future  goods  hav- 
ing a  potential  existence  are,  for  example  the  natural 
produce  or  the  expected  increase  of  something  al- 
ready owned  or  possessed  by  the  seller.     Thus  the  hay 

1  Quebec  Civil  Code,  Arts.  1489-1490. 


126  COMMERCIAL  LAW 

that  will  grow  next  season  in  the  seller's  field,  the  wool 
that  may  be  clipped  from  his  sheep,  the  milk  that  his 
cows  may  yield,  and  so  on.  Of  these  he  may  make  an 
immediate  grant  or  assignment  by  sale.  The  buyer's 
title  and  right  to  possession  are  perfect  as  soon  as  the 
thing  comes  into  actual  existence.  Future  goods, 
such  as  the  hay,  or  wool,  or  milk  which  he  may  derive 
from  the  field,  or  sheep,  or  cows  are  goods  of  which  he 
cannot  make  an  immediate  assignment  by  sale,  but 
which  he  can  promise  or  agree  to  sell.  Thus  also  a 
person  who  is  actually  employed  with  some  firm  may 
sell  the  future  earnings  of  his  present  employment, 
but  he  cannot  make  a  present  sale  of  the  earnings  of 
an  emploj^ment  which  he  expects  to  get.  In  the  lat- 
ter case,  the  earnings  have  no  potential  existence. 
He  may,  however,  promise  to  sell  them. 

The  English  rule  was  laid  down  in  a  leading 
case : ^ 

A  man  cannot  in  equity,  any  more  than  at  law,  assign 
what  has  no  existence.  A  man  can  contract  to  assign  prop- 
erty which  is  to  come  into  existence  in  the  future ;  and  when 
it  has  come  into  existence,  equity,  treating  as  done  that 
which  ought  to  be  done,  fastens  upon  that  property,  and 
the  contract  to  be  assigned  thus  becomes  a  complete  assign- 
ment. If  a  person  contracts  for  value  to  settle  all  such 
real  estate  as  his  father  shall  leave  him  by  will,  or  purports 
actually  to  have  by  the  deed  of  such  real  estate,  the  effect  is 
the  same.  It  is  a  contract  for  value  which  will  bind  the 
property,  if  the  father  leaves  any  property  to  his  son. 

This  is  simply  a  longer  way  of  saying  that  while  a 

1  Collyer  vs.  Isaacs,  19  Ch.  D.  34  Q.  at  351,  C.  A. 


SALES  127 

sale  of  future  property  which  has  no  existence  and 
does  not  belong  to  the  seller  is  invalid,  if  the  seller 
subsequently  does  acquire  ownership  of  the  things 
which  he  purports  to  have  sold,  the  vendee  will  then 
be  entitled  to  treat  the  contract  as  a  sale. 

The  distinction  may  be  made  clearer  by  saj^ing  that 
a  person  may  not  make  an  executed  sale  of  a  thing 
which  has  no  actual  or  potential  existence ;  but  he  may 
make  an  executory  sale  of  something  which  he  does 
not  own  and  which  may  not  exist:  that  is,  he  may 
make  a  contract  to  sell,  of  which  execution  may  be  de- 
manded or  enforced.  As  will  be  readily  seen,  this  is 
the  kind  of  contract  that  is  made  in  the  ordinary 
course  of  business,  where,  for  example,  a  wholesale 
house  takes  orders  for  goods  which  it  must  buy  in 
order  to  fulfil  its  contracts. 

If  there  is  an  agreement  to  sell  certain  specific 
goods,  which  later  are  destroyed  without  the  fault  of 
either  party  and  before  the  risk  has  passed  to  the 
buj-er,  the  agreement  is  discharged,  and  the  buyer, 
who  may  have  paid  something  on  account,  can  get  his 
money  back. 

We  have  spoken  so  far  of  goods  as  things  which 
may  be  the  subject  of  sale,  that  is,  of  corporeal  things. 
Incorporeal  things,  such  as  rights,  may  also  be  bought 
and  sold.  Thus  a  member  of  the  Toronto  Stock  Ex- 
change has  certain  membership  rights,  and  he  may 
sell  his  stock  exchange  seat,  as  it  is  called.  An  artist 
may  protect  his  drawings  by  copyright,  but  he  may 
sell  to  other  persons  the  right  to  print  certain  repro- 


128  COMMERCIAL  LAW 

ductions  of  his  copyrighted  pictures.  In  an  Ameri- 
can case,  it  was  held  that  a  man  could  sell  his  knowl- 
edge of  the  existence  and  location  of  an  oil-well.  A 
ferryman  may  sell  his  franchise  to  conduct  a  ferry. 
A  license  to  carry  on  mining  operations  may  be  the 
subject  of  a  sale. 

It  ha^  long  been  a  question  of  discussion  whether 
a  person  may  sell  a  mere  expectancy  based  upon 
chance.  In  the  case  of  a  conditional  sale,  something 
which  is  hoped  for  is  sold,  that  is,  something  which  in 
the  ordinary  course  of  nature  it  is  expected  will  come 
into  existence,  as  a  future  crop  or  the  young  of  ani- 
mals. If  the  thing  does  not  come  into  existence  there 
is  no  sale,  as  the  subject  matter  of  the  contract  has 
failed,  provided  the  seller  had  nothing  to  do  with 
preventing  the  thing  from  coming  into  existence. 
This  is  different  from  the  sale  of  a  mere  hope  or 
chance,  because  here  the  chance  is  what  is  sold:  for 
example,  if  a  pearl  fisherman  before  starting  out  sells 
his  chance  of  what  he  may  get,  the  contract  is  bind- 
ing. As  was  said  in  an  English  case:  "If  a  man  will 
make  a  purchase  of  a  chance,  he  must  abide  by  the 
consequences."  ^ 

5.  Statute  of  frauds. — The  principles  of  the  Eng- 
lish Statute  of  Frauds  may  be  said  to  apply  in  a  gen- 
eral way  thruout  Canada.  The  seventeenth  section 
of  the  English  Statute  provides  that : 

No  contract  for  the  sale  of  goods,  wares  and  merchandise 
for  the  price  of  £10  sterling  or  upwards  shall  be  allowed  to 

1  Benjamin,  5th  Ed.  126-127. 


SALES  129 

be  good,  except  the  buyer  shall  accept  part  of  the  goods  so 
sold,  and  actually  receive  the  same,  or  give  something  in 
earnest  to  bind  the  bargain,  or  in  part  payment,  or  that  some 
note  or  memorandum  of  said  bargain  be  made  and  signed  by 
the  parties  to  be  charged  by  such  contract,  or  their  agents 
thereunto  lawfully  authorized. 

This  statute  was  later  amended  by  the  act  knowm 
as  Lord  Tenterden's  Act,  which  provided  that  the 
principles  of  the  statute  should  apply  to  agreements 
to  sell  as  well  as  to  the  sale  of  goods.  Later  the  Sale 
of  Goods  Act  of  1893  was  passed,  and  this  act  is  in 
force  in  some  of  the  English  law  provinces.  The 
amount  fixed  in  the  various  provinces  to  replace  the 
£10  sterling  of  the  English  act  varies.  Thus  in  !Man- 
itoba.  Alberta,  Saskatchewan,  British  Columbia,  Yu- 
kon Territory  and  Quebec,  the  amount  is  $50,  in  On- 
tario, Xew  Brunswick  and  Nova  Scotia,  $40,  in 
Prince  Edward  Island,  $30  and  in  Xewfoundland, 
$50.     Section  4  of  the  Sale  of  Goods  Acts  provides: 

(1)  A  contract  for  the  sale  of  any  goods  of  the  value  of 
£10  or  upwards  is  not  to  be  enforceable,  unless  the  buyer 
shall  accept  part  of  the  goods  so  sold  and  actually  receive 
the  same,  or  give  something  in  earnest  to  bind  the  contract, 
or  in  part  payment,  or  unless  some  note  or  memorandum  of 
the  contract  in  writing  be  made  and  signed  by  the  party  to 
be  charged,  or  his  agent  in  that  behalf. 

(2)  The  provisions  of  this  section  apply  to  every  such 

contract,  notwithstanding  that  the  goods  may  be  intended  to 

be  delivered  at  some  future  time,  or  may  not  at  the  time  of 

such  future  contract  be  actually  made,  procured  or  pro^-ided, 

or  fit  or  ready  for  delivery,  or  some  act  may  be  requisite  for 

the  making  or  completing  thereof,  or  rendering  the  same  fit 

for  delivery, 
xxrv— 10 


130  COMMERCIAL  LAW 

(3)  There  is  an  acceptance  of  goods  within  the  meaning 
of  this  section,  when  the  buyer  does  any  action  in  relation  to 
the  goods  which  recognizes  a  pre-existing  contract  of  sale, 
whether  there  be  an  acceptance  in  performance  of  the  con- 
tract or  not. 

In  Quebec  the  Statute  of  Frauds,  as  amended  by 
Lord  Tenter  den's  Act,  is  embodied  in  Article  1235  of 
the  Civil  Code.  The  article,  however,  does  not  adopt 
the  principles  of  the  Statute  of  Frauds  without  mak- 
ing certain  changes:  for  example,  the  Statute  of 
Frauds  fixes  the  limit  at  £lO  sterling  only  in  the  case 
of  the  sale  of  merchandise,  whereas  Ai-ticle  1235  ap- 
plies the  limit  of  fiftj^  dollars  to  four  different  cases. 
Again,  Lord  Tenterden's  Act  apparently  does  not 
deny  the  right  to  prove  by  witness  that  some  act  has 
been  done  to  interrupt  the  prescription  which  results 
from  a  partial  paj^ment,  or  payment  on  account; 
whereas  Article  1235  lays  down  the  opposite  rule.^ 
Article  1235  reads  as  follows: 

In  commercial  matters  in  which  the  sum  of  money  or  value 
in  question  exceeds  $50,  no  action  or  exception  can  be  main- 
tained against  any  party  or  his  representatives,  unless  there 
is  a  writing  signed  by  the  former,  in  the  following  cases: 
(1)  Upon  any  promise  or  acknowledgment  whereby  a  debt 
is  taken  out  of  the  operation  of  the  law  respecting  the  limi- 
tation of  actions;  (2)  upon  any  promise  or  ratification  made 
by  a  person  of  the  age  of  majority  of  any  obligation  con- 
tracted during  his  minority;  (3)  upon  any  representation 
or  assurance  in  favor  of  a  person  to  enable  him  to  obtain 
credit,  money  or  goods  thereupon ;  (4)  upon  any  contract 
for  the  sale  of  goods,  unless  the  buyer  has  accepted  or  re- 

1  Mignault,  Vol.  6,  p.  98. 


SALES  131 

ceived  part  of  the  goods,  or  given  something  in  earnest  to 
bind  the  bargain. 

The  foregoing  rule  applies  altho  the  goods  are  in- 
tended to  be  delivered  at  some  future  time,  or  are  not 
ready  for  delivery  at  the  time  of  the  contract. 

In  so  far  as  a  contract  of  sale  is  concerned,  how- 
ever, the  rules  in  the  English  law  provinces  and  in  the 
Province  of  Quebec  are  practically  alike.  In  the 
United  States,  there  is  a  conflict  of  decisions  upon  the 
question,  whether  or  not  the  rule  applies  to  goods 
which  have  to  be  manufactured  to  fulfil  the  contract. 
In  the  English  law  provinces  and  in  Quebec  this  diffi- 
culty does  not  arise.  As  we  have  just  seen,  the  Civil 
Code  provides  that  the  rule  is  applicable  altho  the 
goods  are  intended  to  be  delivered  at  some  future 
time,  or  are  not  ready  for  delivery  at  the  time  of  the 
contract;  and  the  Sale  of  Goods  Act  provides  that  the 
rule  applies  to  the  sale  of  goods  which  may  be  in- 
tended to  be  delivered  at  some  future  time,  or  which 
at  the  time  of  the  contract  may  not  be  actually  made, 
or  fit  for  deliver}",  or  for  the  making  or  completing  of 
which  some  act  may  be  necessary.  Lord  Tenterden's 
Act  specially  provides  that  the  principles  of  the 
Statute  of  Frauds  should  apply  as  well  to  agreements 
of  sale.  Thus  this  principle  is  in  force  thruout  Can- 
ada either  by  virtue  of  Lord  Tenterden's  Act  or  by 
virtue  of  the  Sale  of  Goods  Act,  accordingly  as  these 
are  adopted  by  the  various  English  law  pro^Tnces,  and 
in  the  Province  of  Quebec  under  Article  1235. 

6.  Satisfaction  of  the  statute. — It  is  clear,  there- 


132  COMMERCIAL  LAW 

fore,  that  where  there  is  a  sale  of  goods  of  over  fifty 
dollars  (or  over  the  minimum  amount  fixed  by  the 
laws  of  the  particular  province — see  Section  92, 
supra),  proof  cannot  be  made  by  oral  testimony,  im- 
less  the  statute  can  be  satisfied  by  proof  of  at  least  one 
of  the  following  circumstances: 

(a)  That  there  has  been  part  payment; 

(b)  Acceptance  and  receipt  by  the  buyer; 

(c)  Some  written  note  or  memorandum  of  the  con- 
tract signed  by  the  parties  or  their  authorized  agent. 

What  may  be  acceptance  under  the  rule  has  been 
the  subject  of  many  decisions.  The  Sale  of  Goods 
Act  provides  a  rule  which  would  be  generally  accept- 
able, namely,  that  there  is  an  acceptance  of  goods 
within  the  meaning  of  the  act  when  the  buyer  does 
any  act  in  relation  to  the  goods,  which  recognizes  a  pre- 
existing contract  of  sale,  whether  there  be  an  accept- 
ance in  performance  of  the  contract  or  not.  This 
definition  brings  out  the  distinction  between  an  ac- 
ceptance of  the  goods  and  a  recognition  of  the  con- 
tract. If  there  has  been  some  act  on  the  part  of  the 
alleged  purchaser  which  shows  that  he  recognized  the 
fact  that  there  was  a  contract,  an  action  against  him 
will  be  maintained  without  the  necessity  of  written 
proof.     He  will  be  held  to  have  accepted. 

This  does  not  mean,  however,  that  he  will  be  de- 
prived of  his  right  to  show  that  he  did  not  accept  the 
goods,  or  that  he  will  not  be  able  to  plead  that  the 
goods  were  not  up  to  sample  or  otherwise.     It  means 


SALES  133 

simply  that  one  of  two  possible  defences  is  not  open 
to  him.  If  he  had  not  recognized  the  contract  in  any 
way,  that  is,  accepted  the  fact  of  its  existence,  and  he 
had  not  signed  any  written  document,  he  could  plead 
the  fact  and  get  the  action  dismissed,  irrespective  of 
the  fact  that  he  might  have  another  plea  that  the 
goods  were  not  up  to  sample,  or  were  not  what  he 
ordered.  But  if  it  is  held  that  there  was  not  sufficient 
evidence  of  his  having  recognized  the  existence  of  the 
contract,  then,  whether  he  has  signed  a  writing  or  not, 
the  creditor  may  bring  action,  tho  the  debtor's  right 
to  raise  the  question  of  the  proper  fulfilment  of  the 
contract  is  still  reserved  to  him. 

Thus  in  an  English  case,  the  defendant,  a  miller, 
orally  bought  of  the  plaintiff  by  sample  eighty-eight 
quarters  of  wheat.  The  wheat  was  shipped  by  the 
plaintiff's  agent  on  a  barge,  which  arrived  at  the  de- 
fendant's mill,  and  the  next  morning  thirty-eight  of 
the  sacks  were  hoisted  up  into  the  mill  and  examined 
by  the  defendant,  who  then  directed  the  bargemen  to 
send  up  no  more,  as  the  wheat  was  not  equal  to 
sample.  The  same  day  he  told  the  plaintiff's  agent 
that  the  wheat  was  not  equal  to  sample  and  that  he 
would  not  take  it.  The  defendant  subsequently  re- 
turned the  thirty-eight  sacks  to  the  barge.  In  an 
action  for  the  price,  or  for  damages  for  non-accept- 
ance, the  jury  were  directed  that  there  was  evidence 
of  an  acceptance  sufficient  to  satisfy  the  Statute  of 
Frauds,  altho  the  defendant  was  not  thereby  pre- 


134  COMMERCIAL  LAW 

eluded  from  rejecting  the  wheat  if  not  equal  to 
sample.  As  a  matter  of  fact,  in  this  case  the  jury 
found  that  the  wheat  was  equal  to  sample,  and  that 
the  defendant  had  accepted  it  within  the  meaning  of 
the  17th  section  of  the  Statute  of  Frauds,  and  gave  a 
verdict  for  the  plaintiff.  This  decision  was  con- 
firmed by  the  English  Court  of  Appeals.  It  is  not 
essential  in  every  case  that  the  buyer  must  have  had 
actual  physical  delivery  of  the  goods.  He  may  have 
had  a  constructive  possession  or  delivery  of  them. 
The  parties  may  have  agreed  that  the  seller  shall  hold 
the  goods  as  bailee  of  the  buyer,  in  which  case  the 
buyer  has  the  constructive  possession  of  them.  They 
may  be  in  the  possession  of  the  buyer  for  some  other 
purpose,  and  he  and  the  seller  may  agree  that  hence- 
forth he  shall  retain  possession  as  owner.  They  may 
be  in  the  possession  of  a  third  party,  and  it  may  be 
agreed  that  they  shall  remain  in  the  possession  of  such 
third  party  as  bailee  for  the  buyer.  In  all  these 
cases  no  actual  physical  delivery  is  necessary,  because 
the  buyer  has  the  constructive  possession. 

The  giving  of  earnest  and  the  part  payment  of  the 
price,  as  they  are  independent  of  the  main  bargain, 
may  be  proved  by  oral  evidence.  The  part  payment 
must  be  accepted  as  such,  and  on  account  of  the 
price.  There  is  authority  for  the  view  that  the  part 
payment  or  the  something  given  in  earnest  to  bind  the 
contract  "need  not  be  made  in  money,  but  that  any- 
thing of  value  which  by  mutual  agreement  is  given 
by  the  buyer  and  accepted  by  the  seller  on  account,  or 


SALES  135 

in  part  satisfaction  of  the  price,  will  be  equivalent  to 
part  pajTiient."  ^  And  it  has  been  held  in  England 
that  under  the  Statute  of  Limitations  there  is  part 
payment  of  the  debt  where  there  is  an  agreement  that 
the  debtor  should  board  and  lodge  the  creditor  at  a 
fixed  price  per  week,  in  deduction  of  the  debt. 

It  is  essential  to  have  some  idea  of  what  the  note  or 
memorandimi  in  writing  must  be.  The  parties  need 
not  reduce  their  contract  as  a  whole  to  writing:  they 
may  make  a  contract  of  which  only  part  is  in  writing. 
Thus  A  may  agree  to  build  a  garage  for  B,  and  they 
may  draft  a  simple  writing  to  that  effect,  which  B 
signs.  This  writing  may  not  mention  the  price. 
Parol  evidence  may  then  be  made  to  show  what  was 
the  price  agreed  upon,  as  the  writing  is  a  sufficient 
note  or  memorandum  to  make  possible  the  rounding 
out  of  the  contract  of  the  existence  of  which  it  is 
proof. 

The  difference  between  a  mere  memorandum  and 
a  ^\Titten  contract  has  been  expressed  as  follows :  - 

When  a  memorandum  in  writing  is  to  be  proved  as  a  com- 
pliance inth  the  statute,  it  differs  from  a  contract  in  writing 
in  that  it  maj-  be  made  at  any  time  after  the  contract,  if  be- 
fore action  commences ;  and  any  number  of  memoranda  may 
be  made,  all  being  equally  originals ;  and  it  is  sufficient  if 
signed  by  one  of  the  parties  only,  or  his  agent ;  and  if  the 
terms  of  the  bargain  can  be  calculated  from  it,  altho  it  be 
not  expressed  in  the  usual  form  of  an  agreement. 

The  note  or  memorandum  need  not  be  formal.     It 

1  Benjamin,  "Sale,**  5th  Ed.,  p.  227. 

aSievewright  vs.  Archibald,  1851,  17  Q.  B.  at  107. 


136  COMMERCIAL  LAW 

should  contain  the  terms  and  subject  matter  of  the 
agreement,  and  the  names  or  descriptions  of  the 
parties,  and  need  be  signed  only  by  the  person  who  is 
sought  to  be  charged.  Generally  speaking,  if  the 
note  or  memorandum  consists  of  several  separate 
papers,  they  must  be  attached  to  each  other,  so  as  to 
indicate  that  they  are  in  reality  but  one  instrument, 
or  it  must  be  clear  from  their  contents  that  they  relate 
to  one  another.  Parol  evidence  must  not  be  admitted 
to  connect  them. 

What  may  be  a  note  or  memorandum  has  been  well 
explained  as  follows :  ^ 

The  court  is  not  In  quest  of  the  intention  of  parties,  but 
only  of  evidence  under  the  hand  of  one  of  the  parties  to  the 
contract  that  he  has  entered  into  it.  Any  document  signed 
by  him  and  containing  the  terms  of  the  contract  is  sufficient 
for  that  purpose.  A  letter  to  a  third  party  has  been  held 
enough;  an  affidavit  made  in  a  different  matter  has  been 
held  to  suffice;  and  I  should  say  that  an  entry  in  a  man's 
own  diary,  if  it  were  signed  by  him  and  its  contents  were 
sufficient,  would  do.  The  question  is  not,  what  is  the  inten- 
tion of  the  person  signing  the  memorandum,  but  is  one  of 
fact,  viz.,  is  there  a  note  or  memorandum? 

7.  Contracts  for  work  and  labor. — A,  who  is  a 
maker  of  cabinets  and  desks,  accepts  an  oral  order 
from  B  to  make  a  desk  for  him  according  to  certain 
specifications.  A  makes  the  desk  and  tenders  it  to  B, 
who  refuses  to  accept  it,  and  upon  being  sued  takes 
refuge  under  the  Statute  of  Frauds.  What  is  the  po- 
sition of  the  parties  ?     A,  it  is  presumed,  has  supplied 

1  Benjamin,  p.  346. 


I 


L 


SALES  137 

all  the  materials,  as  well  as  the  work ;  the  result  of  his 
work  upon  his  materials  is  a  desk — a  chattel.  Under 
the  English  law,  it  is  held  that  such  a  contract  is  a 
contract  of  sale  between  A  and  B.  Conversely,  if  A 
supphes  no  materials,  but  only  the  work  and  labor, 
the  contract  is  one  only  of  work  and  labor,  in  which 
case  B  would  not  be  able  to  plead  the  Statute  of 
Frauds. 

In  certain  of  the  American  states,  A's  contract 
would  not  be  looked  upon  as  a  contract  of  sale,  but  as 
a  contract  for  work  and  labor,  and  therefore  B's  plea 
would  not  be  good.  Thus  in  Massachusetts,  it  is  held 
that  since  the  contract  is  for  a  chattel  made  to  a  special 
order,  it  is  for  work  and  labor.  In  Xew  York,  the 
view  is  that  since  the  contract  is  for  a  chattel  not  in 
existence  when  the  contract  is  made,  it  is  for  work  and 
labor.  In  Quebec,  the  tendency  would  be,  under  the 
decisions,  to  regard  the  contract  as  a  mixed  contract 
of  sale  and  for  labor,  and  to  allow  oral  evidence,  on 
the  ground  that  the  transaction  is  commercial  in  na- 
ture, but  is  not  a  contract  of  sale.  This  is  a  very  gen- 
eral statement  of  the  law,  and  fuller  explanation 
would  require  a  complete  outline  of  the  decisions  to 
date. 

8.  When  title  passes. — It  may  be  of  the  utmost  im- 
portance to  determine  when  title  in  property  which 
is  sold  passes  from  the  seller  to  the  buyer.  The  gen- 
eral rule  is  that  a  contract  is  complete  the  moment  the 
consent  of  the  parties  is  expressed,  altho  delivery- 
may  not  be  then  made.     If  the  title  does  not  pass  to 


138  COMMERCIAL  LAW 

the  purchaser  at  once,  the  seller  bears  the  risk  of  the 
loss  of  the  thing  before  delivery.  His  creditors  may 
seize  the  property,  and  until  the  title  passes,  the  sel- 
ler is  entitled  to  appropriate  any  gain  or  increase  that 
may  arise.  If  he  dies,  the  title  to  the  property  passes 
to  his  heirs  or  representatives.  If  the  title  passes  to 
the  purchaser  at  the  moment  of  the  contract  by  the 
mere  consent  of  the  parties,  then  the  vendor's  cred- 
itors or  heirs  have  no  more  right  to  it  than  he  has.  If 
the  thing  perishes  while  in  his  possession,  if  he  is  not 
at  fault,  the  purchaser  must  suffer  the  loss.  The 
English  rule  is  to  the  effect  that  unless  it  is  otherwise 
agreed,  the  goods  remain  at  the  seller's  risk  until  tlie 
property  therein  is  transferred  to  the  buyer,  but  when 
the  property  therein  is  transferred  to  the  buyer  the 
goods  are  at  the  buyer's  risk,  whether  delivery  has 
been  made  or  not.  If  delivery  has  been  delayed  by 
the  fault  of  one  or  the  other,  the  goods  are  said  to  be 
at  the  risk  of  the  party  in  fault  as  regards  any  loss 
which  might  not  have  occurred  but  for  such  fault. 

Whether  or  not  it  is  intended  in  a  particular  case 
that  the  property  in  the  thing  sold  should  pass  to  the 
purchaser  will  be  a  question  of  fact,  and  will  be  de- 
cided by  what  appeared  to  be  the  intention  of  the 
parties  at  the  time.  The  risk  attaches  to  the  owner- 
ship of  the  goods.  The  parties  may,  however,  by 
agreement  arrange  that  one  or  the  other  shall  bear  the 
risk.  An  agreement  to  this  effect  may  be  inferred 
from  a  course  of  dealing,  or  from  usage,  binding  on 
both.     The  courts  will  not  find  that  the  buyer  has 


SALES  139 

assumed  the  risk  before  the  property  has  vested  in 
him,  miless  his  intention  to  do  so  is  expressed,  or  is 
clearly  to  be  inferred  from  the  circmnstances.^  Thus 
in  an  English  case  a  contract  for  the  sale  of  a  cargo  of 
ice  was  under  consideration.  The  contract  read  in 
part  as  follows: 

The  vendors  forward  bills  of  lading  to  the  purchaser,  and 
upon  receipt  thereof  the  said  purchaser  takes  upon  him- 
self all  risks  and  dangers  of  the  seas,  rivers  and  navigation, 
of  whatever  nature  or  kind  soever,  and  the  said  Playford 
agrees  to  buy  and  receive  the  said  ice  on  its  arrival  at  or- 
dered port  .  .  .  and  to  pay  for  the  same  in  cash  on  delivery 
at  20s.  per  ton,  weighed  on  board  during  delivery. 

The  ship  was  lost  at  sea.  The  sellers  brought  ac- 
tion for  the  price  of  the  ice,  and  the  purchaser  pleaded 
that  the  cargo  did  not  arrive  at  the  ordered  port.  It 
was  held  that  as  the  ice  did  not  arrive,  the  property 
did  not  pass  by  the  terms  of  the  contract,  and  would 
not  pass  until  the  ice  was  weighed  on  board ;  that  con- 
sequently the  time  for  payment  had  not  arrived,  and 
that  the  defendant  was  not  hable;  that  the  provision 
with  regard  to  risk  was  to  protect  the  seller  from  lia- 
bility for  non-delivery  caused  by  dangers  of  the  sea.^ 
This  judgment  was  reversed  in  the'  Exchequer 
Chamber,  on  the  ground  that  the  property  passed  on 
shipment  and  delivery  of  the  bills  of  lading,  and  that 
the  purchaser  had  stipulated  that  upon  receipt  of  the 
bills  of  lading  the  purchaser  "takes  upon  himself  all 
risks  and  dangers  of  the  seas,  etc."     Having  under- 

1  Benjamin,  pp.  403-3. 

2  Castle  vs.  Playford,  1870,  L.  R.  5  Ex.  165, 


140  COMMERCIAL  LAW 

taken  all  the  risks  and  dangers  of  the  seas,  and  agree- 
ing to  buy  and  receive  the  said  ice,  the  defendant  was 
bound  to  his  contract  to  pay  if  delivery  was  prevented 
by  dangers  of  the  sea,  and  it  was  immaterial  whether 
the  property  passed  or  not. 

In  another  case  1,090  sugar  loaves,  comprised  in 
four  batches,  marked  and  lying  apart  in  a  warehouse, 
were  sold  by  the  manufacturer  to  a  broker.  Each 
loaf  weighed  from  thirty-eight  to  forty-two  pounds 
and  was,  according  to  usage,  weighed  on  being  taken 
away  by  the  buyer.  The  terms  were:  "Prompt  at 
one  month;  goods  at  seller's  risk  for  two  months." 
The  goods  had  been  paid  for  in  advance  of  being 
weighed,  at  an  approximate  sum,  which  was  to  be 
afterward  definitely  adjusted  and  settled  when  the 
goods  came  to  be  weighed  and  delivered;  and  part  of 
them  had  been  taken  away  by  the  purchaser.  The 
residue  was  destroyed  by  fire  after  the  lapse  of  the 
two  months  and  before  being  weighed.  It  was  held 
that  the  property  had  passed  to  the  purchaser,  the 
parties  having,  by  fixing  upon  a  provisional  estimate 
of  the  price,  shown  an  intention  that  the  property 
should  not  depend  upon  the  weighing  to  fix  the  exact 
amount,  and  the  goods  being  specific.  The  fact  that 
the  contract  provided  that  the  goods  should  be  at  the 
seller's  risk  for  two  months,  showed  that  it  was  in- 
tended that  the  property  should  be  in  the  buyer,  as 
otherwise  such  a  provision  would  not  be  necessary.^ 

The  general  rule  is  that  when  things  which  are 

1  This  decision  is  reproduced  as  outlined  in  Benjamin,  p.  404. 


SALES  141 

movable  are  sold  by  weight,  number  or  measure  and 
not  in  the  lump,  the  sale  is  not  perfect  until  they  have 
been  weighed,  counted  or  measured;  but  the  contract 
may  stipulate  the  contrary.  If,  however,  the  subject 
matter  of  the  sale  is  complete  and  in  a  deliverable  con- 
dition, then,  as  we  have  seen,  the  title  or  property  in 
the  thing  sold  passes  at  once,  altho  delivery  may  be 
delayed. 

9.  Conditional  sale, — Goods  may  be  sold  subject  to 
some  condition:  for  example,  if  a  thing  is  sold  upon 
trial,  the  presumption  is  that  the  sale  is  made  upon  a 
suspensive  condition,  unless  there  is  apparent  a  con- 
trary intention.  The  title  would  not  pass  in  this  case 
until  the  buyer  had  indicated  his  approval  and  his  in- 
tention to  buy.  If  he  retains  the  thing  sold  to  him  on 
approval  for  an  unreasonable  time,  or  for  a  period 
longer  than  that  agreed  upon,  his  approval  will  be 
implied.  If  he  in  turn  sells  the  goods  to  another,  his 
approval  will  naturally  be  implied. 

It  has  been  laid  down  in  one  or  more  English  cases, 
that  where  the  contract  is  to  the  effect  that  the  buyer 
may  at  his  option  rescind  the  sale  by  the  return  of 
the  goods,  and  the  goods  are  destroyed  or  injured 
while  in  his  possession,  but  without  his  fault,  he  is  not 
liable  to  pay  the  price  because  of  his  inability  to  re- 
turn the  goods.  It  is  said  that  the  risk  attaches  to 
the  person  "who  is  eventually  entitled  to  the  property 
in  the  chattel."  Of  course  the  buyer  who  has  such  a 
right  of  option  should  exercise  it  within  a  reasonable 
time. 


142  COMMERCIAL  LAW 

AVhen  goods  are  ordered  from  a  distance,  at  what 
time  does  the  title  to  them  pass  to  the  buyer?  A 
merchant  in  Toronto  writes  to  a  merchant  in  Mon- 
treal giving  him  an  order  to  forward  one  thousand 
bars  of  pig  iron  of  a  certain  kind.  The  merchant  in 
Montreal  must  proceed  to  select  the  bars,  and  to  ap- 
propriate them  to  the  contract.  The  mere  fact  that 
he  selects  them  cannot  be  said  to  transfer  the  owner- 
ship of  them ;  supposing  even  that  he  lays  them  aside 
in  his  warehouse,  undoubtedly  he  may  change  his 
mind  and  select  another  lot.  It  is  probable  that  the 
bars  are  not  appropriated  to  the  contract  until  they 
are  dispatched  by  being  placed  in  a  car,  or  until  some 
other  act  is  done  from  which  it  may  be  inferred  that 
the  seller  has  divested  himself  of  the  possession  and 
ownership  of  them. 

Benjamin  gives  the  following  example:  he  sup- 
poses that  A  sells  out  of  his  brick  yard  one  thousand 
bricks  to  B,  who  is  to  send  his  cart  and  take  them 
away.  Here  B,  says  Benjamin,  is  to  do  the  first  act, 
and  cannot  do  it  until  the  selection  is  determined. 
He  may  go  about  the  yard  from  stack  to  stack  and 
select  the  bricks,  and  he  may  change  his  mind  from 
time  to  time,  up  to  the  point  where  iinally  he  de- 
termines the  selection  by  putting  the  bricks  into  his 
cart  to  be  taken  away.  Once  that  is  done,  his  selec- 
tion is  determined,  and  he  cannot  change  his  mind  and 
replace  the  bricks  he  has  taken  by  others.  If  on  the 
other  hand  it  had  been  agreed  that  A  was  to  load  the 
bricks  into  B's  cart,  A  would  be  free  to  select  the 


SALES  143 

bricks,  and  to  change  his  mind  as  to  his  selection  until 
he  had  finally  loaded  the  bricks  into  B's  cart.  Lord 
Blackburn  has  laid  it  down  that: 

It  follows  from  this  that  where  from  the  terms  of  an  exec- 
utory agreement  to  sell  unspecified  goods,  the  vendor  is  to 
dispatch  the  goods,  or  to  do  anjthing  to  them  that  cannot 
be  done  till  the  goods  are  appropriated,  he  has  the  right  to 
choose  what  the  goods  shall  be;  and  the  property  is  trans- 
ferred the  moment  the  dispatch  or  other  act  is  commenced, 
for  then  the  appropriation  is  made  finally  and  conclusively 
by  the  authority  conferred  in  the  agreement. 

And  in  Lord  Coke's  language : 

The  certainty  and  thereby  the  property  begins  by  selec- 
tion. But  however  clearly  the  vendor  may  have  expressed 
an  intention  to  choose  particular  goods,  yet  until  the  act 
has  actually  commenced,  the  appropriation  is  not  final,  for 
it  is  not  made  by  the  authority  of  the  other  party,  nor  bind- 
ing upon  him.^ 

In  an  interesting  English  case  ^  there  was  an  ap- 
propriation by  the  seller  to  which  the  buyer  later  as- 
sented. The  seller  had  a  lot  of  sugar  in  bulk.  The 
buyer  bought  twenty  hogsheads  of*  it.  The  seller 
filled  and  delivered  four  hogsheads,  and  later  filled  the 
sixteen  remaining  hogsheads,  set  them  aside  and  then 
gave  notice  to  the  buyer  to  take  them  away.  This  the 
buyer  promised  to  do.  It  was  held  that  there  was  an 
assent  to  the  appropriation  of  the  sixteen  hogsheads, 
and  that  the  property  therein  passed  to  the  buyer. 
This  decision  will  be  better  miderstood  when  we  say, 

1  Blackburn  on  "Sale,"  p.  139. 

2  Rohde  vs.  Thwaites,  6  B.  &  C.  388. 


144  COMMERCIAL  LAW 

that  when  a  person  buys  an  unascertained  portion  of 
a  larger  bulk,  he  acquires  no  property  in  any  part 
until  there  has  been  a  separation  of  the  portion,  and 
until  it  has  been  appropriated  to  the  contract  by  the 
consent  of  both  parties,  tho  this  consent  may  be  ex- 
press or  implied. 

Where  the  goods  sold  are  delivered  to  the  carrier, 
the  presumption  is  that  they  are  appropriated  to  the 
contract,  because  it  is  assumed  that  the  parties  so  in- 
tended. It  may  have  been  intended,  however,  and  if 
so  it  may  be  shown  that  the  title  should  not  pass  until 
the  buyer  actually  got  delivery.  For  supposing  that 
the  seller,  while  he  appropriates  the  goods  to  the  con- 
tract and  actually  dispatches  them,  keeps  control  of 
them  b}^  taking  the  bill  of  lading  in  his  own  name,  it 
is  clear  that,  under  these  circumstances,  the  seller 
has  no  intention  of  parting  with  the  title  to  the  goods 
until  he  is  sure  that  the  buyer  is  solvent,  and  can  and 
will  pay  for  them. 

Frequently  goods  are  sold  and  shipped  C.O.D. 
The  courts  are  by  no  means  unanimous  in  their  hold- 
ings as  to  when  the  title  passes  to  the  buyer.  It  has 
been  held  in  some  cases  that  title  passes  to  the  buyer 
when  the  goods  are  received  by  the  carrier;  in  other 
cases  that  they  do  not  pass  until  the  buyer  pays  for 
them.  Certainly,  however,  if  the  buyer  does  not  pay 
for  them  he  is  not  entitled  to  the  possession  of  the 
goods. 

The  general  rule  is  that  where  things  movable  are 
sold  by  weight,  number  or  measure,  as  part  only  of  a 


r 


SALES  145 

mass,  and  not  in  the  lump,  the  sale  is  not  perfect  until 
they  have  been  weighed,  counted  or  measured.  In 
other  words,  the  part  that  is  sold  must  be  separated 
from  the  mass,  and  the  weight,  and  number  of  meas- 
ure ascertained  before  the  sale  is  complete.  Ordi- 
narily the  buyer  should  have  notice  or  knowledge  that 
the  weighing,  measuring  or  counting  has  been  per- 
formed, or  he  should  be  present  thereat.  This  case  is 
distinguishable  from  the  case  where  several  persons 
are  owners  or  tenants,  in  common,  of  a  mass  of  goods. 
Thus  A,  B  and  C  may  own  in  common,  in  equal  or  in 
unequal  proportions,  all  the  wheat  in  a  certain  ele- 
vator. Any  of  them  may  sell  and  give  a  good  title  to 
his  portion  of  the  wheat,  altho  it  is  mixed  with  that  of 
the  others.  Delivery  could  be  made  by  merely  hand- 
ing a  delivery  order  to  the  purchaser,  who  would  be  en- 
titled to  deal  with  the  portion  of  the  wheat  which  he 
had  bought.  Such  a  sale  is  perfect  without  the  por- 
tion which  is  sold  being  separated  from  the  mass. 
But  if  A  were  to  sell  one  thousand  bushels  of  his  por- 
tion, the  sale  would  not  be  complete  until  the  thousand 
bushels  were  measured  out,  and  the  measure  checked 
or  accepted  by  the  purchaser. 

10.  When  the  seller  retains  possession. — As  we 
have  seen,  a  sale  of  an  article  may  be  made,  upon 
which  the  title  to  the  article  passes  inmiediately  to  the 
purchaser.  The  seller  may,  however,  retain  posses- 
sion. Such  a  transaction  must  be  in  absolute  good 
faith,  and  must  not  be  made  simply  to  enable  the  sel- 
ler to  say  to  his  creditors  that  the  article  in  question 

XXIV— 11 


146  COMMERCIAL  LAW 

had  been  sold  to  B.  If  in  reality  there  was  no  sale, 
and  B  did  not  intend  to  take  delivery,  this  sale  would 
probably  be  held  to  be  void,  in  so  far  as  it  would  ap- 
pear to  have  been  made  solely  to  benefit  the  seller. 
Tlie  purchaser  would  have  to  come  forward  and  prove 
his  honesty  of  performance,  that  the  title  actually 
passed  to  him  but  that,  as  a  matter  of  convenience,  the 
seller  retained  possession. 

11.  Goods  to  he  manufactured. — When  a  contract 
is  made  for  goods  to  be  manufactured,  a  presumption 
arises  that  title  is  not  to  pass  until  the  goods  are  ready 
for  delivery.  This  presumption  obtains  even  when 
tlie  whole  of  the  purchase  price  is  paid  at  once,  or 
when  the  buyer  exercises  a  superintendence  or  control 
over  the  work.  In  some  cases  it  is  held  that  title  does 
not  pass  until  acceptance  by  the  buyer  of  the  manu- 
factured article,  but  by  the  weight  of  authority  it 
passes  when  the  article  is  put  in  a  dehverable  condi- 
tion. 

It  must  always  be  remembered,  in  this  connection, 
that  there  is  a  difference  between  an  actual  sale  and  a 
mere  executory  agreement  to  sell.  In  the  case  of  an 
actual  sale,  the  title  to  the  thing  sold  passes  at  once  to 
the  buyer  (this  is  the  general  rule)  as  soon  as  the  con- 
tract is  concluded,  whether  the  goods  be  delivered 
to  the  buyer  or  remain  in  the  possession  of  the  seller. 
In  an  agreement  to  sell,  the  property  does  not  pass 
when  the  contract  is  made ;  the  goods  remain  the  prop- 
erty of  the  seller  until  the  contract  is  executed. 

12.  Sales  by  sample. — In  the  case  of  a  contract  for 


SALES  147 

sale  by  sample  there  is  an  implied  condition  that  the 
bulk  shall  correspond  in  quahty  with  the  sample ;  that 
the  buyer  shall  have  a  reasonable  opportunity  of  com- 
paring the  bulk  with  the  sample:  and  that  the  goods 
shall  be  free  from  any  defect  rendering  them  mi- 
merchantable,  which  would  not  be  apparent  on  rea- 
sonable examination  of  the  sample.  These  rules  are 
based  upon  jurisprudence,  and  may  be  taken  to  be 
generally  applicable. 

The  title  in  goods  sold  by  sample  will  pass  when  the 
goods  are  put  in  a  deliverable  condition,  and  are  ap- 
propriated to  the  contract.  The  mere  fact  that  a 
sample  is  exhibited  does  not  make  the  sale  a  sale  by 
sample.  The  sample  may  be  shown,  but  the  seller 
may  refuse  to  sell  by  it,  and  it  may  be  agreed  that 
the  buyer  shall  inspect  the  whole  at  his  own  risk. 

On  the  other  hand,  the  buyer  may  be  unwilling  to 
trust  to  the  sample,  and  may  demand  an  express  con- 
dition or  warrant}'.  This  follows  from  the  rule  that 
a  contract  for  sale  by  sample  must  be  express  or  im- 
plied. It  may  be  shown  that  the  sale  was  a  sale  by 
description  and  not  by  sample.  For  example,  where 
the  seller  accepted  a  sale  of  sassafras  wood  and  the 
buyer  inspected  it,  and  he  was  experienced  in  buy- 
ing such  wood,  but  the  seller  described  the  goods  in  the 
contract  as  "fair  merchantable  sassafras  wood,"  the 
seller  was  held  bound  to  deliver  fair  merchantable 
sassafras  wood,  as  the  goods  had  been  sold  upon  this 
description  and  not  upon  the  sample. 

In  an  American  case  decided  by  the  Court  of  Ap- 


148  COMMERCIAL  LAW 

peals  of  the  State  of  New  York,^  an  average  sample 
was  taken  of  a  large  quantity  of  beans  contained  in  a  • 
number  of  packages,  by  drawing  samples  from  all 
the  packages  and  mixing  them  together,  it  was  held 
that  the  purchaser  could  not  reject  any  of  the  pack- 
ages on  the  ground  that  they  were  inferior  to  the  aver- 
age, nor  recover  for  the  difference  in  value  on  that 
ground.  It  was  laid  down  that  the  true  test  was, 
provided  that  the  contents  of  all  the  packages  de- 
livered were  mixed  together,  whether  the  quality  of 
the  bulk  so  formed  was  equal  to  that  of  the  average 
sample  drawn. 

An  interesting  case  was  decided  by  the  Supreme 
Court  of  the  United  States  in  1870.^  A  commission 
merchant  in  Boston  instructed  his  brokers  to  sell  a 
quantity  of  foreign  wool  received,  but  only  in  case 
the  purchaser  came  to  Boston  and  examined  the  wool 
for  himself.  The  broker  sent  the  prospective  pur- 
chasers at  their  request  samples  of  the  wool,  as  a  re- 
sult of  which  the  latter  were  to  make  an  offer  of  fifteen 
cents  a  pound,  all  round,  if  the  goods  were  equal  to  the 
sample  furnished.  This  offer  was  accepted,  with  the 
proviso,  however,  that  the  purchasers  would  examine 
the  wool  on  the  following  Monday,  and  should  on 
that  day  declare  whether  they  would  take  it  or  not. 
The  purchasers  went  to  Boston  and  examined  four 
bales,  as  fully  as  they  wished,  and  were  informed  that 
they  could  examine  the  remaining  bales  or  have  them 

1  Leonard  vs.  Fowler,  42  N.  Y.  289. 

2  Barnard  vs.  Kellog,  10  Wall.  383. 


i 


» 


SALES  149 

opened  for  inspection.  This  they  declined.  The 
goods  were  bought,  and  later,  when  they  were  opened 
by  the  purchasers,  it  was  found  that  some  of  the  bales 
had  in  the  middle  of  them  a  quantit}^  of  rotten 
and  damaged  wool,  concealed  by  the  outer  layers 
which  were  in  good  condition.  The  purchasers 
brought  action  to  recover  for  their  loss.  The  good 
faith  of  the  seller  was  not  doubted.  The  action  was 
based  upon  the  following  grounds:  that  the  sale 
was  a  sale  by  sample,  and  that  there  was  a  prom- 
ise express  or  implied  that  the  bales  should  not  be 
falsely  packed.  The  first  court  held  that  there  was 
no  express  warranty  that  the  bales  which  were  not  ex- 
amined should  be  up  to  the  standard  of  those  which 
were  examined,  but  that  by  the  custom  of  merchants 
and  dealers  in  foreign  wools  in  Boston,  there  was  an 
implied  warranty  that  the  goods  were  of  the  same 
quality  thruout,  in  view  of  the  fact  that  to  examine 
each  bale  separately  would  be  a  work  of  great  length 
and  practically  an  impossibility ;  and  that,  as  a  result, 
this  warranty  arising  out  of  custom  was  binding  on 
the  seller.  In  the  Supreme  Court,  however,  this  de- 
cision was  set  aside  on  the  following  grounds:  (l) 
that  as  the  purchasers  had  gone  to  Boston  to  inspect 
the  goods  for  themselves,  the  sale  could  not  be  said 
to  be  a  sale  by  sample;  the  purchasers  had  in  reality 
had  an  opportunity  to  examine  the  goods,  and  must 
be  held  to  have  assented  that  the  sale  should  take  place 
after  such  examination  as  was  made ;  ( 2 )  that  by  the 
rule  of  the  common  law,  where  a  purchaser  inspects 


150  COMMERCIAL  LAW 

for  himself  the  specific  goods  sold,  and  there  is  no  ex- 
press warranty  and  no  fraud  on  the  part  of  the  seller, 
who  is  not  the  manufacturer  nor  the  grower  of  the 
goods  sold,  the  maxim  caveat  emptor — let  the  buyer 
beware — applies,  and  (3)  that  as  by  law  no  warranty 
is  implied  under  the  circumstances,  it  is  not  permis- 
sible to  make  evidence  that  by  custom  such  a  warranty 
is  implied.  This  is  especially  time  in  this  case  as  it 
was  not  shown  that  the  parties  had  any  knowledge  of 
the  custom,  and  therefore  were  not  transacting  with  a 
knowledge  thereof.^ 

REVIEW 

Distinguish  between  sale  and  a  contract  to  sell;  between  sale 
and  barter;  between  sale  and  gift;  between  sale  and  bailment. 

Who  may  be  parties  to  a  sale  ? 

Define  actual  and  potential  existence.  May  a  valid  sale  of  in- 
corporeal things  be  effected? 

What  is  the  provision  of  the  English  Statute  of  Frauds  in  re- 
gard to  the  sale  of  chattels?  In  what  ways  may  the  Statute  be 
satisfied? 

What  is  the  general  rule  about  the  completion  of  a  contract? 
At  what  time  does  the  title  pass  to  the  buyer  in  a  conditional  sale ; 
in  a  C.O.D.  sale;  in  sales  by  sample? 

iThis  holding  is  summarized  from  the  outline  given  in  Benjamin,  p. 
643-4. 


CHAPTER  XI 

SALES:  PERFORMANCE  OF  THE  CONTRACT 

1.  Deliver ij  of  the  goods. — The  principal  obliga- 
tions of  the  seller  are  the  delivery  and  the  warranty 
of  the  thing  sold:  reciprocally,  the  obligations  of  the 
purchaser  are  to  receive  the  goods  and  to  pay  the 
price.  The  general  rule  is,  where  there  is  no  con- 
trary arrangement,  that  upon  delivery  the  price  must 
be  paid.  The  seller  cannot  sue  for  the  price  before 
offering  to  deliver,  nor  can  the  buyer  sue  for  the  goods 
before  tendering  the  price. 

By  delivery  is  meant  the  transfer  of  the  thing  sold 
into  the  power  and  possession  of  the  buyer.  The  obli- 
gation of  the  seller  to  dehver  is  satisfied  when  he  puts 
the  buj^er  in  actual  possession  of  the  thing,  or  consents 
to  such  possession  being  taken  by  him,  with  all 
hindrances  thereto  removed.^  The  English  Sale  of 
Goods  Act  says  that  delivery  means  volmitary  trans- 
fer of  possession  from  one  person  to  another.  Deliv- 
ery in  this  sense,  then,  means  a  transfer  of  possession. 
The  word  is,  however,  capable  of  various  shades  of 
meaning  and  apphcation.  If  the  goods  are  already 
in  the  possession  of  the  buyer  when  the  sale  is  made, 
no  further  deliver}''  is  necessary.  The  deliver^'  in 
such  a  case  is  completed  by  the  seller's  expression  of 

1  Quebec  CivU  Code,  Article  1493. 

151 


152  COMMERCIAL  LAW 

consent  that  the  title  shall  pass  to  the  buyer  and  that 
he  shall  remain  in  possession.  When  a  sale  has  been 
made,  the  buyer's  right  is  to  take  possession,  and  the 
seller's  duty  is  to  give  possession.  It  may  be  agreed, 
however,  that  the  seller  shall  retain  possession  until 
some  condition  is  fulfilled,  as,  for  example,  until  pay- 
ment of  the  price  in  full  or  in  part,  or  until  the  buyer 
calls  for  delivery ;  it  may  be  that  the  parties  will  agree 
that  the  buyer  shall  take  delivery  in  instalments. 
The  goods  may  be  sold  on  credit,  in  which  case  there 
is  a  transfer  of  title  and  a  transfer  of  the  right  of  pos- 
session. In  this  case,  however,  supposing  that  before 
obtaining  actual  possession  the  buyer  becomes  insolv- 
ent, the  seller  may  refuse  to  part  with  possession,  in 
order  to  retain  his  lien  on  his  only  means  of  obtaining 
payment. 

When  incorporeal  things  are  sold,  there  must 
nevertheless  be  delivery  to  complete  the  sale.  The 
delivery  of  incorporeal  things  is  made  by  delivery  of 
the  titles,  or  by  the  use  which  the  buyer  makes  of  such 
things  to  the  knowledge  of  the  seller.^ 

2.  Place  of  delivery. — Where  delivery  shall  take 
place  is  a  matter  to  be  arranged  by  the  parties,  or  to 
be  implied,  according  to  circumstances.  If  there  is  no 
contract,  express  or  implied,  the  place  of  delivery  is  the 
seller's  place  of  business  or,  in  the  absence  thereof, 
his  residence.  If  the  contract  is  for  the  sale  of  specific 
articles  which,  when  the  contract  is  made,  the  parties 

1  Quebec  Civil  Code,  Article  1494. 


I 


PERFORMANCE  OF  THE  CONTRACT        153 

know  are  in  some  other  place,  that  place  will  be  the 
place  of  delivery,  unless  it  is  agreed  otherwise.  It 
may,  of  com'se,  be  implied  from  a  course  of  dealing  be- 
tween the  parties,  from  general  usage,  or  from  the  na- 
ture of  the  goods,  that  deliver}^  is  to  be  made  elsewhere 
than  at  the  place  of  business  or  residence  of  the  seller. 
If,  under  the  contract,  the  seller  is  bound  to  send  the 
goods  to  the  buyer,  and  no  time  for  doing  so  is  named, 
he  must  send  them  within  a  reasonable  time.  If  the 
seller  is  not  to  deliver  until  the  purchaser  has  per- 
formed some  act  or  fulfilled  some  condition,  the  seller 
will  not  be  held  in  default  for  non-deliveiy  until  the 
purchaser  has  notified  liim  of  the  performance  of  the 
act  upon  which  delivery  is  to  be  made.  If  A,  the 
o^mer  of  a  ship,  buys  supplies  from  B,  and  the  ar- 
rangement is  that  the  supplies  are  to  be  delivered  as 
soon  as  the  ship  is  ready  to  receive  them,  A  must  no- 
tify B  of  the  name  and  berth  of  the  ship,  and  of  his 
readiness  to  take  delivery,  before  he  can  complain  that 
delivery  has  not  been  made. 

Unless  it  is  otherwise  agreed,  the  expenses  of  de- 
livery, which  will  include  the  putting  of  the  goods  into 
a  dehverable  state,  must  be  borne  by  the  seller,  and 
unless  it  is  otherwise  stipulated,  the  expenses  of  re- 
moving the  thing  are  at  the  charge  of  the  buyer. 
Hence  if  the  buyer  is  compelled  to  pay  the  expenses 
of  delivery  thru  the  fault  of  the  seller,  he  can  re- 
cover the  amount  from  the  latter.  If  the  seller  does 
not  pay  the  expenses,  it  has  been  held  that  he  may  be 


154  COMMERCIAL  LAW 

prevented  from  alleging  or  proving  that  he  is  ready 
and  willing  to  deliver,  and  the  buyer  may  be  entitled 
to  refuse  to  accept  the  goods. 

3.  Delivery  to  a  carrier. — If  the  seller  is,  under  the 
contract,  authorized  or  required  to  send  the  goods  to 
the  buyer,  his  obligation  is  fulfilled  b)?^  delivering  them 
to  a  carrier  who  may  or  may  not  be  named  by  the 
buyer,  but  who  is  nevertheless  deemed  to  be  the  agent 
of  the  buyer  for  the  purpose  of  transmission.  Hence 
delivery  to  the  carrier  is  as  a  rule  delivery  to  the 
buyer.  There  can  be  no  doubt  about  it  if  the  deliv- 
ery is  made  to  a  carrier  who  is  named  by  the  buyer. 
This  position  will  not  be  altered  by  the  fact  that  the 
seller  makes  a  contract  with  the  carrier;  he  will  be 
held  to  have  made  it  on  behalf  of  the  buyer,  even 
tho  he  pays  the  carrier.  His  contract  with  the 
carrier  must  be  reasonable,  having  regard  to  the  na- 
ture of  the  goods,  the  necessity  for  quick  transport, 
the  necessity  for  protection  against  the  weather,  and 
so  on. 

Under  the  English  law,  at  least,  if  the  seller  omits 
to  exercise  such  care  in  instructing  and  making  his 
contract  with  the  carrier,  and  as  a  result  the  goods 
are  lost  or  damaged  in  transit,  the  buyer  may  decline 
to  treat  the  delivery  to  the  carrier  as  a  delivery  to 
himself,  or  he  may  sue  the  seller  for  the  damages  he 
has  suffered.  Delivery  to  a  carrier  of  the  goods  con- 
tracted for,  to  be  shipped  by  a  method  different  from 
that  provided  by  the  contract,  is  not  such  a  delivery 
as  is  contemplated  by  the  parties.     Thus,  where  goods 


PERFORMANCE  OF  THE  CONTRACT        155 

were  sold  by  the  plaintiffs  to  the  defendant,  and  by 
the  contract  between  them  the  goods  were  to  be 
shipped  by  freight,  and  were  handed  by  the  plaintiffs 
to  a  railway  company,  to  be  shipped  by  express  to  the 
defendant,  and  were  not  in  fact  delivered  to  him,  it 
was  held  that  the  defendant  was  not  liable  for  the 
price  of  the  goods.  The  fact  that  the  goods  were 
shipped  by  a  faster  means  of  transportation,  which 
might  be  for  the  benefit  of  the  defendant,  but  with- 
out his  knowledge  or  consent,  could  not  change  the 
rights  of  the  parties  under  the  contract.^ 

The  presumption  that  the  carrier  is  the  buyer's 
agent  may  be  rebutted;  for  example,  if  the  seller  re- 
serves the  right  of  disposal  of  the  goods  by  taking  a 
bill  of  lading  to  the  order  of  himself  or  a  third  person, 
in  order  to  insure  pajTuent  of  the  price,  the  bill  of 
lading  must  be  indorsed  by  the  seller  or  such  third 
person,  and  this  constitutes  dehvery,  but  not  to  the 
purchaser.  In  this  case  the  carrier  would  be  deemed 
to  be  the  agent  of  the  seller,  and  if  the  goods  were  lost 
or  damaged  in  transit,  the  loss  would  be  upon  the 
seller.  If  the  seller,  in  making  a  sale  of  goods,  should 
undertake  that  he  would  make  the  dehvery  himself  at 
some  place  other  than  that  where  they  are  when  sold, 
the  can'ier  is  the  seller's  agent,  and  the  risks  of  car- 
riage are  assumed  by  the  latter.  Tho  the  carrier 
may  be  the  agent  of  the  seller,  the  buyer  takes  the 
risk  of  deterioration  in  the  goods,  which  is  necessarily 
incident  to  the  course  of  transit,  because  such  risks 

1  McGowan  Cigar  Co.  vs.  O'FIynn,  19  O.  L.  R.  8T7. 


156  COMMERCIAL  LAW 

would  arise  whether  the  carrier  were  the  agent  of  the 
buyer  or  of  the  seller.  Thus  in  an  English  case  it  was 
held  that  where  hoop-iron  was  sold  in  Staffordshire, 
deliverable  in  Liverpool  in  the  winter,  and  the  iron 
was  rusted  and  unmerchantable  when  delivered  in 
Liverpool,  the  seller  had  made  a  good  delivery,  upon 
proving  that  this  deterioration  was  the  necessary  re- 
sult of  the  transit,  and  that  the  iron  was  bright  and 
in  good  order  when  it  left  Staffordshire.* 

4.  Tiitie  of  delivery. — If  the  seller  is  bound  to  make 
delivery  of  the  goods,  either  to  a  carrier  or  to  the 
buyer  direct,  delivery  must  be  made  at  the  time  fixed 
in  the  contract.  If  no  time  is  fixed,  delivery  must  be 
made  within  a  reasonable  time. 

What  may  be  a  reasonable  time  will  depend  upon 
the  circumstances  in  each  case.  If  it  is  agreed  that 
delivery  is  to  be  made  at  a  time  to  be  fixed  later,  as, 
for  example,  by  the  buyer,  the  seller  will  be  entitled 
to  await  notice  from  the  buyer,  calling  for  deliveiy. 
If  a  time  for  delivery  has  been  fixed,  then  the  buyer 
may  refuse  to  take  delivery  either  before  or  after  such 
time.  If  the  contract  provides  for  delivery  "imme- 
diately," *'forthwith,"  or  "as  soon  as  possible,"  a  rea- 
sonable time  will  be  allowed  for  delivery.  What  may 
be  a  reasonable  time  will  be  a  question  of  fact.  If  A 
makes  a  contract  with  B  to  buy  certain  goods,  which 
are  to  be  delivered  at  some  time  between  the  1st  and 
the  30th  of  the  next  month,  B  may  deliver  the  goods 

1  Bull  vs.  Robinson,  1854,  10  Ex.  342. 


PERFORMANCE  OF  THE  CONTRACT        157 

on  the  1st  or  the  30th  day  of  the  month,  or  on  any 
intervening  day. 

If  the  contract  does  not  state  the  hour  at  which 
delivery  is  to  he  made,  it  must  be  made  at  a  reason- 
able hour.  Delivery  cannot  be  demanded  or  be  made 
at  an  unreasonable  hour;  it  should  be  made  or  de- 
manded as  a  rule  during  business  hours.  It  has  been 
laid  do^^Ti  that  if  delivery  is  to  be  made  at  a  specified 
place,  where  the  buyer  must  be  to  receive  the  goods, 
the  delivery  should  be  made  before  sunset.  The  rule 
is  not  a  hard  and  fast  one,  however,  so  that  if  the  buyer 
happened  to  be  at  the  place  designated  for  delivery, 
and  the  goods  could  be  easily  examined,  a  tender  of 
delivery,  tho  made  at  night,  would  probably  be  suf- 
ficient. 

5.  Quantity  specified  must  be  delivered. — The  seller 
must  deliver  the  full  quantity  sold  as  it  is  specified  in 
the  contract.  The  buyer  cannot  be  forced  to  accept 
less  or  more  than  he  has  contracted  to  buy.  Thus  it 
was  held  that  where  a  contract  for  the  sale  of  goods 
is  an  entire  one,  and  tlie  vendor  withholds  any  of  them, 
the  purchaser  need  not  accept  delivery  of  the  remain- 
ing portion,  but  may  repudiate  the  agreement  and 
recover  any  money  paid  on  account  of  the  purchase 
price.^ 

When  a  person  has  purchased  goods  to  be  delivered 
as  a  whole,  he  need  not  accept  them  in  instalments. 
It  is  his  privilege  to  reject  fulfilment  of  the  contract 

1  Blomquist  vs.  Tymchorak,  23  W.  L.  R.  305. 


158  COMMERCIAL  LAW 

in  any  other  way  than  as  specified.  If,  however,  he 
accepts  less  than  the  goods  lie  has  contracted  for,  or 
accepts  instalments  thereof,  he  must  pay  for  them  at 
the  contract  rate.  Generally  speaking,  if  the  seller 
delivers  a  larger  quantity  of  goods  than  was  pur- 
chased, ilae  buyer  may  accept  the  goods  covered  by  the 
contract  and  reject  the  balance,  or  he  may  reject  the 
whole.  If  he  accepts  all  that  are  delivered,  he  must 
pay  for  them  at  the  contract  rate. 

Thus  if  A  purchases  ten  hogsheads  of  wine  from  B 
and  B  sends  fifteen,  A  may  consider  the  contract  as 
not  performed,  for  he  is  unable  to  tell  which  are  the 
ten  that  are  to  be  his,  and  he  is  not  bound  to  make  a 
choice  of  any  ten  hogsheads,  for  that  would  be  to  force 
a  new  contract  upon  him.  The  delivery  of  more  than 
ten  is  really  a  proposal  for  a  new  contract.  Ap- 
parently, also,  if  the  seller  delivers  the  goods  that  have 
been  bought  with  other  goods  not  covered  by  the  con- 
tract, the  buyer  may  accept  the  goods  covered  by  the 
contract  and  reject  the  rest,  or  he  may  reject  the 
whole. 

Where  a  person  contracted  to  deliver  one  hundred 
bags  of  hops  on  or  about  January  1,  and  on  December 
12  he  delivered  twelve  bags  in  part  performance  of  his 
contract,  and  no  time  for  payment  was  mentioned,  it 
was  held  that  he  could  not  demand  payment  for  the 
hops  delivered  before  the  expiration  of  the  time  fixed 
for  delivery  of  the  balance.*  The  fact  that  the  buyer 
in  this  case  accepted  the  twelve  bags  would  not  de- 

1  Waddington  vs.  Oliver,  2  B.  &  P.  N.  R.  61. 


I 


PERFORMANCE  OF  THE  CONTRACT        159 

prive  him  of  his  right  to  sue  for  breach  of  the  contract 
if  the  remaining  bags  were  not  delivered  according  to 
the  contract. 

The  contract  may  be  severable.  A  tender  of  tlie 
amomit  of  any  severable  part  is  to  the  extent  thereof 
sufficient;  thus  an  instahnent  contract  may  provide 
that  each  delivery  shall  constitute  a  separate  contract, 
in  which  case  each  delivery  will  stand  by  itself.  If  the 
seller  makes  default  in  connection  with  one  such  in- 
stalment, it  is  not  as  a  rule  open  to  the  buyer  to  re- 
pudiate the  remaining  instalments.  Thus  if  the  con- 
tract is  for  the  sale  and  shipment  of  iron  ore  at  differ- 
ent times,  pajTiient  to  be  made  upon  delivery,  and  one 
instalment  of  the  ore  shipped  does  not  fulfil  the  re- 
quirements of  the  contract,  the  buyer  is  not  justified, 
under  ordinary  circumstances,  in  refusing  to  accept 
the  remaining  shipments  which  conform  to  the  terms 
of  the  contract.  The  failure  of  the  seller  to  deliver  a 
severable  portion  of  the  goods  or  articles  contracted 
for,  or  the  failure  of  the  buyer  to  take  delivery  thereof, 
may,  however,  give  rise  to  the  right  to  repudiate  the 
contract  as  a  whole.  Benjamin,  discussing  the  mat- 
ter, says: 

A  contract  for  the  delivery  of  goods  by  instalments,  the 
the  instalments  are  to  be  separately  paid  for,  and  the  con- 
tract is  in  consequence  so  far  divisible,  is,  like  all  other  con- 
tracts, one  that  may  be  repudiated  by  either  party  if  the 
other  party  refuses  to  perform  it.  But  the  question  often 
arises  whether  a  mere  partial  breach  by  either  party  justifies 
the  other  in  repudiating  the  unfilled  part  of  the  contract. 
The  rule  at  common  law  is  that,  in  the  absence  of  an  express 


160  COMMERCIAL  LAW 

refusal,  the  question  to  be  considered  is  whether  the  conduct 
of  the  party  in  fault  amounts  to  an  implied  refusal  to  per- 
form the  contract,  for  it  is  not  every  breach  by  one  party 
which  gives  to  the  others  the  right  of  rescission.  The  breach 
must  be  in  a  matter  going  to  the  root  of  the  contract.  Such 
a  breach  negatives  the  readiness  and  willingness  of  the  party 
in  fault  to  be  bound  by  the  contractual  relation  any  further, 
and  may  be  accepted  as  an  offer  to  rescind. 

Generally  speaking,  it  will  depend  upon  the  circum- 
stances in  each  case,  whether  the  breach  in  the  fulfil- 
ment of  part  of  the  contract  is  a  repudiation  of  the 
whole,  or  whether  it  is  a  severable  breach  which  gives 
rise  to  a  claim  for  compensation,  but  not  to  a  right  to 
treat  the  whole  contract  as  repudiated. 

6.  Quality  specified  must  he  delivered. — Xot  only 
must  the  seller  deliver  the  quantity  purchased,  but  he 
must  deliver  goods  of  the  quality  specified  in  the  con- 
tract. The  buyer  is  entitled  to  a  reasonable  opportu- 
nity to  inspect  the  goods,  in  order  to  determine 
whether  they  are  of  the  quality  mentioned  in  the  con- 
tract. The  seller  must,  when  tendering  delivery,  give 
the  buyer  such  reasonable  opportunity  as  he  desires  to 
examine  the  goods  for  this  purpose.  Ordinarily  the 
goods  will  be  inspected  at  the  place  of  delivery.  The 
purchaser  who  takes  the  goods  for  the  purpose  and 
with  the  intention  of  inspecting  them  does  not  thereby 
accept  them;  and  if  he  finds  that  they  are  not  of  the 
quality  contracted  for  he  may  reject  them.  In  such 
case  he  is  not  bound  to  return  them  to  the  seller, 
tho  he  must  allow  the  seller  to  re-take  them. 

Where  a  purchaser  was  notified  that  certain  goods 


PERFORMANCE  OF  THE  CONTRACT        161 

which  he  had  bought  were  lying  at  a  designated  wharf 
ready  for  dehvery  on  payment  of  the  price,  and  he 
went  to  the  wharf  and  appHed  for  permission  to  ex- 
amine the  goods,  and  was  shown  two  closed  casks 
which  were  said  to  contain  them,  but  was  refused  per- 
mission to  open  the  casks,  it  was  held  that  no  valid 
offer  of  delivery  had  been  made  to  him. 

It  has  also  been  held  that  where  a  buyer  had  in- 
spected the  goods  before  the  sale,  and  by  the  contract 
the  goods  were  to  be  held  by  the  seller  subject  to  the 
buyer's  orders  and  in  good  condition,  he  was  entitled 
to  further  inspection  before  taking  delivery.  This 
further  inspection  was  refused,  and  the  buyer  was  held 
entitled  to  refuse  deliverj^.  If,  on  the  other  hand,  the 
seller  offers  the  buyer  a  reasonable  opportunity  to  in- 
spect the  goods,  and  the  buyer  refuses  to  inspect  them, 
the  seller  might  be  justified  in  refusing  to  make  deliv- 
ery. 

7.  Symbolic  or  constructive  delivery. — An  actual 
physical  transfer  of  the  thing  sold  to  the  buyer  is  not 
always  essential  to  constitute  delivery  and  to  pass  title. 
Where,  for  example,  the  goods  sold  are  ponderous  and 
incapable  of  being  handed  over  physically  from  seller 
to  buyer,  an  actual  delivery  will  be  dispensed  with. 
In  such  a  case  the  delivery  of  a  key  to  the  warehouse 
in  which  the  goods  are  lodged  will  be  sufficient.  Simi- 
larly, the  transfer  to  the  buyer  of  bills  of  lading  which 
represent  the  goods  is  a  sufficient  delivery.  This 
would  not  be  sufficient,  however,  if  the  goods  are  sub- 
ject to  hens  or  charges  in  favor  of  the  bailee  or  other 

XXIV— 12 


162  COMMERCIAL  LAW 

person  who  has  the  physical  possession  of  the  goods, 
and  who  may  retain  them  until  his  charges  are  paid. 
For  example,  if  A  ships  goods  to  B  by  rail,  and  A  has 
undertaken  to  pay  the  freight,  but  does  not  do  so,  the 
railway  is  entitled  to  hold  the  goods  until  its  charges 
are  paid.  A  may  have  forwarded  documents  of  title 
to  B,  but  these  will  not  constitute  delivery  to  B  until  A 
pays  the  freight  charges. 

8.  Warranties:  definition  and  classification. — A 
warranty  is  an  agreement  of  indemnity,  relating  to  the 
character,  quality  or  title  of  the  thing  sold,  and  form- 
ing part  of  the  contract  of  sale,  tho  collateral  to  its 
express  object,  by  which  the  seller  insures  the  buyer 
against  loss  or  against  failure  of  one  or  more  of  its 
terms.     Warranties  may  be  express  or  implied. 

The  parties  may  by  special  agreement  add  to  the 
obligation  of  legal  or  implied  warranty,  or  diminish 
its  effect,  or  exclude  it  altogether. 

An  express  warranty,  therefore,  is  an  explicit  state- 
ment by  the  seller  of  some  material  fact  concerning  the 
subject  matter  of  the  sale,  and  in  virtue  of  which  the 
buyer  is  induced  to  make  the  contract.  Such  a  war- 
ranty is  collateral  to  the  main  purpose  of  the  contract, 
and  the  breach  of  it  as  a  rule  gives  rise  to  a  claim  for 
damages,  but  not  to  a  right  to  reject  the  goods  and  to 
treat  the  contract  as  repudiated.  The  warranty  may 
be  oral  or  written.  If  the  contract  of  sale  is  a  com- 
plete document  in  writing,  an  oral  warranty  may  not 
be  admissible  under  the  Parol  Evidence  Rule,  unless 
it  is  fraudulent. 


PERFORMANCE  OF  THE  CONTRACT        163 

As  a  rule,  antecedent  representations  made  as  an 
inducement  to  the  buyer,  but  which  do  not  form  part  of 
the  contract  when  completed,  are  not  warranties.  If 
the  representation  is  made  in  the  course  of  the  dealings 
leading  up  to  the  bargain,  it  will  be  a  warranty,  pro- 
vided it  is  incorporated  into  the  bargain  as  part  of  it. 
Thus  a  man  bought  a  horse  at  auction  without  war- 
ranty. The  day  before  the  sale  he  examined  the  horse 
at  the  stables,  and  in  the  course  of  his  examination  the 
auctioneer  said  to  him:  "You  have  nothing  to  look 
for;  I  assure  you  he  is  perfectly  sound  in  event'  re- 
spect," to  which  he  replied :  "If  you  say  so,  I  am  sat- 
isfied," and  made  no  further  examination.  The  horse 
proved  to  be  unsound,  tho  the  seller  did  not  know  it, 
and  therefore  there  was  no  fraud.  The  purchaser 
brought  action,  and  claimed  that  the  conversation  in 
question  was  a  private  warranty  to  him,  altho  the  auc- 
tioneer put  up  the  horse  without  warranty.  It  was 
held  that  this  private  conversation,  and  the  representa- 
tion therein  made,  did  not  form  part  of  the  contract 
which  was  made  by  the  buyer  when  he  bid  for  the 
horse.  The  representation  was  held  to  be  merely  an 
expression  of  the  seller's  opinion  and  judgment,  and 
that  he  could  not  be  held  responsible  for  it,  if,  when 
he  made  it,  he  was  in  good  faith. 

A  warranty  may  be  made  after  the  sale,  in  which 
case,  imder  the  English  law  at  least,  there  must  be 
a  new  consideration  to  support  such  subsequent  war- 
ranty. 

Legal  or  imphed  warranty  is  that  which  arises  by 


164  COMMERCIAL  LAW 

operation  of  law,  without  stipulation  in  the  contract: 
it  may  also  arise  from  usage  or  custom,  or  from  the 
conduct  of  the  parties.  Thus  it  is  an  implied  war- 
ranty in  the  case  of  a  sale  of  goods  by  sample  that  the 
goods  sold  shall  correspond  in  quality  with  the  sample. 
There  is  an  implied  warranty  that  goods  sold  are  in  a 
merchantable  state  or  condition ;  that  there  is  no  latent 
defect  in  the  thing  sold  such  as  will  render  it  unfit  for 
the  use  for  which  it  was  intended,  or  which  will  so 
diminish  its  usefulness  that  the  buyer  would  not  have 
bought  it,  or  would  not  have  given  so  large  a  price  for 
it,  had  he  known  that  the  defect  existed.  Where,  how- 
ever, the  defects  are  apparent  and  are  such  that  the 
buyer  might  have  known  of  them  himself,  the  rule  of 
caveat  emptor  will  apply. 

Generally  speaking,  if  the  buyer  buj^s  on  his  own 
judgment,  that  is,  if  he  selects  or  defines  the  specific 
thing  or  class  of  things  which  he  requires,  there  is  not 
an  implied  warranty  on  the  part  of  the  seller  that  the 
things  bought  will  fulfil  the  purpose  of  the  buyer.  If, 
on  the  other  hand,  the  buyer  tells  the  seller  that  he 
wants  certain  goods  for  a  certain  purpose,  and  leaves 
the  seller  to  exercise  his  judgment  and  supply  the 
proper  goods,  then  there  will  be  an  implied  warranty 
on  the  part  of  the  seller  that  the  goods  are  not  only 
merchantable  but  that  they  are  fit  for  the  purpose  ex- 
pressed. Again,  there  is  an  implied  warranty  that 
when  a  thing  is  sold  it  is  in  existence.  If  A  sells  B  a 
cargo  of  fruit  which  is  supposed  to  be  in  transit  be- 
tween Havana  and  New  York,  and  the  day  before  the 


PERFORMANCE  OF  THE  CONTRACT        165 

sale  the  ship  is  wrecked  and  the  fruit  is  destroyed,  the 
sale  is  void,  and  B  may  recover  what  he  has  paid.  It 
has  been  said  that  in  such  a  case  there  is  an  implied 
warranty  that  the  fruit  is  in  existence  when  the  con- 
tract is  made.  It  is  also  said  that  the  warranty  is 
rather  in  the  nature  of  a  condition  precedent  which  is 
of  the  essence  of  the  contract,  and  not  a  collateral  un- 
dertaking. 

9.  Implied  tcarranty  of  title. — The  Civil  Code  of 
Quebec  lays  down  a  rule  generally  applicable.  The 
seller,  it  says,  is  obliged  by  law  to  warrant  the  buyer 
against  eviction  of  the  whole  or  any  part  of  the  thing 
sold,  by  reason  of  the  act  of  the  former,  or  of  any  right 
existing  at  the  time  of  the  sale,  and  against  encum- 
brances not  declared  and  not  apparent  at  the  time  of 
the  sale.  In  other  words,  the  seller  impliedly  war- 
rants his  right  to  sell :  that  he  has  a  title,  and  that  he 
may  give  a  free  and  clear  title  to  the  purchaser.  If  it 
turns  out  that  the  seller  had  not  a  good  title,  then  the 
buyer  may  sue  for  a  return  of  the  price  where  he  is 
compelled  to  surrender  the  thing  to  the  true  owner,  as 
on  a  total  failure  of  consideration,  and  may  add  to 
his  claim  a  demand  for  damages,  if  he  has  suffered 
any. 

If  the  thing  sold  is  in  the  possession  of  the  vendor, 
there  is  no  doubt  as  to  the  presence  of  an  implied  war- 
ranty of  his  title  and  his  right  to  sell.  In  the  United 
States  apparently  there  is  no  implied  warranty  of 
title  if  the  thing  is  in  the  hands  of  a  third  person  when 
it  is  sold.     In  England,  however,  this  view  is  not 


L 


166  COMMERCIAL  LAW 

accepted.  The  mere  fact  that  a  person  sells  a  chattel 
"implies  an  affirmation  by  the  vendor  that  the  chattel 
is  his,  and  therefore  he  warrants  the  title  unless  it  be 
shown  by  the  facts  and  circumstances  of  the  sale  that 
the  vendor  did  not  intend  to  assert  ownership,  but  only 
to  transfer  such  interest  as  he  might  have  in  the  chattel 
sold." 

The  vendor  may  have  only  the  constructive  posses- 
sion of  the  things  sold,  as  where  he  is  the  owner  of  an 
undivided  portion  of  wheat  stored  in  an  elevator.  The 
owner  of  the  elevator  has  the  actual  possession,  but 
the  vendor  has  the  constructive  possession.  In  selling 
his  undivided  interest,  however,  there  is  an  implied 
warranty  of  title. 

There  are  one  or  two  exceptions  to  the  rule.  If 
goods  are  sold  by  a  sheriff  or  bailiff,  as  under  the  judg- 
ment of  a  court,  the  sheriff  is  not  held  to  any  warranty. 
So,  also,  a  vendor  may  merely  sell  or  transfer  such  title 
as  he  may  have  in  the  goods,  provided  he  does  so  with- 
out positive  knowledge  that  he  has  no  title,  and  he  will 
be  held  to  no  warranty.  The  liquidator  or  curator  of 
the  assets  of  an  insolvent  debtor  is  held  to  no  warranty. 
It  has  been  held  that  a  contract  for  the  sale  or  assign- 
ment of  a  patent  involves  no  warranty  that  the  inven- 
tion is  new,  but  merely  that  the  patent  has  been 
granted  to  the  seller. 

10.  Implied  ^warranty  of  quality,  caveat  emptor. — 
In  so  far  as  the  quality  of  goods  is  concerned,  tlie 
maxim  caveat  emptor  (let  the  buyer  beware)  is  the 


PERFORMANCE  OF  THE  CONTRACT        167 

general  rule.  In  other  words,  if  there  is  no  fraud,  and 
the  seller  has  not  given  an  express  warranty,  or  unless 
a  warranty  is  implied  from  the  nature  and  circimi- 
stances  of  the  transaction,  the  buyer  purchases  at  his 
own  risk.  This  is  the  more  true  if  the  buyer  inspects 
the  goods  or  is  given  a  reasonable  opportunity  to  do  so. 
If  after  being  given  such  an  opportunity,  the  buyer 
neglects  to  inspect  the  goods,  it  has  been  held  that  it  is 
not  the  duty  of  the  seller  to  point  out  defects.  On  the 
other  hand,  the  seller  must  not  assist  in  deceiving  the 
bu3^er. 

For  example,  the  seller  must  not  hinder  the  buyer 
in  his  inspection  of  the  goods  in  an  endeavor  to  dis- 
cover defects.  If  the  buyer  purchases  goods  on  his 
own  judgment,  or  selects  or  defines  the  particular 
goods  or  class  of  goods  which  he  wants,  the  seller  need 
only  furnish  merchantable  goods  of  the  class  indi- 
cated, altho  he  may  know  that  the  buyer  wants  the 
goods  for  some  special  purpose. 

If,  however,  the  buyer  indicates  that  he  wants  the 
goods  for  a  specific  purpose  and  asks  the  seller  to  sup- 
ply him  with  goods  fit  for  that  purpose,  and  he  leaves 
the  choice  to  the  seller,  a  warranty  at  onjce  arises  on  the 
part  of  the  seller  that  the  goods  chosen  by  him  will 
meet  the  buyer's  requirements  for  the  purpose  men- 
tioned. 

If  the  goods  are  bought  by  sample,  the  buyer  has 
acted  upon  his  own  judgment  in  that  he  has  examined 
the  sample,  but  he  relies  on  the  seller's  judgment  to 


168  COMMERCIAL  LAW 

supply  a  bulk  of  the  goods  sold  which  will  correspond 
with  the  sample;  there  is,  therefore,  an  implied  war- 
ranty on  the  part  of  the  seller  that  the  goods  which 
he  will  deliver  will  be  of  the  same  quality  as  the  sample, 
and  that  they  will  be  merchantable.  If  the  goods  are 
sold  by  description,  a  similar  warranty  arises  that  the 
goods  sold  are  of  the  kind  described.  Apparently  in 
such  a  case  there  is  not  a  warranty  of  merchantability, 
unless  the  seller  deals  in  the  goods  sold.  Thus,  where 
a  man  ^  ordered  a  quantity  of  "spent  madder,"  and  this 
substance  was  not  manufactured  by  the  seller,  but  was 
merely  a  refuse  product  of  his  manufacture  and  was 
sold  only  as  such,  the  buyer's  intention  being  to  pro- 
duce garrancine,  which  it  was  found  the  madder  would 
not  produce,  it  was  held  that  the  purchaser  took  the 
risk  tliat  the  madder  might  not  produce  the  desired 
by-product.  The  seller  was  not  a  dealer  in  spent  mad- 
der. 

11.  Remedies  for  breach  of  an  compress  warranty. — 
Under  the  English  law,  in  the  case  of  an  express  war- 
ranty, the  general  rule  is  that  if  the  goods  tendered 
under  the  sale  are  not  as  warranted,  the  purchaser's 
remedy  is  an  action  in  damages,  if  the  title  to  the  goods 
has  passed  to  him.  If  the  title  has  not  passed  to  him, 
he  may,  upon  discovering  the  breach  of  an  express 
warranty,  reject  them.  So  if  A  sells  to  B  a  certain 
engine,  and  warrants  that  it  will  develop  200  h.  p.;  the 
engine  is  actually  delivered  to  B,  and  B  tries  it  out  and 
finds  that  it  will  only  develop  150  h.  p.,  B  cannot,  if 

1  Turner  vs.  Mucklow,  1862,  C.  L.  T.  N.  S.  690. 


PERFORMANCE  OF  THE  CONTRACT        169 

the  title  in  the  engine  has  passed  to  him,  tender  the 
engine  back  and  demand  the  retm*n  of  what  he  has 
paid.  B  would  have  an  action  in  damages  for  breach 
of  the  warranty,  and  liis  damages  would  probably  be 
the  difference  in  value  between  the  engine  as  repre- 
sented and  the  engine  as  it  really  proved  to  be. 

If,  however,  A  sells  B  certain  wheat  stored  in  an  ele- 
vator and  warrants  it  to  be  first  quality,  and  nothing 
is  done  by  which  B  is  given  dehvery,  and  B,  having 
agreed  to  pay  so  much  a  bushel,  inspects  the  wheat  and 
finds  it  is  only  of  second  quality,  B  may  refuse  to  ac- 
cept the  wheat,  because  the  title  has  not  passed  to  him, 
and  there  has  been  a  breach  of  the  warranty  of  quality. 
In  the  previous  case,  however,  if  A,  when  he  made  the 
warranty  that  the  engine  would  develop  200  h.  p.,  was 
aware  that  it  could  not  do  so,  B  would  then  be  entitled 
to  hand  back  the  engine  and  demand  the  return  of 
what  he  had  paid. 

12.  Remedies  for  breach  of  an  implied  tcarranti/. — 
If  the  goods  sold  do  not  conform  with  the  implied  war- 
ranties as  to  quahty,  fitness,  condition,  or  other's^ise, 
the  buyer  has  several  remedies. 

(a)  He  may,  if  he  thinks  fit,  reject  the  goods  and 
recover  what  he  has  paid. 

(b)  He  may  accept  and  keep  the  goods  and  sue  for 
the  damages  he  has  suffered  by  the  breach  of  the  war- 
ranty. 

(c)  If  he  has  not  paid  the  purchase  price,  he  may 
set  up  the  damage  he  has  sustained  in  diminution  of 
the  price. 


170  COMMERCIAL  LAW 

If  the  buyer  decides  to  reject  the  goods  and  rescind 
the  sale,  he  must  do  so  within  a  reasonable  time.  If 
the  seller  refuses  to  take  back  the  goods,  the  buyer  may 
bring  action  to  have  the  sale  declared  null  and  for 
the  retuni  of  what  he  has  paid,  meanwhile  holding 
the  goods  as  bailee  for  the  seller :  that  is,  he  holds  them 
at  the  risk  of  the  seller,  and  if  they  perish  thru  no 
fault  of  the  buyer  he  is  not  liable  for  the  loss. 

13.  Rights  of  an  unpaid  seller  against  the  subject  of 
the  sale. — As  we  have  seen,  the  contract  of  sale  is  com- 
plete by  the  consent  of  the  parties  to  the  contract,  and 
unless  it  is  otherwise  provided  the  title  in  the  goods 
passes  from  the  seller  to  the  buyer.  The  seller  is  en- 
titled to  payment. 

So  long  as  the  seller  retains  the  goods  in  his  posses- 
sion he  has  a  lien  on  them  for  the  price.  His  lien  is 
not  effective  if  the  sale  was  made  on  credit,  unless  the 
time  allowed  for  payment  has  expired.^  Thus  A  sells 
a  carload  of  pulp  to  B  on  sixty  days'  credit;  a  bill  of 
sale  is  made  out  and  delivered  to  B,  but  it  is  agreed 
that  A  shall  keep  the  pulp  in  his  warehouse  for  the 
time  being.  B,  a  month  later,  assigns  the  bill  of  sale 
to  C,  and  then  becomes  insolvent.  Upon  the  demand 
of  C  for  delivery  of  the  pulp,  A  may  refuse  delivery. 
It  is  true  that  by  making  a  sale  on  credit  he  waived 
his  lien,  but  as  B  became  insolvent  and  A  had  posses- 
sion of  the  goods,  A's  right  of  lien  at  once  became  ef- 

1  The  lien  extends  only  to  the  price.  Charges  for  warehousing  or  other- 
wise, which  the  seller  may  have  to  pay,  are  a  personal  claim  against  the 
buyer,  and  give  no  right  of  retention  of  the  goods. 


PERFORMANCE  OF  THE  CONTRACT        171 

fective,  and  C  could  have  no  greater  right  to  the  goods 
than  B. 

If  at  the  time  that  A  sold  the  pulp  to  B,  unknown 
to  A,  B  was  insolvent,  and  the  goods  were  shipped  and 
a  bill  of  lading  was  sent  to  him,  an  assignment  of  the 
bill  of  lading  by  B  to  C,  who  was  named  as  assignee, 
would  not  defeat  A's  right  of  stoppage  in  transit.  C 
is  not  a  purchaser  for  value,  and  has  only  the  right  of 
B.  If,  however,  B  had  sold  the  pulp  and  delivered  the 
bill  of  lading  to  C  before  A  exercised  his  right  of  stop- 
page, C  would  be  entitled  to  receive  the  goods.  The 
seller's  hen  exists  therefore,  and  he  can  refuse  delivery, 
where  the  sale  is  for  cash,  or  where  the  sale  is  on  credit 
and  the  buyer  has  become  insolvent  before  the  goods 
are  delivered  to  him. 

It  must  be  understood  that  unless  it  is  otherwise 
agi-eed  the  seller's  lien  exists  only  so  long  as  he  re- 
tains possession.  If  he  dehvers  the  goods  to  the 
buyer,  or  to  the  buyer's  agent,  as,  for  example,  to  a 
carrier,  the  right  of  lien  disappears  because  the  seller 
has  parted  with  possession. 

There  is  an  exception  to  this  rule,  in  that  if  the  sale 
is  on  credit  and  the  buyer  becomes  insolvent  after  the 
goods  have  been  delivered  to  the  carrier  and  while  they 
are  in  transit,  the  seller  may  retake  possession. 

Of  stoppage  in  transitu,  Benjamin  says: 

This  is  a  right  which  arises  solely  upon  the  insohency  of 
the  buyer,  and  is  based  on  the  plain  reason  of  justice  and 
quality  that  one  man's  goods  shall  not  be  applied  to  the  pay- 
ment of  another  man's  debts.     If,  therefore,  after  the  seller 


172  COMMERCIAL  LAW 

has  delivered  the  goods  out  of  his  own  possession  and  put 
them  in  the  hands  of  a  carrier  for  dehvery  to  the  buyer 
(which  is  such  a  constructive  delivery  as  divests  the  seller's 
lien)  he  discovers  that  the  buyer  is  insolvent,  he  may  retake 
the  goods,  if  he  can,  before  they  reach  the  buyer's  possession, 
and  thus  avoid  having  his  property  applied  to  paying  the 
debts  due  by  the  buyer  to  other  people.  The  statement  that 
this  right  is  based  on  the  reason  that  one  man's  goods  shall 
not  be  applied  to  the  payment  of  another  man's  debt  is,  how- 
ever, not  literally  accurate,  for,  strictly  speaking,  the  goods 
so  stopped  are  no  longer  the  property  of  the  unpaid  seller, 
and  stoppage  in  transitu  takes  place  only  where  the  goods 
have  become  the  property  of  the  buyer.  Where  they  remain 
the  property  of  the  seller,  the  latter  may  witlihold  them  by 
virtue  of  his  ownership,  but  this  is  not  the  peculiar  right  of 
stoppage  given  by  the  law  merchant  .  .  .  the  right  of  stop- 
page in  transitu  is  a  right  to  interfere  and  prevent  the  buyer 
from  taking  actual  possession  which  he  would  otherwise  have 
a  right  to  take,  and  to  undo  the  effect  of  an  unconditional 
delivery  to  an  agent  to  forward.  This  power  does  not  exist 
except  in  the  case  of  insolvency.* 

The  principle  has  been  very  clearly  laid  down  also 
in  an  American  case,  as  follows : 

Stoppage  in  transitu  is  a  right  which  the  vendor  of  goods 
upon  credit  has  to  recall  them  or  retake  them,  upon  the  dis- 
covery of  the  insolvency  of  the  vendee,  before  the  goods  have 
come  into  his  possession,  or  any  third  person  has  acquired 
bona  fide  rights  in  them.  It  continues  so  long  as  the  carrier 
remains  in  the  possession  and  control  of  the  goods,  or  until 
there  has  been  an  actual  or  constructive  delivery  to  the 
vendee,  or  some  third  person  has  acquired  a  bona  fide  right 
to  them.  Upon  demand  by  the  vendor,  while  the  right  of 
stoppage  in  transitu  continues,  the  carrier  will  become  liable 
for  a  conversion  of  the  goods  if  he  declines  to  redeliver  them 
to  the  vendor,  or  delivers  them  to  the  vendee.  .  .  .  And  no- 

1  Benjamin,  p.  870. 


PERFORMANCE  OF  THE  CONTRACT        173 

tice  by  the  vendor,  without  an  express  demand  to  redeliver 
the  goods,  is  sufficient  to  charge  the  carrier.  If  the  carrier 
is  clearh'  informed  that  it  is  the  intention  and  desire  of  the 
vendor  to  exercise  his  rights  of  stoppage  in  transitu,  tlie 
notice  is  sufficient.  And  notice  to  the  agent  of  the  carrier, 
who  in  the  regular  course  of  his  agency  is  in  the  actual  cus- 
tody of  the  goods  at  the  time  the  notice  is  given,  is  notice 
to  the  carrier.^ 

It  has  been  held  that  the  mere  fact  that  the  seller 
has  received  part  payment  of  the  price  will  not  defeat 
his  right  of  stoppage  in  transitu.  If  the  contract  is 
severable  and  the  goods  may  be  delivered  by  stated 
instalments,  which  are  to  be  paid  for  separately,  and 
payment  has  been  made  of  an  instalment,  the  seller 
may  exercise  his  right  of  stoppage  only  for  the  goods 
which  remain  unpaid. 

The  seller  may  have  to  comply  with  the  reasonable 
demand  of  the  carrier  for  a  bond  to  protect  it,  where 
it  has  issued  a  negotiable  bill  of  lading.  An  inter- 
esting question  arises  as  to  the  rights  of  the  seller  to 
stop  goods  in  transitu,  where  the  bill  of  lading  has  been 
indorsed  to  some  innocent  third  party  for  value 
by  the  buyer,  while  the  goods  are  in  transit.  The  view 
generally  accepted  is,  that  if  the  bill  of  lading  is  trans- 
ferred by  the  buyer  for  value,  as  by  way  of  sale,  to  an 
innocent  third  party,  before  the  vendor  has  exercised 
his  right  of  stoppage  in  transitu,  the  right  of  stoppage 
is  defeated.  But  where  there  is  no  such  document  of 
title,  such  as  a  bill  of  lading  issued  by  the  carrier,  a  sale 
of  the  goods  by  the  buyer  does  not  defeat  the  seller's 

1  Reynolds  vs.  Railroad,  43  X.  H.  580. 


174  COMMERCIAL  LAW 

right,  unless  the  sale  has  been  made  with  his  consent. 

14.  Vendor's  right  of  resale  or  rescission. — A  ven- 
dor who  has  a  lien  or  has  exercised  the  right  of  stop- 
page in  transitu  may  do  one  of  two  things : 

(a)  He  may  constitute  himself  agent  of  the  buyer 
and  resell  the  goods/  if  the  buyer  delays  an  unreason- 
able time  in  paying  for  them,  or  he  may  sell  them  at 
once  if  they  are  perishable.  Notice  of  intention  to  re- 
sell should  alwaj^s  be  given,  tho  in  some  jurisdictions 
it  has  not  been  held  to  be  necessary.  A  mere  notice 
of  intention  is  sufficient  and  need  not  contain  a  recital 
of  the  actual  time  and  place  of  the  resale.  If  the  re- 
sale nets  to  the  vendor  less  than  the  amount  which  the 
buyer  agreed  to  pay,  the  difference  may  be  recovered 
by  the  vendor  as  damages. 

(b)  The  vendor  may  rescind  the  sale  and  resume 
the  title  to  the  goods  if  the  buyer  does  not  pay  for  them 
within  a  reasonable  time.  Notice  of  the  rescission  and 
retransfer  of  title  should  be  given,  tho  it  has  been  held 
not  to  be  necessary.  An  intention  to  rescind  should 
be  shown  by  some  word  or  act,  as,  for  example,  the 
consumption  of  the  goods  by  the  seller.  If  the  vendor 
exercises  his  right  of  rescission  he  may  sue  the  buyer 
for  loss  of  profit.  He  has  been  allowed  to  sue  for  the 
entire  purchase  price. 

15.  Actions  by  unpaid  vendor  for  breach  of  con- 
tract of  sale, — If  the  property  in  the  goods  has  not 
been  transferred  to  the  buyer,  as,  for  example,  where 
goods  are  sold  which  have  to  be  weighed  or  measured 

1  Where  the  vendor  sells  as  agent,  the  sale  is  subject  to  the  usual  rules. 


PERFORMANCE  OF  THE  CONTRACT        175 

before  delivery,  the  goods  are  still  in  the  seller's 
possession,  and  if  the  buyer  refuses  to  take  delivery,  he 
will  have  only  an  action  for  damages.  As  a  rule,  he 
will  not  be  able  to  recover  the  full  price  of  the  goods, 
but  only  the  actual  damages  he  has  suffered.  The 
rule  is  that  in  such  a  case  the  proper  measure  of 
damages  is  the  difference  between  the  contract  price 
and  the  market  price  of  the  goods  at  the  time  when  the 
contract  was  broken.  The  idea  is  that  the  seller  sell 
the  goods,  once  the  contract  is  broken,  and  thus  deter- 
mine his  loss. 

In  one  case  goods  were  sold,  to  be  delivered  in  the 
months  of  February  and  March  following  the  con- 
tract, which  was  made  in  the  month  of  Xovember 
previous.  The  buyer  became  bankrupt  in  January. 
On  the  dates  fixed  by  the  contract,  namely,  in  Feb- 
ruarj^  and  ^larch,  the  goods  were  tendered,  and,  not 
being  accepted,  were  resold  at  a  heavy  loss.  It  was 
proved  that  had  the  goods  been  sold  in  January,  when 
the  buyer  had  become  bankrupt,  the  loss  would  have 
been  considerably  less.  It  was  held,  however,  that  the 
assignees  could  have  demanded  delivery  according  to 
the  contract,  which  was  not  rescinded  by  the  bank- 
ruptcy; that  the  seller  was  not  bound  to  resell  before 
the  time  for  delivery,  and  that  the  damages  had  to  be 
estimated  according  to  the  market  price  of  the  goods 
at  the  times  fixed  by  the  contract  for  dehvery, 

Benjamin  remarks,  in  connection  with  this  subject: 

Although  the  buyer's  insolvency  does  not  per  se  put  an 
end  to  the  contract,  yet  if  the  buyer  has  given  to  the  seller 


176  COMMERCIAL  LAW 

such  a  notice  of  his  insolvency  as  amounts  to  a  declaration 
of  his  inability  or  unwillingness  to  pay  for  the  goods,  the 
seller  is  justified  in  treating  the  notice  as  a  repudiation  of 
the  contract,  and,  after  the  lapse  of  a  reasonable  time  to 
allow  the  buyer's  trustee,  and  also,  it  Avould  seem,  a  sub- 
buyer  frofti  the  insolvent,  to  elect  to  complete  the  contract 
by  paying  the  price  in  cash,  the  seller  may,  without  tender- 
ing the  goods  to  the  trustee,  consider  the  contract  as  broken, 
and  prove  against  the  insolvent's  estate  for  the  damages. 

If  the  title  to  the  property  has  passed  to  the  buyer, 
or  if  under  the  contract  the  price  is  to  be  paid  before 
title  passes,  the  seller  may  bring  an  actioH  for  the  price 
of  the  goods.  This  is  the  seller's  only  right  if  the 
goods  have  got  into  the  possession  of  the  buyer.  The 
remedy  is  no  longer  against  the  goods,  but  there  is  a 
personal  remedy  against  the  buyer.  The  seller  is  on 
a  footing  with  any  other  creditor  of  the  buyer.  In 
some  cases,  where  the  market  value  of  the  goods  might 
be  hard  to  ascertain,  or  where  the  market  value  could 
not  be  ascertained,  probably  a  tender  delivery  and 
an  action  for  the  price  in  the  case  of  refusal,  would  be 
upheld.  In  such  a  case  the  seller  would  act  as  bailee 
of  the  goods  for  the  buyer.  If  the  buyer  wrongfully 
repudiates  the  contract,  refuses  to  accept  the  goods,  or 
returns  them  after  delivery  and  refuses  payment,  he 
subjects  himself  to  an  action  for  such  damages  as  the 
seller  has  sustained. 

Where  the  actual  damage  sustained  is  not  definitely 
ascertainable,  the  court  will  endeavor  to  allow  such 
damages  as  are  the  natural  and  proximate  result  of  the 
breach  of  contract,  or  which  it  may  be  considered  were 


PERFORMANCE  OF  THE  CONTRACT        ITT 

within  the  contemplation  of  the  parties  when  the  sale 
was  made.  Thus  it  has  been  held,  in  awarding  dam- 
ages for  breach  of  warranty  as  to  the  fitness  of  an  en- 
gine  for  certain  work,  that  a  loss  of  additional  profits 
which  the  plaintiff  anticipated  he  would  have  made 
had  the  engine  been  available  for  his  work,  by  reason 
of  certain  competing  firms  going  out  of  business  sub- 
sequent to  the  date  of  the  contract  of  sale,  will  not 
be  presumed  to  have  been  in  the  contemplation  of  the 
parties,  and  will  not  be  allow^ed.^ 

It  has  also  been  held  that  the  measure  of  damages 
for  the  unwarranted  refusal  of  a  vendor  to  carry  out 
the  terms  of  an  agreement  to  sell  a  hotel  property,  in- 
cludes the  expenses  to  which  the  purchaser  was  put  in 
endeavoring  to  induce  the  vendor  to  carry  out  his  con- 
tract, or  to  refund  the  money  paid  on  account  of  the 
purchase  price ;  and  the  purchaser  may  be  allowed  his 
traveling  expenses  from  his  place  of  residence  to  the 
place  where  the  property  was  situated  in  the  same 
province. 

Again,  where  a  dredge  was  not  delivered  within  the 
time  specified  in  the  contract  of  sale,  the  estimated  net 
earnings  thereof  for  the  time  delivery  was  delayed 
were  awarded  to  the  purchaser  as  damages.  The 
damages  w^ill  not  include  money  paid  by  the  purchaser 
as  a  bonus  to  insure  the  completion  of  scows,  necessary 
for  use  with  the  dredge,  before  the  date  fixed  for  deliv- 
ery of  the  dredge,  as  such  loss  was  not  within  the  con- 

1  Alabastine  Co.,  Ltd.,  vs.  Canada  Producer  &  Gas  Engine  Co.,  Ltd., 
8  D.  L.  R.  405. 
XXIV— 13 


178  COMMERCIAL  LAW 

templation  of  the  parties  at  the  time  the  contract  was 
entered  into/ 

16.  Remedies  of  the  buyer. — The  buyer  may  have 
cause  to  complain  of  some  breach  of  the  contract. 
The  seller  may  make  default  in  delivery.  The  goods 
may  have  some  defect.  Possession  may  have  been 
promised  and  refused.  Some  warranty  of  quality  or 
title  may  be  breached. 

The  buyer's  remedy  will  depend  upon  whether  or 
not  the  title  to  the  goods  had  passed  to  him.  If  the 
title  has  passed  to  the  buyer,  he  is,  of  course,  the  owner 
of  the  goods  and  may  sue  for  delivery  or  may  seize  tlie 
goods  in  the  hands  of  the  seller  or  of  some  third  per- 
son, in  order  to  get  possession.  If  the  title  has  not 
passed,  the  buyer  may  bring  an  action  for  damages,  if 
the  seller  wrongfully  refuses  delivery  of  the  thing 
which  he  has  agreed  to  sell.  The  damages  which  the 
buyer  may  recover  in  such  a  case  will  generally  be  the 
difference  between  the  contract  price  and  the  market 
value  of  the  goods  at  the  time  the  contract  is  broken. 
In  other  words,  the  measure  of  damages  is  the  profit 
which  the  buyer  might  have  expected  to  make. 
Where,  however,  the  seller  knew  when  the  contract  was 
made  that  the  buyer  intended  to  make  some  special  use 
of  the  goods,  or  expected  some  special  profit  upon  the 
sale  of  them,  the  damages  resulting  from  the  breach  of 
contract  which  the  parties  would  reasonably  contem- 
plate, would  be  the  damages  which  would  result  to  the 
buyer  from  a  breach  of  the  contract  under  the  special 

1  Brown  vs.  Hope,  17  B.  C.  R.  220. 


I 


PERFORMANXE  OF  THE  CONTRACT        179 

circumstances  known  and  communicated  to  the  seller. 
If  the  seller  knew  of  no  special  circumstances  and  had 
not  been  notified  of  them  by  the  buyer,  then  he  could 
not  be  held  to  have  had  in  contemplation  any  special 
damage  to  be  suffered  by  the  buyer.  Thus  A  sells  B 
a  refrigerator  for  his  cold-storage  plant,  to  be  deliv- 
ered in  one  month.  When  the  contract  is  made,  B  in- 
forms A  that  the  refrigerator  is  to  be  installed  in  a 
new  plant,  which  must  be  ready  at  the  end  of  the 
month  in  question  for  the  transfer  of  meat  and  other 
perishables  from  the  old  plant,  the  lease  of  which  has 
expired.  The  refusal  or  failure  of  A  to  deliver  the 
refrigerator  on  the  due  date  will  entitle  B  to  recover 
special  damages,  because  it  must  have  been  in  the 
contemplation  of  both  parties  when  the  contract  was 
made,  that  if  the  refrigerator  was  not  in  position  at 
the  moment  when  it  became  necessarj-  to  transfer  the 
perishables  from  the  old  to  the  new  plant,  B  would 
suffer  very  special  injury. 

REVIEW 

\\Tiat  are  the  principal  obligations  of  the  seller;  of  the  pur- 
chaser ?  What  is  meant  by  delivery  ?  Where  does  delivery  take 
place  and  who  bears  the  expense  of  it  ? 

What  is  the  rule  about  delivery  to  a  carrier? 

Discuss  the  time  of  delivery. 

What  may  take  the  place  of  actual  delivery  ? 

Distinguish  between  express  and  implied  warranty.  What  is 
implied  warranty  of  title? 

Name  the  remedies  for  breach  of  express  warranty ;  for  breach 
of  implied  warranty. 

Upon  what  does  the  buyer's  remedy  depend? 


CHAPTER  XII 

BAILMENTS 

y 

1.  Definitions. — Bailment  has  been  defined  as  a  de- 
livery of  a  thing  by  one  person  to  another  for  a  certain 
purpose,  upon  the  promise  that  the  bailee  shall  return 
the  same  thing  to  the  bailor,  or  deliver  it  to  someone  in 
accordance  with  the  bailor's  instructions,  after  the  pur- 
pose has  been  fulfilled. 

The  contract  may  be  express  or  it  may  be  implied. 
All  kinds  of  movable  or  personal  property  may  be  the 
subject  of  a  bailment.  Altho  the  word  is  derived 
from  a  French  word,  meaning  "to  deliver,"  the 
delivery  may  be  actual,  constructive  or  by  opera- 
tion of  law.  It  is  not  necessary  that  the  bailor 
be  the  owner  of  the  property;  it  sometimes  happens 
that  a  bailee  himself  becomes  a  bailor  as  toward  some 
new  bailee.  The  new  bailee  is  not  regarded  as  the 
bailee  of  the  true  owner,  and  his  obligations  are  toward 
his  immediate  bailor.  Thus  A  finds  an  unregistered 
bond  of  the  X  Company,  Limited,  which  has  been  lost 
by  B.  A  borrows  money  from  C,  and  puts  up  the 
bond  as  security.  By  operation  of  law,  A  is  B's 
bailee,  and,  by  actual  delivery,  C  is  A's.  C  could 
not  refuse  to  return  the  bond  to  A  when  the  debt  was 
paid  on  the  ground  that  A  did  not  own  it ;  but  if  C  did 
make  a  delivery  to  B,  he  would  be  protected. 

180 


BAILMENTS  181 

2.  Distinctions. — A  bailment  must  be  distinguished 
from  a  sale.  A  sale  transfers  the  title  or  ownership 
of  the  thing  sold.  In  the  case  of  a  bailment,  only  the 
possession  of  the  thing  changes.  This  distinction  is 
unsatisfactory,  as  it  is  frequently  difficult  to  say 
whether  the  title  as  well  as  the  possession  is  trans- 
ferred. It  has  been  held,  for  instance,  that  when  a 
farmer  delivers  wheat  to  a  miller  to  be  ground  into 
flour,  this  is  only  a  bailment,  and  the  miller's  creditors 
cannot  seize  the  flour  or  the  wheat. 

The  distinction  between  a  bailment  and  a  sale  or 
barter  is  important  when  we  consider  that,  in  the  case 
of  a  bailment,  if  the  goods  bailed  are  destroyed  acci- 
dentally, the  loss  falls  upon  the  bailor ;  in  the  case  of  a 
barter  or  exchange,  as  where  A  delivered  to  B  certain 
oats  for  B's  horses,  the  loss  would  fall  upon  B.  A 
frequent  instance  of  a  bailment  is  the  storage  of  grain 
in  elevators.  A  number  of  owners  may  store  their 
grain  in  the  same  elevator,  the  various  deliveries  being 
mixed  together.  The  owner  of  the  elevator  is  the 
common  agent  or  bailee  of  them  all.  In  such  a  case 
the  owner  of  any  part  of  the  grain  so  stored  may  sell 
his  interest  in  the  undivided  mass,  and,  as  we  have 
seen,  a  valid  sale  may  be  made  of  such  an  interest 
without  dividing  the  portion  from  the  bulk,  the  order 
on  the  warehouseman  to  deliver  the  quantitj^  so  sold, 
and  the  acceptance  of  this  order  by  the  warehouseman 
or  elevator  o^^^ler  being  sufficient. 

Instead  of  being  a  bailment,  however,  the  trans- 
action may  be  a  sale,  when,  for  example,  the  ware- 
houseman, by  agi*eement  with  the  various  owners,  is 


182  COMMERCIAL  LAW 

entitled  to  sell  any  part  of  the  grain  stored  with  him, 
provided  that  he  substitutes  an  equal  quantity  of  sim- 
ilar grain  of  his  own,  or  of  other  persons. 

3.  Classification  of  bailments. — Various  classifica- 
tions of  bailments  will  be  found  in  the  different  text 
books  on  the  subject.  The  most  practical  classifica- 
tion for  our  purpose,  however,  may  be  set  out  as  fol- 
lows: 

(a)  Those  which  are  for  the  sole  benefit  of  either 
the  bailor  or  bailee. 

(b)  Those  which  benefit  both  bailor  and  bailee. 
Purther  classification  may  be  made,  viz. : 

(1)  Gratuitous  bailments, 

(2)  Bailments  for  reward. 

Class  (a)  or  class  (1)  would  include  deposits,  gratu- 
itous loans  for  use,  and  mandates.  Class  (b)  or  class 
(2)  would  include  what  are  called  pledges  and  hirings. 

A  bailment  may  be  in  the  nature  of  a  deposit,  as 
when  A  delivers  a  thing  to  B  to  be  kept  for  him.  A 
may  lend  goods  to  B  to  be  used  by  him  without  charge. 
A  may  dehver  goods  to  B  to  be  used  by  him  for  hire. 
Again,  A  may  deliver  goods  to  B  as  a  pawn,  or  as  se- 
curity for  money  borrowed :  this  is  a  pawn  or  pledge. 
A  may  deliver  goods  to  B  who  is  a  carrier,  or  in  order 
that  B  may  do  something  to  them  or  with  them,  and  B 
is  to  be  paid  for  his  services.  A,  on  the  other  hand, 
may  deliver  goods  to  B,  to  carry  them  or  do  something 
about  them  or  with  them,  without  any  charge  for  his 
work  or  carriage.  So  if  A,  who  is  going  away  for  the 
summer,  delivers  to  B  some  valuable  plants  to  be  kept 


BAILMENTS  183 

and  cared  for  by  him,  this  is  a  baihnent  for  the  sole 
benefit  of  A,  the  bailor.  It  is  a  deposit.  If  A  bor- 
rows B's  automobile,  this  is  a  gratuitous  loan  for  the 
sole  benefit  of  A,  the  bailee.  If  A  borrows  one  hun- 
dred dollars  from  B,  and  gives  B  as  security  for  the 
loan  five  shares  of  stock,  this  is  a  bailment  for  the 
benefit  of  both  parties,  and  is  a  pledge.  If  A  hires 
a  horse  and  carriage  from  B,  and  agrees  to  pay  B 
two  dollars,  B  gives  A  the  use  of  his  property  for 
compensation,  and  this  is  a  baihuent  in  the  nature  of 
a  hiring.  If  A  stores  his  household  furniture  with 
B  at  ten  dollars  a  month,  this  also  is  a  bailment,  and 
for  the  benefit  of  both  parties.  A  gives  B  a  trunk 
to  take  to  C,  and  agrees  to  pay  B  one  dollar.  This 
is  a  bailment  in  the  nature  of  a  contract  for  carriage 
for  hire. 

4.  Eoctraordinani  haihnent. — AMien  goods  are  en- 
trusted by  a  guest  in  a  hotel  to  the  care  of  the  pro- 
prietor, and  when  goods  are  delivered  to  a  common 
carrier  for  transportation,  the  liability  of  the  hotel 
proprietor  and  of  the  carrier  as  bailees  is  greater  than 
tliat  imposed  upon  the  ordinary  bailee.  These  will 
be  considered  more  particularly  later. 

5.  Contract  of  bailment. — The  persons  capable  of 
making  a  contract  of  bailment  are  those  who  have  the 
usual  capacity  to  contract.  Thus  an  infant  could  not 
be  a  party  to  a  baihnent,  unless  it  is  a  necessitj\ 

If  the  contract  is  not  in  express  terms,  an  implied 
contract  will  be  sought  in  the  presumed  intention  of 
the  parties  as  disclosed  by  their  acts  and  deeds,  and 


184  COMMERCIAL  LAW 

by  the  surrounding  circumstances.  Thus,  it  may  be 
clear  from  the  surrounding  circumstances  that  a  given 
bailment  is  not  gratuitous,  but  was  entered  into  by  the 
bailee  in  the  expectation  of  a  reward. 

6.  Use  and  care  of  bailed  property. — By  law,  a 
bailee  mijst  givelreasonable  care  to  the  thing  entrusted 
to  him.  When  there  is  an  express  contract,  how- 
ever, which  defines  the  use  and  care  which  the  bailee 
is  to  make  or  give,  he  will  be  bound  strictly  by  the  con- 
tract. If  he  fails  in  this  respect  and  causes  loss  or 
damage,  he  will  be  liable  in  an  action  for  damages  for 
breach  of  contract.  If  he  goes  further,  and  acts  as 
tho  he  owned  the  thing  entrusted  to  him,  he  may  be 
guilty  of  conversion. 

7.  Obligations  of  bailor  in  a  bailment  for  his  sole 
benefit. — The  bailor,  when  the  bailment  has  been 
made  for  his  sole  benefit,  must  recoup  the  bailee  for 
what  he  may  have  spent  in  the  preservation  of  the 
thing,  the  expense  so  incurred  being  regarded  as  an 
extraordinary  and  necessary  expense,  urgent  in  its  na- 
ture. The  bailor  must  also  notify  the  bailee  of  any 
defect  in  the  thing  which  may  cause  injury.  He 
must  notify  the  bailee  of  unapparent  risks.  Thus,  if 
A  requests  B  to  take  care  of  a  parcel  for  him,  and  B 
accidentally  drops  it  and  the  contents  of  the  parcel 
explode,  A  will  be  liable  for  damages,  unless  he  noti- 
fied B  of  the  dangerous  qualities  of  the  contents  of 
the  parcel;  and  if  B  undertakes  to  care  for  A's  horse 
for  a  month  while  A  is  away  and  to  charge  nothing 
for  his  trouble,  B  will  be  entitled  to  reimbursement 


BAILMENTS  185 

for  the  extraordinary  expense  which  he  may  be  put 
to  if  the  horse  becomes  ill  and  a  veterinary  surgeon 
has  to  be  called  in. 

8.  Obligations  of  bailee  in  a  bailment  for  the  sole 
benefit  of  the  bailor. — We  will  suppose  that  A  has 
gratuitously  undertaken  to  keep  certain  goods  en- 
trusted to  him  by  B.  A  must  exercise  reasonable  care 
and  diligence  in  keeping  the  goods.  By  reasonable 
care  and  diligence  is  meant  such  care  and  diligence  as 
a  person  would  ordinarily  use  in  connection  with  his 
own  property,  and  such  skill  as  he  is  possessed  of. 
In  other  words,  he  is  bound  to  take  such  care  as  a  rea- 
sonable, prudent  and  careful  man  might  fairly  be  ex- 
pected to  take  of  his  own  property.  Generally  speak- 
ing, the  bailee  will  not  be  answerable  except  for  gross 
negligence,  unless  he  is  in  bad  faith. 

Gross  negligence  might  consist  in  the  failure  to  ex- 
ercise reasonable  care,  skill  and  diligence,  or  in  the  ab- 
sence of  ordinarj^  care,  or  in  the  failure  to  perform  an 
undertaken  duty.  If  B  allows  A  to  place  an  automo- 
bile in  his  stable  for  the  winter,  B  will  not  be  responsi- 
ble if  A  has  left  water  in  the  cooling  apparatus,  which 
freezes  and  cracks  part  of  the  machinery ;  but  B  must 
not  use  the  automobile,  as  to  do  so  would  be  contrarj' 
to  the  spirit  of  the  bailment,  and  if  he  used  it  and 
damage  resulted  he  would  be  responsible.  B  would 
be  liable  for  gross  negligence  if  he  were  to  leave  the 
automobile  outside  the  stable  overnight  and  it  were 
stolen. 

The  bailor  must  return  the  thing,  with  any  profit 


186  COMMERCIAL  LAW 

or  increase  derived  from  it.  Thus  if  B  agrees  to  care 
for  and  pasture  A's  cow,  and  during  the  period  of  the 
baihnent  a  calf  is  born,  B  must  hand  back  at  the  ex- 
piration of  the  bailment  both  the  cow  and  the  calf. 

9.  Bailment  for  the  sole  benefit  of  the  bailee. — We 
will  suppose  that  the  bailee  is  a  person  who  has  bor- 
rowed an  automobile.  In  this  case  the  bailee  will  be 
held  to  exercise  greater  care  than  in  other  cases  of 
bailment.  As  we  have  seen,  if  the  bailment  is  for  tlie 
sole  benefit  of  the  bailor,  the  bailee  is  held  only  for 
reasonable  care  and  diligence.  In  the  present  case, 
however,  he  must  exercise  great  care.  Great  care 
would  be  that  care  which  a  veiy  cautious  and  vigilant 
man  would  take  of  his  o^vn  property.  The  borrower 
in  such  a  case  will  be  liable  for  the  least  neglect. 
Thus,  if  B  borrows  A's  automobile,  and  upon  going  to 
his  garage  B  finds  that  there  is  not  room  for  it,  B  will 
be  bound  to  remove  his  own  automobile  to  make  room 
for  A's,  unless  he  can  store  A's  automobile  in  some 
other  place. 

10.  T elimination  of  baihnent  for  sole  benefit  of  one 
party. — The  general  rule  is  that  when  a  bailment  is 
made  for  the  benefit  of  one  party  only,  it  may  be  ter- 
minated by  either  at  any  time. 

The  bailment  may  be  determined  or  ended  if  the 
bailee,  the  depository  in  the  case  we  are  considering, 
acts  inconsistently  with  the  terms  of  the  bailment. 

It  is  said  that  when  a  bailment  is  made  for  the  sole 
benefit  of  the  bailor,  it  is  terminated  by  the  death  or 
insanity  of  either  party.     The  same  rule  would  apply 


BAILMENTS  187 

when  the  baihnent  was  made  for  the  sole  benefit  of 
the  bailee,  except  that  if  the  bailment  had  been  made 
for  a  definite  period,  the  death  or  insanity  of  the  bailor 
would  not  interrupt  the  bailment  until  the  period 
fixed  had  elapsed. 

11.  Creation  of  a  pledge  or  paxvn. — A  pledge  is  a 
contract  by  w^hich  a  thing  is  placed  in  the  hands  of  a 
creditor,  or  being  already  in  his  possession,  is  retained 
by  him  with  the  o\\^ler's  consent  as  security  for  his 
debt.  The  words  pledge  and  pawn  are  synonymous, 
tho  pledge  includes  pawn  which  is  generally  used  in 
a  particular  sense.  A  pawnbroker  is  a  pledgee,  but 
the  word  pawnbroker  is  usually  used  to  describe  a 
person  who  carries  on  the  trade  of  pawnbroking.  The 
word  pledge  is  frequently  applied  to  the  article  which 
is  pledged.  When  the  customer  of  a  bank  hands 
over  securities  to  the  bank  to  guarantee  a  loan,  the 
pledge  is  known  as  collateral  security'. 

It  has  been  held  that  the  relation  of  pledgor  and 
pledgee  arises  between  a  broker  and  his  customer 
when  the  former  buys  stock  for  the  latter,  and  the  lat- 
ter puts  up  margin  which  he  agrees  to  keep  good. 
The  same  relation  does  not  arise  between  a  commis- 
sion merchant  and  his  customer  for  whom  he  buys 
grain  for  future  dehvery  on  margin,  which  the  custo- 
mer promises  to  keep  good  up  to  the  time  of  deliver}^ 
In  the  former  case  the  stocks  are  actually  bought  by 
the  broker,  but  in  the  second  case  the  merchant  has  a 
mere  executory  contract  of  sale.  In  an  ordinary 
stock  transaction  on  margin,  the  broker  buys  the  stock 


188  COMMERCIAL  LAW 

outright;  if  he  does  not  do  so  it  is  a  bucket-shop 
transaction. 

12.  Construction  and  operation  of  pledge. — It  is 
clear  from  the  definition  ah-eady  given  that  a  pledge 
is  a  delivery  of  goods  to  a  creditor  as  security  for  his 
debt.  Xlie  right  to  the  property  vests  in  the  creditor 
only  in  so  far  as  it  is  necessary  to  secure  the  debt. 
The  general  property  remains  in  the  pledgor;  the  spe- 
cial property  is  in  the  pledgee  until  the  debt  is  paid. 
The  pledge,  therefore,  is  a  privilege  or  lien  over  the 
goods  pledged  for  the  payment  of  the  debt,  together 
with  interest  and  reasonable  expenses  incurred  in  car- 
ing for  the  goods  pledged.  The  lien  or  privilege  sub- 
sists only  while  the  thing  pledged  remains  in  the  hands 
of  the  creditor  or  person  appointed  by  the  par- 
ties to  hold  it,  unless  it  is  otherwise  agreed,  when  the 
particular  debt  is  paid  which  the  pledge  was  given  to 
secure,  that  the  creditor  can  retain  it  to  secure  some 
other  debt.  Naturally,  the  pledgor  warrants  that  he 
has  a  title  to  the  thing  pledged,  otherwise  the  security 
would  be  illusory. 

13.  Rights  and  duties  of  the  bailor. — The  person 
who  rents  goods  and  chattels  is  presumed  to  warrant 
his  title  and  peaceable  possession.  He  must  furnish 
things  which  are  reasonably  fit  and  proper  for  the 
purpose  intended.  Generally  speaking,  he  is  an  in- 
surer against  all  defects  or  against  such  defects  as 
can  be  guarded  against  by  reasonable  care  and  skill. 
Thus,  if  A  rents  a  carriage  and  it  breaks  down  on  the 
journey,  he  is  liable  and  not  the  person  who  is  using 


BAILMENTS  189 

it.  He  is  supposed  to  have  rented  a  carriage  fit  and 
proper  for  the  journey. 

The  bailor  is  bound  to  exercise  vigilance  and 
care  to  discover  defects  in  the  thing  rented,  and 
if  defects  exist,  should  notify  the  bailee  of  any  danger 
or  risk  unapparent  to  the  bailee.  Thus,  in  an  On- 
tario case,  in  which  a  person  rented  a  portable  engine 
and  boiler  to  another,  which  exploded  as  soon  as  it 
was  first  used,  and  while  it  was  in  charge  of  a  compe- 
tent engineer,  it  was  held  that,  as  the  lettor  of  the  chat- 
tel for  hire  impliedly  warrants  that  it  is  reasonably 
fit  for  the  purpose  for  which  it  is  let,  the  plaintiff 
(the  lettor,  who  sued  for  the  value  of  the  engine  and 
boiler) ,  in  the  absence  of  negligence  on  the  part  of  the 
defendant,  could  not  recover. 

14.  Rights  and  duties  of  bailee. — We  have  ali*eady 
seen  that  the  bailee  must  take  such  reasonable  care  of 
the  property  of  his  bailor  in  his  possession  as  a  pru- 
dent man  would  of  his  own  property.  If  A  sends  his 
horse  to  B  to  be  kept  at  B's  stable,  and,  the  stable  not 
being  locked  at  night,  the  horse  is  stolen,  B  will  not  be 
excused  because  he  shows  that  he  did  not  lock  the 
stable  while  his  own  horses  were  therein.  It  could  not 
])e  said  that,  in  leaving  the  stable  door  unlocked^  even 
tho  his  own  horses  were  inside,  he  was  acting  as  a  pru- 
dent man  would  in  the  care  of  his  own  property. 

If  the  bailment  of  the  thing  is  made  for  a  special 
purpose,  we  have  also  seen  that  the  bailee  must  use  the 
thing  for  that  special  purpose,  and  he  is  liable  for  loss 
or  damage  arising  during  or  because  of  any  other  use 


190  COMMERCIAL  LAW 

or  employment  of  the  thing.  Thus,  it  has  been  held, 
that  when  a  person  hires  from  another  a  horse  and 
wagon  with  seats  for  two  persons,  and  he  places  three 
seats  therein,  and  the  horse  during  the  journey  sickens 
and  dies,  he  will  be  liable  for  the  misuser ;  or  when  B 
hires  a  horse  to  drive  to  the  county  fair,  but  instead 
drives  to  market,  where  the  horse  is  accidentally 
killed,  B  is  liable  for  the  value  of  the  horse. 

The  bailee  or  lessee  is  not  ordinarily  responsible 
when  the  thing  leased  is  destroyed  by  fire  without 
his  fault.  Thus,  when  goods  are  leased,  under  a 
covenant  by  the  lessee  to  restore  them  to  the  lessor 
at  the  expiration  of  the  term  in  as  good  order  as  they 
then  were,  reasonable  wear  only  excepted,  and  the 
goods  during  the  term  were  destroyed  by  fire  without 
the  lessee's  fault,  it  was  held  that  the  absolute  words 
of  the  covenant  were  controlled  by  the  implied  condi- 
tion that  the  goods  should  continue  to  exist,  and  that 
the  lessee  was  not  liable  on  the  covenant  for  not  re- 
storing them  at  the  end  of  the  term. 

15.  Warehousemen  and  whariingers. — A  ware- 
house is  a  storehouse  for  goods.  A  warehouseman  is 
a  bailee  who  owns  or  keeps  a  warehouse  in  which  he 
keeps  goods  in  storage  for  hire.  A  wharfinger  is  one 
who  owns  or  keeps  a  wharf  for  the  purpose  of  receiv- 
ing goods  for  a  compensation.  The  contract  between 
the  bailor  and  the  warehouseman  is  generally  evi- 
denced by  a  warehouse  receipt  which  is  handed  to  the 
bailor.  Such  a  receipt  may  be  of  prime  importance 
if  a  doubt  arises  whether  there  has  been  a  sale  or  a 


BAILMENTS  191 

bailment.  In  its  absence,  or  if  it  is  ambiguous,  the 
circumstances  surrounding  the  transaction  will  be 
carefully  examined.  Thus,  it  was  held  in  an  Ontario 
case  in  which  wheat  was  left  with  a  warehouse- 
man by  a  farmer  (the  owner),  and  the  sale  price  was 
to  be  thereafter  fixed,  the  fact  that  the  risk  of  fire 
was  to  be  borne  by  the  farmer  and  the  wheat  to  be 
kept  in  a  separate  bin,  was  strong  evidence  that  no 
sale  was  effected.^ 

In  a  ^Manitoba  case  it  was  held  that,  when  wheat  is 
received  in  a  warehouse  or  elevator  nominally  on  stor- 
age for  the  person  delivering  it,  but  on  such  terms  that 
the  identical  goods  are  so  mixed  up  with  others  that 
they  cannot  be  returned,  and  the  'well-iinderstood 
course  of  the  business  is  that,  unless  a  price  is  agreed 
on,  the  party  delivering  the  goods  can  only  require 
an  equivalent  amount  of  the  same  kind  and  quality  to 
be  accounted  for  to  him,  the  contract  is  really  one  of 
sale  and  not  of  bailment,  whether  the  vendor  is  to  re- 
ceive the  price  in  money  or  an  equal  quantity  of  goods, 
or  has  an  option  to  do  either,  as  the  property  in  the 
goods  has  passed  to  the  warehouseman.^  But  ordi- 
narily, w^hen  the  grain  of  different  owners  is  stored 
and  mixed  in  one  bin,  each  bailor  becomes  an  owner 
in  common  of  his  share  of  the  whole.  The  elevator 
owner  is  then  bound  to  keep  in  his  bins  sufficient  grain 
to  enable  him  to  make  delivery  of  the  share  of  each 
bailor.     Otherwise  he  may  be  held  for  conversion. 

1  Isaac  vs.  Andrews,  28  U.  C.  C.  P.  40. 

2  Lawlor  vs.  Nicol,  12  Man.  Reps.  224. 


192  COMMERCIAL  LAW 

Warehouse  receipts  are  negotiable  in  that  they  are 
transferable  by  indorsement  and  delivery  and  carrj- 
to  the  transferee  the  title  in  the  goods  covered  by 
them.     The  Bank  Act  defines  "warehouse  receipt"  as 

follows :  ^ 

y 

WAREHOUSE    RECEIPT 

( 1 )  Means  any  receipt  given  by  any  person  for  an^-  goods, 
wares  or  merchandise  in  his  actual,  visible  and  continued  pos- 
session as  bailee  thereof  in  good  faith  and  not  as  of  his  own 
property,  and 

(2)  Includes  receipts,  given  by  any  person  who  is  the 
owner  or  keeper  of  a  harbor,  cove,  pond,  wharf,  yard,  ware- 
liouse,  shed,  storehouse  or  other  place  for  the  storage  of 
goods  .  .  .  ,  for  goods  .  .  .  delivered  to  him  as  bailee,  and 
actually  in  the  place  or  in  one  or  more  of  the  places  owned 
or  kept  by  him,  whether  such  person  is  engaged  in  other  busi- 
ness or  not,  and 

(3)  Includes  also  receipts  given  by  any  person  in  charge 
of  logs  or  timber  in  transit  from  timber  limits  or  other  lands 
to  the  place  of  such  logs  or  timber. 

Clause  (3)  was  enacted  because  it  had  been  held  in 
several  cases  that  a  "warehouse  receipt"  for  logs  lying 
in  certain  lakes  on  the  way  from  the  woods  to  the  mill 
was  not  valid,  as  the  logs  were  not  in  a  place  kept  by 
the  signers  of  the  receipt.  The  receipt  need  not  be  in 
any  particular  form,  but  the  receipt  and  the  facts  sur- 
rounding its  issue  should  conform  to  and  be  brought 
within  the  definition.  The  owner's  name  should  be 
given,  a  sufficient  description  of  the  goods,  the 
place  where  the  goods  are  stored  or  kept,  and,  in  the 

1  Section  3    (p). 


BAILMENTS  193 

case  of  logs  in  transit,  the  place  of  departure  and  of 
destination. 

A  warehouseman  is  bound  to  use  reasonable  care 
and  diligence  in  caring  for  the  things  deposited  with 
him.  He  is  not  an  insurer,  like  a  carrier,  against  all 
risks.  But,  as  he  holds  himself  out  to  care  for  things 
left  in  his  charge,  it  follows  that  his  care  must,  unless 
otherwise  agreed,  be  adequate.  Thus,  the  owner  of  a 
refrigerator  storage  warehouse  must  maintain  a  tem- 
perature in  his  warehouse  suitable  for  the  preserva- 
tion of  perishables  entrusted  to  him.  The  warehouse- 
man must,  for  instance,  use  all  reasonable  and  mod- 
ern means  for  preserving  his  customers'  goods  from 
theft,  fire,  water,  heat  and  rats. 

A  warehouseman  has  for  payment  of  his  charges  a 
specific  lien  on  the  goods  stored  with  him. 

REVIEW 

How  would  you  distinguish  bailment  from  sale  and  from  bar- 
ter? 

Classify  bailments. 

Explain  the  contract  of  bailment. 

WTiat  are  the  obligations  of  the  bailee  in  a  bailment  for  the 
sole  benefit  of  the  bailor.'' 

What  is  a  pledge  ?  How  does  the  relation  between  pledgor  and 
pledgee  arise.''     What  does  a  pledge  cover? 

What  are  the  rights  and  duties  of  the  bailor?     Of  the  bailee? 

Define  warehouse  receipt. 


XXIV— 14 


PART  III: 
T^EGOTIABLE  CONTRACTS 

CHAPTER  XIII 

NEGOTIABLE  INSTRUMENTS  IN  GENERAL 

1.  Introductory. — Bills,  notes  and  checks  are  nego- 
tiable instruments — that  is,  they  are  instruments  or 
contracts,  the  legal  right  to  which  is  transferable  from 
one  person  to  another  by  delivery  of  the  instrument 
itself.  A  check,  for  instance,  is  transferable  by  de- 
livery when  it  is  payable  to  bearer;  by  indorsement 
and  delivery,  when  it  is  payable  to  order.  Bills,  notes 
and  checks  are,  as  the  case  may  be,  unconditional 
promises  or  orders  by  one  person  to  another  to  pay 
money,  at  a  given  or  ascertainable  time.  They  are 
then,  not  only  a  substitute  for  money,  but  evidences  of 
indebtedness.  Bonds  are  negotiable  instruments. 
Bills  of  exchange,  promissory  notes,  checks  and  bonds, 
are  classed  together  as  the  typical  negotiable  instru- 
ments. 

Certain  other  instruments,  tho  often  so  called,  are 
not,  in  the  fullest  sense,  negotiable.  Among  these  are 
bills  of  lading,  dock  warrants,  warehouse  receipts  and 
certain  certificates  of  stock.  They  are  salable  and 
can  pass  from  hand  to  hand,  and  are  thus  quasi-nego- 

194 


NEGOTIABLE  INSTRUMENTS  195 

liable,  but  are  not  true  negotiable  instruments.     They 
are  documents  of  title. 

Speaking  of  these  quasi-negotiable  instruments,  the 
Honorable  Mr.  Justice  Maclaren  says : 

In  England,  warehouse  receipts  were  not  fully  recognized 
as  negotiable  instruments,  like  bills  of  lading  and  other  docu- 
ments of  title,  until  the  Factors'  Act,  1877.  They  are  ne- 
gotiable only  in  the  lower  or  secondary  sense  of  the  term  in 
that  they  may  be  transferred  by  indorsement  and  delivery,  or 
by  delivery  alone,  and  may  thereby  vest  in  the  transferee  the 
rights  of  the  transferor.  They  are  not  negotiable  in  the 
higher  sense,  like  bills  of  exchange  and  promissory  notes, 
which  by  indorsement  or  delivery  before  maturity  may  vest 
in  the  bona  fide  holder  for  value  not  only  the  rights  of  the 
transferer,  but  the  right  to  claim  the  full  amount  for  which 
the  instrument  is  drawn.  If  the  receipt  is  in  favor  of  a 
certain  person  or  his  order,  it  must  be  indorsed  by  him ;  if 
it  is  drawn  in  favor  of  the  bearer  or  indorsed  in  blank,  it 
is  transferable  by  delivery  alone.  .  .  .  Tlie  bill  of  lading  is 
a  very  ancient  document,  and  by  the  custom  of  merchants  is 
negotiable,  when  made  to  bearer  or  order  or  to  assigns. 

2.  Negotiability. — A^nien  a  negotiable  instrument  is 
actually  negotiated — i.e.,  transferred  for  value  to  a 
person  without  notice  of  any  defect  in  it — the  trans- 
feree has  an  absolute  right  to  collect  from  the  persons 
liable  upon  the  instrument  as  maker,  indorser  or  ac- 
ceptor. But  if  A  has  bought  a  horse  from  B  and  has 
contracted  to  pay  B  one  hundred  dollars,  B  can  assign 
or  transfer  his  claim  against  A  to  C.  If  C  sues  A, 
the  latter  can  raise  against  him  any  defence  that  he 
might  have  raised  against  B — e.g.,  that  he  had  been 
defrauded,  that  the  money  was  to  have  been  paid  only 
after  he  had  used  the  horse  for  a  month,  and  so  on. 


196  COMMERCIAL  LAW 

In  effect,  C  has  no  better  rights  against  A  than  B. 
He  has  bought  B's  rights  for  what  they  are  worth. 

3.  Presuvijdion  of  consideration. — A  negotiable  in- 
strument is  always  presumed  to  have  been  given  or 
negotiated  for  value.  And  when  value  has,  at  any 
time,  been  given  for  a  bill,  the  holder  is  deemed  to  be 
a  holder  for  value,  and  entitled  to  collect  as  against 
any  previous  acceptor  or  any  parties  who  became  par- 
ties to  the  bill  before  value  was  given.  In  the  case  of 
an  ordinary  contract,  the  debtor  may  show  by  way  of 
defence  that  there  was  no  valid  consideration  to  sup- 
port the  contract  upon  which  it  is  attempted  to  hold 
him.  In  other  words,  if  A  gives  B  the  following — 
"On  demand  I  promise  to  pay  to  B  $25.  A" — the 
debt  so  incurred  by  A  is  non-negotiable,  because  the 
words  "or  order"  are  not  added  after  "to  pay  to  B." 

B,  if  he  sues  A,  must  prove  consideration  received  by 
A.  But  if  A  gives  B  a  note — "Thirty  days  after  date 
I  promise  to  pay  $25  to  the  order  of  B" — and  B  dis- 
counts the  note  at  a  bank,  or  indorses  it  and  hands  it 
to  C  in  payment  of  a  shipment  of  goods,  the  bank  or 

C,  as  the  case  may  be,  can  collect  from  A.  A  can 
raise  no  defence.  If  B  had  held  the  note  until  after 
maturity  and  had  then  sued  A,  B  would  not  have  had 
to  prove  consideration  received  by  A.  The  burden  of 
alleging  and  proving  lack  of  consideration  would  be 
on  A. 

4.  Days  of  grace. — When  a  bill  is  not  payable  on 
demand,  three  days  of  grace  are  added  to  the  time  of 
payment  as  fixed  by  the  bill  and,  unless  otherwise 


NEGOTIABLE  INSTRUMENTS  197 

provided,  the  bill  is  due  and  payable  on  the  last  day 
of  grace.  ^ 

5.  Bills  of  Exchange  Act. — Our  present  Bills  of 
Exchange  Act  is  a  revision  or  consolidation  of  the  Act 
of  1890  and  its  amendments.  Before  that  time  the 
laws  governing  bills  and  notes  varied  in  the  different 
provinces.  In  Quebec,  a  mixture  of  French  and  Eng- 
lish conmiercial  law  was  enforced.  In  the  other  prov- 
inces, the  English  law  as  it  existed  when  introduced 
into  the  particular  province  and.  as  amended  by  local 
statute,  was  appHed.  There  were  anomalies  and  con- 
tradictions, and  it  became  evident  that,  in  a  matter  of 
such  vital  importance  to  our  commerce,  there  should 
be  a  uniform  law  for  the  whole  of  Canada.  The  Eng- 
lish law  respecting  bills  and  notes  had  been  codified 
m  1882,  and  our  Act  of  1890  was  largely  copied  there- 
from. 

In  the  United  States,  where  formerly  there  existed 
conflicts  between  the  laws  of  the  different  states  gov- 
erning the  subject  of  bills  and  notes,  a  Negotiable 
Instrument  Law  has  been  adopted  in  most  states. 
This  law  is,  in  the  main,  in  agreement  with  the  Eng- 
lish and  Canadian  acts. 

6.  Promissory  notes. — Too  careful  attention  can- 
not be  given  to  the  definitions  of  the  various  negotiable 
instruments. 

A  promissory  note  is  an  unconditional  promise  in 

1  Provided  that  whenever  the  last  day  of  grace  falls  on  a  legal  holiday 
or  non-juridical  day  in  the  pro\ince  where  the  bill  is  payable,  then,  the 
day  next  following,  not  being  a  legal  holiday  or  non-juridical  day  in  such 
province,  shall  be  the  last  day  of  grace. 


198  COMMERCIAL  LAW 

writing  made  by  one  person  to  another,  signed  by  the 
maker,  engaging  to  pay,  on  demand  or  at  a  fixed  or 
determinable  future  time,  a  sum  certain  in  money,  to, 
or  to  the  order  of,  a  specified  person,  or  to  bearer. 

A  note  need  not  be  in  any  particular  form  of  words, 
so  long^  as  the  conditions  just  mentioned  as  being 
necessary  to  its  existence  are  present.  The  promise 
must  be  unconditional,  hence  a  document  reading,  "I 
promise  to  pay,  on  demand,  to  A.  B.  $50,  if  I  can  sell 
my  B.  C.  Company  stock,"  is  not  a  valid  note. 
Similarly,  as  it  contained  a  condition,  the  following 
instrument  was  declared  invalid — "Four  months  after 
date  I  promise  to  pay  to  W.  H.  or  order,  $1,264,  value 
received.  This  note  to  be  held  as  collateral  secur- 
ity." 

A  "sum  certain  in  money"  must  be  promised. 
A  promise  to  pay  out  of  a  particular  fund  is 
not  a  promissory  note.  The  fund  may  prove  inade- 
quate or  may  never  exist.  Hence  a  promise  to  pay 
out  of  the  net  proceeds  of  the  sale  of  a  cargo  is  not  a 
promissory  note,  because  it  is  not  negotiable.  Yet  the 
instrument  will  serve  as  an  evidence  of  the  debt  and 
as  an  assignment  of  the  sum  mentioned. 

The  note  is  to  be  "signed  by  the  maker" — which 
means  that  the  maker  may  sign,  or  someone  under 
his  authority  may  sign  for  him.  A  corporation  signs 
thru  its  authorized  officers.  Only  the  person  who 
signs  is  liable;  and  so  a  person  whose  signature  is 
forged  is  not  bound.  But  when  an  agent  signs  for  a 
principal  he  must  be  careful  to  sign  so  as  to  avoid 


NEGOTIABLE  INSTRUMENTS  199 

personal  liability.  He  must  not  sign  "Jolm  Smith, 
agent  for  J.  A.  ^IcDonald,"  but  J.  A.  McDonald, 
Per  John  Smith,  or  the  Estate  Company,  Limited, 
Per  John  Smith,  President. 

Thus,  when  at  the  left  side  of  a  note  the  words, 
"The  Estate  Company,  Limited,"  were  printed,  and 
the  note  was  signed  "John  Smith,  President,"  "James 
Thompson,  Treasurer,"  Smith  and  Thompson  were 
held  personally  liable.  To  bind  the  company  and  not 
the  officers  the  note  should  have  been  signed : 

The  Estate  Company,  Limited, 
Countersigned  by  Pcr  Joliu  Smith,  President. 
James  Thompson 
As  Treasurer. 

But  the  mere  signature  is  not  enough;  to  become  a 
note  the  instrument  must  be  delivered ;  oi*,  if  payable 
to  the  maker  himself,  must  be  indorsed  by  him.  A 
note  is  payable  on  demand  which  is  expressed  to  be  so 
payable,  or  in  which  no  time  for  payment  is  expressed. 
Generally  the  place  at  which  the  note  is  payable  is 
mentioned,  and  whether  or  not  the  note  is  to  bear 
interest.  If  interest  is  stipulated,  it  w^ill  run  from  the 
date  of  the  note;  if  not,  then  only  from  its  maturity. 
If  the  rate  is  not  fixed,  only  the  legal  rate  of  five  per 
cent  can  be  charged. 

7.  Bills  of  exchange. — A  bill  of  exchange  is  an  im- 
conditional  order  in  writing,  addressed  by  one  person 
to  another,  signed  by  the  person  giving  it,  requiring 
the  person  to  whom  it  is  addressed  to  pay,  on  demand 


200  COMMERCIAL  LAW 

or  at  a  fixed  or  determinable  future  time,  a  sum  cer- 
tain in  money  to,  or  to  the  order  of  a  specified  person, 
or  to  bearer. 

The  remarks  just  made  concerning  promissory 
notes  are  generally  applicable  to  bills  of  exchange.  A 
bill  of  exchange  is  an  order,  and  is  in  its  nature  the 
demand  of  a  right,  not  the  mere  asking  of  a  favor,  and 
therefore  a  supplication  made  or  authority  given  to 
pay  an  amount  is  not  a  bill.^  The  person  addressed 
is  "required"  to  pay  the  sum  named.  But  mere  terms 
of  courtesy  will  not  render  the  bill  invalid.  Hence 
it  has  been  held  that  an  order,  as  follows,  "Mr.  Nel- 
son will  much  oblige  Mr.  Webb  by  paying  J.  Ruff,  or 
order,  twenty  guineas  on  his  account,"  was  held  a 
good  bill;  as  also  the  following,  "Please  let  the  bearer 
have  $50.  I  will  arrange  it  with  you  this  forenoon. 
Yours  truly."  But  the  following  were  held  to  be  bad : 
"Please  to  send  $10  by  bearer,  as  I  am  so  ill  I  cannot 
wait  upon  you";  or,  "To  E.  &  S. — We  hereby  au- 
thorize you  to  pay  on  our  account  to  the  order  of  G., 
$600.  de  W.  &  S."  All  of  these  examples  are  in- 
formal, and  it  is  difficult  often  to  reconcile  the 
judgments  declaring  similar  informal  orders  good  or 
bad.  It  is  wise,  of  course,  to  avoid  infoimality  in 
business  matters,  and  to  follow  closely  the  accepted 
form  of  contract.  A  correct  and  simple  form  of  bill 
of  exchange  may  be  here  set  out : 

$500  Montreal,  Que.,  September  10,  1913. 

On  demand,  pay  to  the  order  of  A.  MacNaughton  and  Com- 

1  Daniel,  See.  35. 


NEGOTIABLE  INSTRUMENTS  201 

pany,  Five  Hundred Dollars,  value  received, 

and  charge  to  the  account  of 

Balfour  &  Company. 
To  W.  L.  Booker, 
Toronto,  Ont. 

A  bill  of  exchange  is  commonly  called  a  draft,  and 
after  it  has  been  accepted  by  the  person  to  whom  it  is 
addressed,  an  acceptance.  In  the  above  model  bill  of 
exchange  or  draft,  Balfour  and  Company  is  the 
draxcer,  because  it  draws  on  W.  L.  Booker.  A.  Mac- 
Xaughton  and  Company,  Limited,  in  whose  favor  the 
draft  is  made,  is  called  the  payee,  for  payment  is  to  be 
made  to  it,  or  to  any  one  to  whom  it  may  negotiate  the 
bill.  Booker,  against  whom  the  draft  is  drawn,  is 
called  the  drawee.  If  Booker  accepts  the  draft,  he 
writes  across  the  draft  the  word  "accepted,"  with  the 
date,  and  frequently  the  bank  at  which  it  is  payable, 
and  signs  his  name. 

The  instrument  must  be  in  writing,  and  tcriting  "in- 
cludes words  printed,  painted,  engraved,  lithographed, 
or  otherwise  traced  or  copied."  *  The  wTiting  may  be 
in  pencil  or  in  ink.  If  there  is  a  conflict  between  the 
printed  and  the  written  words,  those  written  will  pre- 
vail. 

As  testimony  (that  is,  parol  testimony)  cannot  in 
any  case  be  received  to  contradict  or  vary  the  items 
of  a  valid  written  instrument,  the  contract  of  the  par- 
ties to  notes  or  bills,  as  it  appears  upon  the  face  of  the 
instrument,  cannot  be  varied  by  parol  evidence. 
Hence,  in  an  action  upon  a  bill  or  note,  the  defendant 

1  Interpretation  Act,  R.  S.  C.  Ch.  1,  S.  34  (31). 


202  COMMERCIAL  LAW 

will  not  be  allowed  to  prove  that,  at  the  making  of  the 
instrument,  it  was  verbally  agreed  that  it  should  be 
renewed  or  not  paid  at  maturity;  or  that  the  instru- 
ment expressed  to  be  payable  at  a  certain  time  should 
be  payable  only  in  a  given  event ;  or  that  it  should  be 
payable  iji  instalments,  or  in  any  other  manner  than 
as  expressed  in  the  instrument.  But  it  has  been  held 
that  parol  evidence  is  admissible  to  show  that  the  date 
of  the  bill  or  note  is  not  the  true  date,  and  to  show  the 
true  date;  or  that  the  delivery  of  the  instrument  is  in- 
complete and  conditional  only,  so  that  the  contract  is 
not  operative;  or  that  the  contract  has  been  discharged 
by  payment,  release  or  otherwise. 

The  definition  requires  that  the  bill  shall  be  ad- 
dressed by  one  person  to  another.  "Person"  includes 
any  body  corporate,  or  its  representatives,  and  the 
heirs,  executors,  administrators  or  other  legal  repre- 
sentatives of  such  person.  The  drawee  need  not  be 
named,  if  he  is  described  with  reasonable  certainty  so 
that  the  bill  can  be  duly  presented. 

The  instrument  is  not  a  bill  of  exchange  until  it  is 
signed  by  the  drawer,  tho  he  may  sign  a  blank  paper 
which  is  later  filled  up,  or  he  may  sign  it  after  it  has 
been  accepted. 

A  bill  is  payable  on  demand,  (a)  which  is  expressed 
to  be  payable  on  demand  or  on  presentation,  or  (b)  in 
which  no  time  for  payment  is  expressed.  A  bill  is 
payable  at  a  determinable  future  time  when  it  is  ex- 
pressed to  be  payable  (a)  at  sight,  or  at  a  fixed  period 
after  the  occurrence  of  a  specified  event  which  is  cer- 


NEGOTIABLE  INSTRUMENTS  203 

tain  to  happen,  tho  the  time  of  happening  is  uncer- 
tain. Thus,  "six  weeks  after  the  death  of  my  father, 
I  promise  to  pay,  etc.";  "one  year  after  my  death"; 
"on  demand  after  my  decease."  Similarly,  a  promis- 
sory note,  made  payable  upon  the  coming  of  age  of  a 
minor,  naming  the  date,  is  a  good  note. 

Bills  of  exchange  are  either  inland  bills  or  foreign 
bills.  An  inland  bill  is  one  which  is,  or  on  the  face  of 
it  purports  to  be,  (a)  both  drawn  and  payable  within 
Canada,  or  (b)  drawn  within  Canada  upon  some  per- 
son resident  therein.  Hence  the  following  are  inland 
bills:  ^ 

(a)  A  bill  drawn  in  Canada  upon  some  person  resi- 
dent there  and  payable  in  Canada. 

(b)  A  bill  drawn  in  Canada  upon  some  person 
abroad,  but  payable  in  Canada. 

(c)  A  bill  drawn  in  Canada  upon  some  person  resi- 
dent there,  but  payable  abroad. 

( d )  A  bill  which  on  its  face  purports  to  come  within 
any  of  the  foregoing  classes,  but  which  was 
actually  drawn  abroad,  tho  dated  in  Canada. 

All  other  bills  are  foreign  bills.  The  distinction  may 
be  of  importance,  because  a  foreign  bill  must,  in 
Canada,  be  always  protested  if  dishonored  by  non- 
acceptance  or  non-payment.  An  inland  bill,  except  in 
the  Province  of  Quebec,  need  not  be  protested.  Un- 
less the  contrary  appears  on  the  face  of  the  bill,  the 
liolder  may  treat  it  as  an  inland  bill.^     In  the  United 

1  Maclaren,  "Bills  and  Notes,"  1909,  p.  84. 

2  Bills  of  Exchange  Act,  Sect.  25  (3). 


204  COMMERCIAL  LAW 

States,  bills  drawn  in  one  state  and  payable  in  an- 
other are  foreign  bills. 

8.  Bills  in  a  set. — Bills  in  a  set  were  devised  to  over- 
come the  delay  and  uncertainty  common  enough  be- 
fore the  day  of  trains  and  steamships,  when  mails  were 
carried  in  sailing  ships.  If  the  ship  was  lost,  a  long- 
delay,  perhaps  of  months,  might  ensue  before  the  loss 
could  be  verified  and  a  new  bill  of  exchange  dis- 
patched. So  it  became  the  practice  to  issue  bills  in  a 
set  of  three  or  four  parts.  After  the  first  of  ex- 
change is  mailed,  a  second  of  exchange  may  be  for- 
warded by  the  next  mail.  If  the  first  has  been  lost, 
the  second  may  be  used.  If  the  first  arrives  and  is 
paid,  the  second  is  returned.  Where  each  part  is 
numbered  and  contains  a  reference  to  the  other  parts, 
the  whole  of  the  parts  constitutes  one  bill.  Each  bill 
of  the  set  contains  a  condition  that  it  shall  be  payable 
only  if  all  the  other  parts  remain  unpaid.  The  fol- 
lowing is  an  example  of  a  "First  of  Exchange": 

MoNTREAi.,  Quebec,  September  10,  19153. 
Exchange  for  £200.  Stg. 

At  sight  of  this  First  of  Exchange  (Second  and  Third  un- 
})aid)  pay  to  the  order  of  A.  B.  &  Co.,  two  hundred  pounds 
sterhng.     Value  received. 

B.  C. 
To  the  Bank  of  Montreal, 
London,  England. 

9.  Checks. — A  check  is  a  bill  of  exchange  drawn 
on  a  bank,  payable  on  demand.  Hence  it  is  an  un- 
conditional order  in  writing  addressed  to  a  bank  by 
the  person  drawing  or  signing  it,  requiring  the  bank 


NEGOTIABLE  INSTRUMENTS  205 

to  pay  on  demand  a  sum  certain  in  money  to,  or  to  the 
order  of,  a  specified  person,  or  to  bearer.^ 

If  the  drawee  of  a  check  is  a  bank,  it  should  not  be 
addressed  to  the  cashier,  manager  or  agent  of  the 
bank,  but  to  the  bank  itself.  Otherwise  the  bank 
might  be  held  not  liable  upon  it  if  accepted  or  certi- 
fied. As  a  check  is  supposed  to  be  payable  on  de- 
mand, in  the  absence  of  other  directions,  the  words  "on 
demand"  need  not  be  on  the  check.  It  is  not  invalid 
if  not  dated,  or  if  antedated  or  post-dated,  or  if  dated 
on  a  Sunday  or  other  non- juridical  day.  Nor  is  it  the 
less  valid  if  the  place  where  it  is  drawn  is  not  men- 
tioned. When  a  person  gives  a  post-dated  check,  he 
impliedly  undertakes  that  on  the  day  mentioned  he 
wiU  have  funds  in  the  drawee  bank  sufficient  to  pay 
the  check.  But  if  he  obtains  goods  by  giving  a  check 
on  a  bank  where  he  has  no  account,  and  does  not  in- 
tend to  have  an  account,  he  is  guilty  of  the  crime  of 
obtaining  money  by  false  pretence,  and,  if  convicted, 
may  be  sentenced  to  three  years'  imprisonment. 

As  checks  are  bills  of  exchange  drawn  on  a  bank, 
they  are  subject  to  the  same  general  rules  as  demand 
bills.  A  bill  of  exchange  must  be  presented  for  pay- 
ment at  the  time  fixed  for  payment — on  demand,  or  at 
sight,  or  so  many  days  after  sight — or  within  a  rea- 
sonable delay  thereafter,  or  the  drawer  and  the  in- 
dorsers  are  wholly  discharged.  In  determining  what 
is  a  reasonable  delay,  the  act  holds  that  regard  should 
be  had  to  the  nature  of  the  bill,  the  usage  of  trade  with 

1  See  the  definition  of  a  bill  of  exchange. 


206  COMMERCIAL  LAW 

regard  to  similar  bills,  and  the  facts  of  the  particular 
case.  But  failure  to  present  a  check  within  a  reason- 
able time  discharges  the  drawer  only  to  the  extent  to 
which  he  actually  suffers  damage  by  the  delay.  A 
check  should  be  presented  for  payment,  where  the 
holder  and  the  bank  are  in  the  same  place,  before  the 
banks  close  on  the  next  business  day  following  the  day 
of  its  issue.  If  they  are  in  different  places,  the  check 
should  be  deposited  for  collection  by  the  day  after 
its  receipt. 

The  act  is  careful  to  explain  what  is  meant  by  the 
discharge  of  the  drawer  to  the  extent  of  the  actual 
damage  suffered.  If  the  drawer  handed  B  a  check 
for  one  hundred  dollars  on  a  bank  where  he  had  funds 
sufficient  to  pay,  but  B  neglects  to  present  the  check 
for  three  months,  and  meanwhile  the  bank  fails  and 
pays  ten  cents  on  the  dollar,  the  drawer  would  be  dis- 
charged to  the  (jxtent  of  ninetj'-  dollars.  Of  course  if 
B  could  show  that  he  used  diligence  and  that  the  delay 
was  not  unreasonable,  he  would  not  lose  his  recourse 
against  the  drawer.  But  it  has  been  held  that  where 
it  was  understood  that  a  bank  was  likely  to  suspend 
payment,  a  delay  of  one  day  in  presenting  a  check  was 
unreasonable.  Delay  in  making  presentment  for 
payment  of  a  bill  of  exchange  is  excused  when  the  de- 
lay is  caused  by  circumstances  beyond  the  control  of 
the  holder,  and  not  imputable  to  his  default,  miscon- 
duct or  negligence.  When  the  cause  of  delay  ceases 
to  operate,  presentment  must  be  made  with  reason- 
able diligence.     And  this  applies  as  well  to  checks. 


NEGOTIABLE  IXSTRUMEXTS  207 

If  the  holder  presents  the  check  for  acceptance,  and 
has  it  accepted  or  certified  without  taking  payment, 
the  maker  and  indorsers  are  discharged,  and  if  the 
bank  fails  before  the  check  is  paid,  the  holder  has  no 
other  recourse. 

10.  Acceptance  or  certifying  of  checks. — The  duty 
and  authority  of  a  bank  to  pay  a  check  drawn  on  it  by 
its  customer  are  terminated  by  countermand  of  pay- 
ment or  by  notice  of  the  customer's  death.  Other- 
wise, when  a  bank  has  funds  of  the  drawer  sufficient 
to  pay  a  check,  it  is  bound  to  pay  it  or  be  liable  in 
damages  since  the  holder  may  be  caused  damage  and 
inconvenience  or  the  drawer's  business  reputation  be 
impaired.  But  after  the  holder  of  a  check  has  had 
it  certified  or  accepted,  the  drawer  can  no  longer  stop 
payment  of  it.  By  getting  the  check  certified  or 
marked,  the  holder  provides  against  any  possibility  of 
the  drawer  stopping  pa}Tnent  or  withdrawing  from 
his  account  enough  money  to  make  pa\Tnent  of  the 
check  impossible.  Upon  acceptance,  the  bank  be- 
comes liable  to  the  holder :  it  virtually  sets  aside,  in  its 
books,  the  amount  of  the  check  out  of  the  drawer's 
account,  and  the  accepted  check  in  the  hands  of  the 
holder  is  the  equivalent  of  a  deposit  receipt  payable 
to  the  holder.  The  drawer  and  any  indorser  are  dis- 
charged, because  the  holder  has  a  new  debtor,  the 
bank.  He  accepts  the  promise  of  the  bank  to  pay, 
instead  of  that  of  the  drawer,  and  not  in  addition  to 
it. 

A   distinction  is   made  where  the   drawer  before 


208  COMMERCIAL  LAW 

issuing  a  check  has  it  certified.  JNIaclaren  says  that  in 
this  case  the  bank  is  in  the  position  of  an  ordinary  ac- 
ceptor, its  credit  being  added  to  that  of  the  drawer; 
whereas,  if  the  holder  has  the  check  certified,  the  bank 
becomes  the  sole  debtor.  And  where  the  drawer  has 
had  his  check  certified,  but  does  not  issue  it,  or  where 
he  later  becomes  the  holder,  the  certificate  may  be 
cancelled  and  the  entry  reversed,  at  his  request,  or  by 
simply  depositing  the  check  to  his  accoimt. 

11.  To  whom  payable. — Negotiable  instruments, 
from  their  nature,  must  be  so  payable  that  they  are 
negotiable.  They  must,  therefore,  be  either  payable 
to  bearer  and  thus  pass  by  delivery  from  hand  to  hand, 
or  be  payable  to  the  order  of  some  one  who  by  in- 
dorsement and  delivery  negotiates  them.  Where  the 
payee  of  a  negotiable  instrument  is  a  fictitious  or  non- 
existent person,  it  is  payable  to  bearer.  Fictitious 
names  in  frequent  use  are  "cash,"  "expense  account," 
"labor."  A  bill  payable  to  "John  Jones  or  bearer," 
is  a  bill  payable  to  bearer.  If  the  bill  is  payable  to 
order,  the  payee  must  be  a  specified  person,  but  it  is 
not  payable  to  order  if  it  contains  words  prohibiting 
transfer,  or  indicating  an  intention  that  it  should  not 
be  transferable.  By  "specified  person"  is  meant  that 
he  should  be  so  indicated  as  to  be  clearly  identified. 
Thus  the  payee  may  be  "John  Smith,"  or  "the  execu- 
tors of  the  Estate  A.,"  or  the  "Secretary  of  the  Prov- 
ince of  Quebec."  The  payee  may  be  the  same  person 
as  the  maker  or  drawer,  but  the  instrument  is  not  is- 


NEGOTIABLE  INSTRUMENTS  209 

sued  until  such  maker  or  drawer  has  indorsed  and 
dehvered  it.  If  the  name  of  the  payee  is  WTongly 
spelled,  or  where  he  is  described  by  his  office,  he  may 
be  identified  by  parol  evidence;  but  where  the  payee 
is  not  named  or  is  not  even  described,  parol  evidence 
is  inadmissible  to  identify  him.  If  the  name  of  a 
payee  or  indorsee  is  ^\Tongly  spelled,  he  may  indorse 
in  the  same  way  and  add  his  proper  signature,  or  may 
indorse  by  his  own  proper  signature.  Where  a  bill 
is  payable  to  the  order  of  two  or  more  payees  or  in- 
dorsees who  are  not  partners,  all  must  indorse,  imless 
the  one  indorsing  has  authority'  to  indorse  for  the 
others.  If  a  payee  indorses  in  blank,  that  is,  merely 
signs  his  name  without  adding  words  indicating  that 
he  indorses  to  a  particular  indorsee,  the  instrument 
thereby  becomes  at  once  payable  to  bearer.  If  the 
payee's  name  is  left  in  blank,  a  legal  holder  of  the  bill 
may  fill  the  blank  with  any  name  he  chooses. 

12.  Certainty  of  drawee. — The  drawee  of  a  bill  of 
exchange  must  be  clearly  indicated.  An  instrument 
regular  in  form,  except  that  it  is  not  addressed  to  any 
drawee,  is  not  a  bill  of  exchange.  As  in  the  case  of 
the  payee,  however,  the  drawee  need  not  be  named, 
but  may  be  described  with  such  certainty  that  the  bill 
can  be  presented  to  the  person  intended.     Thus,  "To 

our  agent  in  London"  is  sufficient,  but  "To , 

London,  England,"  is  not.  "\^niere  in  a  bill  the 
drawer  and  di*awee  are  the  same  person,  or  where  the 
drawee  is  a  fictitious  person  or  a  person  not  having 

XXIV— 13 


no  COMMERCIAL  LAW 

capacity  to  contract,  the  holder  may  treat  the  instru- 
ment, at  his  option,  either  as  a  bill  of  exchange  or  as  a 
promissory  note. 

13.  Blanks. — The  general  rule  is  that,  prima  facie, 
a  person  in  possession  of  an  instrument  which  in  some 
particular  is  incomplete,  has  authority  to  complete  it 
by  filling  the  blanks.  We  have  already  seen  that  the 
legal  holder  of  an  instrument  from  which  the  payee's 
name  has  been  omitted  may  insert  a  payee.  Sim- 
ilarly, where  a  bill  expressed  to  be  payable  at  a  fixed 
date  is  issued  undated,  or  where  the  acceptance  of  a 
bill  payable  at  sight,  or  at  a  fixed  period  after  sight, 
is  undated,  any  holder  may  insert  the  true  date  of  issue 
or  acceptance.  But  if  the  holder,  in  good  faith,  in- 
serts a  wrong  date,  or  in  any  case  if  a  wrong  date  is 
inserted,  a  subsequent  holder  in  due  course  is  not 
prejudiced.*  He  is  entitled  to  take  the  bill  as  he 
finds  it.  Or  where  a  simple  signature  on  a  blank 
paper  is  delivered  by  the  signer  in  order  that  it  may  be 
converted  into  a  bill,  it  operates  as  a  prima  facie  au- 
thority to  fill  it  up  as  a  complete  bill  for  any  amount, 
using  the  signature  for  that  of  the  drawer  or  acceptor, 
or  an  indorser. 

But  where  a  signature  was  obtained  ostensibly  for 
a  receipt,  and  a  note  was  written  over  it,  the  signer 

1  A  holder  in  due  course  is  one  who  has  taken  a  bill,  complete  and  regu- 
lar on  the  face  of  it,  provided  he  became  the  holder  of  it  before  it  was 
overdue  and  without  notice  that  it  had  previously  been  dishonored,  and 
that  he  took  it  in  good  faith  and  for  value,  and  that  at  the  time  it  was 
negotiated  to  him  he  had  no  notice  of  any  defect  in  the  title  of  the  person 
who  negotiated  it. 


NEGOTIABLE  INSTRUMENTS  211 

was  not  liable/  In  that  case  the  signature  was  not 
delivered  in  order  that  it  should  be  converted  into  a 
l)ill.  But  where  a  note  was  signed  in  blank,  and  was 
sent  with  instructions  to  be  filled  up  for  one  hundred 
and  fifteen  dollars,  and  it  was  filled  up  for  four  hun- 
dred and  sixty-one  dollars,  the  maker  was  held  liable 
for  the  full  amount  to  a  holder  in  due  course.  On 
the  other  hand,  where  a  blank  acceptance  was  stolen 
from  the  signer's  desk  and  filled  out,  he  was  not  held 
liable  to  a  holder  in  due  course — he  had  not  delivered 
the  acceptance  or  in  an^^  way  lent  his  signature  or  au- 
thority. And  so,  also,  where  a  bill  is  wanting  in  a 
material  particular,  the  person  in  possession  of  it  has 
a  prima  facie  authority  to  fill  up  the  omission  in  any 
way  he  thinks  fit.  So  where  the  maker  of  a  note  de- 
livered it  with  the  amount  in  blank,  and  it  was  fraud- 
ulently filled  out  for  eight  himdred  and  fifty-five  dol- 
lars, he  was  held  liable  to  an  innocent  indorsee.     And 

where  a  biU  is  drawn  payable  to or 

order,  any  holder  for  value  may  write  his  own  name 
in  the  blank  and  sue  on  the  bill.  Tho  an  alteration 
is  not  a  filling-up,  it  has  been  held  that  where  a  per- 
son indorsed  as  payee  a  note  for  five  hundred  dollars, 
on  which  there  was  a  blank  space  to  the  left  of  the 
word  "five,"  which  the  maker  fraudulently  filled  out 
with  the  word  "twenty,"  the  indorser  was  liable  for 
two  thousand  five  hundred  dollars  to  an  innocent  in- 
dorsee. The  reason  for  this  decision  will  now  appear. 
14.  Alteration  of  hill. — The  general  rule  is  that 

1  Banque  Jacques  Cartier  vs.  Lescard,  13  Que.  L.  R.  39  (18S6). 


212  COMMERCIAL  LAW 

where  a  bill  or  acceptance  or  a  note  is  materially- 
altered,  without  the  assent  of  all  parties  liable  thereon, 
it  is  voided,  except  as  against  a  party  who  has  him- 
self made,  authorized  or  assented  to  the  alteration, 
and  subsequent  indorsers.  This  rule  makes  clear  the 
reason  for  the  holding  just  above  mentioned.  A  sub- 
sequent indorser  is  in  the  position  of  having  lent  his 
name  and  credit  to  the  instrument.  With  these  ex- 
ceptions, the  bill  or  note  is  void  if  materially  altered, 
provided,  however,  that  where  there  has  been  a  ma- 
terial alteration  which  is  not  apparent,  a  holder  in  due 
course  may  avail  himself  of  the  instrument  as  if  it  had 
not  been  altered,  and  may  enforce  payment  of  it  ac- 
cording to  its  original  tenor. 

The  first  part  of  our  general  rule  makes  a  bill  void 
if  materially  altered,  with  the  exceptions  mentioned. 
.  This  was  considered  to  be  a  hardship,  and  so  the  pro- 
viso was  added  to  protect  holders  in  due  course  who 
may  sue  upon  the  bill  according  to  its  original  tenor. 
That  is,  if  A  makes  a  note  for  five  hundred  dollars 
and  B  fraudulently  raises  the  amount  to  two  thou- 
sand five  hundred  dollars  and  negotiates  it  to  C  who 
is  a  holder  in  due  course,  C  can  sue  A  for  the  five 
hundred  dollars  according  to  the  original  tenor  of  the 
note. 

Two  notes  were  given  for  patent  rights,  and  the 
maker  indorsed  on  them  the  words  "the  within  notes 
not  to  be  sold."  The  payee  cut  from  one  note  the 
portion  containing  these  words,  but  without  defacing 
it.     On  the  other  he  erased  the  word  "not."     The 


NEGOTIABLE  INSTRUMENTS  213 

plaintiff  noticed  the  erasure  when  buying  the  notes, 
and  gave  much  less  than  their  value  for  them.  It 
was  held  that  he  was  not  an  innocent  holder,  and  the 
notes  were  void.^ 

A  genuine  check  for  six  dollars  was  altered  to  one 
thousand  dollars  so  skilfully  as  to  escape  detection, 
and  deposited  in  another  bank  by  the  pretended  payee, 
twenty-five  dollars  being  paid  him  at  the  time,  and 
eight  hundred  dollars  more  after  collection  from  the 
drawee  bank.  At  the  end  of  the  month  the  forgery 
was  discovered.  It  was  held  that  the  drawee  was  en- 
titled to  recover  from  the  collecting  bank.^ 

REVIEW 

Define  negotiable  instruments  and  name  some  instruments  that 
are  not  in  the  fullest  sense  negotiable. 

What  consideration  is  a  negotiable  instrument  presumed  to 
have?     Explain,  with  examples. 

What  is  a  promissory  note.''  A\lio  must  sign  it.''  Is  delivery 
necessary.^     How  is  interest  provided  for.'' 

Define  bill  of  exchange.  Who  is  the  drawer?  The  payee? 
What  can  parol  evidence  determine?  AVhat  distinguishes  an  in- 
land bill  from  a  foreign  bill? 

What  is  a  check?  Who  is  the  drawee?  What  rules  apply  to 
checks  ?  ' 

What  is  certification?  What  happens  when  the  holder  of  tlie 
check  has  it  certified? 

What  is  the  general  rule  concerning  blanks  on  an  instrument? 
What  is  a  holder  in  due  course? 

iSwaisland  vs.  Davidson,  3  O.  R.  320  (1882). 

2  Dominion  Bank  vs.  Union  Bank,  40  Can.  S.  C.  R.  366  (1908). 


CHAPTER  XIV 

y 

TRANSFER  AND  NEGOTIATION 

1.  Methods  of  transfer. — In  the  preceding  chapter 
we  have  examined  the  definitions  of  our  subject,  and 
have  obtained  some  idea  of  the  form  and  contents  of 
bills,  notes  and  checks,  and  of  the  inception  of 
negotiable  contracts.  To  be  of  use,  these  instru- 
ments must  circulate,  and  their  circulation  is  gov- 
erned by  rules  which  must  now  be  dealt  with.  They 
circulate  by  transfer,  or  passing  from  hand  to  hand 
by  assignment,  by  operation  of  law  and  by  negotia- 
tion. 

2.  By  assignment. — A  check  or  a  bill  of  exchange 
does  not  operate  as  an  assignment  of  funds  in  the 
hands  of  the  drawee  available  for  payment.  Hence, 
the  drawee  of  a  bill  of  exchange  who  does  not  accept 
it  is  not  liable  on  the  instrument.  Similarly,  a  check 
which  is  a  bill  of  exchange  on  a  banker,  unless  it  is 
certified,  gives  the  holder  no  right  against  the  bank 
to  claim  or  enforce  payment.  We  have  seen  that  an 
order  which  is  not  unconditional,  in  that  it  calls  for 
payment  out  of  some  particular  fund,  is  not  a  bill  of 
exchange,  but  may,  under  a  provincial  law,  operate  as 
an  assignment  of  the  amount  in  question  to  him  in 
whose  favor  the  instrument  is  drawn.     A  bill  or  a  note 

214 


*       TRANSFER  AND  NEGOTIATION  215 

may  be  transferred,  as  for  example,  to  a  purchaser  or 
a  pledgee,  without  being  indorsed  by  the  holder.  The 
holder  thus  assigns  it.  The  transfer  gives  the  trans- 
feree such  title  as  the  transferor  had  in  the  bill  and 
no  more,  but  the  transferee  can  also  demand  the  in- 
dorsement of  the  transferor.  The  transferee  is  in  no 
better  position  and  has  not  a  better  title  than  the 
transferor.  By  receiving  and  giving  value  for  it, 
even  before  maturity,  and  before  indorsement,  he  does 
not  become  a  holder  in  due  course.  "He  holds  the 
bill  subject  to  any  defect  of  title  in  the  transferor, 
of  which  he  becomes  aware  before  the  indorsement  of 
the  bill  to  him,  and  if  it  is  not  indorsed  before  ma- 
turity, it  is  subject  to  any  defects  of  title  that  existed 
in  the  transferor."  A  simple  form  of  assignment 
takes  place  under  the  following  circumstances:  A 
holds  a  note  of  B  for  five  hundred  dollars.  He  en- 
trusts it  to  C.  Later  he  writes  to  C,  telling  him  to 
keep  the  note  in  payment  of  his  indebtedness  to  him 
(C) .  The  note  is  thus  assigned  to  C,  who,  neverthe- 
less, can  demand  A's  indorsement,  not  in  order  to 
hold  A,  but  in  order  to  sue  B.  The  point  to  observe 
is  that  the  note  has  not  been  transferred  by  negotia- 
tion. 

3.  By  operation  of  law. — From  the  preceding  par- 
agraph it  will  be  understood  that  negotiable  instru- 
ments may  be  treated  as  personal  property,  transfer- 
able by  voluntary  assignment.  They  may  also  be 
transferred  by  operation  of  law.  ^Mien  a  testator 
holds  a  note,  for  instance,  it  passes  to  his  executor  to 


216  COMMERCIAL  LAW 

be  dealt  with  according  to  the  provincial  law.  When 
a  person  dies  without  a  will — intestate — bills  or  notes 
in  his  possession  pass  to  the  administrator  of  his  per- 
sonal estate,  or  to  the  heirs,  as  in  Quebec.  Similarly, 
if  a  perjson  becomes  insolvent,  and  in  his  estate  are 
found  bills  and  notes,  these  pass  to  the  assignee,  cura- 
tor or  trustee  to  be  collected  or  dealt  with  as  he  may 
be  authorized  by  the  provincial  law.  On  the  death  of 
a  joint  payee  or  indorsee,  the  title  vests  immediately 
in  the  survivor.  And  when  transfer  by  operation  of 
law  occurs,  the  transferee  takes  the  place  of  the  trans- 
feror, just  as  in  the  case  of  an  assignment. 

4.  By  negotiation. — As  to  what  is  a  negotiable  in- 
strument, it  may  be  well  to  cite  the  words  of  a  great 
authority : 

It  may  therefore  be  laid  down  as  a  safe  rule,  that  wliere  an 
instrument  is  by  the  custom  of  trade  transferable,  like  cash, 
by  delivery,  and  is  also  capable  of  being  sued  upon  by  the 
person  holding  it  pro  tempore,  then  it  is  entitled  to  the  name 
of  a  negotiable  instrument,  and  the  property  in  it  passes  to 
a  bona  fide  transferee  for  value.^ 

Bills  of  exchange  and  promissory  notes,  whether 
payable  to  order  or  to  bearer,  are  by  the  law  merchant 
negotiable  in  both  senses  of  the  word.^ 

Now  a  bill  or  note  is  negotiated  when  it  is  trans- 
ferred from  one  person  to  another  in  such  a  manner 
as  to  constitute  the  transferee  the  holder  of  the  bill. 
A  holder  means  the  payee  or  indorsee  of  a  bill  or  note 
who  is  in  possession  of  it,  or  the  bearer  thereof.     He 

iSee  Crouch  vs.  Credit  Foncier,  L.  R.  8  Q.  B.  (1873),  at  p.  381. 
2  Ibid. 


TRANSFER  AND  NEGOTIATION  217 

need  not  be  the  legal  owner.  But  if  he  is  in  posses- 
sion and  may  legally  recover  from  the  person  liable 
thereon,  he  is  a  holder,  whether  he  be  the  owner  or  a 
holder  for  discomit  or  a  holder  for  collection. 

As  we  have  seen,  a  bill  or  note  is  negotiable  when  it 
is  payable  to  bearer  or  to  a  particular  person  or  to 
order.  If  payable  to  bearer,  it  is  negotiated  by  de- 
livery ;  ^  a  bill  payable  to  order  is  negotiated  by  the 
indorsement  of  the  holder  completed  by  delivery.  A 
bill  is  payable  to  order  which  is  expressed  to  be  so 
payable,  or  which  is  expressed  to  be  payable  to  a  par- 
ticular person,  and  does  not  contain  words  prohibit- 
ing transfer  or  indicating  an  intention  that  it  should 
not  be  transferable.  If  the  holder  of  a  bill  or  note 
payable  to  his  order  dies,  his  rights  pass,  as  we  have 
seen,  to  his  executors  or  personal  representatives,  who 
in  turn,  may  negotiate  the  instrument  by  indorsement 
thereof.  The  same  would  be  true  of  a  bill  made  pay- 
able to  a  dead  man  by  someone  not  aw^are  of  his  death. 

When  a  bill  or  note  is  negotiable  in  its  origin  it 
continues  to  be  negotiable,  until  it  has  been  restric- 
tively  indorsed  or  has  been  discharged  by  payment  or 
otherwise.^  And  a  bill  or  a  note  negotiable  in  its  ori- 
gin is  one  which  is  made  payable  to  bearer,  or  to  a 
particular  person  or  to  his  order. 

5.  Indorsement. — By  indorsement  is  meant  in  the 

1  ITie  Act  defines  a  "bearer"  as  the  person  in  possession  of  a  bill  or 
note  which  is  payable  to  bearer.  A  bill  is  payable  to  bearer  which  is 
expressed  to  be  so  payable  or  on  which  the  only  or  last  indorsement  is  an 
indorsement  in  blank.  He  does  not  become  the  bearer  of  a  bill  or  note 
which  is  transferred  or  assigned  to  him  before  it  is  indorsed  to  him. 

-  Restrictive  indorsement  will  be  explained  in  the  sections  following. 


218  COMMERCIAL  LAW 

Act  an  indorsement  completed  by  delivery.  It  is  the 
act  of  writing  one's  name  on  a  negotiable  instrument, 
with  the  intent  either  of  transferring  the  title  thereto, 
or  of  giving  extra  security  to  the  holder,  or  both. 
The  word  implies  a  writing  of  the  name  on  the  back 
of  the  bill,  but  it  has  been  held  to  be  immaterial  where 
it  is  written.  If  there  are  numerous  indorsements 
and  the  back  of  the  instrument  is  filled,  frequently 
an  allonge  is  added  in  the  form  of  a  piece  of 
paper  attached  to  the  bill.  To  prevent  fraud,  the 
first  indorsement  on  the  allonge  should  be  written  so 
that  it  is  begun  on  the  bill  itself  and  completed  on 
the  allonge.  If  the  indorsement  is  given  solely  to 
add  to  the  security,  it  is  said  to  be  for  accommodation. 
It  is  clear  from  what  has  been  said  that  the  act  of  in- 
dorsement is  to  be  distinguished  from  the  act  of  ne- 
gotiation which  transfers  the  instrument. 

6.  Requisites  of  indorsement. — An  indorsement,  in 
order  to  operate  as  a  negotiation,  must  be  written  on 
the  bill  itself  (an  allonge  is  deemed  to  form  part  of 
the  bill)  and  be  signed  by  the  indorser;  and  must  be 
an  indorsement  of  the  entire  bill.  By  "written"  is 
also  meant,  as  we  have  already  seen,  words  printed, 
painted,  engraved,  and  so  on.  Banks  often  use  a 
stamp  accompanied  by  the  signature  of  the  officer 
using  it.  The  indorsement  must  be  signed  by  the 
indorser,  i.e.,  by  the  indorser  or  by  some  one  acting 
for  him  and  under  his  authority.  It  must  be  an  in- 
dorsement of  the  entire  bill,  i.e.,  it  must  not  be  a 
partial  indorsement,  and  must  follow  the  tenor  of  the 


TRANSFER  AND  NEGOTIATION  219 

instrument.  So  if  A  holds  a  bill  reading,  "Pay  to  the 
order  of  B  the  sum  of  five  hundred  dollars,"  he  can- 
not indorse  it,  "Pay  to  X  two  hundred  and  fifty  dol- 
lars, pay  to  the  order  of  ^I  two  hundred  and  fifty 
dollars."  Otherwise  the  maker  or  drawer  might  have 
to  defend  two  actions.  But  there  may  be  a  partial 
acceptance  of  a  bill;  and  an  indorsement  of  a  bill  so 
accepted,  as  being  an  indorsement  of  the  entire  bill 
as  accepted,  would  be  valid.^ 

When  a  person  is  under  an  obligation  to  indorse  a 
bill  in  a  representative  capacity,  he  may  indorse  it  in 
such  terms  as  to  negative  personal  liability.  Thus,  a 
tutor  or  curator  or  executor,  when  it  becomes  neces- 
sary to  indorse  bills  or  notes  payable  to  the  order  of 
some  one  who  died,  or  who  lost  his  capacity  before  in- 
dorsing, may  indorse  in  his  capacity  as  such  tutor, 
curator,  executor  or  otherwise,  in  such  a  way  as  to 
negative  personal  liability.  The  indorser  should, 
however,  be  careful  to  make  it  apparent  for  whom  and 
on  whose  behalf  he  is  indorsing,  and  he  will  be  wise 
to  add  also  the  words  "without  recourse,"  or  "with- 
out recourse  to  me  personally." 

Thus,  it  was  held  by  Lord  Ellenborough,  that  a  man 
who  puts  his  name  to  a  bill  of  exchange  makes  himself 
personally  liable,  unless  he  states  upon  the  face  of  the 
bill  that  he  subscribes  it  for  another,  or  by  procuration 
of  another;  unless  he  says  plainly,  "I  am  the  mere 
scribe,"  he  becomes  liable.^     Similarly  when  a  bill 

1  Maclaren,  p.  207. 

2  Leadbitter  vs.  Farrow,  5  M.  &  S.,  p.  St9. 


220  COMMERCIAL  LAW 

was  drawn  on  "W.  A.  Geddes,  Treas.  W.  I.  C.  Co.," 
and  he  accepted  it,  "W.  A.  Geddes,  Treas.  W.  I.  C. 
Co.,"  and  affixed  the  company's  seal,  he  was  held  per- 
sonally liable.  Had  he  accepted  as  follows:  "W.  I. 
C.  Co.  per  W.  A.  Geddes,  Treas.,"  the  company,  as 
was  intended,  would  have  been  held  liable.  So  a  bill 
addressed  "To  the  Sec.  R.  G.  M.  Co.,"  and  accepted 
as  follows :  "The  R.  G.  M.  Co.  per  Jas.  Glass,  Sec," 
was  held  not  to  be  the  acceptance  of  the  secretary,  and 
he  was  not  personally  liable.  It  has  also  been  held 
that  an  agreement  in  writing  to  indorse  a  bill  is  not 
an  indorsement.  An  indorsement  may  be  to  two  or 
more  persons  jointly,  or  to  a  third  person,  who  is  to 
hold  it  merely  as  collateral  security  for  a  smaller  debt 
due  him  from  the  endorser.  The  maker  or  drawer 
may  thus  pay  part  of  the  instrument ;  if  the  person  re- 
ceiving payment  writes  a  receipt  on  the  back  of  the 
instrument,  subsequent  holders  thereof  may  sue  the 
prior  parties  for  the  balance  only. 

Maclaren,  speaking  of  the  commercial  usage  in  the 
matter  of  endorsement,  says: 

Use  the  Christian  name  or  initials,  as  in  the  bill  or  special 
indorsement,  if  there  be  no  mistake  in  the  name  as  there 
given,  and  no  mis-spelling,  dropping  all  prefixes  and  suffixes, 
such  as  Mr.,  Mrs.,  Miss,  Messrs.,  Hon.,  Esq.,  etc.  Where, 
for  the  purpose  of  identification,  an  addition  follows,  such 
as  Merchant,  M.D.,  M.P.,  K.C.,  or  the  like,  it  may  be  well 
to  add  this  to  the  signature.  A  bill  to  the  order  of  Mrs. 
John  Smith  may  be  endorsed  "Mary  Smith,  wife  of  John 
Smith";  or  a  bill  "To  the  Estate  of  John  Jones,  or  order," 
bv  "A.  B.,  Executor  or  Administrator  late  John  Jones" :  a 
bill  "To  the  order  of  the  City  Treas.,  Toronto,"  by  "A.  C, 


TRANSFER  AND  NEGOTIATION  221 

City  Treas.,  Toronto" ;  a  bill  to  the  order  of  "The  Canada 
Gas  Co.,"  by  "The  Canada  Gas  Co.,  per  E.  F.,  Manager" : 
a  bill  "To  the  order  of  John  Smith  &  Co.,"  if  by  a  partner, 
should  be  indorsed  simply  "John  Smith  &  Co., "  and  if  by 
another  person  authorized  by  the  firm,  "John  Smith  &  Co., 
per  G.  H.,  Atty.,"  or  "Per  pro.  G.  H."  Signatures  such  as 
the  following  should  be  avoided,  partly  on  the  ground  of 
ambiguity  and  partly  on  account  of  the  danger  of  the  agent 
or  representative  making  himself  personally  liable:  *'A.  B., 
agent  for  C.  D.,"  "Per  proc.  E.  F.,  G.  H.',"  "J.  K.  for  the 
L.  M.  Co.,  «J.  K.,  for  L.  M.  &  Co.,"  "J.  K.,  for  the  Estate 
of  L.  M."  1 

When  there  are  two  or  more  indorsements  on  a 
bill,  any  indorsement  is  deemed  to  have  been  made  in 
the  order  in  which  it  appears  on  the  bill,  until  the  con- 
trary is  proved. 

7.  Kinds  of  indorsement. — There  are  several  kinds 
of  indorsement  which  have  been  for  many  years  rec- 
ognized in  law  and  in  commercial  practice,  and  it  is 
well  to  understand  the  effect  that  a  particular  in- 
dorsement may  have  upon  the  rights  and  liabilities  of 
the  parties  to  a  negotiable  instrument. 

We  may  take  the  following  form  of  a  promissory'- 
note  and  examine  the  possible  indorsements  thereof, 
and  the  result  in  each  case. 

MoNTKEAi.,  Sept  15,  1913. 
$5,000. 

Three  months  after  date  I  promise  to  pay  to  the  order 
of  John  Wilson  $5,000  at  the  Merchants  Bank  of  Canada, 
Montreal.     Value  received. 

John  Smith. 

8.  Indorsements  in  hlanh. — If  Wilson  indorses  by 

1  Maclaren,  p.  208. 


222  COMMERCIAL  LAW 

simply  signing  his  name,  the  instrmnent  is  said  to  be 
indorsed  in  blank,  and  becomes  payable  to  bearer. 
It  may  be  negotiated  by  delivery.  If,  however,  Ar- 
thur Jones  comes  into  possession  of  it  by  delivery  to 
him,  and  indorses  it  as  follows,  "Pay  to  the  order  of 
W.  Hardy,"  it  cannot  be  again  negotiated  until 
Hardy  indorses  it.  Hardy  is  presumed  to  have  come 
into  possession  of  the  note  before  maturity.  A  holder 
may  thus  change  an  indorsement  in  blank  to  a  spe- 
cial indorsement,  by  writing  above  the  indorser's 
signature  a  direction  to  pay  the  bill  to,  or  to  the  order 
of  himself  or  some  other  person.  If,  however,  he  in- 
dorses the  bill  to  himself,  he  must  indorse  it  again  in 
order  to  negotiate  it. 

9.  Special  indorsements. — As  we  have  just  seen, 
a  special  indorsement  specifies  the  person  to  whom  or 
to  whose  order  the  bill  is  to  be  payable.  It  is  more 
than  an  indorsement  in  blank,  because  the  indorser 
not  only  signs  his  name,  but  gives  the  direction,  "Pay 
to  A.  B."  or  "Pay  to  the  order  of  A.  B." 

A  holder  may  strike  out  several  blank  indorse- 
ments; he  cannot  strike  out  a  special  indorsement  in 
order  to  insert  his  own  name. 

10.  Qualified  indorsements,  or  indorsements  with- 
out recourse. — If  John  Wilson  indorses  as  follows, 
"Pay  to  Arthur  Hardy,  without  recourse,  John  Wil- 
son," or  simply  "Without  recourse,  John  Wilson," 
his  indorsement  is  said  to  be  qualified.  He  may  use 
the  French  expression,  "Sans  recours/'  or  "At  the  in- 
dorsee's own  risk."     It  is  necessary  for  him  to  use 


TRANSFER  AND  NEGOTIATION  223 

words  showing  his  intention  to  qualify  his  indorse- 
ment. His  contract  on  the  bill  is  that  he  negotiates 
the  bill  by  indorsement,  but  he  does  so  on  condition 
that  he  will  not  be  liable  to  a  subsequent  holder. 

11.  Conditional  indorsement. — If  John  Wilson  in- 
dorses as  follows,  "Pay  to  Arthur  Hardy,  unless  be- 
fore pajTiient  I  give  you  notice  to  the  contrary,  John 
Wilson,"  the  indorsement  is  conditional.  A  condi- 
tional indorsement  does  not  hinder  the  negotiation  of 
the  note.  True,  the  indorser  has  added  a  condition 
to  his  liability,  but  the  Act  states  that  when  a  bill 
purports  to  be  indorsed  conditionally,  the  condition 
may  be  disregarded  by  the  payer,  and  payment  to  the 
indorsee  is  valid,  whether  the  condition  has  been  ful- 
filled or  not.  Another  example  of  a  conditional  in- 
dorsement— a  condition  precedent,  the  former  ex- 
ample being  a  condition  subsequent — would  be  the 
following,  "Pay  to  A  or  order,  if  he  lives  until  he  is 
twenty-one,"  or  "If  he  is  alive  when  the  bill  becomes 
due."  The  reason  for  the  rule  is  that  it  was  deemed 
unfair  that  a  person  who  accepted  a  note  as  indorsee, 
for  example,  should  have  thrust  upon  him  the  burden 
of  finding  out  whether  or  not  the  condition  had  been 
fulfilled.  He  might  pay,  and,  if  the  condition  were 
not  fulfilled,  be  compelled  to  pay  a  second  time;  or 
had  he  refused  he  might  be  protested.  INIacLaren 
points  out  that  the  rule  does  not  entitle  the  holder  to 
compel  payment  if  the  condition  is  not  fulfilled;  it 
merely  has  the  effect  of  releasing  the  person  who  pays 
without  knowing  whether  the  condition  is  fulfilled. 


2M  COMMERCIAL  LAW 

12.  Restrictive  indorsements. — An  indorsement  is 
restrictive  which  contains  terms  making  it  restrictive ; 
thus,  an  indorsement  is  restrictive  which  prohibits  the 
further  negotiation  of  the  bill,  or  which  expresses  that 
it  is  a  mere  authority  to  deal  with  the  bill  as  thereby 
directed,  and  is  not  a  transfer  of  the  ownership 
thereof;  as,  for  example,  if  a  bill  is  indorsed  *'Pay  D 
only,"  or  "Pay  D  for  the  account  of  X,"  or  "Pay  D 
or  order  for  collection."  By  indorsing  in  any  of  these 
ways,  John  Wilson,  the  indorser,  notifies  the  world 
that,  tho  he  may  part  with  the  instrument  itself  for 
the  purpose  mentioned,  he  does  not  part  with  the  title 
thereto.  Whoever  receives  payment  is  not  a  holder 
in  due  course,  but  receives  payment  subject  to  the 
claims  of  John  Wilson. 

A  restrictive  indorsement  makes  the  indorsee  an 
agent.  He  may  receive  payment  and  may  sue  any 
party  on  the  bill  that  his  indorser  could  have  sued, 
but  he  cannot  sell  or  pledge  the  bill,  and  he  cannot 
transfer  his  rights  as  indorsee  unless  the  indorse- 
ment expressly  authorizes  him  to  do  so.  If  the  re- 
strictive indorsement  authorizes  further  transfer, 
subsequent  indorsees  take  the  note  with  the  same 
rights  and  subject  to  the  same  liabilities  as  the  first 
indorsee  under  the  restrictive  indorsement. 

13.  Indorsement  waiving  conditions. — John  Wil- 
son may  indorse  as  follows,  "Pay  to  Arthur  Hardy, 
waiving  protest,  John  Wilson."  He  may  waive  no- 
tice of  dishonor  or  waive  presentment.  Thus,  the  in- 
dorser mav  relieve  the  holder  from  his  duties  as  such 


TRANSFER  AND  NEGOTIATION  225 

to  present  the  note  for  pajTiient,  or  to  give  notice  of 
dishonor,  and  so  on. 

14.  Irregular  and  other  indorsements. — The  Cana- 
dian Bankers'  Association  has  laid  do\\Ti  that  a  regu- 
lar indorsement  must  be  neither  restrictive  nor  con- 
ditional, and  must  be  so  placed  and  worded  as  to  show 
clearly  that  an  indorsement  is  intended:  and  that  an 
indorsement,  other  than  a  restrictive  indorsement, 
which  is  not  in  accordance  with  this  definition  of  a 
regidar  indorsement,  or  which  is  so  placed  or  worded 
as  to  raise  doubts  as  to  whether  it  is  intended  as  an 
indorsement,  is  an  irregular  indorsement. 

We  have  already  seen  that  where  the  name  of  a 
payee  or  indorsee  is  wrongly  spelled,  he  may  indorse 
by  writing  the  name  as  mis-spelled  and  placing  under 
it  his  correct  name,  or  by  simply  indorsing  his  cor- 
rect name.  When  a  person  signs  a  bill  otherwise 
than  as  a  drawer  or  acceptor,  lie  thereby  incurs  the 
liabilities  of  a  drawer  to  a  holder  in  due  course,  and 
is  said  to  be  an  indorser  pour  aval;  that  is,  he  has 
really  entered  into  a  contract  of  warranty  for  the 
drawer,  by  putting  his  signature  at  the  foot  of  the 
bill;  for  the  indorser  by  signing  below  the  indorse- 
ment; or  for  the  acceptor  by  signing  below  the  ac- 
ceptance. 

It  has  been  laid  do\vn  that  a  signature  placed  upon 
an  instrument,  in  such  a  way  that  it  is  doubtful  in 
what  capacity  the  person  signing  intended  to  sign, 
makes  the  person  signing  an  indorser. 

An  indorsement  to  the  cashier  of  a  bank  or  cor- 

XXIV— 16 


226  COMMERCIAL  LAW 

poration,  while  not  regular,  is  deemed  to  be  on  its 
face,  to  the  bank  or  corporation  of  which  the  cashier 
is  an  officer,  and  the  bank  or  corporation  may  nego- 
tiate the  instrument  with  its  own  indorsement,  or  by 
having  the  cashier  indorse  it.  And  where  one  part- 
ner of  an  English  firm  did  business  for  the  firm  in 
America  in  his  individual  name,  the  firm  was  held 
liable  on  indorsements  by  him.  The  signature  of  the 
name  of  the  firm  is  equivalent  to  the  signatures  of  all 
persons  liable  as  partners  in  that  fii'm. 

15.  Transfer  without  indorsement. — We  have  al- 
read}^  seen,  in  an  earlier  section,  that  when  a  nego- 
tiable instrument  drawn  to  order  is  transferred  by  as- 
signment or  otherwise,  without  indorsement,  the  per- 
son to  whom  it  is  transferred  may  demand  the  in- 
dorsement of  the  transferor.  Such  a  transfer  is  not 
a  negotiation  of  the  instrument,  which  does  not  become 
negotiable  until  it  is  indorsed.  Without  such  in- 
dorsement the  indorsee  has  merely  such  rights  as  the 
indorser  had.  When  a  person  signs  a  bill  in  a  trade 
or  assumed  name,  he  is  liable  thereon  as  if  he  had 
signed  it  in  his  own  name.  Thus,  when  a  bill  was 
drawn  and  indorsed  bj^  a  wife  in  her  own  name  in 
the  presence  of  her  husband  and  under  his  direction, 
it  was  treated  as  the  bill  of  the  husband,  and  he  was 
held  liable. 

A  partnership  note  is  signed  "Evans,  Harris  & 
Co."  by  a  member  of  the  firm,  and  this  signature  op- 
erates as  the  signature  of  all  partners  in  the  firm, 
whether  they  are  active,  dormant  or  secret ;  by  holding 


TRANSFER  AND  NEGOTIATION  227 

themselves  out  as  partners  they  are  liable  as  such  to 
third  parties.  The  reason  for  this  is,  as  we  shall 
see  later,  when  we  come  to  study  the  subject  of  part- 
nership, that  each  partner  is  supposed  to  have  the  con- 
sent from  his  co-partners  for  all  acts  connected  with 
the  partnership  business. 

16.  Delivery. — The  first  element  of  negotiation  is, 
as  we  have  seen,  indorsement.  The  second  is  de- 
livery. Delivery  means  the  transfer  of  possession, 
actual  or  constructive,  from  one  person  to  another. 

By  constructive  possession  is  meant,  for  instance, 
the  actual  possession  which  a  servant  or  agent  may 
have  on  behalf  of  his  principal,  who  thus  has  the  con- 
structive possession.  But,  as  Maclaren  points  out, 
delivery  does  not  always  imply  an  actual  transfer 
from  one  possessor  to  another.  Thus,  if  A  holds  a 
note  for  B,  A  may  become  the  owner  of  it  by  some 
arrangement  between  himself  and  B,  and  delivery  is 
complete  without  an  actual  change  of  possession,  if  it 
can  be  said  that  it  has  been  made  by  or  under  the  au- 
thority of  the  party  drawing,  accepting  or  indorsing, 
as  the  case  may  be.  Delivery  is  the  final  step  which 
perfects  the  existence  of  the  contract,  and  even  tho 
the  bill  or  note  may  have  been  placed  in  the  hands  of 
an  agent  for  delivery,  until  it  has  been  delivered  it 
may  be  recalled.  As  between  immediate  forces,  as, 
for  example,  between  the  maker  and  the  payee,  the 
indorser  and  the  indorsee,  and  as  regards  a  holder  not 
in  due  course,  delivery  to  be  effectual  must  be  ac- 
tuallv  made.     It  mav  be  shown  also  to  have  been  con- 


228  COMMERCIAL  LAW 

ditional,  or  for  a  special  purpose  only,  and  not  for 
the  purpose  of  transferring  property  in  the  bill.  If, 
however,  the  bill  is  in  the  hands  of  a  holder  in  due 
course,  a  valid  delivery  by  all  parties  prior  to  him,  so 
as  to  make  them  liable  to  him,  is  presumed.  So 
when  a  debtor  made  a  promissory  note  in  favor  of  a 
creditor  for  the  amount  of  his  claim,  and  died  before 
delivering  it,  the  note  is  not  valid  if  delivered  subse- 
quent to  the  debtor's  death.  It  has  been  held,  also, 
that  as  a  letter,  when  posted,  becomes  the  property 
of  the  party  to  whom  it  is  addressed,  if  it  contains  a 
bill,  this  is  a  delivery.^  It  has  also  been  held  that 
when  a  bill  was  specially  indorsed  and  inclosed  in  a 
letter  addressed  to  the  indorsee,  and,  having  been 
placed  in  the  office  letter  box  of  the  indorser,  was 
stolen  by  a  clerk  before  posting  or  delivery,  and  the 
clerk  forged  an  indorsement  and  negotiated  the 
bill,  the  property  in  the  bill  remained  in  the  indorser. 
So,  when  A  mailed  a  note  payable  to  bearer,  and  it 
was  stolen  by  C,  who  handed  it  to  X  upon  receiving 
the  amount  of  the  note,  and  X  did  not  know  that  C 
had  stolen  it,  X  is  a  liolder  in  due  course  and  may  re- 
cover from  A;  but  as  between  A  and  C,  there  was  no 
delivery,  and  as  they  were  immediate  parties,  C  could 
not  recover  from  A.  A  would,  however,  have  to  show 
that  the  note  had  been  stolen. 

The  person  in  possession  of  a  bill  payable  to  bearer 
or  indorsed  in  blank  is  entitled  to  receive  payment  in 
due  course,  and  tho  he  may  be  a  thief,  the  finder  or 

1  Ex  Parte,  Cote,  L,  R.  3  Ch.  27  (1873). 


TRANSFER  AND  NEGOTIATION  229 

a  fraudulent  holder,  payment  in  good  faith  to  him  is 
valid. 

A  bill  or  note  may  be  delivered  to  be  held  in  escrow, 
that  is,  to  be  held  as  a  mere  blank  writing  until  the 
happening  of  some  event,  or  the  fulfilment  of  some 
condition.  Upon  the  happening  of  the  event  or  the 
fulfilment  of  the  condition,  the  bill  or  note  becomes 
operative,  and  delivery  is  complete. 

17.  Holder  in  due  course. — A  holder  in  due  course 
is  a  holder  who  has  taken  a  bill,  complete  and  regular 
on  the  face  of  it,  under  the  following  conditions, 
namely:  (a)  that  he  became  the  holder  of  it  before  it 
was  overdue,  and  without  notice  that  it  had  been  pre- 
viously dishonored,  if  such  was  the  fact;  (b)  that  he 
took  the  bill  in  good  faith  and  for  value,  and  that  at 
the  time  the  bill  was  negotiated  to  him  he  had  no  no- 
tice of  any  defect  in  the  title  of  the  person  who  nego- 
tiated it. 

A  holder  in  due  course  is  to  be  distinguished  from  a 
mere  holder.  The  holder  of  a  bill  or  note  is  the  payee 
or  indorsee  thereof  who  is  in  possession  of  it,  or  who  is 
the  bearer  thereof.  He  may  or  may  not  be  the  legal 
owner.  The  term  is  a  general  one  and  may  mean  a 
holder  in  due  course.  A  person  is  a  holder  if  he  has 
possession  and  is'  entitled  at  law  to  recover  or  receive 
the  contents  of  a  bill  or  note  from  another  person. 
Every  holder  of  a  bill  is  prima  facie  deemed  to  be  a 
holder  in  due  course,  unless  it  is  shown  that  the  accept- 
ance, issue  or  subsequent  negotiation  of  the  bill  is 
affected  with  fraud  or  other  irregularity,  when  the 


230  COMMERCIAL  LAW 

burden  of  proof  is  on  the  holder  to  show  that  he  is  a 
holder  in  due  course,  unless  he  can  show  that  subse- 
quent to  the  alleged  fraud  or  irregularity,  value  in 
good  faith  has  been  given  by  some  other  holder  in  due 
course.  The  expression  "holder  in  due  course"  is  the 
equivalent  of  the  expression  "bona  fide  holder  for 
value,  Without  notice."  When  value  has,  at  any 
time,  been  given  for  a  bill,  the  holder  is  deemed  to  be 
a  holder  for  value  as  regards  the  acceptor,  and  all 
parties  to  the  bill  who  became  parties  prior  to  such 
time.  The  holder  for  value  may  not  be  a  holder  in 
due  course ;  he  may  only  have  come  into  possession  of 
the  bill  or  note  after  maturity  and  dishonor,  but  he 
can  recover,  tho  he  has  not  given  value  himself, 
if  he  can  show  that  some  previous  holder  has  given 
value. 

18.  Regularity  of  face  of  instrument. — The  statute 
requires  that  to  constitute  a  person  a  holder  in  due 
course,  he  must  take  a  bill  complete  and  regular  on 
the  face  of  it,  under  the  conditions  above  mentioned. 
In  other  words,  the  instrument  must  fulfil  the  require- 
ments of  our  definition  of  a  bill  or  note.  Thus,  an 
instrument  expressed  to  be  payable  on  a  contingency 
is  not  a  bill,  and  the  happening  of  the  event  does  not 
cure  the  defect.  If  the  bill  contains  an  erasure  or 
some  ambiguous  or  uncertain  clause,  or  if  it  is  un- 
dated and  is  payable  at  a  fixed  period  after  date,  it  is 
irregular.  The  transferee  should  be  careful  to  dis- 
cover  whether  the  irregularities  are  due  to  the  instru- 
ment having  been  issued  out  of  the  regular  course  of 


TRANSFER  AND  NEGOTIATION  231 

business,  or,   if  in  the  regular  course  of  business, 
whether  they  can  be  corrected  or  explained. 

A  bill  is  not  invalid  merely  because  it  is  undated. 
If  a  person  takes  a  bill  which  is  not  complete,  it  will 
not  be  enforceable  against  any  person  who  became  a 
party  thereto  prior  to  the  completion,  unless  it  is 
filled  up  and  completed  within  a  reasonable  time,  and 
strictly  in  accordance  with  the  authority  given.  If, 
after  completion,  it  is  negotiated  to  a  holder  in  due 
course,  the  latter  may  enforce  it  as  though  it  had  been 
filled  up  within  a  reasonable  time,  and  strictly  in  ac- 
cordance with  the  authority  given.  It  has  been  held 
that  a  check  is  not  irregular  on  its  face  if  post-dated. 
The  bill  must  not  appear  on  its  face  to  have  been  can- 
celled ;  the  cancelation,  if  made  unintentionally  or  mi- 
der  a  mistake,  or  under  the  authority  of  the  holder,  is 
inoperative,  but  the  burden  of  proof  lies  on  the  party 
who  alleges  the  mistake  or  lack  of  authority. 

19.  Maturity. — A  holder  in  due  course  must  be- 
come the  holder  of  the  bill  before  it  is  overdue,  other- 
wise he  is  not  a  holder  in  due  course,  A  note  is  due 
when  the  principal  is  to  be  paid.  It  has  been  laid 
down  that,  tho  the  interest  may  be  overdue,  this  does 
not  deprive  a  holder  of  his  quality  as  a  holder  in  due 
course.  A  bill  payable  on  demand  matures  a  reason- 
able time  after  demand.  It  is  deemed  to  be  overdue 
when  it  can  be  seen  from  the  instrument  that  it  has 
been  in  circulation  for  an  unreasonable  time.  When 
a  note  is  payable  on  demand  and  has  been  indorsed, 
it  must  be  presented  for  payment  within  a  reasonable 


232  COMIMERCIAL  LAW 

time,  or  the  indorser  is  discharged.  If,  however,  it 
has  been  deHvered,  with  the  assent  of  the  indorser  as 
a  collateral  or  continuing  security,  it  need  not  be  pre- 
sented for  payment  so  long  as  it  is  held  for  such  se- 
curity,   y 

In  determining  what  is  a  reasonable  time,  regard 
must  be  had  to  the  nature  of  the  bill,  the  usage  of 
trade  with  respect  to  similar  bills,  and  the  facts  of  the 
particular  case.  It  has  been  held  that  a  bill  drawn 
in  Toronto  on  August  sixth  by  a  party  dealing  in 
bills,  on  New  York,  payable  at  sight,  in  favor  of  a 
party  living  in  Illinois,  to  be  sent  there  as  a  remittance 
and  for  circulation,  which  passed  thru  a  number  of 
hands  and  was  presented  in  New  York  on  November 
tenth,  was  presented  within  a  reasonable  time.^  With 
our  better  transportation  facilities,  this  delay  would 
probably  be  considerably  shortened,  this  decision  hav- 
ing been  rendered  in  1850.  There  is  no  absolute  rule. 
MacLaren  states  that  in  France  there  is  a  limit  for 
presentment  of  three  months  fixed  for  Europe  and 
Algeria,  four  months  for  Asia,  six  months  for  Amer- 
ica and  Southern  Africa,  and  one  year  for  the  rest  of 
the  world.^ 

20.  Without  notice  of  dishonor  or  defect. — The 
holder  in  due  course  must  have  taken  the  bill  without 
notice  that  it  had  been  previously  dishonored,  or  of 
any  defect  in  the  title  of  the  person  who  negotiated  it 
to  him.     In  other  words,  he  must  have  taken  the  in- 

1  Boyes  vs.  Joseph,  7  U.  C.  Q.  B.  505  (1850). 

2  MacLaren,  p.  239. 


TRANSFER  AND  NEGOTIATION  233 

strument  in  good  faith.  It  is  not  necessary  that 
formal  notice  of  any  kind  should  have  been  given  him, 
if  there  existed  good  gromid  for  suspicion  that  the 
instrument  was  irregular,  or  that  he  was  taking  it 
under  improper  conditions.  He  must  not  wilfully 
shut  his  eyes.  He  must  investigate  any  circumstances 
which  to  an  ordinary  business  man  would  appear  sus- 
picious. Thus,  if  A,  especially  if  he  is  a  stranger, 
offers  to  give  B  a  note  for  $500  upon  receiving  $300 
and  A  had  stolen  it  from  X,  who  made  it,  B  cannot 
be  considered  a  holder  in  due  course,  because  the  dif- 
ference between  the  amount  of  the  note  and  the 
amount  he  paid  for  it  was  a  sufficient  indication  that 
there  was  irregularitj'^  in  the  transfer.  He  becomes  a 
mere  transferee,  and  a  transferee  in  bad  faith,  with 
no  better  rights  than  A  had  against  X. 

jNIere  negligence  on  the  part  of  the  transferee  is  not 
enough  to  deny  him  the  status  of  a  holder  in  due 
course,  as  it  is  not  altogether  a  question  of  diligence 
or  negligence  in  making  inquiry  in  every  suspicious 
case.  Good  faith  is  presumed,  and  a  thing  is  deemed 
to  be  done  in  good  faith  when  it  is  in  fact  done  hon- 
estly, whether  negligently  or  not.  As  Lord  Black- 
burn has  pointed  out,  there  is  a  difference  between 
honest  blundering  and  dishonest  refraining  from  in- 
quiry. WTiat  the  court  will  attempt  to  discover  is 
whether  the  transferee  acted  fairly  and  honestly.  If 
the  transferee  receives  notice  of  a  defect  in  title,  or 
of  previous  dishonor,  he  does  not  become  a  holder 
in  due  course;  and  notice  to  an  agent  has  been  held  to 


234  COMMERCIAL  LAW 

be  notice  to  the  principal,  tlio,  if  a  bill  is  negotiated 
to  the  agent  and  notice  is  given  to  the  principal, 
it  has  been  held  that  a  reasonable  time  must  be  given 
for  communication  between  them.  Notice  may  not 
have  been  given  directly.  The  indorsee  may  have 
come  into  knowledge  of  the  facts.  Thus  if  he  takes 
a  check  from  the  payee,  knowing  that  the  drawer 
claimed  that  it  had  been  delivered  only  conditionally 
and  that  he  had  stopped  its  payment,  he  is  not  a 
holder  in  due  course.  The  erasure  of  the  name  of 
one  of  the  sureties  of  the  note  is  an  irregularity  in  the 
note  which  should  put  the  purchaser  upon  inquiry.^ 
Similarly,  the  erasure  of  the  indorsement  of  the  payee 
by  a  thief  has  been  held  to  be  an  irregularity  suffi- 
ciently patent  to  have  put  the  purchaser  on  his  guard. 
In  another  case,  in  which  a  bank  accepted  a  bill  that 
had  been  given  for  coal  to  be  delivered,  it  was  held 
that  the  bank  became  a  holder  in  due  course,  tho  it 
turned  out  that  the  coal  was  not  subsequently  deliv- 
ered. As  we  have  already  said,  good  faith  is  pre- 
sumed; it  would  be  impossible  to  do  business  if  the 
history  of  every  negotiable  instrument  had  to  be  in- 
vestigated. 

21.  Consideration. — A  holder  must  have  taken  the 
bill  for  value;  if  he  has  not  paid  value  he  is  not  a 
holder  in  due  course.  Value  means  valuable  consid- 
eration. Valuable  consideration  may  be  constituted 
by  any  consideration  sufficient  to  support  a  simple 
contract,  or  by  an  antecedent  debt  or  liability.     The 

1  McCramen  vs.  Thompson,  21  Iowa,  244. 


TRANSFER  AND  NEGOTIATION  235 

consideration  may  be  some  right,  interest,  profit  or 
benefit  accruing  to  the  one  party,  or  some  forbear- 
ance, detriment,  loss  or  responsibility  given,  suffered 
or  undertaken  by  the  other. ^  Every  party  whose  sig- 
nature appears  on  the  bill  is  prima  facie  deemed  to 
have  become  a  party  thereto  for  value,  whether  the 
bill  or  note  contains  the  words  "value  received"  or 
not.  When  a  note  is  received  as  collateral  securib » 
the  liolder  has  a  lien  on  it,  and  he  is  deemed  *^  he  a 
holder  for  value  to  the  extent  of  the  sxnn  for  which  he 
has  a  lien;  that  is,  he  has  a  right  to  retain  possession 
of  the  bill  or  note  until  his  claim  is  satisfied. 

22.  Negotiation  of  bill. — The  bill  must  have  been 
negotiated  to  the  holder  in  due  course.  That  is,  it 
must  have  been  transferred  to  him  in  such  a  way  as 
to  constitute  him  the  holder.  If  a  bill  is  payable  to 
bearer,  it  is  negotiated  by  dehvery;  if  payable  to  a 
specified  person  or  to  order,  it  is  negotiated  by  in- 
dorsement and  delivery.  A  holder  who  derives  his 
title  thru  a  holder  in  due  course,  and  who  is  in  good 
faith  and  not  a  party  to  any  fraud  or  illegality  affect- 
ing the  instrument,  has  all  the  rights  of  such  holder 
in  due  course,  as  against  prior  parties.  It  would  be 
unfair  that  a  person  deriving  his  title  from  a  holder 
in  due  course  should  find  himself  unable  to  further 
negotiate  the  note,  owing  to  some  informality  or  ille- 
gality due  to  the  act  of  a  prior  holder.  Thus,  if  A 
gives  a  note  for  five  hundred  dollars  to  B,  and  C  steals 
it  and  forges  B's  signature  and  thus  transfers  it  to 

1  Currie  vs.  Misa,  L.  R.  10  Ex.  162. 


236  COMMERCIAL  LAW 

D,  and  E  hears  of  the  circumstances  and  accepts  the 
note  from  D,  paying  value  for  it,  E  can  recover  from 
A,  because  his  predecessor  D  was  a  holder  in  due 
course;  but  if  E  transferred  it  to  C,  the  latter,  being 
the  thief,  could  not  collect  from  A. 

23.  Rights  of  a  holder  in  due  course. — A  holder  in 
due  course  holds  a  bill  or  note  free  from  any  defect  of 
title  of  prior  parties,  as  well  as  from  personal  defenses 
available  to  prior  parties  among  themselves,  and  may 
enforce  payment  against  all  parties  liable  on  the  in- 
strument. Among  these  personal  defenses  would 
probably  be  included  the  defense  of  fraud,  illegality, 
want  or  failure  of  consideratioii,  threats  or  a  plea  of 
compensation  or  set-off.  They  would  not  include 
want  of  capacity,  want  of  authority,  the  defense  of 
forgery,  or  the  like. 

We  have  said  that  every  holder  is  presumed  to  be  a 
holder  in  due  course.  This  presumption  would  be 
overcome  if  one  or  more  of  these  personal  defenses 
were  proved.  Upon  such  a  defense  being  raised,  the 
holder  must  then  prove  that  he  is  a  holder  in  due 
course — that  is,  a  bona  fide  holder  for  value,  without 
notice  of  any  defect.  A  note  given  for  an  illegal 
consideration,  for  example,  to  induce  a  witness  not  to 
give  evidence  in  a  criminal  prosecution,  may  be  col- 
lected by  a  bona  fide  holder  for  value  before  maturity. 
A  note  fraudulently  made  by  a  partner  in  the  part- 
nership name  binds  the  firm  in  the  hands  of  a  bona 
fide  holder  for  value.  But  a  promissory  note  made 
by  a  married  woman,  separate  as  to  property,  in  fa- 


TRANSFER  AND  NEGOTIATION  237 

vor  of  a  creditor  of  her  husband,  is  absolutely  null, 
and  no  action,  it  has  been  held  in  Quebec,  can  be  main- 
tained thereon  by  a  bank  which  has  discounted  the 
same  in  good  faith  before  maturity,  in  ignorance  of 
the  cause  of  nullity.  The  rigor  of  this  rule  has  been 
relaxed,  in  that  a  third  party  in  good  faith,  like  the 
bank  in  question,  can  now  recover.  The  good  faith 
of  the  third  party  will,  however,  be  very  zealously 
scrutinized.  However,  it  has  been  held  in  England,  in 
Quebec,  in  Manitoba,  in  Illinois  and  in  Wisconsin 
(the  principle  is  of  general  acceptance)  that  when 
an  illiterate  man  was  led  to  believe  that  he  was  be- 
coming a  party  to  an  agTeement,  but  the  instrument 
proved  to  be  a  promissory  note,  and  he  was  not  guilty 
of  negligence,  he  is  not  liable  on  the  note  even  to  a 
holder  in  due  course. 

REVIEW 

WTiat  is  the  eflPect  of  assignment? 

Explain  transfer  by  operation  of  law. 

What  is  meant  by  negotiation  by  simple  delivery;  by  indorse- 
ment; by  allonge? 

Give  the  chief  requisites  of  an  indorsement. 

What  is  an  indorsement  in  blank;  a  special  indorsement;  a 
conditional  indorsement;  a  restrictive  indorsement;  an  indorse- 
ment waiving  conditions;  an  irregular  indorsement? 

Discuss  the  holder  in  due  course?  How  is  he  distinguished 
from  a  mere  holder  ?     What  are  his  rights  ? 


y  CHAPTER  XV 

CONTRACT  OF  PARTIES 

1.  Maker's  contract. — The  maker  of  a  negotiable 
instrument  by  making  it  engages  that  he  will  pay  it 
according  to  its  tenor.  By  paying  according  to  its 
tenor  is  meant  that  he  will  pay  according  to  the  con- 
tract made  by  him,  and  as  it  appeared  on  the  face  of 
the  instrument  when  he  delivered  it.  He  is  precluded 
from  denying  to  a  holder  in  due  course  the  existence 
of  tlie  payee  and  the  capacity  of  the  payee  to  indorse 
at  the  time  of  indorsement.  For  all  practical  pur- 
poses, the  maker  of  a  note,  for  example,  corresponds 
to  the  unconditional  acceptor  of  a  bill  of  exchange. 
His  contract  is  interpreted  strictly  against  him,  be- 
cause so  far  as  the  instrument  itself  shows,  his  con- 
tract thereon  is  made  voluntarily.  He  is  the  primary 
debtor.  Indorsers  are  secondarily  liable  until  the 
note  has  been  dishonored  and  notice  given  to  them. 
Ordinarily,  a  promissory  note  made  payable  at  a  par- 
ticular place  must  be  presented  for  payment  at  that 
place,  but  the  maker  is  not  discharged  by  the  omission 
to  present  the  note  for  payment  on  the  day  that  it 
matures.  If  he  is  sued  upon  the  note  without  its  hav- 
ing been  presented,  he  may  plead  the  fact,  and  tho 
he  will  not  escape  liability  on  the  note  itself,  the  costs 
of  the  action  will  be  in  the  discretion  of  the  court. 

238 


CONTRACT  OF  PARTIES  239 

If  no  place  of  payment  is  specified  in  the  body  of 
the  note,  presentment  for  pajTnent  is  not  necessary  in 
order  to  render  the  maker  liable.  The  note  may  be 
made  by  two  or  more  makers,  and  they  may  be  liable 
thereon  jointly  or  jointly  and  severally,  according  to 
its  tenor.  Where  a  note  runs,  "I  promise  to  pay" 
and  is  signed  by  two  or  more  persons,  it  is  deemed  to 
l)e  their  joint  and  several  note;  that  is,  each  can  be 
sued  for  and  be  forced  to  pay  the  whole  amount  of  the 
note.  If  they  are  jointly  liable  only  one  action  can 
be  taken.  As  the  maker  of  a  note  is,  in  these  respects, 
similar  to  the  acceptor  of  a  bill  of  exchange,  the  rules 
above  mentioned  apply  in  so  far  as  they  are  applicable 
to  both. 

2.  Acceptor  s  contract. — The  drawee,  that  is,  the 
person  upon  whom  a  bill  of  exchange  is  drawn,  un- 
til he  accepts,  is  not  liable  on  the  bill.  By  accepting 
he  signifies  his  assent  to  the  order  of  the  drawer,  and 
his  acceptance  is  irrevocable ;  but  only  delivery  of  the 
instrument  so  accepted  by  him  gives  effect  thereto,  un- 
less after  having  accepted,  but  before  deliver}^  he 
gives  notice  to  the  person  entitled  to  the  bill  that  he 
has  accepted  it.  His  acceptance  then  becomes  com- 
plete and  irrevocable.  Having  accepted  and  deliv- 
ered the  bill,  he  of  course  becomes  liable  to  the  holder, 
according  to  the  terms  of  his  acceptance.  But  his  ac- 
ceptance must  be  in  writing,  and  must  be  signed  as 
such.  His  acceptance  is  invalid  if  it  expresses  that 
he  will  perform  his  promise  by  any  other  means  than 
the  payment  of  money.     The  mere  signature  of  the 


240  COMMERCIAL  LAW 

drawee,  however,  written  on  the  bill  without  addi- 
tional words  is  a  sufficient  acceptance.  It  has  been 
held  that,  tho  the  acceptance  and  signature  of  the 
drawee  are  usually  written  across  the  bill,  it  will  be 
valid  when  written  below  the  drawee's  name,  or  above 
it,  or  parallel  to  it,  or  even  on  the  back  of  the  bill/ 
If  written  on  the  back  of  the  bill,  it  may  be  doubtful 
whether  an  indorsement  or  an  acceptance  is  intended, 
unless  the  word  "accepted"  is  used  in  connection  with 
the  signature.  The  acceptance  may  be  upon  a  blank 
paper  and  may  be  delivered  to  be  filled  up  as  a  bill, 
when  it  will  be  binding.  It  may  be  accepted  before 
it  has  been  signed  by  the  drawer,  or  while  otherwise 
incomplete.  It  may  be  accepted  when  it  is  overdue,  or 
after  it  has  been  dishonored  by  protest,  by  refusal  to 
accept  or  by  non-payment.  But  a  bill  accepted  when 
overdue  is  payable  on  demand.  When  a  bill  payable 
at  sight  or  after  sight  is  dishonored  by  non-acceptance, 
and  the  drawee  subsequently  accepts  it,  the  holder,  in 
the  absence  of  any  different  agreement,  is  entitled  to 
have  the  bill  accepted  as  of  the  date  of  first  present- 
ment to  the  di'awee  for  acceptance. 

Under  our  law  a  promise  to  accept  is  not  an  accept- 
ance, tho  the  drawee  who  gives  such  a  promise  could 
be  held  liable  on  his  contract,  tho  not  as  an  acceptor. 
The  act  is  explicit  in  stating  that  the  acceptance  must 
be  written  on  the  bill,  and  while  at  one  time  a  verbal 
acceptance  was  binding,  it  is  not  so  now.  The  drawee 
may  accept  a  bill  on  the  day  of  its  due  presentment  to 

1  Daniel,  Sec.  498. 


CONTRACT  OF  PARTIES  241 

him  for  acceptance,  or  at  any  time  within  two  days 
thereafter.  If  it  is  not  so  accepted,  the  holder  should 
treat  it  as  dishonored  by  non-acceptance.  If  he 
does  not  treat  the  bill  as  dishonored,  the  holder  loses 
his  right  of  recourse  against  the  drawer  and  in- 
dorsers. 

3.  Facts  which  acceptor  admits,  and  facts  ichich  he 
does  not  admit. — The  acceptor  of  a  bill,  by  accepting 
it,  is  precluded  from  denying  to  a  holder  in  due  course 
the  existence  of  the  drawer,  the  genuineness  of  his 
signature,  and  his  capacity  and  authority  to  draw  the 
bill.  If  the  bill  is  payable  to  the  bearer's  order,  the 
acceptor  is  precluded  from  denying  the  then  capacity 
of  the  drawer  to  indorse,  but  not  the  genuineness  or 
validity  of  his  indorsement.  If  the  bill  is  payable  to 
the  order  of  a  third  person,  the  acceptor  cannot  deny 
to  a  holder  in  due  course  the  existence  of  the  payee  and 
his  then  capacity  to  indorse,  but  is  not  precluded  from 
denying  the  genuineness  or  validity  of  his  indorse- 
ment. By  this  is  meant  that  the  acceptor,  by  the  act 
of  acceptance,  admits  and  warrants  to  a  bona  fide 
holder  that  the  payee  has  capacity  to  indorse,  but  he 
does  not  warrant  the  validity  or  genumeness  of  the 
indorsement. 

4.  Kinds  of  acceptance. — An  acceptance  is  either 
general  or  quahfied.  A  general  acceptance  assents 
without  qualification  to  the  order  of  the  drawer.  A 
general  acceptance  will  be  implied  where  the  acceptor 
has  written  his  name,  with  the  word  "accepted,"  across 
the  face  of  the  bill.     A  qualified  acceptance  in  express 

XXIV— 17 


242  COMMERCIAL  LAW 

terms  varies  the  effect  of  the  bill  as  drawn.     An  ac- 
ceptance is  qualified  which  is: 

•  (a)  Conditional,  that  is  to  say,  which  makes  pay- 
ment by  the  acceptor  dependent  on  the  fulfil- 
ment of  a  condition  therein  stated. 

(b)  Partial,  that  is  to  say,  an  acceptance  to  pay 
part  only  of  the  amount  for  which  the  bill  is 
drawn. 

(c)  Qualified  as  to  time. 

(d)  The  acceptance  of  some  one  or  more  of  the 
drawees,  but  not  of  all. 

While  a  bill  of  exchange  is  an  unconditional  order 
to  pay,  the  acceptance  is  none  the  less  valid  if  condi- 
tional. The  acceptor  is  liable  upon  the  fulfilment  of 
the  condition.  Thus,  an  acceptance  is  conditional 
when  it  is  in  the  following  terms :  "If  a  certain  house 
shall  be  finished";  "when  in  funds  from  the  estate  of 
C" ;  "as  soon  as  he  should  sell  such  goods" ;  "on  condi- 
tion that  it  be  renewed."  But  an  acceptance  to  pay 
at  a  specified  place  is  not  on  that  account  conditional 
or  qualified.  A  distinction  is  drawn  between  an  ac- 
ceptance which  changes  the  place  of  payment,  which 
is  a  qualified  acceptance,  and  an  acceptance  which 
merely  adds  another  place,  which  is  not  a  qualified 
acceptance. 

The  holder  of  a  bill  may  refuse  to  take  a  qualified 
acceptance,  and  if  he  does  not  obtain  an  unqualified 
acceptance,  may  treat  the  bill  as  dishonored  bj^  non- 
acceptance.  If  the  drawer  or  indorser  of  a  bill  re- 
ceives notice  of  a  qualified  acceptance  and  does  nCl 


CONTRACT  OF  PARTIES  243 

within  a  reasonable  time  express  his  dissent  to  the 
holder,  he  is  deemed  to  have  assented.  When  a  quali- 
fied acceptance  is  taken,  and  the  drawer  or  indorser 
has  not  expressly  or  imphedly  authorized  the  holder 
to  take  it,  or  does  not  subsequently  assent  thereto, 
the  drawer  or  indorser  is  discharged  from  his  hability 
on  the  bill.  This  rule  does  not  apply,  however,  when 
notice  has  been  given  of  a  partial  acceptance.  The 
holder  who  takes  a  quahfied  acceptance  really  does 
so  at  the  risk  of  releasing  the  drawer  and  indorser, 
unless  they  assent,  as  above  explained. 

5.  Who  may  accept. — The  drawee  to  whom  a  bill 
is  addressed  must  accept  it.  The  authorized  agent  of 
the  drawee  may,  however,  accept  for  him.  The  rule 
suffers  an  exception  or  two.  The  drawer  of  a  bill,  or 
an  indorser,  may  insert  in  the  bill  the  name  of  a  per- 
son who  shall  be  called  the  referee  in  case  of  need,  to 
whom  the  holder  ma^^  resort,  that  is,  in  case  the  bill 
is  dishonored  by  non-acceptance  or  non-payment. 
But  it  is  at  the  option  of  the  holder  to  resort  to  the 
referee  in  case  of  need,  as  he  thinks  fit.  And  when 
a  bill  of  exchange  has  been  protested  for  dishonor  by 
non-acceptance,  or  has  been  protested  for  better  se- 
curity, and  is  not  overdue,  any  person  who  is  not  a 
party  already  liable  on  the  bill  may,  with  the  consent 
of  the  holder,  intervene  and  accept  the  bill  after  pro- 
test for  the  honor  of  any  party  liable  on  it,  or  for 
the  honor  of  the  person  for  whose  account  the  bill  is 
draMTi.  The  acceptor  for  honor  is  only  secondarily 
liable  on  the  bill.     By  accepting,  he  engages  that  he 


244,  COMMERCIAL  LAW 

will,  upon  the  bill  being  properly  presented,  pay  it 
according  to  the  tenor  of  his  acceptance,  if  it  is  not 
paid  by  the  drawee.  But  in  order  to  hold  the  acceptor 
for  honor,  the  bill  must  be  duly  presented  to  the 
drawee  for  payment,  and  be  protested  if  not  paid. 
Notice  of  these  facts  must  be  given  to  the  acceptor 
for  honor. 

6.  Effect  of  acceptance  and  refusal  to  accept. — 
When  a  bill  is  accepted,  it  may  be  held  or  may  be  ne- 
gotiated until  it  matures.  Upon  maturity  it  is  pre- 
sented to  the  acceptor  for  payment.  If  he  does  not 
paj^  the  bill  is  dishonored  for  non-payment.  Notice 
of  dishonor  must  be  given  to  the  drawer  and  to  each 
indorser,  otherwise  they  are  discharged.  But  when  a 
bill  is  dishonored  by  non-acceptance,  and  notice  of  dis- 
honor is  not  given,  the  rights  of  a  holder  in  due  course 
subsequent  to  the  omission  are  not  prejudiced  by  the 
omission.  In  the  Province  of  Quebec,  whether  the 
bill  is  an  inland  or  a  foreign  bill  of  exchange,  it  should 
be  protested,  to  hold  the  drawer  and  any  indorsers. 
Elsewhere  in  Canada  only  a  foreign  bill  need  be  pro- 
tested under  these  circumstances. 

7.  Drawer's  contract. — The  drawer  is  the  person 
who  addresses  the  bill.  His  contract,  as  we  have 
seen,  is  not  complete  until  delivery.  The  drawer  of  a 
bill  by  drawing  it  engages  that  on  due  presentment  it 
shall  be  accepted  and  paid,  according  to  its  tenor,  and 
that  if  it  is  dishonored  he  will  compensate  the  holder 
or  any  indorser ;  he  is  compelled  to  pay  it  if  the  requi- 
site   proceedings    on    dishonor,    as    we   have    stated 


CONTRACT  OF  PARTIES  245 

them,  are  duly  taken.  "V^Tien  drawing  the  bill,  how- 
ever, he  may  negative  or  limit  his  own  liability  to  the 
holder,  or  he  may  waive  as  regards  himself  some  or  all 
of  the  holder's  duties ;  for  instance,  he  may  waive  no- 
tice and  protest.  If  he  stipulates  that  he  will  not  be 
liable  on  the  bill,  then  the  holder  must  look  to  the  ac- 
ceptor alone  and  to  any  indorser  who  may  be  liable. 
If  he  Hmits  his  liability  as  to  the  amount,  he  will  be 
liable  only  to  that  extent.  The  drawer  very  infre- 
quently makes  such  a  stipulation,  but  as  we  have  else- 
where seen,  an  indorser  very  frequently  adds  to  his 
indorsement  the  words,  "without  recourse,"  "no  per- 
sonal liability."  The  drawer  of  a  bill  therefore  war- 
rants that  there  is  a  drawee  who  will  and  can  accept. 
8.  Indorser  s  contract. — The  indorser  of  a  bill  by 
indorsing  it  engages  that  on  due  presentment  it  shall 
be  accepted  and  paid,  according  to  its  tenor,  and  that 
if  it  is  dishonored  he  will  compensate  the  holder  or  a 
subsequent  endorsee,  who  is  compelled  to  pay  it,  pro- 
vided that  the  proper  proceedings  on  dishonor  are 
duly  taken.  Of  course,  in  the  case  of  an  indorser  of 
a  note,  there  is  no  presentment  for  acceptance.  But 
to  hold  the  indorser  of  a  bill  there  must  be  present- 
ment to  the  acceptor,  as  a  preliminary.  "\Miether  the 
instrument  be  a  note  or  a  bill,  it  must  be  presented  for 
payment  on  the  due  date,  and  if  it  is  dishonored,  notice 
must  be  given  to  the  indorser,  with  protest  when 
necessary,  in  order  to  hold  the  indorser  liable.  Pay- 
ment by  the  indorser  does  not  discharge  the  bill  or 
note.     He  may  again  negotiate  it  by  striking  out  his 


246  COMMERCIAL  LAW 

own  and  subsequent  indorsements,  and  if  it  is  in- 
dorsed to  him  he  must  re-indorse. 

9.  Warranties  of  indorser. — If  an  indorser  in- 
dorses without  qualification,  he  warrants  to  all  sub- 
sequent holders,  and  is  precluded  from  denying,  the 
genuineness  and  regularity  of  the  drawer's  signature 
and  all  previous  indorsements.  He  is  also  precluded 
from  denying,  and  therefore  warrants,  to  his  im- 
mediate or  a  subsequent  indorser  that  the  bill  was, 
when  he  indorsed  it,  a  valid  and  subsisting  bill,  and 
that  he  had  then  a  good  title  to  it.  So  when  a  part- 
ner, having  authority  to  draw  and  indorse,  raised 
money  for  firm  use  by  drawing  bills  in  fictitious  names, 
and  indorsed  them  in  the  firm  name,  his  co-partner 
was  liable  to  an  indorsee.  Nor  could  an  accommoda- 
tion indorser  ^  in  an  action  by  a  holder  in  due  course 
plead  that  the  signature  of  the  maker  is  forged.  It 
has  also  been  held  that  the  indorser  of  a  note  made 
by  a  corporation  cannot  allege  that  it  is  ultra  vires. 
When  a  person  indorses  "without  recourse"  or 
merely  transfers  op  assigns  the  instrument,  he  does 
not  warrant  that  it  is  valid — he  transfers  no  better 
rights  than  he  himself  has — ^but  he  does  warrant  that 
he  knows  of  no  defect  which  will  invalidate  or  impair 
the  validity  of  the  instrument.  He  does  not  incur 
the  liability  of  an  ordinaiy  indorser. 

10.  Liability  of  indorsers  among  themselves. — 
When  there  are  two  or  more  indorsements  on  a  bill, 

1  An  accommodation  party  to  a  bill  or  note  is  a  person  who  has  signed 
it  as  drawer,  acceptor  or  indorser,  without  receiving  value  therefor,  and 
for  the  purpose  of  lending  his  name  to  some  other  person. 


CONTRACT  OF  PARTIES  247 

each  indorsement  is  deemed  to  have  been  made  in  the 
order  in  which  it  appears  on  the  bill,  until  the  contrary- 
is  proved.  Each  indorser  therefore  obliges  himself  to 
compensate  the  holder  or  a  subsequent  indorser  who 
pays,  if  the  usual  formalities  upon  dishonor  have  been 
complied  with.  An  agreement  may  exist  as  between 
the  indorsers  that  they  shall  not  be  liable  in  this  order. 
They  may  agree  upon  any  order  of  liability.  A  bona 
fide  holder  may,  however,  call  upon  the  indorsers  for 
payment  in  the  order  of  their  signatures,  even  tho 
he  knew,  when  he  took  the  instrument,  that  there  was 
an  agreement  between  them  that  they  would  be  liable 
in  some  other  order.^  Gerstenberg  and  Hughes  give 
the  following  example.  A  bill  reads,  "Pay  to  the  or- 
der of  B  $100.  A."  The  following  indorsements 
are  found  on  the  back  thereof — "Pay  to  C.  B" ;  "Pay 
to  E  without  recourse.  D";  "E."  At  maturity  the 
bill  is  presented  by  the  holder,  F,  and  A  refuses  to 
pay.  F  notifies  all  the  indorsers.  He  may  sue  any 
or  all  of  them  except  D,  unless  there  is  a  breach  of 
one  of  the  implied  warranties  spoken  of  in  the  previous 
section.  If  he  recovers  from  E,  E  may  recover  from 
C,  B  or  A.  B  may  recover  from  A.  It  is  usual 
for  a  holder  who  has  a  mature  unpaid  instrument  to 
join  all  parties  liable  on  the  instrument  as  defendants 
in  one  suit. 

11.  Liability  of  other  parties. — As  we  have  seen, 
an  accommodation  party  to  a  bill  may  sign  as  drawer, 
acceptor  or  indorser;  to  a  note  as  drawer  or  indorser. 

1  Elder  vs.  KeUy,  8  U.  C.  Q.  B.  240. 


248  COMMERCIAL  LAW 

He  is  liable  to  a  holder  for  value,  tho  as  an  accommo- 
dation party  he  has  signed  without  receiving  value, 
whether  or  not  the  holder  who  takes  the  bill  or  note 
knew  that  he  was  an  accommodation  party.  He  is 
not  liable  to  the  person  whom  he  accommodates.  He 
may  set  up  any  defense  that  the  person  accommo- 
dated could  set  up.  If  the  holder  knows  of  the  rela- 
tion between  the  accommodation  party  ^  and  the  party 
accommodated,  and  gives  time  to  the  latter  to  pay, 
the  former  is  released.  A  second  accommodation  in- 
dorser,  who  has  paid  a  note,  msiy,  it  has  been  held, 
recover  from  a  prior  accommodation  indorser.  But 
it  has  been  held  that  a  manufacturing  corporation  has 
no  power  to  bind  itself  as  an  accommodation  party. 
The  plaintiff  must  show  both  that  he  paid  value  and 
also  that  he  did  not  know  of  the  accommodation  char- 
acter of  the  instrument.^ 

When  a  person  gives  a  guarantee,  on  a  note,  for 
instance,  that  it  will  be  paid,  he  becomes  a  warrantor 
of  the  obhgations  of  the  drawer  or  indorser,  as  the 
case  may  be.  He  has  signed,  otherwise  than  as 
drawer  or  acceptor,  and  under  the  act,  thereby  incurs 

1  An  accommodation  party  has  been  well  defined  in  an  American  case — 
Cheever  vs.  Railroad,  150  N.  Y.  59 — as  follows: 

An  accommodation  party  is  one  who  has  no  interest  in  the  considera- 
tion, but  signs  as  maker  or  indorsee  merely  to  lend  his  credit  to  the 
instrument;  he  may  do  this  for  a  consideration  or  as  a  friendly  act.  He 
is  liable  to  the  holder,  but  the  paper  must  not  be  diverted  from  the  pur- 
pose for  which  the  accommodation  is  given.  But  if  wrongfully  diverted 
paper  is  taken  by  the  holder  bona  fide  and  without  knowledge  of  imper- 
fections his  rights  cannot  be  defeated. 

2  National  Bank  vs.  Snyder  Co.,  117  App.  Div.  370. 


CONTRACT  OF  PARTIES  249 

the  liabilities  of  an  indorser  to  a  holder  in  due  course. 
He  is  liable  without  notice  of  dishonor  or  protest.  He 
is  bound  by  any  notice  given  to  the  person  whose  lia- 
bility he  warrants. 

12.  Damages. — A  person  who  promises  to  accept  a 
bill,  and  does  not  do  so,  may  be  Hable  in  damages. 
When  a  bill  or  note  is  dishonored,  the  measure  of 
damages  deemed  to  be  liquidated  damages  will  be  the 
amount  of  the  bill  or  note,  interest  from  the  time  of 
presentment  in  case  of  a  bill  payable  on  demand,  and 
from  maturity  in  the  case  of  a  time  bill  or  a  note,  to- 
gether with  the  expenses  of  noting  and  protest. 
Among  the  expenses  re-exchange  would  also  be  in- 
cluded. In  case  of  a  bill  which  has  been  dishonored 
abroad,  in  addition  to  the  damages  just  mentioned, 
the  holder  may  recover  from  the  drawer  or  any  in- 
dorser, and  the  drawer  or  an  indorser  who  has  been 
compelled  to  pay  the  bill  may  recover  from  any  party 
liable  to  him,  the  amount  of  the  re-exchange  with  in- 
terest thereon  until  paid.  Re-exchange  has  been  de- 
jfined  as  the  act  of  drawing  a  sight  draft  on  the  drawer 
to  make  good  the  loss  on  the  dishonored  bill.  The 
amount  of  the  re-exchange  is  the  amount  of  the  loss 
resulting  from  the  dishonor  of  a  bill  in  a  country 
other  than  that  in  which  it  was  drawn  or  indorsed. 
The  re-exchange  is  ascertained  by  proof  of  the  sum 
for  which  a  sight  bill  (dra\^Ti  at  the  time  and  place  of 
dishonor  at  the  then  rate  of  exchange  on  the  place 
where  the  drawee  or  indorser  sought  to  be  charged 


resides)  must  be  drawn,  in  order  to  realize,  at  the  place 
of  dishonor,  the  amount  of  the  dishonored  bill,  and 
the  expenses  consequent  on  its  dishonor. 


REVIEW 

What  is  meant  by  paying  a  negotiable  instrument  according  to 
its  tenor?     Is  presentment  necessary  to  fix  the  maker's  liability? 
Discuss  the  contract  made  by  the  acceptor. 
What  facts  are  admitted  and  what  not  admitted  by  the  act  of 


acceptance 


^ 


What  kind  of  acceptance  may  there  be?  Discuss  qualified  ac- 
ceptance. 

Who  may  accept  an  instrument? 

Explain  the  indorser's  contract.  What  warranties  are  made 
by  an  unqualified  indorsement?  How  are  indorsers  liable  among 
themselves  ? 


CHAPTER  XVI 

PRESENTMENT  AND  NOTICE  OF  DISHONOR 

1.  Presentment  for  acceptance. — ^'Vlien  a  bill  is 
payable  at  sight  or  after  sight,  presentment  for  ac- 
ceptance is  necessary  in  order  to  fix  the  maturity  of 
the  instrument :  a  sight  bill  being  payable  on  the  third 
day  after  acceptance,  and  a  bill  payable  after  sight 
being  payable  on  the  third  day  after  the  expiry  of 
the  time  after  sight  stated  in  the  bill.  A  bill  pay- 
able at  sight  is  not,  under  our  law,  payable  on  demand. 
So  also  when  a  bill  expressly  stipulates  that  it  shall 
be  presented  for  acceptance,  or  if  it  is  drawn  payable 
elsewhere  than  at  the  residence  or  place  of  business 
of  the  drawee,  it  must  be  presented  for  acceptance  be- 
fore it  can  be  presented  for  payment.  In  no  other 
case,  says  the  act,  is  presentment  for  acceptance  neces- 
sary in  order  to  render  Hable  any  party  on  the  bill. 
The  drawer  and  indorsers  are  entitled  to  have  the 
bill  presented  for  acceptance  in  the  cases  above  men- 
tioned; otherwise  they  are  discharged  as  toward  the 
holder.  When  a  bill  is  payable  at  sight,  or  at  a  fixed 
period  after  date,  after  sight,  or  after  the  happening 
of  a  specified  event,  the  time  of  payment  is  deter- 
mined by  excluding  the  day  from  which  the  time 
is  to  begin  to  run  and  by  including  the  day  of  pay- 

251 


252  COMMERCIAL  LAW 

ment.  If  a  bill  is  payable  at  sight,  or  at  a  fixed  pe- 
riod after  sight,  the  time  begins  from  the  date 
of  the  acceptance  if  the  bill  is  accepted,  and  from  the 
date  of  noting  or  protest  if  the  bill  is  noted  or 
protested  for  non-acceptance  or  for  non-delivery. 
When,  in  such  a  case,  one  or  more  do  not  accept,  the 
acceptance  becomes  at  once  qualified,  and  the  drawer 
and  indorsers  will  be  discharged  unless  the  holder  has 
notified  them,  or  has  treated  the  bill  as  dishonored. 

When  authorized  by  agreement  or  usage,  a  pre- 
sentment thru  the  post  office  is  sufficient.  When 
the  drawee  is  dead,  presentment  may  be  made  to  his 
personal  representative.  But  presentment  is  excused, 
and  the  bill  may  be  treated  as  dishonored  for  non- 
acceptance,  when  the  drawee  is  dead,  or  is  a  fictitious 
person,  or  a  person  not  having  capacity  to  contract. 
It  is  also  excused  when,  after  the  exercise  of  reason- 
able diligence,  presentment  cannot  be  made,  for  in- 
stance if  the  drawee  cannot  be  found.  It  is  not  ex- 
cused simply  because  the  holder  has  reason  to  believe 
that  the  bill,  on  presentment,  will  be  dishonored.  The 
duties  of  the  holder  with  respect  to  presentment  for 
acceptance  or  payment,  and  the  necessity  for,  or 
sufficiency  of,  a  protest  or  notice  of  dishonor,  are  de- 
termined by  the  law  of  the  place  where  the  act  is  done 
or  the  bill  is  dishonored. 

2.  Presentment  for  payment. — If  the  bill  is  not 
duly  presented  for  payment,  the  drawer  and  indor- 
sers are  discharged.  They  are  entitled  to  have  every 
formality  strictly  observed.     As  toward  the  acceptor 


i 


NOTICE  OF  DISHONOR  253 

himself,  as  he  is  primarily  liable,  presentment  for 
payment  is  not  necessary  to  hold  him  liable.  But,  if 
he  has  been  sued  on  the  bill,  without  ha\ang  been  given 
a  chance  to  pay  it  by  having  it  presented  to  him  for 
payment,  the  court  may  award  the  costs  in  its  discre- 
tion. When,  however,  a  bill  is  dishonored  by  non- 
acceptance,  an  immediate  right  of  recourse  against 
the  drawer  and  indorsers  accrues  to  the  holder,  and 
no  presentment  for  pajTuent  is  necessary. 

Presentment  for  pa\Tnent  or  protest,  if  the  bill  is 
noted  or  protested  for  non-acceptance,  is  made  by 
the  holder.^ 

A  word  should  also  be  said  here  as  to  how  the  due 
date  of  a  bill  is  determined.  Every  bill  which  is  made 
payable  at  a  month  or  months  after  date  becomes  due 
on  the  same  numbered  day  of  the  month  in  which  it  is 
made  payable  as  the  day  on  which  it  is  dated,  unless 
there  is  no  such  day  in  the  month  in  which  it  is  made 
payable,  in  which  case  it  becomes  due  on  the  last  day 
of  that  month,  with  the  addition,  in  all  cases,  of  the 
days  of  grace.  The  term  "month"  in  a  bill  means 
the  calendar  month. 

3.  When,  where  and  how  made. — A  bill  is  duly 
presented  for  acceptance  when  it  is  presented,  by  or 
on  behalf  of  the  holder,  to  the  drawee,  or  to  some  per- 
son authorized  to  accept  or  refuse  acceptance  on  his 
behalf,  at  a  reasonable  hour  on  a  business  day  and 

1  When  a  bill  is  lost  or  destroyed,  or  is  wrongly  or  accidentally  de- 
tained from  the  person  entitled  to  hold  it,  or  is  accidentally  retained  in  a 
place  other  than  where  payable,  protest  may  be  made  on  a  copy  or  writ- 
ten particulars  thereof.     (Section  120.) 


254  COMMERCIAL  LAW 

before  the  bill  is  overdue.  If  it  is  accepted  after  ma- 
turity, it  becomes  a  demand  bill,  and  subject  to  the 
rule  that,  in  order  to  hold  the  indorser  liable,  it  must 
be  presented  for  payment  within  a  reasonable  time 
after  its  indorsement,  and  a  reasonable  time  after  its 
issue,  in  order  to  hold  the  drawer.  What  is  a  rea- 
sonable hour  for  presentment  will  depend  on  the  cir- 
cumstances. If  presentable  at  a  man's  office,  it 
should  be  during  ordinary  office  hours,  or  during 
banking  hours,  if  at  a  bank ;  if  at  his  house,  probably 
at  any  reasonable  hour  when  he  would  ordinarily  be 
there. 

When  a  bill  is  addressed  to  two  or  more  drawees, 
who  are  not  partners,  presentment  must  be  made  to 
them  all,  unless  one  has  authority  to  accept  for  all, 
by  some  person  authorized  to  receive  payment  on  his 
behalf,  at  the  proper  place,  and  either  to  the  person 
designated  by  the  bill  as  payer,  or  to  his  representa- 
tive or  some  person  authorized  to  pay  or  to  refuse 
payment  on  his  behalf.  Delaj^  in  making  present- 
ment for  payment  is  excused  when  caused  by  circum- 
stances beyond  the  control  of  the  holder,  and  not  im- 
putable to  his  misconduct  or  negligence.  But  when 
the  delay  ceases  to  operate,  presentment  must  be 
made  with  reasonable  diligence.  Thus,  when  a  note 
was  lying  at  a  branch  bank  where  it  was  payable, 
and  the  new  agent  was  not  aware  of  the  fact  until 
noon  of  the  day  after  maturity,  when  he  had  it  pro- 
tested and  notice  given,  it  was  held  this  was  sufficient 
to  bind  the  indorser. 


NOTICE  OF  DISHONOR  255 

Presentment  for  payment  is  dispensed  with  when, 
after  the  exercise  of  reasonable  dihgence,  the  present- 
ment cannot  be  effected^  or  when  the  drawee  is  a  fic- 
titious person  (in  which  case  the  instrument  may  be 
treated  as  a  promissory  note).  It  is  also  dispensed 
with  as  regards  the  drawer,  when  the  drawee  or  ac- 
ceptor is  not  bound,  as  between  himself  and  the 
di-awer,  to  accept  or  pay  the  bill,  and  the  drawer  has 
no  reason  to  believe  that  it  will  be  paid  if  presented; 
or  as  regards  an  indorser,  when  the  bill  was  ac- 
cepted or  made  for  the  accommodation  of  that  in- 
dorser, and  he  has  no  reason  to  expect  that  the  bill 
would  be  paid  if  presented.  Presentment  may  also 
be  waived,  expressly  or  impliedly.  It  is  not  dispensed 
with  merely  because  the  holder  has  reason  to  believe 
the  bill  will  not  be  paid  when  presented.  If  the  ac- 
ceptor is  dead,  the  bill  may  be  presented  to  his  execu- 
tor or  representatives. 

If  payment  is  made,  the  bill  or  note,  as  the  case 
may  be,  is  delivered.  If  pajTnent  is  refused,  the 
drawer  and  indorsers  are  notified  that  the  payment 
has  not  been  made,  and  are  protested  when  neces- 
sary. Presentment  for  payment  is  necessary  in  order 
to  hold  the  indorser  of  a  note  liable;  and  the  rules 
as  to  presentment,  with  the  exception  of  course  of 
those  relating  to  presentment  for  acceptance,  apply, 
in  so  far  as  they  may,  to  notes  as  well  as  to  bills. 

4.  Time  and  place  of  presentment  for  payment. — 
A  bill  or  note  is  duly  presented  for  payment  if,  when 
not  payable  on  demand,  it  is  presented  on  the  day  it 


256  COMMERCIAL  LAW 

falls  due.  The  day  on  which  it  falls  due  is  the  third 
day  of  grace,  unless  that  be  a  non-business  day.  It 
would  in  that  case  fall  due  on  the  next  business  day. 
A  demand  bill  must  be  presented  for  payment  within 
a  reasonable  time  after  its  issue  to  render  the  drawer 
liable,  and  within  a  reasonable  time  after  its  indorse- 
ment to  render  the  indorser  liable.  Checks  and  de- 
mand notes  must  be  presented  for  payment  within  a 
reasonable  time  after  issue. 

Presentment  is  to  be  made  at  the  place  specified  in 
the  bill  or  acceptance.  Hence,  when  a  bill  was  pay- 
able at  the  office  of  the  acceptor  at  Swansea,  and  was 
presented  to  him  personally  at  Newport,  it  was  held 
that  an  indorser  was  not  liable/  If  no  place  of  pay- 
ment is  specified  and  no  address  is  given,  it  must  be 
presented  at  tjie  drawee's  or  acceptor's  place  of  busi- 
ness, if  known,  and,  if  not,  at  his  ordinary  residence, 
if  known;  in  other  cases,  at  the  last  known  place  of 
business  or  residence.  If  the  instrument  is  at  the 
bank  or  other  place  of  payment  at  maturity,  present- 
ment is  complete. 

5.  Presentment  waived  and  dispensed  with. — 
When  a  bill  is  presented  at  the  proper  place,  and 
after  the  exercise  of  reasonable  diligence  no  person 
authorized  to  pay  or  refuse  payment  can  there  be 
found,  no  further  presentment  to  the  drawee  or  ac- 
ceptor is  required.  The  drawee  or  acceptor  is  sup- 
posed to  arrange  for  payment,  and  either  to  be  on 
hand  himself,  or  to  have  someone  at  the  place  of  pay- 

1  Beirnstein  vs.  Usher,  11  T.  L.  R.  356  (1895). 


NOTICE  OF  DISHONOR  257 

ment  to  represent  him.  If  not,  or  if  the  place  of 
payment,  his  office  for  instance,  is  closed  during  rea- 
sonable hours,  no  further  presentment  is  necessary. 
If  the  place  of  payment  is  specified  as  a  city,  town 
or  village,  where  there  are  many  banks  or  none  at 
all,  and  no  place  of  payment  therein  is  specified,  the 
bill  or  note  may  be  presented  at  the  debtor's  known 
place  of  business  or  knowTi  ordinary  residence,  or,  in 
lieu  thereof,  at  the  post  office  or  principal  post  office. 
Delay  in  making  presentment  for  payment  is  excused 
when  the  delay  is  caused  by  circumstances  beyond  the 
control  of  the  holder,  and  not  imputable  to  his  de- 
fault, misconduct  or  negligence.  But  so  soon  as  the 
cause  of  the  delay  ceases  to  operate,  presentment  must 
be  made  with  reasonable  diligence.  Presentment  may 
be  waived  by  the  endorser  writing  after  his  name, 
"Protest  waived,"  "Presentment  waived." 

6.  Payment  for  honor. — When  a  bill  has  been  pro- 
tested for  non-pajTiient,  any  person  may  intervene 
and  pay  it  supra  protest  for  the  honor  of  any  party 
liable  thereon,  or  for  the  honor  of  the  person  for 
whose  account  the  bill  is  drawn.  Upon  paying  the 
amount  of  the  instrument  and  the  notarial  expenses 
incidental  to  its  dishonor,  he  is  entitled  to  receive  the 
instrument  and  the  protest.  In  order  that  a  payment 
for  honor  supra  protest  shall  operate  as  such,  and  not 
as  a  mere  voluntary  pajTiient,  what  is  called  a  no- 
tarial act  of  honor  must  be  made  and  be  attached  to 
the  protest  or  form  an  extension  of  it.  It  is  based 
upon  a  declaration  of  the  person  who  pays,  declaring 

XXI Y — 18 


258  COMMERCIAL  LAW 

his  intention  to  pay  for  honor,  and  for  whose  honor  he 
pays,  and  is  in  the  following  form: 

On  the  21st  day  of  September,  one  thousand  nine  hundred 
and ,  I,  Herbert  Barton,  Notary  Public  for  the  Prov- 
ince of  Ontario,  dwelling  at  the  City  of  Toronto  in  said 
province,  do  hereby  certify  that  the  original  bill  of  exchange 
for  five  hundred  dollars  annexed  to  the  protest  thereof  on 
the  other  side  hereof  written,  was  this  day  exhibited  to  A.  B., 
of  Toronto,  Manager,  who  declared  before  me,  that  he  would 
pay  the  amount  of  the  said  bill  and  protest  charges  for  the 
honor  of  C.  D.,  the  last  indorser  thereof,  holding  the  drawer 
and  indorsers  and  all  other  persons  responsible  to  him,  the 
said  A.  B.,  for  the  said  sum  and  for  all  interest,  damages 
and  expenses.  I  have  therefore  granted  this  notarial  act  of 
honor  accordingly.     Which  I  attest. 

(Seal)  Herbert  Barton,  N.  P. 

When  a  bill  has  been  paid  for  honor,  and  the  for- 
malities just  mentioned  have  been  observed,  all  par- 
ties subsequent  to  the  party  for  whose  honor  it  is  paid 
are  discharged,  but  the  payer  for  honor  is  subrogated 
in,  and  succeeds  to,  both  the  rights  and  duties  of  the 
holder  as  regards  the  party  for  whose  honor  he  pays, 
and  all  parties  liable  to  that  party.  So  it  has  been 
held  that  if  the  holder  is  a  holder  in  due  course,  or  if 
any  party  subsequent  to  the  party  for  whose  honor  the 
bill  has  been  paid  was  a  holder  in  due  course,  the  payer 
for  honor  acquires  their  rights  in  this  respect.  He 
must,  as  one  of  his  duties,  give  notice  of  dishonor.^ 

7.  Notice  of  dishonor. — When  a  bill  has  been  dis- 
honored by  non-acceptance  or  by  non-payment  (by 
non-paj^'ment  in  the  case  of  a  note),  notice  of  dis- 

iGoodall  vs.  Polhill,  14  L.  J.  C  P.  146  (1845). 


NOTICE  OF  DISHONOR  259 

honor  must  be  given  to  the  drawer  and  each  indorser ; 
a  drawer  or  indorser  who  is  not  so  notified  is  dis- 
charged, tho  a  holder  in  due  course  subsequent  to  the 
omission  is  not  prejudiced.  Notice  must  be  given 
not  later  than  the  juridical  or  business  day  next  fol- 
lowing the  dishonor  of  the  bill. 

8.  By  whom  notice  is  given. — Xotice  may  be  given 
by,  or  on  behalf  of  the  holder,  or  by  or  on  behalf  of 
an  indorser,  who  at  the  time  of  giving  it  is  himself 
liable  on  the  bill.  Hence,  when  a  note  payable  at  a 
bank  is  sent  there  for  collection,  the  protest  may  prop- 
erly be  made  and  notice  be  given  by  the  bank,  altho 
it  has  no  interest  in  the  note.  Each  party  who  re- 
ceives notice  of  dishonor  has  the  next  following  busi- 
ness dayi  to  send  notice  to  parties  whom  he,  in  turn, 
may  wish  to  hold  liable. 

9.  Siifpciency  of  notice. — The  return  of  a  dishon- 
ored bill  to  the  drawer  or  an  indorser  is  a  sufficient 
notice  of  dishonor.  The  notice  need  not  be  signed. 
If  insufficient,  the  notice  may  be  supplemented  and 
validated  by  verbal  communication.  It  may  be  given 
in  writing  or  by  personal  communication,  and  in  any 
terms  which  identify  the  instrument  and  intimate  that 
the  bill  has  been  dishonored  by  non-acceptance  or  non- 
pajTnent.  An  error  in  the  description  of  the  instru- 
ment will  not  vitiate  the  notice  unless  the  person  to 
whom  it  is  given  is  misled  thereby. 

10.  Time  within  which  notice  must  he  given. — No- 
tice of  dishonor  must  be  given  on  the  day  when  pre- 
sentment has  been  made,  or  on  the  next  following 


260  COMMERCIAL  LAW 

business  day.  This  rule  is  satisfied  if  the  notice  is 
either  served  or  posted  within  this  delay.  Delay  in 
giving  notice  of  dishonor  is  excused  when  the  delay 
is  caused  by  circumstances  beyond  the  control  of  the 
party  giving  notice,  and  not  imputable  to  his  default, 
conduct  or  negligence.  Thus  the  death  or  sudden  ill- 
ness of  the  holder  or  his  agent  who  has  the  bill,  will  be 
a  good  excuse,  or  delay  caused  by  the  indorser  having 
given  a  wrong  or  illegible  address. 

11.  Place  of  notice. — Notice  of  dishonor  of  a  bill  or 
note  is  sufficiently  given  if  addressed  in  due  time  to 
the  person,  entitled  to  such  notice,  at  his  customary  ad- 
dress or  place  of  residence,  or  at  the  place  at  which  the 
bill  is  dated,  unless  any  party  so  entitled  to  notice,  has 
under  his  signature,  designated  another  place.  Where 
notice  of  dishonor  is  duly  addressed  and  posted,  the 
sender  is  deemed  to  have  given  due  notice  of  dishonor, 
even  if  the  notice  miscarries  in  the  post. 

12.  Notice  xicaived  and  eoccused, — Notice  of  dis- 
honor is  dispensed  with,  when  after  the  exercise  of 
reasonable  diligence,  notice  cannot  be  given  or  does 
not  reach  the  drawer  or  indorser  who  is  sought  to  be 
charged.  It  may  be  excused  by  waiver,  express  or  im- 
plied. The  waiver  may  be  in  writing  or  oral.  Thus 
it  has  been  held  that  where  an  indorser  asked  for  time 
and  promised  to  pay,  it  was  a  waiver  of  notice.  No- 
tice of  dishonor  is  dispensed  with  as  regards  the 
drawer,  where  the  drawer  and  the  drawee  are  the  same 
person;  where  the  drawee  is  a  fictitious  person,  or  a 
person  not  having  capacity  to  contract;  where  the 


NOTICE  OF  DISHONOR  261 

drawer  is  the  person  to  whom  the  bill  is  presented  for 
payment ;  where  the  drawee  or  acceptor  is,  as  between 
himself  and  the  drawer,  under  no  obligation  to  accept 
or  pay  the  bill;  and  where  the  drawer  has  counter- 
manded payment.  It  is  dispensed  with  as  regards  the 
indorser  where  the  drawee  is  a  fictitious  person,  or  a 
person  not  having  capacity  to  contract,  and  the  in- 
dorser was  aware  of  the  fact  at  the  time  but  indorsed 
the  bill ;  where  the  indorser  is  the  person  to  whom  the 
bill  is  presented  for  pajment;  and  where  the  bill  is 
accepted  or  made  for  his  accommodation. 

13.  Protest. — The  protest  of  bills  and  notes  is  done 
by  a  notary  public  who  establishes  and  certifies  that 
the  instrument  has  been  presented  and  dishonored. 
The  notary's  certificate  is  authentic  and  makes  proof 
itself  of  its  contents,  and  hence  while  protest  is 
necessary  only  for  foreign  bills  of  exchange,  except 
in  the  Province  of  Quebec  where  inland  bills  also 
must  be  protested,  a  formal  protest  in  other  cases 
makes  it  easy  to  prove  dishonor  and  notice  to  the 
drawer  and  indorsers.  Protest  is  not  necessary  to 
render  the  acceptor  of  a  bill  liable.  It  is  dispensed 
with  by  any  circumstances  which  would  dispense  with 
notice  of  dishonor,  as  just  above  set  out.  Delay  in 
noting  or  protest  is  excused  by  reason  of  circum- 
stances beyond  the  control  of  the  holder,  where  these 
are  not  due  to  his  fault,  misconduct  or  negligence.  A 
bill  which  has  been  protested  for  non-acceptance  or  a 
bill  of  which  protest  for  non-acceptance  has  not  been 
waived,  may  be  subsequently  protested  for  non-pay- 


S62  COMMERCIAL  LAW 

ment.     A  bill  must  be  protested  at  the  place  where  it 
is  dishonored. 

To  facilitate  the  making  of  protests  in  country  dis- 
tricts, the  act  also  provides  that  protest  may  be  made 
at  some  other  place  in  Canada  situated  within  five 
miles  of  the  place  of  presentment  and  dishonor  of  the 
bill.  Tho,  when  a  bill  is  presented  thru  the  post  of- 
fice and  is  returned  by  post  dishonored,  it  may  be  pro- 
tested at  the  place  to  which  it  is  returned,  on  the  day 
of  return  or  on  the  next  day. 

REVIEW 

When  is  presentment  for  acceptance  necessary  for  a  bill  pay- 
able at  sight;  when  after  sight? 

How  is  a  bill  presented  for  acceptance  ?  When  and  where 
should  it  be  presented  ? 

When  is  presentment  for  payment  necessary  ?  Where  must  it 
be  made?     When  must  it  be  dispensed  with? 

At  what  time  is  it  necessary  to  present  demand  bills,  checks 
and  demand  notes  ?     Where  must  presentment  be  made  ? 

Discuss  the  waiver  of  presentment. 

What  are  the  rights  and  liabilities  of  the  payer  for  honor? 

How  is  a  bill  protested  ?  When  is  it  necessary  and  where  must 
it  be  made? 


CHAPTER  XVII 

DEFENCES 

1.  Definition. — Defences  are  described  as  personal 
defences  and  real  defences. 

Personal  defences  include  conditional  or  equitable 
defences,  and  are  good  when  pleaded  by  a  person  as 
against  his  immediate  successor,  or  as  against  someone 
who  is  not  a  holder  in  due  course. 

The  real  or  absolute  defences  attack  the  instrument 
itself  and  strike  at  the  verj^  foundation  of  the  contract. 
The  real  defences  are  good  against  all  the  world. 

Personal  defences  are  defences  not  necessarily  at- 
tached to  or  inherent  in  the  instrument.  They  include 
defences  such  as  fraud,  threats  or  violence,  illegality 
where  the  illegality  does  not  void  the  contract,  re- 
lease, want  of  title  in  the  person  transferring,  re- 
nunciation of  claim  or  pajTiient,  want  or  failure  of 
consideration,  and  others. 

2.  Fraud  and  threats  of  violence. — Fraud  enters 
where  a  person  is  induced  to  act  by  some  misrepre- 
sentation or  untrue  statement  intentionally  made  for 
the  purpose.  Violence  or  fear  and  threats,  commonly 
included  under  the  word  duress,  will  vitiate  a  con- 
tract. Thus  a  note  given  to  a  person  in  consequence 
of  threats  to  prosecute  the  maker  for  forgery  and  ob- 

263 


264  COMMERCIAL  LAW 

taining  money  under  false  pretences,  cannot  be  re- 
covered by  such  person.  So,  too,  where  a  defend- 
ant's son  had  committed  forgery,  and  the  notes  sued 
upon  were  given  to  the  plaintiff  to  prevent  the  scan- 
dal becoming  public,  they  were  held  to  be  void.  But 
it  has  been  held  that  where  a  master  gave  a  female 
servant  his  note  for  $1,500  over  and  above  her  wages, 
on  condition  that  she  would  not  marry  but  would  re- 
main in  his  service  as  long  as  he  wanted  her  to,  the 
note  was  not  void  for  being  in  restraint  of  marriage 
for  an  unreasonable  period.^  It  has  also  been  held 
that  where  a  creditor  secured  secretly  the  notes  of 
the  insolvent  for  the  balance  of  his  claim,  this  was  a 
fraud  on  the  indorsers  of  the  composition  notes,  and 
they  were  entitled  to  the  benefit  of  this  payment. 
And  again,  where  an  illiterate  man  thought  that  he 
was  making  his  mark  to  a  receipt  and  the  plaintiff 
concealed  the  fact  that  it  was  really  a  promissory  note, 
the  plaintiff  could  not  recover.  It  has  been  held,  how- 
ever, that  where  an  educated  man  admits  his  signa- 
ture but  sets  up  such  a  defence,  he  must  make  very 
clear  proof. 

3.  Partial  or  total  want  of  value  or  consideration. — 
Valuable  consideration  for  a  bill  or  note  may  be  con- 
stituted by  any  consideration  sufficient  to  support  a 
simple  contract.  It  may  be  an  antecedent  debt  or 
liability.  Every  party  whose  signature  appears  on  a 
bill  or  note  is  presumed  to  have  become  a  party  to  it 
for  valuable  consideration,  but  he  may  prove  the  con- 

1  Crowley  vs.  Sullivan,  9  O.  L.  R.  27  (1904). 


DEFENCES  265 

trary.  If  a  total  failure  of  consideration  is  proved, 
and  the  plaintiff  and  defendant  are  immediate  par- 
ties, the  defence  is  good,  or  if  they  are  remote  parties 
it  is  good,  if  value  has  not  been  given  for  the  bill.  A 
total  failure  of  consideration  is  in  its  effects  like  an 
original  want  of  consideration.  There  would  be  a 
total  failure  of  consideration  where  a  person  under- 
took to  sell  a  certain  thing  to  another,  and  it  turned 
out  that  he  had  absolutely  no  title  to  the  thing.  It 
has  been  held  that  where  a  note  was  given  for  logs, 
on  condition  that  no  claim  should  be  made  for  the 
logs,  and  they  were  revendicated  (that  is,  seized  at 
the  instance  of  the  owner  for  non-payment,  etc.), 
there  was  a  total  failure  of  consideration,  and  the  note 
became  null.  There  may  be  only  partial  failure  of 
consideration.  It  is  probable  that  in  most  of  the 
provinces,  partial  failure  may  be  set  up  as  a  defence 
to  the  extent  of  the  consideration  that  is  lacking. 

4.  Illegality. — Whether  the  consideration  be  ille- 
gal in  whole  or  in  part,  the  bill  is  none  the  less  alto- 
gether void.  Considerations  are  said  to  be  illegal 
which  violate  the  rules  of  morality,  are  prohibited  by 
law,  or  are  contrary  to  public  policy.  Nor  will  the 
illegahty  be  cured  by  renewing  or  by  substituting  a 
new  instrument  for  the  old.  Thus  an  agreement  not 
to  proceed  in  a  prosecution  for  permitting  unlawful 
gambling  in  a  tavern,  is  an  illegal  consideration  for  a 
note.  A  note  given  to  raise  money  for  corrupt  pur- 
poses at  an  election  where  the  maker  w^as  a  candidate, 
is  null.     The  plaintiff  cannot  recover  on  a  promissory 


266  COMMERCIAL  LAW 

note  given  by  the  proprietor  of  a  bucketshop,  in  set- 
tlement of  speculative  transactions  between  them.^ 

5.  Release,  renunciation  or  payment. — A  bill  is  dis- 
charged by  payment  by  or  on  behalf  of  the  drawee  or 
indorser.  Payment  in  due  course  means  payment 
made,  at  or  after  maturity  of  the  bill,  to  the  holder 
thereof,  in  good  faith,  and  without  notice  that  his  title 
to  the  bill  is  defective.  Payment  is  what  the  holder 
accepts  or  recognizes  as  such.  It  is  the  discharge  of  a 
contract  to  pay  money;  but  payment  need  not  be  a 
payment  of  money:  it  may  be  a  payment  of  goods, 
or  any  other  thing  which  the  creditor  is  willing  to  ac- 
cept. But  to  have  the  effect  of  discharging  a  bill, 
payment  must  be  made  at  or  after  maturity  and  must 
be  made  to  the  holder,  that  is,  the  payee,  indorsee 
or  the  bearer.  If  an  endorsement  is  forged  or  is  not 
authorized,  the  bill  is  not  discharged,  and  the  acceptor 
is  not  released.  It  has  been  held  that  a  renewal  bill 
or  note  does  not  discharge  the  original,  unless  the  par- 
ties have  so  agreed.  Payment  before  maturity  does 
not  discharge  the  bill.  The  ht)lder  may  still  negotiate 
it.  An  accommodation  bill  is  discharged  if  paid  in 
due  course  by  the  party  accommodated.  Where  the 
acceptor  of  a  bill  becomes  the  holder  of  it  in  his  own 
right  at  or  after  maturity,  the  bill  is  discharged. 
When  the  holder  of  a  bill,  at  or  after  its  maturity, 
actually    or    unconditionally    renounces    his    rights 

1  Bucketshop  transactions  are  speculations  on  the  rise  and  fall  of  prices 
of  stocks  where  shares  are  not  bought  outright  by  the  broker,  and  where 
there  is  no  intention  of  delivery.  The  transactions  are  purely  gambling 
transactions,  and  as  such  are  prohibited  in  Canada. 


DEFENCES  267 

against  the  acceptor,  the  bill  is  discharged.  The 
holder  may  renounce  the  liabihties  of  any  party  to  a 
bill  before,  at  or  after  maturity.  A  renunciation 
must  be  in  writing,  however,  unless  the  instrument  is 
delivered  up  to  the  debtor. 

6.  Discharge  of  persons  secondarily  liable. — As  we 
have  seen,  the  maker  of  a  note  and  the  acceptor  of  a 
bill  are  primary  debtors.  Drawers  and  indorsers  are 
only  secondarily  liable.  A  discharge  of  a  debtor  op- 
erates as  a  discharge  to  parties  who  are  liable  to  pay 
only  if  he  fails  to  pay.  Thus  if  the  holder  discharges 
the  maker  of  a  note,  he  cannot  hold  the  indorser,  be- 
cause by  releasing  the  maker  he  is  depriving  the  in- 
dorser of  his  chance  to  collect  from  the  maker. 

7.  Beal  defences. — As  we  have  already  explained, 
real  defences  strike  at  the  root  of  the  contract. 
Where  the  contract,  by  reason  of  the  minority  or  in- 
sanity of  the  maker  of  a  note,  could  not  be  entered 
into,  the  contract  on  the  note  never  existed.  Thus  a 
note  given  in  satisfaction  of  a  gambling  contract 
would  be  void.  An  instrument  if  materially  altered 
without  the  assent  of  all  parties  liable  on  it  is  voided, 
except  as  against  a  partj^  who  himself  has  made,  au- 
thorized or  assented  to  the  alteration,  or  subsequent 
indorsers;  but  if  the  alteration  is  not  apparent,  a 
holder  in  due  course  may  enforce  payment  of  it,  ac- 
cording to  its  original  tenor,  as  tho  it  had  not  been 
altered.  The  defence  of  paj-ment  at  or  after  maturity 
is  also  a  real  defence. 

8.  Cancelation. — A  holder  mav  convert  a  blank  in- 


268  COMMERCIAL  LAW 

dorsement  into  a  special  indorsement;  he  may  also 
strike  out  one  or  more  blank  indorsements,  in  which 
case  any  indorser  subsequent  to  one  struck  out  is  dis- 
charged. A  holder  or  his  agent  may  intentionally 
cancel  a  bill  or  note,  and  if  the  cancelation  is  apparent 
thereon  it  is  discharged.  Liability  of  any  party  liable 
on  a  bill  or  note  may  be  discharged  by  the  intentional 
cancelation  of  his  signature  by  the  holder  or  his  ag:ent. 
The  usual  mode  of  canceling  a  bill  is  to  write  the  word 
"paid"  or  "discharged"  across  the  bill  or  note.  If  the 
cancelation  is  made  unintentionally,  or  under  a  mis- 
take or  without  the  authority  of  the  holder,  it  is  in- 
operative, tho  the  burden  of  proof  is  on  the  person 
who  alleges  that  the  cancelation  was  made  uninten- 
tionally or  under  a  mistake. 

9.  Forgery. — Forgery  is  the  making  of  a  false 
document,  knowing  it  to  be  false,  with  the  intention 
that  it  shall  be  used  or  acted  upon  as  genuine,  to  the 
prejudice  of  any  one,  whether  within  Canada  or  not, 
or  that  some  person  should  be  induced,  by  the  belief 
that  it  is  genuine,  to  do  or  refrain  from  doing  any- 
thing. Signing  the  name  of  a  nonexistent  or  fictitious 
person  or  firm  with  fraudulent  intention  has  been  held 
to  be  forgery.  A  forged  signature  cannot  be  ratified, 
tho  where  a  signature  is  placed  on  an  instrument 
without  authorization,  but  under  circumstances  not 
amounting  to  a  forgery,  it  may  be  ratified.  Where  a 
signature  on  a  bill  is  forged,  or  is  placed  thereon  with- 
out the  authority  of  the  person  whose  signature  it 
purports  to  be,  the  forgery  or  unauthorized  signature 


DEFENCES  269 

is  wholly  inoperative.  Xo  right  to  retain  the  bill,  or 
to  give  a  discharge  therefor,  or  to  enforce  pajinent 
thereof  against  any  party  thereto  can  be  acquired 
thru  or  under  that  signature,  unless  the  part^^  against 
whom  it  is  sought  to  retain  payment  of  the  bill  is  pre- 
cluded from  setting  up  forgery  or  want  of  authority. 
In  order  to  protect  a  bank  which  may  pay  a  check 
or  bill  payable  to  order  on  demand,  where  one  or  more 
indorsements  may  be  forged  or  unauthorized,  the 
statute  provides  that  when  a  check  payable  to  order 
is  paid  by  the  drawee  upon  a  forged  indorsement  out 
of  the  funds  of  the  drawer,  or  is  paid  and  charged  to 
his  account,  the  drawer  shall  have  no  right  of  action 
against  the  drawee  for  the  recovery  of  the  amount  so 
paid,  or  any  defence  to  a  claim  by  the  drawee  for  this 
amount,  unless  he,  the  drawer,  gives  notice  of  the 
forgery  in  writing  to  the  drawee  within  one  year  after 
he  has  acquired  notice  thereof.  In  other  words,  an  in- 
dorser  whose  signature  to  a  check  has  been  forged, 
and  out  of  whose  account  the  amount  of  the  check 
has  been  paid  by  the  bank,  must  make  claim  upon  the 
bank  at  once.  If  he  waits  for  one  year,  he  has  lost 
any  right  to  bring  action,  and  the  check  will  be  con- 
sidered to  have  been  paid  in  due  course.  Where  a 
partner  in  a  commercial  firm  fraudulently  accepts  a 
bill  in  the  firm  name  for  his  private  debt,  the  firm 
cannot  set  up  a  fraud  against  a  holder  for  value  with- 
out notice.  The  partner  was  presumed  to  have  au- 
thority from  his  co-partners  to  do  all  acts  connected 
with  the  partnership  business.     It  has  been  held,  how- 


270  COMMERCIAL  LAW 

ever,  that  where  a  defendant's  name  was  signed  by  his 
nephew,  for  whom  he  was  in  the  habit  of  indorsing, 
and  where  he  had  acknowledged  his  hability  and  asked 
for  time,  and  only  denied  his  liability  after  his  nephew 
had  absconded,  it  was  held  that  he  could  not  dispute 
his  liability. 

If  a  bill  bearing  a  forged  or  unauthorized  indorse- 
ment is  paid  in  good  faith,  and  in  the  ordinary  course 
of  business,  by  or  on  behalf  of  the  drawee  or  acceptor, 
the  person  by  whom  or  on  whose  behalf  the  payment 
is  made  can  recover  the  amount  paid  from  the  person 
to  whom  it  was  paid,  or  from  any  indorser  who  in- 
dorsed subsequently  to  the  forged  or  unauthorized  in- 
dorsement. But  notice  of  the  indorsement  being 
forged  or  unauthorized  must  be  given  to  each  such 
subsequent  indorser,  within  a  reasonable  time  after 
the  person  seeking  to  recover  has  acquired  notice  that 
the  indorsement  is  forged  or  unauthorized. 

REVIEW 

Distinguish  personal  defences  from  real  or  absolute  defences. 

What  constitutes  valuable  consideration?  What  is  the  effect 
of  partial  or  total  want  of  consideration?  When  is  consideration 
illegal  ? 

Define  payment  in  due  course.  How  must  payment  be  made  to 
discharge  a  bill?  What  is  the  effect  of  a  forged  instrument? 
How  is  an  accommodation  bill  discharged  ? 

Who  are  secondarily  liable  and  how  are  they  discharged? 

How  is  the  cancelation  of  a  bill  accomplished?  What  is  the 
effect  of  unintentional  cancelation? 

What  is  forgery  and  how  does  it  operate  as  a  defence?  State 
the  provisions  of  the  statute  in  regard  to  forged  checks  or  bills. 
What  is  the  liability  of  a  partnership  on  negotiable  instruments  ? 
When  may  recovery  be  had  on  a  forged  instrument? 


PART  IV:  CONDUCT  OF  BUSINESS 
THRU  REPRESENTATION 

CHAPTER  XVIII 

PRINCIPAL  AND  AGENT 

1.  Definitions  and  distinctions. — Mandate  has  been 
defined  as  a  contract  by  which  a  person,  called  the 
mandator  or  principal,  commits  a  lawful  business  to 
the  management  of  another,  called  the  mandatory  or 
agent,  who  by  his  acceptance  obliges  himself  to  per- 
form it.  The  acceptance  may  be  implied  from  the 
acts  of  the  agent,  and  in  some  cases  from  his  silence. 
Or  again,  an  agent  is  a  person  having  express  or  im- 
plied authorit\'^  to  represent  or  act  on  behalf  of  an- 
other person,  who  is  called  his  principal.  There  are 
general  agents  and  special  agents. 

A  general  agent  has  authority  to  act  for  his  prin- 
cipal in  all  matters,  or  in  all  matters  concerning  a  par- 
ticular trade  or  business,  or  of  a  particular  nature ;  or 
to  act  in  the  ordinary  course  of  his  business,  trade  or 
profession  as  an  agent,  on  behalf  of  his  principal — as 
a  soHcitor,  a  factor,  a  broker. 

A  special  agent  is  an  agent  who  only  has  authority 
to  do  some  particular  act,  or  represent  his  principal  in 
some  particular  transaction,  such  act  or  transaction 

271  ■ 


272  COMMERCIAL  LAW 

not  being  in  the  ordinary  course  of  his  trade,  profes- 
sion, or  business  as  an  agent. 

A  factor  or  commission  merchant  is  an  agent  who  is 
employed  to  buy  or  sell  goods  for  another,  either  in 
his  own  name  or  in  the  name  of  his  principal,  for 
which  he  receives  a  compensation  commonly  called  a 
commission.  He  is  a  bailee  and  is  intrusted  by  his 
principal  with  the  possession  or  control  of  the  goods. 
Ordinarily  he  is  entitled  to  receive  payment  and  to 
give  a  valid  and  binding  discharge.  If  his  principal 
resides  in  another  country,  he  is  personally  liable  to 
third  persons  with  whom  he  contracts,  whether  his 
principal's  name  be  known  or  not.  The  principal  is 
not  liable  on  such  contracts  to  third  persons,  unless  it 
is  proved  that  the  credit  was  given  to  both  principal 
and  factor,  or  to  the  principal  alone.  He  has  a  lien 
upon  the  goods  in  his  hands  for  any  balance  of  ac- 
count in  his  favor.  If  he  voluntarily  relinquishes  pos- 
session, his  lien  is  lost. 

A  broker  is  an  agent  who  exercises  the  trade  and 
calling  of  negotiating  between  parties,  the  business  of 
buj^ing  and  selling  or  any  other  lawful  transactions. 
He  may  be  the  mandatory  of  both  parties  and  bind 
both  by  his  acts  in  the  business  for  which  he  is  en- 
gaged by  them.  He  is  not  intrusted  with  the  posses- 
sion or  control  of  the  goods  or  other  property  which 
he  may  have  contracted  to  buy  or  sell. 

An  auctioneer  is  an  agent  whose  ordinary  course  of 
business  is  to  sell  by  pubhc  auction  to  the  highest  bid- 
der, goods  or  other  property  of  which  he  may  or  may 


PRINCIPAL  AND  AGENT  273 

not  have  the  possession  or  control.  He  sells  for  cash, 
unless  he  has  authority  to  accept  payment  in  goods  or 
in  negotiable  paper,  or  to  sell  on  credit.  The  adjudi- 
cation of  a  thing  to  any  person  on  his  bid  or  offer, 
and  the  entry  of  his  name  in  the  sale  book  of  the  auc- 
tioneer, completes  the  sale  to  him  and  satisfies  the 
statute  of  frauds,  i.e.,  enables  the  auctioneer  or  seller 
to  bring  action  without  the  necessity  of  making  other 
written  proof  of  the  sale.  Unless  authorized,  he  can- 
not warrant  the  goods,  and  he  cannot  rescind  a  sale. 

A  del  credere  agent  is  a  mercantile  agent  who,  in 
consideration  of  an  extra  remuneration,  which  is  called 
a  del  credere  commission,  guarantees  to  his  principal 
that  third  persons  with  whom  he  contracts  on  behalf 
of  the  principal  shall  duly  perform  their  contracts. 
In  effect,  he  makes  himself  a  surety  for  the  due  per- 
formance of  the  contract  by  the  person  with  whom  he 
deals. 

2.  How  constituted. — It  has  abeady  been  said  that 
agency  is  a  contractual  relation.  The  relation  will 
not  exist  unless  there  is  the  consent,  express  or  im- 
plied, of  both  principal  and  agent.  The  rule  suffers 
exception  where,  in  case  of  necessity,  the  relation  is 
imposed  by  operation  of  law.  So  that  agency  will 
exist  where  there  is  an  express  appointment  by  a  prin- 
cipal, or  by  someone  duly  authorized  and  acting  on 
his  behalf ;  and  an  express  acceptance  by  the  agent  or 
by  someone  on  his  behalf  similarly  authorized.  But 
the  assent  of  the  principal  may  be  implied  from  his 

acts ;  or  when  another  person  occupies  such  a  position 
xxrv— 19 


274  COMMERCIAL  LAW 

that,  as  a  matter  of  common  usage,  he  would  be  un- 
derstood to  be  acting  with  the  approval  and  on  be- 
half of  the  principal.  Thus  a  coachman  in  livery 
entered  into  a  contract  for  the  hire  of  horses,  the  per- 
son from  whom  he  hired  them  giving  credit  to  the 
master.  The  coachman  had,  in  fact,  agreed  with  the 
master  to  pay  for  the  hire  of  the  horses,  but  the  per- 
son from  whom  they  were  hired  had  no  notice  of  the 
agreement.  It  was  held  that  the  master  was  liable  on 
the  contract.  A  wife  gave  orders  for  furniture  to  be 
supplied  and  work  to  be  done  at  the  house  where  she 
resided  with  her  husband,  the  husband  being  present, 
giving  directions  as  to  the  work.  It  was  held  that  the 
husband  was  liable  on  the  orders,  altho  he  had  ex- 
pressly forbidden  his  wife  to  pledge  his  credit,  and 
it  had  been  agreed  between  them  she  should  pay  for 
the  furniture  and  work,  the  plaintiff  having  had  no 
notice  of  such  prohibition  or  agreement.  The  assent 
of  the  agent  may  also  be  implied  when  he  so  acts  on 
behalf  of  another  person  that,  in  an  action  by  the  lat- 
ter, he  could  not  be  heard  to  deny  that  in  fact  the 
agency  existed.  But  where  a  person  assumes  to  act 
for  another,  the  consent  of  that  other  will  not  be  im- 
plied merely  because  he  raises  no  objection,  unless  the 
circumstances  support  a  presumption  that  he  has  au- 
thorized the  act. 

3.  Agency  by  estoppel. — Yet  a  person  will  be  held 
as  a  principal  toward  third  parties  who  in  good  faith 
contract  with  someone  who  is  not  his  agent,  under  the 
belief  that  he  is  so,  when  by  his  words  or  conduct  he 


PRINCIPAL  AND  AGENT  275 

gives  reasonable  cause  for  such  belief,  as,  for  example, 
when  by  his  words  or  conduct  he  represents  or  per- 
mits it  to  be  represented  that  another  is  his  agent. 
He  is  estopped  from  denying  that  such  person  is  his 
agent,  on  the  ground  that  he  has  really  held  him  out 
to  be  so.  The  necessity  for  the  rule  is  obvious.  A 
might  know  that  B  was  acting  as  his  agent  in  a  cer- 
tain matter  and  be  quite  satisfied  if  B  made  a  profit 
for  him,  but  be  ready  to  deny  the  fact  of  agency  if  B 
made  a  loss.  That  third  parties  in  good  faith  may 
be  protected,  the  person  who  holds  another  out  as  his 
agent  in  such  a  way,  may  not  deny  liability  as  a  prin- 
cipal if  reverses  come. 

So  it  has  been  held  that  no  estoppel  by  conduct  to 
deny  an  agent's  authorit}^  is  established  on  the  part 
of  the  principal,  merely  because  one  of  its  directors, 
who  had  no  particular  management  of  the  property 
in  question,  upon  being  shown  a  contract  for  the  sale 
of  pulp  wood  from  the  principal's  land  made  by  an 
agent  who  was  employed  for  another  purpose  and 
for  that  alone,  said  nothing  until  he  returned  to  the 
head  ofiice,  where  he  lost  no  time  in  informing  the 
other  directors  as  to  the  sale,  resulting  in  the  princi- 
pal's solicitors  at  once  taking  the  necessary  steps  to 
protect  the  principal's  interest/ 

It  has  also  been  held  that  where  one  learns  that  an- 
other had  without  authority  been  purporting  to  act 
in  his  name,  he  owes  a  duty  to  the  third  person  with 
whom  the  transaction  has  taken  place,  to  inform  him 

1  B.  X.  A.  Mining  Co.  vs.  The  Pigeon  River  Lumber  Co.,  -2  D.  L.  R.  609. 


276  COMMERCIAL  LAW 

that  the  transaction  was  without  authority,  and  a 
failure  in  this  duty  may  operate  as  an  estoppel  against 
a  subsequent  denial  of  authority  as  regards  obliga- 
tions afterward  entered  into  by  such  third  person  on 
the  faith  of  the  pretended  agency.^ 

4.  Agency  hy  necessity. — Under  certain  conditions 
a  person  may  without  express  authority  bind  another. 
The  authority  may  even  be  denied.  If  a  husband  de- 
serts his  wife  and  leaves  her  unprovided,  she  may,  as 
an  agent  of  necessity,  pledge  his  credit  for  necessaries 
in  keeping  with  her  station  in  life,  as  he  is  bound  by 
law  to  provide  for  her.  Nor  may  he  revoke  her  au- 
thority in  this  respect.  But  it  must  be  shown  that 
the  articles  obtained  by  the  wife  are  necessaries,  and 
that  the  husband  is  in  default  to  supply  them.  The 
same  rule  is  generally  applicable  in  the  case  of  chil- 
dren. If  a  boy's  father  refuses  to  supply  him  with 
necessary  clothing,  a  purchase  thereof  by  the  boy 
binds  the  father.  Or  if  A  ships  a  horse  by  railway, 
consigned  to  himself  at  a  station  on  the  company's 
line,  and  he  has  not  arranged  for  its  reception,  the 
railway  company  must  reasonably  care  for  the  horse, 
and  for  that  purpose  is  an  agent  of  necessity  of  the 
shipper.  A  conductor  in  charge  of  a  train,  in  case  of 
accident,  would  be  an  agent  of  necessity  of  the  com- 
pany in  summoning  medical  assistance.  The  cap- 
tain of  a  ship  may  be  an  agent  of  necessity  to  buy 
supplies,  or  even  to  sell  the  cargo. 

5.  Who  may  he  principal. — As  agency  is  a  matter 

1  Ewing  vs.  Dominion  Bank,  35  Can.  S.  C.  R.  133. 


PRINXIPAL  AND  AGENT  277 

of  contract,  the  general  rule  is  that  any  person  who 
has  capacity  to  contract  has  capacity  to  enter  into  an 
agency  agreement.  Hence  an  infant  or  a  lunatic  may 
be  held  bound  under  a  contract  entered  into  with  his 
authority  by  his  agent,  if  under  the  circumstances  he 
would  be  bound  had  he  himself  made  the  contract.  If 
an  insane  person  appoints  an  agent  at  a  time  when 
he  has  not  been  adjudged  insane,  and  the  agent  was 
ignorant  of  his  insanity,  the  appointment  is  binding 
on  him.  As  between  such  a  principal  and  third  par- 
ties he  will  be  bound  where,  tho  at  the  time  of  the  ap- 
pointment of  the  agent  he  w^as  sane,  he  later  became 
insane  to  the  knowledge  of  the  agent  but  not  to  the 
knowledge  of  the  third  parties.  The  third  parties 
under  such  circumstances  are  entitled  to  protection; 
but  an  insane  person  is  also  so  entitled,  and  agency 
contracts  made  on  his  behalf  by  an  agent  with  per- 
sons aware  of  his  condition  may  be  set  aside  by  the 
insane  principal,  or  rather,  by  his  representatives.  A 
person  insane,  or  whose  intellect  is  clouded,  by  rea- 
son, for  instance,  of  a  paralytic  stroke,  could  not  give 
a  valid  power  of  attorney,  tho  in  a  lucid  interval  he 
might. 

Generally  under  the  Enghsh  law,  a  married  woman, 
being  separate  as  to  property  and  entitled  to  deal  with 
her  property  and  affairs  as  freely  as  if  she  were  un- 
married, may  act  as  an  agent  and  may  appoint  agents 
by  whose  contracts  in  her  behalf  she  will  be  bound. 
In  Quebec,  a  married  woman  who  executes  a  man- 
date given  to  her,  binds  the  mandator,  but  she  could 


278  COMMERCIAL  LAW 

not  be  sued  unless  her  husband  were  made  a  party  to 
the  action ;  nor  would  an  action  upon  her  agency  con- 
tract succeed  unless  her  husband  were  a  party  to  the 
contract.  Tho  if  she  were  a  public  trader,  duly  au- 
thorized by  her  husband,  she  could,  in  the  course  of 
her  business,  appoint  an  agent,  in  which  case  her  hus- 
band also  would  be  bound,  if  they  were  common  as 
to  property.  If  separate  as  to  property,  she  may  do 
and  make  alone  all  acts  and  contracts  connected  with 
the  administration  of  her  property,  which  might  in- 
clude the  appointment  of  agents. 

6.  When  a  business  may  be  a  principal. — A  cor- 
poration acts  thru  its  agents,  the  directors,  who  in 
turn  may  appoint  other  agents  for  the  carrying  on  of 
the  companj'^'s  operations.  But  a  corporation  cannot 
thru  an  agent  do  or  accomplish  any  act  ultra  vires 
of  its  charter.  A  partnership  business  is  carried  on, 
as  will  later  appear,  on  the  basis  of  a  reciprocal  rela- 
tion of  principal  and  agent  among  the  partners. 
Probably  a  partner  may  appoint  an  agent  to  perform 
certain  of  his  duties,  tho  the  consent  of  his  co-part- 
ners would  in  some  circumstances  be  necessary.  In 
the  case  of  an  unincorporated  society  or  association, 
an  agent  would  ordinarily  be  appointed  by  the 
members,  not  by  the  society  which  lacks  corporate 
existence,  and  the  members  who  appoint  him 
or  ratify  his  appointment  or  contracts  would  be 
bound. 

7.  Who  may  be  agent. — Bowstead  states  the  gen- 
eral doctrine  as  follows: 


PRINCIPAL  AND  AGENT  279 

All  persons  of  sound  mind,  including  infants  and  other  per- 
sons with  limited  or  no  capacity  to  contract  or  act  on  their 
own  behalf,  are  competent  to  contract  or  act  as  agents. 
Provided  that  the  personal  liability  of  the  agent  upon  the 
contract  of  agency,  and  upon  any  contract  entered  into  by 
him  with  any  third  person,  is  dependent  on  his  capacity  to 
contract  on  his  own  behalf :  ^ 

But  a  principal  may  appoint  any  person  as  his 
agent  and,  within  the  scope  of  the  agent's  authority, 
will  be  bound  by  his  acts  whether  the  agent  is  compe- 
tent or  not.  If  he  appoints  an  infant,  an  insane  per- 
son, a  married  woman,  a  partnership  or  a  corporation, 
he  is  master  of  his  choice  and  is  bound  thereby.  The 
agent  is  looked  upon  merely  as  an  instrument.  Sup- 
pose A  appoints  B,  who  cannot  read,  as  his  agent, 
with  authority  to  make  and  sign  a  contract  for  him. 
A  caimot  set  aside  the  contract  on  the  ground  that  B 
is  not  able  to  read  it ;  he  must  abide  by  his  own  choice 
of  an  incompetent  person. 

8.  What  acts  may  be  done  by  an  agent. — The  gen- 
eral rule  is  that  a  man  may  appoint  an  agent  to  do  for 
him  an\i:hing  which  he  has  power  in  his  own  right  to 
do.  Thus,  he  may  appoint  an  agent  to  execute  a 
deed,  to  make  a  contract.  The  appointment  may  be 
to  act  in  all  the  principal's  affairs,  or  in  some  par- 
ticular matter ;  it  may  be  limited  by  instructions  as  to 
the  agent's  conduct,  or  his  conduct  may  be  left  to  his 
own  discretion.  Tho,  where  he  acts  at  his  own  dis- 
cretion, he  must  none  the  less  act  according  to  the  gen- 
eral usage  in  the  business  in  which  he  is  employed. 

1  Agency,  p.  8. 


280  COMMERCIAL  LAW 

While  an  agent  can  be  appointed  by  bare  words, 
without  a  writing,  he  cannot  bind  his  principal  in  some 
matters,  as  for  example  by  a  deed,  unless  he  is  ap- 
pointed by  deed.  But  where  a  duty  is  imposed  on  a 
person  by  statute,  or  because  the  exercise  of  his  spe- 
cial discretion,  skill  or  knowledge  is  desired,  an  agent 
cannot  replace  him.  Thus  if  A  undertakes,  because 
of  his  special  knowledge  of  the  pulp  business  and  be- 
cause of  his  influence,  to  negotiate  a  purchase  of  pulp, 
or  the  placing  of  a  company's  pulp  products,  he  can- 
not delegate  his  powers  for  these  purposes  to  an  agent. 

9.  Co-agents. — When  several  agents  are  appointed 
for  the  same  business,  they  are  jointly  and  sev- 
erally liable  for  each  other's  acts  of  administration, 
unless  it  is  otherwise  stipulated.  And  where  they 
are  appointed  to  act  jointly  and  severally,  one  or 
more  of  them  could  execute  the  mandate  independ- 
ently of  the  others.  But  if  they  are  appointed  to 
act  jointty,  in  ordinary  cases  thej^  must  all  concur 
in  the  execution  of  the  act,  unless  they  are  authorized 
to  bind  their  principal  by  the  decision  of  a  majority, 
or  of  a  quorum. 

10.  What  acts  may  he  ratified. — By  ratification  is 
meant  the  adoption  by  one  person  of  the  act  or  con- 
tract done  or  made  in  his  behalf  by  another  without  his 
authority.  The  person  doing  the  act  may  have  had 
no  authority  or  he  may  have  exceeded  his  authority. 
When  ratified,  the  act  or  contract  is  as  valid  as  if 
performed  or  made  by  the  principal  himself.  Hence 
a  person  may  ratify  any  act  which  is  not  radically 


PRINCIPAL  AND  AGENT  281 

void.  The  act  or  contract  must  be  ratified  as  a  whole 
and  not  in  part.  Tlie  principal  cannot  ratify  the 
part  that  may  be  beneficial  and  reject  what  is  not. 
But  the  person  who  ratified  an  act  must  be  the  per- 
son on  whose  behalf  it  is  done ;  he  must  have  existed  at 
the  time  and  be  an  ascertainable  person  with  capacity 
to  do  the  act  in  question,  tho  he  need  not  be  known 
in  any  way  to  the  person  who  assumes  to  act  as  his 
agent. 

The  law  concerning  ratification  of  contracts  can 
best  be  shown  by  concrete  examples.  Take,  for  ex- 
ample, the  case  of  A,  who,  authorized,  insures  the 
goods  of  B,  the  policy  of  which  B  ratifies  and  accepts. 
A's  contract  on  his  behalf  is  thus  ratified  and  he  must 
paj"  the  premium  and  may  claim  under  the  policy. 

A  purchases  four  diamonds  from  X  on  behalf  of 
P,  and  tells  X  that  P  will  pay  for  them.  X  extends 
the  credit  to  P,  who  upon  hearing  of  the  contract  rati- 
fies it.  If  A  loses  one  of  the  diamonds  and  tells  P 
all  about  the  contract  and  his  loss  of  the  one  diamond, 
P  would  not  be  permitted  to  retain  the  three  unless 
he  paid  for  all.  Having  ratified  the  contract,  he 
would  be  bound  by  the  act  of  his  agent  and  would 
have  to  stand  the  burden  of  the  latter's  negligence. 

Where  a  bank's  representative  gives  instructions  to 
seize  horses  covered  by  a  lien  note  assigned  to  the 
bank,  as  security  for  money  borrowed  by  the  payee 
thereof,  and  the  person  so  instructed  seizes  horses 
other  than  those  covered  by  the  note,  at  two  different 
times,  and  the  bank's  representative  ratified  the  act 


282  COMMERCIAL  LAW 

of  such  person  in  the  second  seizure  and  detaining  of 
horses,  and  instructed  him  not  to  take  back  the  first 
horses  seized  until  he  saw  that  he  had  the  right  ones, 
the  bank  is  hable  for  the  acts  of  such  person  in  seiz- 
ing the  horses.^ 

But  ratification  of  an  agent's  unauthorized  agree- 
ment for  the  sale  of  land  does  not  arise  from  the  fact 
that  the  sum  paid  the  agent  by  the  purchaser  was, 
without  the  principal's  knowledge,  included  in  the 
amount  of  a  check  given  to  the  principal  by  the  agent 
for  money  actually  due  from  him,  which  sum  the 
former  returned  to  the  purchaser's  agent  as  soon  as 
he  learned  of  its  inclusion  in  the  check. ^ 

The  S  Company  had  sold  goods  to  the  A  Company. 
The  amount  was  in  dispute.  The  A  Company  ar- 
ranged a  settlement  with  B,  the  agent  of  the  S  Com- 
pany, and  sent  a  check  to  the  S  Company  for  the 
amount,  with  a  letter  stating  that  it  was  in  full  set- 
tlement of  their  claim  pursuant  to  the  agreement  made 
with  B.  The  S  Company  cashed  the  check,  but  wrote 
that  they  did  not  intend  to  be  bound  by  the  settle- 
ment made  by  B,  altho  they  would  credit  the  amount 
on  account.  Then  the  S  Company  sued  the  A  Com- 
pany for  the  balance.  It  was  held  they  could  not 
recover.  They  could  not  repudiate  the  settlement  and 
at  the  same  time  use  the  check  sent  in  pursuance 
thereof.  Even  tho  the  act  of  B  was  unauthorized, 
retaining  and  using  the  check  was  a  ratification. 

I'Thien  vs.  Bank  of  B.  N.  A.,  4  D.  L.  R.  388. 
2  Margolis  vs,  Birnie,  5  D.  L.  R.  534. 


PRINCIPAL  AND  AGENT  283 

But  a  person  cannot  ratify  an  unauthorized  act 
which  was  done  by  the  agent  in  his  o^vn  name  and  be- 
half. Thus  where  A  is  authorized  to  buy  wheat  on 
the  joint  account  of  himself  and  B,  with  a  limit  as  to 
price,  and  A,  intending  to  buy  on  the  joint  account  of 
himself  and  B,  and  expecting  that  B  will  ratify  the 
contract,  but  not  disclosing  such  intention  to  the  seller, 
enters  into  a  contract  in  his  own  name  to  buy  at  a 
price  in  excess  of  the  limit,  B  cannot  ratify  the  con- 
tract.' 

We  have  said  that  a  person  may  ratify  any  act 
which  is  not  radically  void.     Bowstead  asserts  that: 

Every  act,  whether  lawful  or  unlawful,  which  is  capable  of 
being  done  by  means  of  an  agent,  except  an  act  which  is  in  its 
inception  void,  is  capable  of  ratification  by  the  person  in 
whose  name  or  on  whose  behalf  it  is  done. 

As  an  example,  he  cites  a  case  where  A,  an  agent 
of  a  corporation,  assaults  B  on  its  behalf.  The  cor- 
poration ratifies  the  assault.  The  corporation  was 
held  civilly  liable  to  B  for  the  assault.^  But  such 
cases  are  exceptional,  and  it  may  be  laid  down  as  a 
general  rule  that  illegal  acts  and  contracts  may  not 
be  ratified.  Thus,  if  A  signs  B's  name  to  a  note,  in- 
tended to  defraud,  A  has  committed  the  crime  of 
forgery.  The  signature  is  void  ah  initio.  B  cannot 
ratify  the  signature.^  Tho  if  B,  knowing  of  the 
forgery,  leads  a  third  party  to  believe  that  it  is  his 

iKneightly  vs.  Durant  (1901),  A.  C.  340. 

2  Eastern  Counties  Ry.  vs.  Broom,  1851,  6  Ex.  314. 

3  Brook  vs.  Hook,  1871,  L,  R.  6  Ex.  89. 


284*  COMMERCIAL  LAW 

signature,  and  the  third  party  is,  as  a  result,  induced 
to  act  upon  such  representation  to  his  loss,  B  will  not 
be  heard  to  set  up  that  the  signature  is  a  forgery  if 
the  third  party  sues  him  upon  it.^  In  some  of  the 
American  states,  however,  a  forged  signature  may  be 
ratified.  But  it  has  been  held  by  the  Supreme  Court 
of  Canada  that  a  forgery  cannot  be  ratified.^  Rati- 
fication of  a  forged  signature  must  be  distinguished 
from  that  of  an  unauthorized  signature  made  by  the 
agent  without  intent  to  defraud.  Such  a  signature, 
the  principal  may  ratify. 

11.  Conditions  necessary  for  ratification. — The  per- 
son who  ratifies  an  unauthorized  act  must,  at  the  time 
of  ratification,  know  all  the  material  circumstances 
surrounding  the  act,  unless  he  takes  the  risk  incident 
to  incomplete  knowledge.  Thus,  if  a  bailiff  wrong- 
fully seizes  and  sells  goods  and  pays  the  proceeds  to 
his  principal,  the  principal  will  not  be  bound  unless 
he  knew  of  the  irregularity — unless  he  intended  to 
assume  any  risk.  If  his  agent  makes  a  contract 
that  is  void,  the  principal  is  not  held  to  have  ratified 
if  he  is  in  good  faith  and  is  not  aware  that  it  is  avoid- 
able. But  if  an  act,  to  be  valid,  must  be  done  within 
a  certain  time,  the  ratification  should  take  place  also 
within  such  time,  at  least  in  so  far  as  concerns  a  third 
party  who  would  otherwise  be  prejudiced.  The  rati- 
fication should  follow  the  act  or  contract  within  a  rea- 
sonable time. 

1  McKenzie  vs.  British  Linen  Co.,  1881,  6  A.  C.  82  H.  L. 

2  Merchants  Bank  vs.  Lucas,  18  S.  C.  R.  704  (1890). 


PRINCIPAL  AND  AGENT  285 

12.  Ratification  express  or  implied. — Ratification 
may  be  express  or  implied.  It  will  be  implied  when 
the  principal's  conduct  leads  to  the  beUef  that  he  has 
ratified  or  intends  to  adopt  or  recognize  the  act. 
Where  an  agent  exceeds  his  authority,  even  the  silence 
or  acquiescence  of  the  principal  may  be  sufficient  evi- 
dence of  his  intention.  If  he  adopts  part  of  the  act, 
he  will  be  held  to  have  adopted  and  ratified  it  in  its 
entirety.  Ordinarily,  the  ratification  of  a  written  con- 
tract need  not  be  in  writing;  tho  if  an  agent  unau- 
thorized executes  a  formal  deed,  the  ratification  should 
be  by  a  deed.  Directors  of  a  company  may  ratify 
acts  of  agents  if  they  have  the  authority  to  do  so; 
otherwise  the  ratification  of  the  shareholders  may  be 
sought.  The  shareholders  may  ratify  acts  ultra  vires 
of  directors  if  intra  vires  of  the  company. 

13.  Scope  of  agent's  authority. — The  nature  and 
extent  of  an  agent's  authority  to  act  may  be  defined 
by  a  formal  deed  or  an  informal  writing  or  by  oral 
instructions.  Where  an  agent  has  had  a  course  of 
dealings  with  third  parties,  the  scope  of  his  authority' 
may  be  deduced  therefrom;  it  may  also  be  inferred 
from  the  circumstances  surrounding  the  transaction, 
from  the  custom  of  trade,  or  the  conduct  of  the  prin- 
cipal himself.  Thus,  if  A  has  usually  or  frequently 
employed  B  to  purchase  goods  for  him  and  has  cus- 
tomarily ratified  B's  acts  in  this  respect,  B  becomes 
his  implied  agent  for  all  acts  done  within  the  appar- 
ent scope  of  his  authoritA\  ^^^lere  the  scope  of  the 
agent's  authority  is  defined  in  writing,  it  will  gen- 


286  COMMERCIAL  LAW 

erally  be  easy  to  deal  with  him  within  the  terms  of  his 
authority;  it  will  be  more  difficult  where  his  powers 
can  only  be  inferred.  In  either  case,  in  any  impor- 
tant transaction,  too  careful  inquiry  cannot  be  made 
as  to  the  extent  of  the  agent's  mandate. 

Even  where  the  authority  is  expressly  given,  there 
may  be  uncertainty  if  it  is  given  in  words  of  uncer- 
tain or  ambiguous  meaning;  or  if  doubt  arises  as  to 
the  imphed  powers  which  ordinarily  would  be  col- 
lateral to  the  express  powers.  If  the  authority  is  ex- 
press, and  the  agent  acts  strictly  within  its  terms,  the 
principal  will  be  bound,  tho  the  agent  may  have  acted 
with  an  eye  to  his  own  rather  than  to  his  principal's 
interest. 

The  apparent  authority  is  the  real  authority.  And 
where  the  third  party  had  knowledge  of  the  terms  of 
the  agent's  special  authority,  he  will  not  be  able  to 
hold  the  principal  for  the  acts  of  the  agent  which 
exceed  such  authority.  If  the  authority  is  inferred 
from  a  course  of  dealings  or  the  conduct  of  the  princi- 
pal, then  the  liability  of  the  principal  toward  third 
persons  will  be  based  upon  the  extent  of  the  agent's 
usual  or  customary  authority.  Innocent  third  per- 
sons are  entitled  to  deal  with  an  agent  so  accredited 
where  he  acts  within  the  seeming  course  of  such  em- 
ployment. Hence  the  rule  that  one  partner  may  bind 
his  co-partners  in  all  acts  done  in  the  usual  course  of 
the  partnership  business.  Thus,  also,  if  A  sends  B 
with  ready  money  to  buy  certain  goods,  and  B  gets 
the  goods  and  charges  them  to  A,  A  is  not  bound. 


PRINCIPAL  AND  AGENT  287 

But  if  A  is  in  the  habit  of  dealing  on  "tick"  with  C, 
and  B  buys  goods  from  C  for  himself  and  charges 
them  to  A,  A  will  be  bound,  if  C  is  in  good  faith. 
Or  if  A  allows  his  clerk  B,  as  a  general  rule  and  in  the 
course  of  business,  to  accept  drafts  or  indorse  notes, 
and  B  does  so  on  an  occasion  and  does  not  account 
for  the  money,  A  may  be  held  liable. 

14.  General  and  special  agent. — A  principal  may 
attempt  to  restrict  by  private  instructions  the  actions 
of  a  general  agent,  i.e.,  an  agent  appointed  by  the 
principal  to  transact  all  his  business  of  a  particular 
kind.  The  agent  may  exceed  these  instructions,  and 
yet,  as  towards  third  parties  treating  with  him  as  a 
general  agent,  bind  his  principal.  As  Lord  Black- 
burn has  said: 

Where  an  agent  is  clothed  with  ostensible  authority,  no 
private  instructions  prevent  his  acts  within  the  scope  of  that 
authority  from  binding  his  principal.  Where  his  authority 
depends,  and  is  known  to  those  who  deal  with  the  agent  to 
depend,  on  a  written  mandate,  it  may  be  necessary  to  pro- 
duce or  account  for  the  non-production  of  that  writing,  in 
order  to  prove  what  was  the  scope  of  the  agent's  authority.^ 

But  if  the  agent  is  a  particular  agent,  employed  for 
one  special  act  or  transaction,  then  the  third  party 
must  be  careful  to  discover  the  exact  extent  of  the 
agent's  authority.  Even  the  general  agent,  with  the 
wide  powers  which  the  term  implies,  must  act  accord- 
ing to  the  custom  of  trade  or  the  usage  of  the  par- 
ticular business.     Any  departure  therefrom  will  be 

1  National  Bolivian  Navigation  Co.  vs.  Wilson  (1880),  5  A.  C.  1T6. 


288  COMMERCIAL  LAW 

sufficient  to  put  the  third  party  on  his  guard.  Thus, 
a  broker  is  supposed  to  sell  stock  for  cash.  If.  he  is 
authorized  to  sell  shares  for  a  client,  he  cannot  sell  on 
credit,  unless  the  authorization  so  provides.  Yet  a 
principal  can  scarcely  object  where  an  agent  executes 
his  mandate  in  a  manner  more  advantageous  to  him 
than  that  specified,  and  in  such  case  the  agent  will 
not  be  heJd  to  have  exceeded  his  powers. 

15.  Authority  in  ambiguous  terms. — If  an  agent's 
instructions  fairly  admit  of  more  than  one  interpreta- 
tion, and  he  in  good  faith  adopts  one  or  the  other  of 
them,  the  principal  will  be  bound — tho  he  may  not 
have  intended  the  construction  which  has  been  acted 
upon.  Thus,  where  an  agent  is  instructed  to  dispose 
of  fifty  shares  of  stock  at  one  hundred  dollars  a  share, 
or  over,  he  is  entitled  to  sell  at  one  hundred  dollars, 
tho  the  market  price  may  be  rising.  It  has  also  been 
held  by  the  House  of  Lords  that  where  an  agent  was 
authorized  to  buy  and  ship  five  hundred  tons  of  sugar, 
and  he  was  told  that  if  he  could  secure  a  suitable  ves- 
sel, fifty  tons  more  or  less  did  not  matter,  he  had 
fairly  and  properly  executed  his  mandate  by  securing 
a  shipment  of  four  hundred  tons.^ 

16.  Power  of  attorney. — Where  an  agent  acts  un- 
der special  written  authority,  he  is  said  to  act  under 
"power  of  attorney."  The  writing  may  be  signed  be- 
fore a  notary  under  seal,  or  may  be  executed  before 
witnesses.     Its  terms  will  be  strictly  interpreted  to 

1  Ireland  vs.  Livingston  (1872),  L.  R.  5  H.  L.  395, 


PRINCIPAL  AND  AGENT  289 

include  only  the  powers  mentioned  and  those  which 
are  an  essential  corollary  thereof. 

The  following  is  a  form  of  power  of  attorney  which 
might  be  adopted  by  a  financial  firm  when  giving  a 
power  of  attorney  to  one  of  its  branch  managers,  and 
of  course  the  form  could  be  altered  to  provide  for  any 
action  on  the  part  of  the  agent.  This  is  a  gen- 
eral, rather  than  a  special  power  of  attorney. 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  that  we, 
ARNOLD  SEVERN  AND  JAMES  McDONALD,  carrying 
on  business  together  in  co-partnership  in  Montreal  and  else- 
where under  the  firm  name  and  style  of  SEVERN  &  Mc- 
DONALD. 

Have  made,  ordained,  deputed,  constituted,  and  by  these 
presents  do  make,  ordain,  depute,  constitute  and  appoint, 

GEORGE  A.  BENNETT,  of  the  City  and  District  of 
Montreal,  Manager. 

To  be  our  true  and  lawful  attorney,  for  us  and  in  our 
name : 

To  take  the  complete  charge  and  management  of  the  Mont- 
real office  of  the  constituents,  and  to  do,  transact,  manage 
and  carry  on  all  and  every  trade,  business,  transactions  and 
affairs  of  them,  the  said  constituents,  in  connection  there- 
with ; 

To  make,  draw,  sign,  accept,  transfer  and  indorse,  nego- 
tiate, pledge,  retire,  pay  or  satisfy  all  Promissory  Notes, 
Bills  of  Exchange,  Drafts,  Checks  and  Orders  for  payment 
or  delivery  of  money  and  securities ;  to  pay  and  receive  all 
moneys,  to  give  acquittance  for  the  same ;  to  arrange,  bal- 
ance and  settle  all  books,  accounts  and  dealings ;  to  sign 
script,  indorse  certificates,  negotiate,  obtain  and  sign  loans, 
either  alone  or  jointly  with  others,  and  deposit  and  hypothe- 
cate stocks,  bonds  and  other  securities  to  guarantee  and  se- 
cure such  loans  and  advances  from  time  to  time;  to  draw 

XXIV — 20. 


290  COMMERCIAL  LAW 

on  the  account  of  the  undersigned  with  the  Bank  hereinafter 
named,  and  to  overdraw  the  same  if  he  shall  think  fit;  to 
guarantee  the  indorsements  and  checks  of  customers ;  to  buy? 
sell,  transfer,  accept  transfer  of,  assign  and  otherwise  deal 
with,  for  and  on  behalf  of  the  constituents,  all  stocks  (in- 
cluding the  stocks  of  banks),  bonds,  debentures  and  deben- 
ture stock  and  other  securities ;  and  further  to  manage  and 
transact  all  manner  of  business  whatsoever  with  the  Bank  of 

,  or  with  its  Manager,  or  other  Officer  duly 

authorized/ the  whole  as  amply  and  effectually  to  all  intents 
and  purposes  as  they  the  said  constituents  could  do  or  have 
done  in  their  own  proper  person  if  these  presents  had  not 
been  made — the  said  constituents  hereby  relieving  the  said 
Bank  from  the  responsibility,  whether  in  law  or  in  equity, 
jn  connection  with  the  disposal  of  moneys  paid  or  advanced 
to  the  said  Attorney  under  these  presents,  and  from  any 
inquiry  and  investigation  as  to  the  purpose  for  which  such 
money  is  required,  or  with  regard  to  any  transaction  con- 
nected in  any  way  with  such  payment  or  advance; 

To  ask,  demand,  sue  for,  recover  and  receive,  of  and  from 
all  and  every  person  or  persons,  and  to  arbitrate,  adjust, 
compound  and  settle  all  and  every  such  sum  and  sums  of 
money,  debts,  rents,  goods  and  chattels,  dues,  duties,  claims 
and  demands  whatsoever,  as  now  are  or  hereafter  shall  be- 
come due,  owing,  belonging  or  payable  to  the  constituents, 
and  for  and  in  their  name  and  on  their  behalf  to  give  proper 
receipts,  acquittances  and  discharges  for  same  respectively, 
as  to  the  said  Attorney  may  seem  just; 

To  constitute  and  appoint,  and  in  his  place  and  stead,  to 
put  one  or  more  Attorney  or  Attorneys,  and  such  appoint- 
ment or  appointments  again  at  his  pleasure  to  revoke,  and 
other  or  others  in  his  or  their  place  to  substitute ; 

The  said  constituents  ratifying  and  confirming,  and  prom- 
ising and  agreeing  to  ratify  and  confirm,  all  and  whatsoever 
their  said  Attorney  or  his  substitute  or  substitutes  in  and 
about  the  premises  shall  lawfully  do  or  cause  to  be  done  by 
virtue  of  these  presents. 

This  letter  of  Attorney  shall  be  and  remain  in  full  force 


PRINCIPAL  AND  AGENT  291 

and  effect  until  the  said  constituents  shall  have  duh'  notified 
in  writing  the  said  Bank,  or  such  other  person  or  persons  to 
whom  these  presents  may  come,  that  they,  the  said  constit- 
uents, have  revoked  the  same,  and  the  receipt  of  such  notice 
shall  have  been  acknowledged. 

IN  WITNESS  WHEREOF,  we,  the  said  constituents, 
have  hereunto   set  our  hands   and  seals,   this  day   of 

,  in  the  year  of  our  Lord  one  thousand  nine  hundred 
and  ,  at  Montreal,  in  the  Province  of  Quebec. 

Signed,  Sealed  and  Delivered 
by  one 

of    the    constituents,    in    the 
presence  of:  Per: 

17.  Implied  powers. — The  agent,  as  was  hinted  in 
the  preceding  section,  has  implied  authority  to  do  what 
may  be  necessary  or  incidental  to  the  due  and  effective 
execution  of  his  mandate;  and  in  so  doing  will  bind 
his  principal.  Thus,  if  an  agent  is  employed  to  go 
thru  the  countr}-^  and  sell  goods,  he  has  implied  au- 
thority to  hire  a  carriage  to  get  to  stations  or  to  cus- 
tomers. If  by  careless  driving  he  causes  an  injury 
to  horse  or  carriage,  his  principal  will  be  bound  to- 
wards the  owner  thereof.  A  person  who  is  author- 
ized to  buy  goods  for  his  firm,  has  implied  authority 
to  pay  for  them  and  to  give  receipts,  and  also  to  ar- 
range discounts.  But  it  has  been  held  that  where  an 
agent  is  instructed  to  find  a  purchaser  and  to  make  a 
contract  for  the  sale  of  a  house,  liis  duty  ends  there, 
and  he  has  no  implied  authority  to  receive  the  pur- 
chase money.  A  lawyer  authorized  to  sue  upon  a  note 
has  implied  authority  to  take  pa\Tnent  and  give  a 
discharge.    But  an  agent  who  is  intrusted  with  goods 


292  COMMERCIAL  LAW 

which  he  is  to  sell,  cannot  pledge  them  under  any  im- 
plied authority.  The  general  rule  to  be  observed  is 
that  acts  done  by  way  of  implied  authority  in  con- 
nection with  either  a  special  or  a  general  man- 
date, must  be  not  only  incidental  to,  but  in  accord- 
ance with,  the  usage  or  custom  of  the  particular  busi- 
ness. Thus,  an  insurance  broker  who  is  authorized 
to  issue  d  policy,  has  no  authority  to  cancel  the  con- 
tract on  the  policy:  his  ordinary  duty  as  a  broker  is 
to  make  contracts  of  insurance,  and  not  to  cancel 
them,  once  they  are  validly  entered  upon.  As  to  an 
agent's  authority  implied  from  special  customs.  Bow- 
stead  says: 

Every  agent  has  implied  authority  to  act,  in  the  execution 
of  his  express  authority,  according  to  the  usage  and  customs 
of  the  particular  place,  market  or  business  in  which  he  is 
employed.  Provided  that  no  agent  has  implied  authority  to 
act  in  accordance  with  any  usage  or  custom  which  is  unrea- 
sonable, unless  the  principal  had  notice  of  such  usage  or  cus- 
tom at  the  time  when  he  conferred  the  authority,  or  to  act 
in  accordance  with  any  usage  or  custom  which  is  unlawful. 
The  question  whether  any  particular  usage  or  custom  is  un- 
reasonable or  unlawful  is  a  question  of  law.  In  particular, 
a  usage  or  custom  which  changes  the  intrinsic  character  of 
the  contract  of  agency,  or  a  usage  or  custom  whereby  an 
agent  who  is  authorized  to  receive  payment  of  money  may 
receive  payment  by  way  of  set-off,  or  by  way  of  a  settlement 
of  accounts  between  himself  and  the  person  from  whom  he  is 
authorized  to  receive  payment,  is  unreasonable. 

18.  Must  execute  accepted  mandate. — To  the  ex- 
tent of  the  powers  and  authority  given  to  him,  the 
agent  must  execute  his  mandate.     That  is  his  con- 


PRINCIPAL  AND  AGENT  293 

tract,  whether  the  authorization  be  expressed  or  im- 
phed,  tho  he  is  not  obliged  to  carrj'^  obedience  to  the 
point  of  committing  a  fraud  or  some  WTongful  or  un- 
lawful act.  He  can  refuse  to  be  made  merely  an  in- 
strument for  ^\Tongdoing.  Strict  performance  will 
be  exacted  where  he  is  paid  for  his  work.  If  the  man- 
date is  gratuitous,  however,  the  courts  will,  as  may  ap- 
pear just  in  the  circumstances,  moderate  the  rigor  of 
the  liability  arising  even  from  his  negligence  or  fault — 
for  it  must  be  understood  that  an  agent,  who  thru  his 
negligence  or  fault  in  executing  his  mandate  causes 
loss  to  his  principal,  will  be  held  liable  for  such  loss. 
Apparently,  tho,  where  an  agent  undertakes  to  do  a 
thing  gratuitously  and  does  not  do  it,  he  will  not  be 
liable  for  his  mere  non-performance. 

19.  Delegation  of  agent's  authority  to  a  sub-agent. 
— The  fundamental  rule  is  that  an  agent,  who  in 
theory  is  employed  because  of  his  special  skill,  knowl- 
edge, reputation  or  influence,  must  carry  out  in  per- 
son the  mandate  which  he  has  accepted,  unless  he  has 
express  or  implied  authority  to  the  contrary.  He  is 
appointed  because  the  principal  has  confidence  in  him 
and  his  pecuhar  ability.  So  where  he  is  appointed 
to  act  under  circumstances  which  require  the  exer- 
cise of  discretion,  for  example,  he  may  not,  as  a 
general  rule,  appoint  anyone  else  to  exercise  that  dis- 
cretion in  his  place.  Thus  a  broker,  an  auctioneer, 
the  liquidator  or  the  directors  of  a  company  must 
ordinarily  carry  out  their  mandate  in  person. 

The    rule,    like    other    rules,    suffers    exception. 


294  COMMERCIAL  LAW 

Where  expressly  or  impliedly  an  agent  has  under- 
taken to  carry  out  a  mandate  in  person,  he  cannot  dele- 
gate his  authority;  but  in  other  cases  his  right  to  do 
so  may  be  imphed.  Many  forms  of  agency,  especially 
mercantile  agencies,  cannot  be  carried  out  by  the  agent 
in  person,  and  it  is  not  intended  that  they  should  be. 
So  it  has  been  laid  down  in  a  leading  case,  that: 

The  exigencies  of  business  do  from  time  to  time  render 
necessary  the  carrying  out  of  the  instructions  of  a  principal 
by  a  person  other  than  the  agent  originally  instructed  for 
the  purpose,  and  where  that  is  the  case,  the  reason  of  the 
thing  requires  that  the  rule  should  be  relaxed,  so  as,  on  the 
one  hand,  to  enable  the  agent  to  appoint  what  has  been  termed 
a  "sub-agent"  or  "substitute" ;  and,  on  the  other  hand,  to 
constitute  in  the  interests  and  for  the  protection  of  the  prin- 
cipal a  direct  privity  of  contract  between  him  and  such  sub- 
stitute. And  we  are  of  opinion  that  an  authority  to  the 
effect  referred  to  may  and  should  be  implied  where,  from  the 
conduct  of  the  parties  to  the  original  contract  of  agency, 
the  usage  of  trade,  or  the  nature  of  the  particular  business 
which  is  the  subject  of  the  agency,  it  may  reasonably  be  pre- 
sumed that  the  parties  to  the  contract  or  agency  originally 
intended  that  such  authority  should  exist,  or  where  in  the 
course  of  the  employment  unforeseen  emergencies  arise,  which 
impose  upon  the  agent  the  necessity  of  employing  a  substi- 
tute. ^ 

In  other  words,  the  principal  may  know  when  he 
appoints  an  agent  that  the  latter  will  employ  substi- 
tutes; or  it  may  be  the  custom  or  usage  of  the  trade 
or  business  that  sub-agents  should  be  engaged ;  or  the 
act  or  duty  may  be  performed  without  the  exercise  of 
any  particular  skill  or  discretion — in  these,  and  under 

iDeBussche  vs.  Alt.  (1878),  8  Ch.  D.  310. 


PRINCIPAL  AND  AGENT  295 

many  other  circumstances,  the  agent  is  free  to  employ 
others  to  fulfill  his  contract  for  him. 

20.  Relations  of  agent,  sub-agent  and  principal. — 
The  authorities  are  somewhat  at  variance  in  ruling 
upon  these  relations,  and  the  Quebec  law  differs  in 
details  from  the  English  law.  It  may  be  said,  how- 
ever, that  where  an  agent  appoints  a  sub-agent,  with- 
out the  express  or  implied  authority  of  the  principal, 
the  latter  will  not  be  bound  by  the  acts  of  such  sub- 
agent.  On  the  other  hand,  the  agent  is  answerable 
for  the  acts  of  the  person  whom  he,  without  authoriza- 
tion, substitutes  for  himself.  In  an  Enghsh  case,  an 
agent  was  held  liable  for  the  acts  of  his  sub-agent  who 
was  appointed  with  the  principal's  knowledge.^  Cer- 
tainly he  would  be  liable  where,  being  authorized  to 
appoint  an  unnamed  substitute,  he  appointed  some- 
one who  was  notoriously  unfit. 

21.  Duties  of  agent. — An  agent  should  act  with  all 
the  skill,  care  and  diligence  that  could  reasonably  be 
expected  of  anyone  engaged  in  his  particular  busi- 
ness. There  are  well  recognized  standards  of  con- 
duct and  performance  in  most  callings,  and  to  these 
he  will  be  expected  to  adhere;  more  especially  when 
he  is  being  paid  for  his  services.  If  he  is  acting 
gratuitously,  the  rigor  of  the  rule  is  somewhat  re- 
laxed, and  such  skill  and  diligence  as  he  possesses  will 
be  exacted  or  which  he  would  exercise  in  the  con- 
duct of  his  own  affairs.  He  is  bound  to  keep  his  prin- 
cipal's money  and  property  separate  and  intact,  to 

1  Skinner  vs.  Weguelin,  1882,  1  C.  &  E.  12. 


296  COMMERCIAL  LAW 

keep  and  render  accounts  of  his  administration,  to 
keep  proper  books  and  vouchers,  and  to  deliver  and 
pay  to  his  principal  all  that  he  has  received  under 
the  authority  of  his  mandate.  He  must  pay  interest 
upon  such  money  of  his  principal  as  he  employs  for 
his  own  use. 

22.  Fiduciary  obligations. — As  we  have  abeady 
seen,  an  agent  stands  in  a  relation  of  confidence  to- 
ward his  principal ;  and  from  a  person  in  a  position  of 
confidence  is  always  exacted  the  utmost  good  faith 
and  fair  dealing.  He  cannot  act  for  both  parties  1^ 
a  transaction  and  accept  a  commission  from  each  with- 
out their  full  knowledge  and  consent.  Otherwise  the 
interests  of  one  or  the  other  are  likely  to  be  in  jeop- 
ardy; and  an  agent,  owing  to  his  position  of  trust, 
must  not  and  cannot  place  himself  in  the  way  of  temp- 
tation. If  he  is  instructed  to  sell  a  property,  he  may 
not  himself  become  the  purchaser — at  least  before  he 
has  obtained  the  consent,  based  upon  as  full  knowl- 
edge of  the  facts  as  he  has  himself,  of  his  principal, 
who  otherwise  could  repudiate  the  transaction  as  ir- 
regular. 

Nor  could  an  agent  authorized  to  buy  a  certain 
property  for  his  principal  be  himself  the  vendor,  un- 
less again  after  full  disclosure.  His  profit  would  be 
secret  and  illegal;  and  the  transaction  could  be  set 
aside  by  the  principal  tho  he  had  not  thereby  lost  a 
cent.  So  also  where  an  agent,  authorized,  for  ex- 
ample, to  buy  one  thousand  bushels  of  wheat,  stipu- 
lates with  the  vendor  for  a  profit  in  consideration  of 


PRINCIPAL  AND  AGENT  297 

his  getting  the  sale  in  preference  to  another,  such  a 
profit  is  in  the  nature  of  a  bribe,  and  the  principal 
may  repudiate  the  contract  of  purchase.  Perhaps  the 
reasoning  behind  the  rule  is  that,  if  the  vendor  can 
afford  to  give  a  secret  bribe  to  the  agent,  he  can  af- 
ford to  sell  just  so  much  cheaper  to  the  principal, 
who  under  the  circumstances  is  entitled  to  any  shad- 
ing of  prices.  Again  if  an  agent  is  employed  to  buy 
a  property  and  he  purchases  for  himself,  he  is  re- 
garded as  a  trustee  for  his  principal :  he  cannot  set  up 
any  title  so  acquired  against  the  absolute  right  of  the 
principal  to  have  the  mandate  fulfilled. 

The  courts  are  very  strict  in  refusing  to  counte- 
nance any  act  of  an  agent  which  conflicts,  however 
slightl}^  with  his  position  of  trust.  For  example, 
where  T,  while  professing  to  act  as  ]M's  agent  and 
stipulating  for  a  commission,  by  a  devious  course  of 
conduct,  took  from  M  an  agreement  of  sale  to  him- 
self T,  of  certain  land,  resold  it  to  G,  at  a  price 
higher  than  that  at  which  he  represented  to  ^1  that 
he  had  sold  it,  paid  over  to  M  a  smaller  sum,  less  the 
agreed  commission,  and  divided  the  balance  with 
A,  who  was  alleged  to  have  been  his  partner  in  the 
transaction.  It  was  held  that  M  was  entitled  to  re- 
cover, not  only  the  profit  made  by  T  including  the 
commission,  but  the  amount  paid  to  A.  All  moneys 
paid  by  G  to  T  were  received  by  T  in  trust  for  his 
principal,  ^I.^ 

Similarly,  a  secret  arrangement  between  the  re- 

1  Morison  vs.  Thompson,  L.  R.  9  Q.  B.  480. 


298  COMMERCIAL  LAW 

spective  agents  of  the  vendor  and  the  purchaser  of 
property,  that  a  price  larger  than  that  which  the  ven- 
dor is  wilhng  to  accept  shall  be  demanded  from  the 
purchaser,  and  that  the  surplus  shall  be  paid  by  the 
vendor  to  the  agents,  will  not  be  countenanced  by  the 
court,  and  the  purchaser,  having  paid  the  full  price 
demanded,  without  knowledge  of  the  secret  arrange- 
ment, is  entitled  to  recover  such  surplus.^ 

A  principal  must  refund  to  the  party  with  whom 
his  agent  contracted  on  his  behalf  any  profit  in  the 
transaction  represented  by  the  money  he  has  received 
thru  the  fraud  of  his  agent,  whether  the  principal 
authorized  the  fraud  or  not.^ 

23.  Liability/  of  agent  to  principal. — An  agent  is 
only  an  instrument  and  represents  another.  As  to- 
ward his  principal  he  incurs  no  personal  liability 
whatever  be  his  due  and  proper  execution  of  the  man- 
date. The  third  person  with  whom  he  dealt  may  not 
fulfil  his  contract,  may  become  insolvent  or  repud- 
iate his  agreement — that  is  no  affair  of  the  agent.  By 
common  usage,  of  course,  an  insurance  broker  is  liable 
to  an  insurance  company  for  premiums  payable  upon 
policies  written  by  him ;  and  a  del  credere  agent,  from 
the  nature  of  his  contract,  guarantees  fulfilment  of  the 
transaction  which  is  the  subject  of  his  agency. 

But  an  agent  will  in  all  cases  be  liable  to  his  princi- 
pal for  the  damages  resulting  from  his  negligence  or 
carelessness,  his  unauthorized  acts  or  other  breach  of 
duty. 

1  Peacock  vs.  Crane,  3  D.  L.  R.  645. 

2  Canadian  Financiers,  Ltd.,  vs.  Hong  Wo,  1  D.  L.  R.  38. 


PRINCIPAL  AND  AGENT  299 

Hence,  in  an  action  on  a  fire  insurance  policy,  the 
insurer  may  recover  from  its  agent  (as  damages  for 
the  latter's  neglect  of  duty  as  the  insurer's  agent,  to 
give  the  insurer  sufficient  information  of  the  haz- 
ardous nature  of  the  risk,  resulting  in  too  small  a 
premium  being  charged)  the  difference  between  the 
accustomed  premium  which  would  have  been  charged 
on  a  proper  discovery  of  the  material  facts  known  to 
the  agent,  and  the  lower  premium  which  was  in  fact 
charged  upon  his  neghgent  classification  of  the  risk.^ 

A  person  was  employed  to  secure  additional  insur- 
ance on  a  certain  property.  A  correct  specification  of 
what  was  required  was  given  to  him.  He  received  the 
policy  from  the  underwriters  and  forwarded  it  to  his 
clients  without  reading  it.  The  policy  contained  an 
erroneous  statement  of  the  prior  insurance  carried  by 
them.  As  a  result,  when  a  fire  occurred,  they  were 
forced  to  compromise  their  claim  against  the  insurer. 
It  was  held  that  the  agent  was  Hable  for  the  damages 
suffered  by  them." 

And  again,  if  an  agent  neglects  to  keep  his  princi- 
pal's money  separate  from  his  own,  and,  in  fact,  de- 
posits it  in  his  private  account  at  his  bank,  and  the 
bank  fails,  the  agent  has  been  held  liable.^ 

And  an  auctioneer  who  sells  property  under  condi- 
tions requiring  the  pa\Tnent  of  an  immediate  deposit, 
has  been  held  liable  in  an  action  for  negligence  if  he 

1  Stoness  vs.  Anglo-American  Insce.  Co.,  3  D.  L.  R.  63. 

2  Rudd  Paper  Box  Co.  vs.  Rice,  3  D.  L.  R.  253. 

3  Wren  vs.  Kirton  (1805),  11  Yes.  3T7. 


300  COMMERCIAL  LAW 

permits  the  highest  bidder  to  go  away  without  paying 
the  deposit.^ 

An  agent  will  not  be  liable*where  he  has  done  an  au- 
thorized act  which  in  itself  may  be  imprudent  and 
which  may  result  disastrously  to  the  principal.  Nor 
will  he  be  liable  where  damage  results  from  his  ac- 
tions when  he  has  literally  followed  his  instructions; 
or  where,  in  the  absence  of  instructions,  he  has  exer- 
cised his  best  judgment  and  was  entitled  to  use  his 
discretion,  or  has  acted  under  the  best  obtainable  ad- 
vice or  according  to  the  usage  of  the  particular  busi- 
ness. If  on  his  premises  a  principal  orders  work  to 
be  done  lawful  in  itself,  but  from  which,  in  the 
natural  course  of  things,  injurious  consequences  to 
his  neighbor  must  be  expected  to  arise,  unless  means 
are  adopted  by  which  such  consequences  may  be  pre- 
vented, the  principal  himself  is  bound  to  see  to  the 
doing  of  that  which  is  necessary  to  prevent  the  mis- 
chief. He  cannot  relieve  himself  of  his  own  responsi- 
bility by  employing  someone  else  (whether  servant  or 
independent  contractor)  to  do  what  is  necessary  to 
prevent  the  act  he  had  ordered  to  be  done  from  be- 
coming wrongful.^ 

It  has  been  held  that  an  agent  who  had  no  au- 
thority to  bind  an  insurance  company,  until  it  had  ap- 
proved an  application  for  insurance,  is  not  liable  for 
failure  to  effect  insurance  upon  property  before  it  was 
destroyed  by  fire,  where  he  agreed  with  the  applicant 

1  Hibbert  vs.  Bayley,  1860,  2  F.  &  F.  48. 

2  Cockshutt  Plow  Co.,  Ltd.,  vs.  MacDonald,  8  D.  L.  R.  112. 


PRINCIPAL  AND  AGENT  301 

only  to  submit  his  application  to  the  company  for  ap- 
proval, which  he  did  without  negligence,  and  it  did  not 
appear  that  he  unconditionally  agreed  to  place  and 
effect  such  insurance.^ 

A  gratuitous  agent  is  liable  for  gross  negligence  in 
the  course  of  his  agency,  but  not  for  mere  want  of 
skill,  unless  he  is  in  a  situation  from  which  skill  may 
be  implied.  But  an  omission  to  exercise  such  skill  as 
he  actually  possesses  or  has  held  himself  out  to  possess, 
or  such  skill  as  may  reasonably  be  implied  from  his 
profession  or  employment,  or  to  exercise  such  skill 
and  diligence  as  he  is  in  the  habit  of  exercising  in  re- 
gard to  his  own  affairs,  is  deemed  to  be  gross  negli- 
gence for  the  consequences  of  which  he  is  responsible 
to  the  principal.-  So  that  where  a  customer  de- 
posited certain  securities  with  his  bankers  for  safe 
keeping,  the  bankers  receiving  no  reward  for  taking 
care  of  them,  and  the  securities  were  stolen  by  a  clerk 
in  the  banker's  employ,  it  w^as  held  that  as  the  bankers 
acted  gratuitously,  they  were  not  liable,  as  there  was 
no  evidence  of  gross  negligence  on  their  part. 

24.  Measure  of  damages. — Where  by  his  negli- 
gence or  some  other  breach  of  duty  an  agent  causes 
loss  to  his  principal,  the  latter's  claim  against  him 
will  be  for  the  amount  of  the  actual  loss  sustained, 
i.e.,  such  loss  as  would  naturally  result,  or  such  as  the 
agent,  in  the  circumstances,  might  reasonably  have 
known  and  expected  would  result.    Hence,  if  an  agent 

1  Baxter  vs.  Jones  (1903),  6  O.  L.  R.  360. 

2  Wilson  vs.  Brett  (1843),  11  M.  &  W.  113. 


302  COMMERCIAL  LAW 

employed  to  insure  his  principal's  goods  neglects  to 
do  so,  and  they  are  destroyed  by  fire,  he  will  be  just 
as  liable  as  the  underwriters  would  have  been  had  he 
effected  the  insurance.  In  another  case,  a  commis- 
sion agent  in  Hong  Kong  was  instructed  to  buy  a 
quantity  of  a  certain  kind  of  opium.  He  bought  and 
shipped  an  inferior  kind.  It  was  held  that  the  proper 
measure  of  damages  was  the  loss  actually  sustained 
by  the  principal  in  consequence  of  the  opium  not  be- 
ing of  the  description  ordered,  and  not  the  difference 
between  the  value  of  the  kind  ordered  and  of  that 
shipped.^ 

25.  Agent  not  liable  on  agency  contracts, — An 
agent  who  acts  in  the  name  of  his  principal  and  within 
the  bounds  of  his  mandate,  is  not  personally  liable  to 
third  persons  with  whom  he  contracts.  When  we 
speak  of  an  agent  acting  within  the  bounds  of  his  man- 
date, we  include,  of  course,  acts  in  excess  of  his  au- 
thority which  the  principal  ratifies.  If  he  contracts 
personally,  tho  on  behalf  of  his  principal,  he  may  be 
sued  in  his  own  name,  tho  the  principal  may  be 
known  to  the  third  person  contracting.  So  it  has 
been  held  that  where  an  agent  buys  goods  at  a  sale 
by  auction,  and  gives  his  own  name  which  is  entered 
as  that  of  the  buyer  he  is  liable,  unless  it  is  clearly 
proved  that  to  the  knowledge  of  the  auctioneer  he  did 
not  intend  to  bind  himself.  In  such  a  case,  it  is 
proved  that  he  did  not  "contract  personally."  But 
where  an  agent  acts  for  an  undisclosed  principal,  he  is, 

iCassaboglou  vs.  Gibb,  1882,  11  Q.  B.  D.  797.      , 


PRINCIPAL  AND  AGENT  303 

in  all  cases,  personally  liable.  He  will  even  be  liable 
for  damages  for  non-performance  of  his  contract. 
His  offer  to  disclose  his  principal  later  will  not  help 
him.  So  that  if  an  auctioneer,  acting  for  an  undis- 
closed principal,  sold  a  potato  crop  still  in  the  earth, 
to  be  removed  at  the  expense  of  the  buyer,  he  would 
be  held  to  have  contracted  to  give  authority  to  enter 
the  field  for  the  purpose  of  digging  and  removing  the 
potatoes.  He  would  also  be  considered  to  have  war- 
ranted that  he  had  authority  to  sell. 

It  follows  that  if  an  agent  makes  a  contract  with 
a  third  party  ostensibly  on  behalf  of  his  principal,  but 
in  reality  beyond  the  scope  of  his  authority,  he  is  in 
the  position  of  having  warranted  to  such  third  person 
that  he  had  the  authority  he  seemed  to  have.  If 
he  had  not  such  authority,  then  he  has  deceived  the 
third  person  and  has  committed  a  breach  of  warranty 
for  which  he  may  be  sued.  If  he  wilfully  misrepre- 
sents facts  regarding  the  thing  or  matters  which  are 
the  subject  of  his  agency,  he  has  deceived  and  is  liable 
in  damages.  If  he  knowingly  declares  himself  to  be 
and  acts  as  the  agent  of  a  non-existent  or  incompetent 
person,  he  will  be  personally  liable.  There  is  no  cause 
of  action  for  breach  of  implied  warranty  where  there 
is  no  misrepresentation  of  the  fact  of  authority,  e.g., 
where  the  person  signing  in  a  representative  capacity 
tells  the  person  with  whom  he  is  dealing  that  he  has  no 
authority,  but  the  negotiations  proceed  in  anticipation 
of  their  being  confirmed  by  the  principal.^ 

1  Smith's  Mercantile  Law,  11th  Ed.,  p.  191. 


304  COMMERCIAL  LAW 

But  when,  in  the  course  of  his  agency,  he  signs  a 
deed  in  his  own  name,  thus  becoming  a  party  thereto, 
tho  he  may  be  described  as  representing  a  principal 
who  is  named,  he  will  be  personally  liable.  If  the 
principal  is  undisclosed,  not  only  will  he  be  person- 
ally liable,  but  he  alone  could  sue  the  other  party 
thereto  to  enforce  the  contract,  on  the  principle  that 
a  person  who  is  neither  a  party  to  a  deed  nor  men- 
tioned therein,  cannot  sue  upon  it.^  So  also  when  a 
person  makes  a  contract,  professedly  as  agent 
but  actually  for  himself  as  principal,  he  is  personally 
liable. 

An  agent  will  be  bound  to  repay  money  to  a 
third  person  where  it  has  been  paid  to  him  for  the  use 
of  his  principal,  and  ( 1 )  the  agent  has  contracted  per- 
sonally and  the  credit  is  not  given  exclusively  to  the 
principal  or  (2)  the  agent  has  obtained  payment  by 
fraud  or  threat  or  (3)  the  agent,  having  had  pay- 
ment but  before  delivery,  to  his  principal,  is  notified 
by  the  third  party  that  the  latter  intends  to  demand 
repayment  because  of  error,  fraud,  threats,  and  so  on.^ 

26.  Actions  by  agents. — The  general  rule  is  that  an 
agent  cannot  sue  on  a  contract  made  professedly  on 
behalf  of  a  principal.  There  are  certain  exceptions 
to  the  rule.  Naturally  where  he  contracts  personally, 
or  on  behalf  of  an  undisclosed  principal,  he  may  sue 
in  person.  But  a  factor,  who  according  to  our  defini- 
tion has  a  special  property  in  the  subject  matter  of 

1  Thomson  vs.  Playfair,  2  D.  L.  R.  37. 

2  Bowstead,  Loc,  Cit.,  421-2. 


PRINCIPAL  AND  AGENT  305 

the  agency,  in  that  he  has  a  lien  for  any  balance  due 
him  on  the  price  of  goods  sold  by  him,  may  person- 
ally sue  therefor.  Generall}^  speaking,  he  will  also 
be  liable  to  third  persons  when  his  principal  resides 
in  a  foreign  country.  It  has  been  held  that  both  a 
factor  and  an  auctioneer  may  sue  personally  for  the 
price  of  goods  sold  by  them  for  their  principals.  If 
an  agent  has  paid  away  his  principal's  money  by  error, 
he  may  sue  in  his  own  name  to  recover.  Or  he  may 
sue  in  damages  anyone  who  causes  injury  to  the  goods 
of  his  principal  which  are  in  his  possession.  In  such 
cases  the  agents  sue  as  trustees  for  their  principals. 
But  it  has  been  held  (and  rightly  so)  that  an  agent 
cannot  sue  to  recover  money  promised  him  by  a  third 
person  as  a  bribe,  tho  he  may  not  have  been  influenced 
in  any  respect  thereby.^ 

27.  Remuneration  of  agent. — The  chief  right  of  an 
agent  against  his  principal  is  to  receive  his  remunera- 
tion or  commission.  The  amount  to  which  he  is  en- 
titled depends  upon  the  express  or  implied  contract 
between  himself  and  his  principal.  Where  there  is 
no  express  contract,  an  implied  contract  will  be  sought 
in  the  custom  or  usage  of  the  particular  trade  or  busi- 
ness entered  upon,  from  the  circumstances  surround- 
ing the  employment  or  from  the  conduct  of  the  prin- 
cipal. In  the  absence  of  custom  or  usage,  according 
to  the  English  rule,  it  is  said  that  there  is  an  implied 
contract  to  pay  reasonable  remuneration.^     The  Que- 

1  Harrington  vs.  Victoria  Dock  Co.  (1878),  3  Q.  B.  D.  5*. 

2  Bowstead,  Agency,  p.  192. 

XXIV— 21 


306  COMMERCIAL  LAW 

bee  rule  is  embodied  in  an  article  which  provides  that 
the  mandate  is  gratuitous  unless  there  is  an  agreement 
or  an  established  usage  to  the  contrary.^  Where  an 
agent  has  carried  out  his  instructions  and  has,  say, 
brought  a  purchaser  to  the  vendor,  his  principal,  and 
the  principal  then  does  not  complete  the  sale,  it  has 
been  held  that  the  agent  is  entitled  to  his  commission. 
But  he  ^vill  not  be  entitled  to  commission,  in  the  ab- 
sence of  a  special  contract  to  that  effect,  where  the 
precise  event  which  his  services  were  sought  to  bring 
about  has  not  resulted  therefrom.  And  where  by  ex- 
press contract  a  commission  has  been  named,  no  im- 
plied contract  based  on  custom  or  usage  can  be  urged 
against  the  express  contract.  Thus,  if  an  agent.  A, 
contracts  with  a  wholesale  drygoods  firm  that  he  shall 
receive  a  commission  of  five  per  cent  on  "all  sales  ef- 
fected or  orders  executed  by  him,"  it  has  been  held 
that  if  one  or  more  purchasers  become  insolvent  be- 
fore payment,  he  is  entitled  to  his  commission  tho  it 
may  be  the  custom  of  the  trade  that  an  agent  will  not 
receive  commission  in  respect  of  bad  debts.  If  the 
principal  revokes  the  appointment  he  pays  no  com- 
mission, tho  the  agent  is  entitled  to  be  indemnified  for 
his  labor  and  expense.  So  it  has  been  held  that 
where  all  that  a  real  estate  broker,  who  had  an  exclu- 
sive right  to  sell  property,  did  toward  making  a  sale 
was  to  advertise  it  in  a  newspaper  before  the  owner 
effected  a  sale  thereof,  the  agency  was  revoked,  and 
the  agent  could  recover  only  for  the  services  actually 

1  Civil  Code,  Article  1702. 


PRINCIPAL  AND  AGENT  307 

performed,  and  not  the  compensation  agreed  upon  in 
case  he  should  make  a  sale/ 

In  the  absence  of  a  contrary  agi-eement,  an  agent  is 
entitled  to  commission  only  on  the  transaction  which 
he  brings  about — he  cannot  extend  his  right  to  some 
subsequent  transaction.  Thus,  if  an  agent  is  author- 
ized to  find  a  lessee  of  a  house  and  he  does  so,  he  re- 
ceives his  commission;  if  the  tenant  later  buys  the 
house,  the  agent  cannot  claim  a  commission  on  the 
sale.     The  sale  does  not  arise  directly  from  his  agency. 

Under  certain  circumstances,  also,  the  agent  may  be 
deprived  of  his  commission.  If  he  has  been  employed 
for  an  illegal  purpose,  he  can  claim  no  reward;  or  if 
he  has  been  guilty  of  misconduct — bad  faith  or  fraud, 
— or  if  he  has  been  grossly  negligent  and  as  a  result 
his  employer  receives  no  benefit  thru  his  agency,  or  if 
he  betrays  his  trust  and  acts  against  his  principal. 

28.  Agenfs  right  to  indemnity. — A  principal  must 
indemnify  his  agent  for  all  obligations  contracted  by 
him  toward  third  persons,  within  the  limit  of  his  pow- 
ers, or  even  where  he  has  exceeded  his  powers  and  his 
acts  have  been  ratified.  The  principal  must  likewise 
reimburse  the  expenses  and  charges  which  the  agent 
has  incurred  in  the  execution  of  the  mandate.  This 
is  true  even  where,  without  fault  on  the  part  of  the 
agent,  the  business  undertaken  does  not  turn  out  suc- 
cessfully. An  agent  is  also  entitled  to  receive  repay- 
ment of  all  advances  he  has  made  on  behalf  of  the 
principal  in  the  regular  course  of  employment.     Such 

1  Cadwell  vs.  Stephenson,  3  D.  L.  R.  759. 


308  COMMERCIAL  LAW 

advances  the  principal  is  presumed  to  have  asked  him 
to  make. 

The  principal's  request  may  be  inferred,  where  the  ad- 
vances are  made  in  the  regular  course  of  trade,  or  even  on  the 
spur  of  some  pressing  exigency  not  provided  for  by  any  ordi- 
nary rule,  since  the  employer  may  fairly  be  taken  to  have 
authorized  the  employe  to  do,  under  any  circumstances,  that 
which  a  prudent  man  would  conceive  necessary  for  the  safe- 
guard of  his  interests,  e.g.,  to  insure  a  cargo,  which  is  in 
extraordinary  danger  on  account  of  the  lateness  of  the  sea- 
son. But  if  an  agent  think  fit  to  make  a  payment  out  of  the 
Tegular  course  of  business,  he  will  not,  unless  he  can  show 
circumstances  from  which  his  principal's  authority  may  be 
inferred,  or  his  principal  adopts  it,  be  entitled  to  repayment. 
Moreover,  tho  he  is  entitled  to  be  repaid  his  regular  expenses, 
yet  if  he  conduct  himself  so  negligently  as  to  incur  expenses 
which  would  not  have  been  necessary  had  he  acted  rightly, 
he  will  be  allowed  nothing  on  account  of  them. 

Upon  proper  advances  made  by  the  agent  the  prin- 
cipal must  pay  interest.  The  principal  must  also  in- 
demnify the  agent  who  is  not  in  fault  for  losses  caused 
him  by  the  execution  of  the  mandate,  but  not  for  losses 
caused  by  his  disobedience  or  negligence.  Hence  if 
A  authorizes  an  insurance  broker,  B,  to  execute  a  pol- 
icy of  fire  insurance,  and  he  revokes  B's  authority  be- 
fore the  contract  is  completed,  but  B  goes  ahead,  has 
the  contract  completed  and  pays  the  premium,  he  can- 
not recover  the  premium  from  A,  because  he  has  acted 
without  authority.  But  where  an  agent,  in  ignorance 
of  the  extinction  of  his  mandate  by  the  death  of  his 
principal,  or  for  other  cause,  continues  the  execution 
of  his  mandate,  he  must  be  indemnified,  for  all  such 


PRINCIPAL  AND  AGENT  309 

acts  as  are  within  his  powers,  by  the  principal  or  his 
legal  representatives. 

29.  Lien  of  agents. — As  we  have  seen,  the  princi- 
pal is  bound  to  reimburse  the  expenses  and  charges 
which  the  agent  has  incurred  in  the  execution  of  the 
mandate,  and  to  pay  him  the  salary  or  other  compen- 
sation to  which  he  may  be  entitled.  To  secure  pay- 
ment, the  agent  has  a  privilege  and  right  of  prefer- 
ence, a  lien,  for  the  payment  of  what  is  due  him,  upon 
the  things  placed  in  his  hands  and  upon  the  proceeds 
of  the  sale  or  disposal  thereof.  There  are  certain  con- 
ditions to  the  existence  of  his  lien — he  must  have  ob- 
tained possession  lawfully  in  the  course  of  the  agency ; 
there  must  be  no  agreement  adverse  to  his  right;  he 
must  not  have  received  the  goods  for  a  purpose  or 
under  instructions  incompatible  with  a  right  of  lien. 
Such  a  lien  is  known  as  a  possessory  lien — which 
means  that  the  agent  has  a  right  to  retain  the  property 
until  his  claim  has  been  satisfied.  But  the  fact  that 
he  exercises  his  right  of  lien  does  not  prevent  his  tak- 
ing action  upon  the  debt.  In  such  case,  he  holds  the 
goods  which  are  under  lien  as  a  collateral  security.^ 
He  may  lose  his  lien  by  parting  voluntarily  with  the 
goods,  unless  he  is  fraudulently  induced  to  give  up 
possession,  or  unless  he  gets  an  agreement  that  tho  he 
parts  with  the  goods  his  lien  continues  in  force.  By 
contract,  express  or  implied,  he  may  waive  his  lien. 

30.  Acts  performed  within  the  powers  of  the  man- 
date.— The  general  rule  is  that  the  principal  is  bound 

1  Smith:  Mercantile  Law,  Ed.  1905,  p.  766, 


310  COMMERCIAL  LAW 

in  favor  of  third  persons  for  all  the  acts  of  his  agent, 
done  in  execution  and  within  the  powers  of  the  man- 
date. In  particular  instances — as  in  the  case  of  a 
factor  whose  principal  resides  in  a  foreign  country,  or 
in  case  of  an  agreement  or  of  the  usage  of  trade — the 
agent  may  alone  be  bound  for  his  acts,  but  these  cases 
are  exceptional.  So  that  where  the  agent  acts  strictly 
within  the  scope  of  his  authority,  he  binds  his  principal 
toward  third  persons  who  deal  with  him  in  good  faith, 
even  tho  he  may  have  acted  adversely  to  his  principal's 
interests.  So  if  A  is  authorized  in  writing  by  B  to 
buy  and  sell  cheese,  and  A  buys  a  large  quantity  of 
cheese  in  his  principal's  name  from  C,  sells  it  and 
pockets  the  proceeds  without  paying  C,  B  will  be  held 
toward  C,  because,  tho  A  acted  fraudulently,  he  was, 
so  far  as  C  knew,  acting  strictly  within  his  actual  au- 
thority. Tho  C  must  be  in  good  faith,  it  is  not  re- 
quired of  him,  in  the  presence  of  such  an  express  au- 
thority, to  go  behind  it  to  discover  whether  the  agent 
is  buying  for  himself  or  for  his  principal.  The  ap- 
parent authority  is  the  real  authority. 

Similarly,  every  act  which  an  agent  does  in  the 
course  of  his  employment,  and  within  the  apparent 
scope  of  his  authority,  is  binding  upon  the  principal. 
But  the  agent  must  not  actually  be  unauthorized,  to 
the  knowledge  of  the  third  person,  to  do  the  act.  If 
the  third  person  knows  that  the  agent  is  exceeding  his 
authority,  he  will  not  be  allowed  to  take  advantage  of 
the  principal.  Thus  the  general  manager  of  an 
amusement  company  engages  a  hall  and  orders  the 


PRINCIPAL  AND  AGENT  311 

printing  of  advertising  matter  in  preparation  for  the 
appearance  of  a  foreign  orchestra.  The  regulations 
of  the  company  provide  that  all  transactions  shall  be 
for  cash.  The  company  is  liable,  unless  the  third  per- 
son had  notice  that  the  manager  acted  beyond  his  au- 
thority. His  acts  were  within  the  apparent  scope  of 
his  authority  as  general  manager.  The  test  is,  then, 
that  the  extent  of  the  agent's  authoritj'^  is  ( as  between 
his  principal  and  third  persons)  to  be  measured  by 
the  extent  of  his  usual  employment — by  employing 
him  the  principal  holds  him  out  as  his  representative 
for  the  matter  of  the  employment,  and  third  persons 
in  good  faith  are  entitled  to  treat  with  him  in  connec- 
tion with  matters  in  the  usual  course  of  such  employ- 
ment. So  it  has  been  held  that  where  the  manager  of 
a  business  which  was  carried  on  in  his  name,  the  real 
principal  being  undisclosed,  ordered  goods  for  the 
business,  and  in  so  doing  exceeded  his  authority,  the 
undisclosed  principal  was  bound.^ 

31.  Acts  exceeding  the  scope  of  autliority. — For 
such  acts  the  principal  is  not  bound,  unless  he  has  au- 
thorized or  ratified  them.  What  acts  are,  or  are  not 
within  the  scope  of  the  agent's  authority  or  in  the 
course  of  his  employment,  will  have  to  be  determined 
in  each  case.  The  courts  will  generally  hold  that  an 
agent  may  adopt  measures  necessary  or  usual  for 
carrying  the  main  intention  of  the  principal  into  ef- 
fect.^    Thus  it  has  been  held  that  an  agent  who  is 

iWatteau  vs.  Fenwick  (1893),  1  Q.  B.  346. 
2  Smith,  Loc.  Cit.  160, 


312  COMMERCIAL  LAW 

employed  to  get  a  bill  discounted,  may,  perhaps,  un- 
less expressly  restricted,  indorse  it  in  the  name  of  his 
employer ;  that  an  agent  appointed  to  receive  rents  and 
make  leases  can  fix  the  period  of  the  lease,  and  that  a 
broker  who  is  employed  to  issue  a  policy  of  insurance 
may  settle  the  loss.  On  the  other  hand,  it  has  been 
held  that  a  bank  is  not  bound  where  one  of  its  man- 
agers, without  authority,  guarantees  payment  of  a 
draft,  it  not  being  within  the  ordinary  scope  of  his 
authority  to  do  so.  'Not  is  a  principal  bound  who  in- 
structed an  agent  to  find  a  tenant  for  a  property  but 
not  to  grant  a  lease  without  consulting  him,  where, 
without  consulting  him,  the  agent  granted  a  lease  for 
twelve  years. 

The  principal  is  not  bound  toward  third  persons 
who  deal  with  an  agent  who  to  their  knowledge  is 
exceeding  his  authority.  Thus  a  broker  has  posses- 
sion of  certain  goods  upon  which  he  has  a  lien  for 
advances.  He  pledges  the  goods  to  a  person  who 
knows  that  in  so  doing  he  is  exceeding  his  authority. 
The  pledgee  acquires  no  right;  he  cannot  even  retain 
the  goods  for  the  amount  of  the  broker's  lien,  the  lien 
not  having  been  transferred  under  the  circumstances. 

32.  Termination  of  agency. — The  relation  of  prin- 
cipal and  agent  arises  from  contract,  express  or  im- 
plied. The  relation  is  terminated  as  other  contracts 
are  terminated,  thus : 

(a)  By  the  accomplishment  of  the  particular  busi- 
ness or  transaction.  If  a  solicitor  is  retained  to  con- 
duct a  case,  unless  it  is  otherwise  agi'eed,  his  man- 


PRINCIPAL  AND  AGENT  313 

date  ceases  upon  the  rendering  of  the  j  udgment.  An 
auctioneer  is  instructed  to  sell  certain  goods;  on  the 
completion  of  the  sale  his  authority  ceases. 

(b)  By  the  expiration  of  the  time  for  which  the 
mandate  is  given.  This  may  depend  upon  the  terms 
of  the  contract.  It  may  depend  upon  usage  or  the 
custom  of  trade.  Thus  a  broker  is  authorized  to  sell 
certain  goods.  By  the  custom  of  trade  his  authority 
to  sell  may  lapse  with  the  expiry  of  the  day  during 
which  the  order  is  given. 

(c)  By  the  destruction  of  the  subject  matter  of  the 
agency. 

(d)  By  the  happening  of  some  event  which  renders 
the  agency  unlawful,  or  upon  the  happening  of  which 
it  has  been  agreed  the  authority  shall  cease. 

(e)  By  notice  of  revocation  given  by  the  principal 
to  the  agent,  subject  to  the  agent's  right  to  damages  in 
case  of  breach  of  contract. 

(f )  By  notice  of  renunciation  given  by  the  agent  to 
the  principal.  The  agent  may  be  liable  for  damages 
if  his  renunciation  is  unjustifiable. 

(g)  By  the  death  of  the  principal  or  of  the  agent, 
(h)   By  some  change  in  the  condition  of  either 

party  by  which  his  capacity  is  affected,  as  by  lunacy, 
misoundness  of  mind,  interdiction,  bankruptcy,  or, 
where  the  principal  is  a  corporation  or  company,  by 
the  dissolution  of  the  corporation  or  company. 

It  may  be  stated  as  a  general  rule,  that  acts  of  the 
agent  done  in  ignorance  of  the  death  of  the  principal 
or  of  any  other  cause  whereby  the  mandate  is  extin- 


314  COMMERCIAL  LAW 

guished,  are  valid.  Nor  does  a  revocation  by  the  prin- 
cipal affect  third  parties  who  may  deal  with  the  agent 
in  good  faith,  without  notice  that  the  agent's  authority 
has  ceased. 

REVIEW 

What  is  an  agent?  Distinguish  between  special  and  general 
agents  ?  What  is  a  factor  and  what  are  his  relations  to  the  prin- 
cipal? Exjilain  the  status  of  a  broker.  Define  an  auctioneer;  a 
del  credere  agent. 

What  is  necessary  to  constitute  the  relation  of  principal  and 
agent?     How  may  the  consent  be  applied? 

Discuss  agency  by  estoppel;  agency  by  necessity. 

Who  may  be  principal  in  an  agency  agreement? 

Who  may  be  an  agent  and  what  acts  may  be  done  by  him  ? 

Describe  ratification  and  conditions  which  must  exist  for  rati- 
fication.    Distinguish  between  express  and  implied  ratification. 

Discuss  the  scope  of  an  agent's  authority. 

What  are  some  implied  powers  of  an  agent? 

Discuss  the  fidiciary  obligations  between  an  agent  and  his  prin- 
cipal. 

For  what  is  an  agent  liable  to  his  principal? 

Name  the  ways  in  which  an  agency  may  be  terminated. 


CHAPTER  XIX 

MASTER  AND  SERVANT 

1.  Definition. — The  relations  between  master  and 
servant  are  in  many  respects  similar  to  those  between 
principal  and  agent.  Frequently  the  words  "serv- 
ant" and  "agent"  are  used  interchangeably.  Strictly 
speaking,  they  are  not  interchangeable;  tho  ever}' 
servant  is,  in  executing  the  duties  required  of  him 
under  his  contract  with  his  master,  the  agent  of  his 
master.  An  agent  is  a  person  authorized  to  do  some 
act  or  acts  in  the  name  of  another  who  is  his  principal. 
He  acts  for  and  represents  liis  principal  in  dealings 
with  third  parties  where  obligations  are  created  be- 
tween the  principal  and  such  tliird  parties. 

A  servant,  while  he  is  acting  as  a  servant  only,  and 
not  as  an  agent,  performs  operative  acts,  menial  labor, 
office  work,  and  so  on,  in  the  performance  of  which  he 
does  not  come  into  contact  with  third  persons  in  a 
representative  capacity.  My  coaclmian,  in  the  per- 
formance of  his  usual  duties  as  such,  is  my  servant, 
and  not  my  agent.  But  if  I  send  him  to  buy  a  horse 
for  me  in  my  name,  he  becomes  my  agent  for  that  pur- 
pose, tho  he  is  none  the  less  my  servant.  So  that  a 
person  may  be  both  an  agent  and  a  servant  at  the 
same  tune.     It  is  said  that  in  order  that  there  may 

be  a  contract  of  hiring  and  service  there  must  be  a  mu- 
sic 


316  COMMERCIAL  LAW 

tual  agreement,  express  or  implied,  by  which  one  per- 
son is  bound  to  hire  and  remunerate  and  another  is 
bound  to  serve  for  some  determinate  time.  There 
will  be  no  contract  of  hire  and  service  if  the  under- 
standing is  that  the  employer  is  to  pay  only  while  the 
servant  remains,  it  being  optional  whether  the  serv- 
ant will  serve  or  the  master  employ. 

2.  Coijiract  of  hire  and  service. — If  a  special  agree- 
ment is  entered  into,  then  the  terms  of  the  agree- 
ment must  be  observed  and  adhered  to  by  both  mas- 
ter and  servant.  Where  the  agreement  calls  for  serv- 
ice for  a  year  or  longer,  generally  it  must  be  in 
writing  and  signed  by  the  parties.  But  a  binding 
agreement  of  service  cannot  be  made  for  a  longer  pe- 
riod than  nine  years.  It  has  been  held  that  where 
services  have  been  rendered  without  an  express  con- 
tract to  pay  for  them,  it  is  a  question  of  fact  whether 
or  not  there  was  an  implied  contract  to  pay  for  them, 
and  the  onus  is  upon  the  one  seeking  payment. 
Usualty,  however,  where  there  is  no  express  contract 
for  hire  and  service,  and  the  service  is  performed, 
there  arises  a  presimiption  of  contract,  in  which 
case  the  wage  would  be  the  customary  wage  paid  for 
the  particular  kind  of  work  in  the  locality.  Where 
the  sei-vices  are  rendered  in  such  a  case  as  between 
near  relatives,  the  presumption  is  rather  to  the  con- 
trary. It  then  becomes  necessary  to  prove  an  express 
hiring. 

3.  Independent  contractor. — In  order  to  be  an  in- 
dependent contractor,  a  workman  must  be  free  from 


MASTER  AND  SERVANT  317 

control,  and  must  not  be  subject  to  the  orders  of  any- 
one as  to  the  manner  in  which  the  work  is  to  be  done. 
A  wishes  to  have  a  building  torn  down  to  make 
way  for  a  new  one.  He  contracts  that  B  shall  tear 
down  the  building,  take  full  control  of  the  work,  em- 
ploy his  owii  men  and  use  his  own  methods.  B  is  ex- 
perienced in  this  kind  of  work,  and  A  exercises  no 
control  or  supervision.  The  work  begins,  and  owing 
to  the  removal  of  parts  of  the  roof  which  formed  a 
counterweight  for  a  heavy  stone  cornice,  a  part  of  the 
cornice  falls  into  the  street  and  kills  a  passerby.  A 
is  not  responsible;  B  is,  if  negligence  on  his  part  is 
proved.  If  B  had  not  been  a  competent  person,  and 
had  not  had  experience  in  this  class  of  work,  A  might 
be  held  liable  for  his  negligence  in  employing  an  in- 
competent workman.  If  after  the  work  began,  and 
before  the  accident,  A  had  intervened  and  the  work 
was  henceforth  done  under  their  joint  supeiTision, 
then  the  accident  would  be  considered  to  have  oc- 
cuiTcd  thru  the  negligence  of  both.^ 

So  it  has  been  held  that  the  act  of  committing  work 
to  a  contractor  to  be  executed,  from  which,  if  property 
done,  no  injurious  consequences  can  arise,  is  to  be  dif- 
ferentiated from  the  act  of  turning  over  to  him  work 
to  be  done  from  which  mischievous  consequences  will 
arise  unless  preventive  measures  are  adopted.  It  may 
be  just  to  hold  the  party  authorizing  the  work  in  the 
former  case  exempt  from  liability  for  injury  resulting 

1  Dallontania  vs.  McCormick  and  the  C.  P.  Rv.,  4  O.  W.  X.  547,  8  D. 
L.  R.  757. 


318  COMMERCIAL  LAW 

from  negligence  which  he  had  no  reason  to  anticipate. 
There  is  good  reason  for  holding  him  liable  for  injury 
caused  by  an  act  certain  to  be  attended  with  injurious 
consequences  if  safeguards  are  not  provided,  no  mat- 
ter thru  whose  fault  the  omission  to  take  the  necessary 
measures  for  such  prevention  may  arise.  Hence,  if 
an  owner  upon  whose  lands  works  are  to  be  con- 
structed, from  the  construction  of  which  injury  to  ad- 
joining premises  must  be  expected  to  result,  omits  to 
take  the  necessary  measures  to  prevent  such  mischief, 
he  may  be  held  liable.^ 

Nor  can  the  employer  expect  to  escape  liability  by 
pleading  that  work  has  been  intrusted  to  an  independ- 
ent contractor,  if  the  thing  contracted  to  be  done  is 
unlawful,  or  creates  a  public  nuisance,  or  by  statute 
must  be  done  efficiently  and  it  is  done  inefficient^.^ 

4.  Fellow-sei'vant  and  vice-principal. — Who  is  a 
fellow-servant  ?  In  the  English  law  provinces  it  will 
be  of  importance  to  know.  A  fellow-servant  is  one 
who  is  engaged  with  others  for  the  same  master  in 
operative  work.  Their  duties  may  not  be  similar,  but 
they  are  fellow-servants  if  they  are  engaged  in  the 
same  general  business  of  their  common  employer. 
One  may  be  of  a  higher  grade  than  another,  and  these 
may  not  be  engaged  in  the  same  particular  work.  In 
that  they  are  performing  operative  acts  for  the  gen- 
eral furthering  of  the  business,  they  are  fellow-serv- 
ants. , 

1  Cockshutt  Plow  Co.,  Ltd.,  vs.  MacDonald,  8  D.  L.  R.  112. 

2  Berg  vs.  Parsons,  156  N.  Y.  109. 


MASTER  AND  SERVANT  319 

In  the  English  law  provinces,  then,  when  an  em- 
ploye is  injured  by  the  act  or  fault  of  a  fellow-em- 
ploye, the  master  is  not  liable.  In  the  Province  of 
Quebec,  this  fellow-sers^ant  rule  is  not  followed.  The 
master  is  responsible,  tho  the  accident  be  due  to  the 
neglect  or  carelessness  of  the  fellow-employe,  whether 
he  is  a  foreman  or  an  ordinarj^  workman. 

A  vice-principal,  on  the  other  hand,  is  one  whom  the 
master  charges,  in  his  stead,  to  provide  warning  of  ex- 
traordinary danger,  safe  tools,  for  the  employment  of 
competent  workmen,  for  the  repair  of  machineiy 
and  maintenance  of  guards  on  dangerous  machines. 
If  the  person  so  charged  is  careless  in  the  per- 
formance of  these  duties  and  a  workman  is  injured,  it 
is  as  tho  the  master  himself  were  negligent;  and  as  a 
result  he  is  liable  in  damages.  The  vice-principal  is 
not  a  fellow-servant.  The  master's  duties  in  these 
matters  are  said  to  be  non-assignable ;  he  does  not  rid 
himself  of  responsibility  by  charging  another  with  the 
performance  of  his  own  duties. 

5.  Master  liable  for  servant's  acts. — The  general 
rule  is  that  the  master  is  responsible  for  the  negligent 
acts  of  his  servant  done  in  the  course  and  within  the 
scope  of  his  employment.  The  servant  will  also  be 
liable.  The  master  would  not  be  responsible  for  the 
acts  of  his  servant  done  contrarj^  to  his  positive  in- 
structions. He  will  be  responsible  where  in  the  per- 
formance of  his  duties  the  servant  is  injudicious  and 
causes  damage,  or  is  drunk  and  causes  damage. 

Thus  if  a  servant,  in  the  discharge  of  his  duties,  is 


320  COMMERCIAL  LAW 

driving  a  horse  which  runs  away  and  dashes  thru 
a  shop  window,  the  master  is  hable.  It  would  not  be 
a  sufficient  plea  that  the  servant  was  exercising  rea- 
sonable care.  A  street-car  conductor  in  the  course  of 
an  argument  with  a  passenger  strikes  and  injures  a 
passenger.  The  company  i-s  liable,  because  carriers 
must  protect  passengers  from  assaults  or  injuries  by 
employes/ES  well  as  by  other  passengers. 

A  man  was  driving  a  wagon  just  in  front  of  a  street 
car.  He  turned  out  for  it  at  a  street  intersection, 
where  manj'^  people  were  standing  in  the  roadway 
waiting  to  board  the  car.  He  shouted  for  them  to 
get  out  of  the  way,  and  drove  thru  the  crowd  in  such 
a  reckless  manner  as  to  strike  a  person  who  was  at- 
tempting to  board  the  car  which  was  then  opposite 
the  wagon.  The  person  struck  was  thrown  down  and 
the  car  ran  over  and  crushed  his  foot.  It  was  held 
that  the  master  was  clearly  liable.* 

6.  Servant's  personal  liability, — A  servant  may 
render  himself  personally  liable  in  certain  cases.  As 
we  have  just  seen,  he  is  liable  with  his  master  where 
he  negligently  causes  injury  to  third  persons  or  to 
property.  He  will  be  liable  where,  while  acting  as 
his  master's  agent,  he  does  not,  in  dealing  with  third 
persons,  disclose  the  fact  of  his  agency.  If  he  con- 
tracts in  his  own  name  for  his  master,  he  should  de- 
scribe himself  as  "agent  for,"  or  "per,"  "pro,"  and  so 
on.  If  he  wilfully  causes  damage,  whether  acting 
within  the  scope  of  his  employment  or  not,  he  is  liable 

1  Baillargeon  vs.  St.  George,  4  D.  L.  R.  894. 


MASTER  AND  SERVANT  321 

as  a  principal.     So  also  if,  jointly  with  his  master,  he 
commits  any  fraud  or  crime. 

7.  Workmen  s  compensation  acts. — We  have  indi- 
cated that  at  common  law,  in  all  the  provinces,  a  work- 
man who  is  injm-ed  in  the  com*se  of  his  employment, 
has  an  action  in  damages  against  his  employer.  In 
several  provinces,  the  common  law  rules  have  been  al- 
tered by  workmen's  compensation  acts.  Under  these 
acts,  speaking  generally,  the  employer  is  liable  to  com- 
pensate the  workman  for  injuries  which  result: 

(a)  From  defects  in  "ways,  works,  machinery, 
plant,  buildings  or  premises"  connected  with  the 
business. 

(b)  From  negligence  of  those  who  have  the  super- 
intendence of  the  work. 

(c)  From  negligence  of  those  to  whose  orders  the 
workman  was  bound  to  conform  and  did  in  fact  con- 
form. 

(d)  By  reason  of  an  act  or  omission  by  an  employe 
in  compliance  with  rules  or  by-laws  of  the  employer. 

(e)  By  reason  of  the  neghgence  of  any  person  in 
the  employer's  service  and  in  charge  of  any  points 
or  signals,  machine,  train  or  car. 

If  the  accident  is  caused  by  the  workman's  wilful 
misconduct  or  negligence,  he  is  not  allowed  compen- 
sation. The  accident  may  have  been  caused  by  a  fel- 
low-employe. The  injured  workman  may  proceed 
against  him  or  against  the  employer,  but  not  against 
both. 

The  Quebec  Workmen's  Compensation  Act  makes 

XXIV— 22 


322  COMMERCIAL  LAW 

the  employer  liable  (except  in  agricultural  industries) 
for  all  accidents  occurring  to  the  workman  by  reason 
of  or  in  the  course  of  his  employment,  unless  the  acci- 
dent was  caused  intentionally  by  the  workman.  If 
the  workman  or  the  employer  is  guilty  of  inexcusable 
fault,  the  courts  may  diminish  or  increase  the  compen- 
sation accordingly.  Thus  it  has  been  held  in  a  Que- 
bec casethat  the  fact  that  a  workman,  despite  warn- 
ings, persists  in  remaining  in  a  place  of  danger  and 
is  killed,  is  inexcusable  fault  on  his  part  for  which 
the  damages  should  be  diminished.  It  does  not  fol- 
low, however,  that  the  accident  was  intentionally  in- 
duced by  him  so  as  to  deprive  his  representatives  of 
the  right  of  indemnity.  The  Quebec  Act  does  not 
require,  as  do  certain  of  the  other  acts,  that  notice  of 
the  accident  or  death  be  given  within  a  stated  period, 
but  action  must  be  brought  within  a  year  from  the 
accident. 

In  Alberta  and  New  Brunswick  the  court,  in  its  dis- 
cretion, fixes  the  compensation.  In  New  Brunswick 
the  payments  are  limited  to  a  period  of  ten  years.  In 
the  other  provinces  (except  Quebec)  the  estimated 
earnings  for  the  three  years  preceding  the  injury  are 
the  basis  of  computation,  or  the  sum  of  one  thousand 
five  hundred  dollars,  whichever  is  the  larger  amount. 

In  Quebec,  the  workman  is  entitled  to  a  rent  equal 
to  fifty  per  cent  of  his  yearly  wages,  if  he  is  absolutely 
and  permanently  incapacitated ;  in  case  of  permanent 
partial  incapacity,  to  a  rent  equal  to  half  the  amount 
by  which  his  wages  have  been  diminished.     For  tern- 


MASTER  AND  SERVANT  323 

porary  incapacity,  he  is  entitled  to  one-half  his  daily 
wage,  beginning  on  the  eighth  day  after  the  accident 
and  while  Jiis  incapacity  lasts.  If  his  yearly  wage 
exceeds  one  thousand  dollars,  he  has  no  claim  under 
the  act;  but  has  his  recourse  at  common  law.  If  his 
wage  is  between  six  hundred  dollars  and  one  thousand 
dollars,  then  on  any  amount  over  six  hundred  dollars 
he  receives  only  one-fourth  of  the  compensation  pre- 
viously mentioned. 

8.  Alien  Labor  Act. — The  Alien  Labor  Act  is  a 
veiled  measure  of  retaliation  against  the  United 
States,  in  that  the  Act  applies  only  to  immigration 
from  countries  which  have  enacted  similar  legislation 
applicable  to  Canadians  who  go  to  such  countries. 
The  Act  provides: 

That  it  shall  be  unlawful  for  any  person,  company,  part- 
nership or  corporation  in  any  manner  to  prepay  the  trans- 
portation, or  in  any  way  to  assist,  encourage  or  solicit  the 
importation  or  immigration  of  any  alien  or  foreigner  into 
Canada  under  contract  or  agreement,  parol  or  special,  ex- 
press or  implied,  made  previous  to  the  importation  or  immi- 
gration of  such  alien,  to  perform  labor  or  service  of  any 
kind  in  Canada. 

To  contravene  this  provision  is  to  commit  a  penal 
offense,  the  fine  imposed  being  not  less  than  fifty  dol- 
lars, nor  more  than  one  thousand  dollars.  Imprison- 
ment for  a  term  not  exceeding  six  months,  and  the 
payment  of  a  fine  of  not  more  than  fifty  dollars  for 
each  alien  landed,  may  be  ordered  in  the  case  of  the 
master  of  any  vessel  who  knowingly  violates  the  Act. 

The  Act  does  not  apply  in  certain  stated  cases. 


324.  COMMERCIAL  LAW 

Foreigners  living  in  Canada  temporarily  may  con- 
tract with  foreigners  to  act  for  them  here  as  pri- 
vate secretaries,  servants  or  domestics.  A  new  in- 
dustry is  to  be  favored  and  to  be  guarded  against  loss 
for  lack  of  skilled  workmen.  Hence  a  company  en- 
gaged in  a  new  industry  not  at  present  established  in 
Canada  may  bring  in  skilled  labor  if  it  cannot  be 
obtained  here.  There  may  be  workmen  of  the  class 
desired  in  Canada,  but  they  may  not  be  obtainable 
because  they  are  already  engaged.  The  Dominion 
Carriage  Company  erected  a  shop  in  which  to  build 
steel  box-cars.  It  needed  a  number  of  riveters,  and 
altho  there  were  riveters  working  in  Canada,  it  could 
not  secure  their  services.  It  brought  in  several 
from  the  United  States.  Its  action  was  upheld  by 
the  Court  of  Appeal  of  Quebec.  The  act  does  not 
bar  professional  actors,  artists,  lecturers,  singers  or 
persons  employed  strictly  as  personal  or  domestic 
servants.  It  does  not  prevent  any  person  assisting 
some  member  or  members  of  his  family,  or  some  rela- 
tive or  friend  to  come  here  to  take  a  position  if  the 
newcomer's  intention  is  to  become  a  citizen  of  Canada. 
The  Act  does  not  affect  the  powers  of  the  government 
of  Canada  or  of  any  province  to  encourage  immigra- 
tion by  circulating  advertising  matter  in  a  foreign 
country.     This  private  persons  may  not  do. 

REVIEW 

Explain  the  relationship  of  master  and  servant  and  distinguish 
from  agency. 


MASTER  AND  SERVANT  325 

Discuss  the  contract  of  hire  and  service.  When  does  presump- 
tion of  contract  arise? 

What  is  an  independent  contractor  and  what  are  his  liabilities? 

Define  fellow-servant;  vice-principal.  What  are  their  respec- 
tive duties? 

Who  is  liable:  (a)  for  negligence  by  servants;  (b)  when  a  serv- 
ant does  not  disclose  the  fact  that  he  is  his  master's  agent;  (c) 
for  a  servant's  wilful  torts? 

From  what  cause  of  injury  to  workmen  is  an  employer  liable? 
What  is  the  compensation  rule  in  Quebec  ? 

What  is  the  Alien  Labor  Act?  What  classes  are  exempt  from 
the  Act? 


IXDEX 


A  Definition,   2 
Acceptance, 

See   Offer  and  Acceptance 
Accommodation  Party, 

Indorser's  warranty,  246;  Liability, 
247-49;   Definition  of,   248 
Agents, 

Type  of  general,  271;  Special,  271- 
72:  Factor,  272;  Broker,  272; 
Auctioneer,  272—73;  Del  credere 
agent,  273;  Eligibility,  279;  Co- 
agents'  liability,  280;  Authority 
of,  285-87,  288,  291-94.  310- 
12;  General  and  special,  287-88; 
Power  of  attorney,  288-91:  Sub- 
agent,  293-95;  Duties,  295-96; 
Liability,  298-304;  Suits  by,  304- 
05;  Remuneration,  305—07;  In- 
demnity, 307-08;  Liens,  309; 
How  contracts  terminate,  312-13 
Agreement, 

When   binding,   13—14;    Examples  of 
obligation,    13—14:    Offer    and    ac- 
ceptance,  27—32 ;   When  void,  40— 
68 
Alien  Labor  Act, 

Retaliatory  measure.   323:   Provision 
of,    323;    Exemptions,    324 
Assignment, 

Definition  of,  79 :  Competency  of 
parties,  79—80 ;  Negotiable  instru- 
ments, 80;  Of  liabilities,  80-81; 
Bonds  and  mortgages,  81;  Breach 
of  promise,  81 :  Discharge  of  con- 
tract, methods,  82-91;  Trans- 
ferring bills  and  notes,  214—15; 
Illustration  of,  215 
Auctioneer, 

Scope  of  authority,   273 


Bailments, 

Definition.  180:  Delivery,  180;  Re- 
lation to  sales,  181;  Classification, 
182;  Extent  of  liability,  183; 
Contract  of,  183:  Obligations, 
184-85;  For  sale  benefit,  186; 
Pledges,  187-88:  Rights  and  du- 
ties involved,  188-90;  Warehouse 
receipt,   190-93 


327 


Bank  Act, 

Maximum    legal    rate,    44;    Defines 
warehouse  receipt,    192 
Bills  of  Exchange, 

Unconditional  order,  199—200;  Draft 
and  acceptance,  201 ;  Parol  evi- 
dence, 201-2;  Inland  bills,  203; 
In  sets,  204;  Checks,  204-9; 
Drawee,  209;  Blanks,  210-11; 
Alteration  of.  212-13 
See  also  Transfer  and  Negotiation 
Bills  of  Exchange  Act, 

Sunday     contracts.     50;     Negotiable 
instruments,    197 
Breach  of  Contract, 

Discharge,  92—101 ;  When  occurring, 
93 ;  Failure  of  performance,  93— 
94;  Renunciation,  99-101;  Dam- 
ages, 118—19;  Warranty,  reme- 
dies for,  168-70;  Vendor's  right, 
174-77;  Buyer's  remedy,  178-79 
See  also  Discharge  of  Contract 
Broker, 

Authority  of,   272 


Cause, 

See  Consideration 
Checks, 

Negotiability.    204-5,    208-9;'  Rules 
for,    205—7;    Acceptance    and    cer- 
tification,    207-8;     Alteration    of, 
212-13 
See  also  Transfer  and  Negotiation 
Combinations, 

See  Restraint  of  Trade 
Common  Law, 

Pollock  defines,  7;  Unwritten  sense 
of,  8;  English  Act,  8;  In  United 
States,  8;  Canada,  8-10;  Cou- 
tume  de  Paris,  9;  Statute  of 
Frauds,  10 
Conditional  Sale, 

On  approval,    141;    Distance   orders. 
142;       English       opinions,       143; 
C.   O.  D.   sales,    144 
Confederation  Act, 

Authority  of  Federal  government,  5 
Consideration, 

English  law  provinces,  32,  33;  WTiat 


328 


INDEX 


Consideration — continued 

may  be,  32,  34-35;  In  Quebec, 
33;  Distinguished  from  "cause," 
33,  34;  If  illegal,  35,  265;  Trans- 
fer of  bills  and  notes,  234-35; 
Consideration  in  defenses,  264- 
65 

Constitutional  Act, 

Provisions  of,  6 ;  For  provinces,  6— 
7 

Contract  of  Parties, 

Maker  of  note,  238—39;  Acceptor, 
239-41;  Admission  of  fact,  241; 
Qualified  acceptance,  241—44; 
Drawer's  contract,  244—45;  In- 
dorsers,  245-47;  Accommodation 
party,  247-48;  Warrantor,  248; 
Damages,   249 

Contracts, 

Definition,  11;  Classification  of,  11- 
16;  Formation  of,  17-38;  Void 
and  voidable,  40-68;  Operation 
and  interpretation,  69—78;  As- 
signment and  discharge,  79-119; 
Sales,  121-79;  Bailments,  180- 
93;  Contract  of  parties,  238-50; 
Principal  and  agent,  271-314; 
Master  and  servant,  315-24 


Damages, 

Liquidation,  76—77;  Penal  clauses, 
77 

Defenses, 

Personal,  263;  Real,  263;  Fraud  in, 
263—64 ;  Failure  of  consideration, 
264-65;  Payment  in  due  course, 
266;  Secondary  liability,  267; 
Cancelation,  267-68;  Forgery, 
268-70 

'  'Del  Credere' '  Agent, 

Relation   to  principal,   273 

Delivery, 

Obligations  of  seller  and  buyer, 
151-62:  Sale  of  Goods  act  de- 
fines, 151;  Place  of,  152-53;  Car- 
rier and  agent,  154—56;  Fixing 
time,  156-57;  Specified  quantity, 
157—60;  Benjamin  on  instal- 
ments, 159-60;  Quality,  160-61; 
What  may  constitute,  161-62; 
Warranty,  162-70;  Stoppage  in 
transitu,  171-74;  Bailment,  180; 
Transfer  of  bills  and  notes,  227- 
29;  Example  of,  227-28;  Holding 
in    escrow,    229 

Discbarge  of  Contract, 

Agreement,  82;  Payment,  82-83, 
84;  Performance  for,  83,  84; 
Agreement     with     creditors,     85- 


Dlscharge  of  Contract — continued 

86;  Payments,  application  of,  86— 
87;  Tender,  87-88;  Novation,  89- 
91;      How      agreements      operate, 
90-91;     Breach,    92-94,    98-101; 
Promises,  94-99;  Impossibility  of 
performance,    103-4;    Destruction 
before  delivery,  104-7;  When  per- 
formance    is     impossible,     107—8 
Personal    services,    108-10;    Dan 
gerous   work   conditions,    111—12 
Impossibility       of       performance, 
112—13;     Alteration    of    contract 
114-16;        Insolvency,        116-17 
Creditor     and     debtor     the     same 
person,    117;    Compensation,    117 
Action    to   recover   loss,    118;    Al- 
lowing damages,   118-19 

Divisions  and  Sources  of  Law,  2-10 

Dominion  Railway  Act, 

Liability  for  negligence,   54 

Dominion   Statutes,   6 

Duress, 

Violence  and  fear,  66-68;  English 
decisions,  66 :  Threats,  67 ;  Fraud 
in  defenses,   263 


English  Act, 

Common  law  rules,  8 
Evidence, 

Rules  of,  72-74;  Oral  testimony,  73 


Factor, 

Functions  of,  272 
Fraud, 

Definition  of,  62 ;  Ignorant  asser- 
tion, 63  ;  Silent  approval  of,  63  ; 
Necessary  proof,  64;  In  defense, 
263-64;  Illegality  of  considera- 
tion, 265-66;  Forgery,  268-70 
See  also  Statute  of  Frauds 


Illegal  Covenants, 

When  contract  is  void,  54—53 ; 
Deeds,  55;  Kent  on,  55-56; 
Leases,  56;  Teacher's  license, 
57;  Interest  in  a  contract,  57— 
58;  Protecting  criminals,  58;  In- 
fluencing votes,  58 ;  Restraint  of 
trade,  58;  Gambling  loans,  59; 
Sunday  prohibitions,    59 

Incapacity, 

Persons  subject,  17;  Minors,  17— 
22;  Insane,  23-25;  Married 
women,   25-26 

Indorsement, 

What  is  meant  by,   217-18;   Requi- 


INDEX 


329 


Indorsement — continued 

sites,  218-21:  Without  liability, 
219-20;  Maclaren  on,  220-21 
Kinds,  221:  In  blank.  221-22 
When  qualified,  222;  Conditional 
223;  Restrictive,  224;  When  ir 
regular,  225;  Liability,  226,  238 
Indorser's  contract,  245;  War 
ranties,  246;  Accommodation  in 
dorser,    246;    Liability.    246-49 

Insane, 

Contracts  of,  23—25;  Disaffirmance 
by.  23;  Marriage.  24;  Return  of 
consideration,    24-25 

International  Law, 

Broad  field  of,   3—4 ;   Example,  4 


Joint  and  Several  Contracts, 

Creditor's    obligation,    77;    Partner- 
ship,   78 


Lord  Tenterden's  Act, 

Sales   contracts,    129,   130 


Master  and  Servant, 

When  servant  is  agent,  315;  Agree- 
ment of  service,  316;  Independent 
contractor,  316—18:  Fellow-serv- 
ant, liability  for,  318-19;  Vice- 
principal,  319;  Master's  liability, 
319-20;  Servant's  liability.  320; 
Workmen's  compensation  acts, 
321-23;  Quebec  Compensation 
Act,  321-22:  Alien  Labor  Act, 
323:  Employment  of  foreigners. 
324 
Marriage, 

Restraint    of,     51—52;     Pollock    on, 
52 ;    English  opinion,    52 
Married  Women, 

English  law,  25,  26;  In  Quebec,  25- 
26 
Mercantile  Contracts, 

Time  an   eussential,    76;   When   void- 
able,  76 
Minors, 

Competency  of,  17-23;  Liability 
for  necessaries.  18—19;  Obliga- 
tions of.  19-20;  Repudiation  of 
contract,  20-22;  Ratification,  22- 
23 
Money  Lenders  Act, 

Interest   rates    fixed.    44 
Mnnicipal  Law, 

Enforced   by   state,    3 


Negligence, 

Liability  for,  53-54;  Workmen's 
compensation  acts,  53-54;  Eng- 
lish common  law,  54;  Dominion 
Railway   Act,   54 

Negotiable   Instruments, 

Classes  of,  194—95:  Maclaren  on 
quasi-negotiable  instruments,  195: 
Consideration,  196;  Days  of  grace, 
196;  Negotiable  Instrument  Law. 
197:  Bills  of  Exchange  Act,  197: 
Promissory  notes,  197-99;  Bills 
of  exchange,  199-204;  "First  of 
exchange."  204;  Checks,  204-9; 
Blanks,  210-11;  Alterations.  211- 
13 
See   also  Transfer  and   Negotiation 

Notice  of  Dishonor, 

To  whom  given.  259:  By  whom 
given.  259;  What  constitutes. 
259;  Time,  259-60;  Place,  260: 
When  waived,  260-61 :  Protest, 
when   necessary,    261—62 

Novation,    Discharge    of   contract,    89- 
91 


Obligation, 

Definition.  11;  Case  of  moral.  12; 
Lawful  obligation,  12—13 ;  Agree- 
ment, 13—14;  Quasi  contract.  13- 
14;  Tort  or  offense,  14:  Contracts 
classified,  14—16;  Joint  and  sev- 
eral contracts,  77-78;  Of  seller. 
151-70;  Of  buyer.  151-78;  Bail- 
ments,  185-86 

Offer  and  Acceptance, 

Reaching  an  agreement.  27—29:  Eng- 
lish rule,  29,  30:  By  mail  or  tele- 
graph, 29-30;  Revocation,  29,  30. 
32;  Pollock  on,  30.  32;  Offer  to 
public,  31;  Rewards,  31;  Eng- 
lish decision,  31-32:  Considera- 
tion, 32—36;  Public  advertisement, 
32:  Qualified  acceptance.  241-43; 
General  acceptance,  241 ;  Ac- 
ceptors,   243-44 


Pledges, 

Use  of  term.  187:  Pawnbroker.  187; 
Broker  and  customer,  187;  Opera- 
tion.   183 

Pollock,   Frederick, 

Rule  of  acceptance,  30,  31;  On 
revocation  decision.  32 ;  Void 
agreements.  41 :  Marriage  con- 
tracts, 52:  Assigniment  of  con- 
tract, 80;  Discharge  by  novation. 
89 


330 


INDEX 


Power  of  Attorney,  Form  of,  289-91 

Presentment, 

Bill  payable  at  sight,  251-52; 
When  excused,  252;  For  payment, 
252-57;  Protest,  253;  Time  for, 
253-55;  To  partners,  254;  Delay 
in,  254;  When  waived,  255,  256; 
Place  of,  256;  Payment  for  honor, 
257-58 

Principal  and  Agent, 

Definitions  and  functions,  271—73; 
Relation  between,  273-74;  Es- 
toppel, 274-76;  Agent  of  neces- 
sity, 276;  Who  may  be  principal, 
276-78;  JWho  be  agent,  279; 
Agent's  scope  of  authority,  279- 
80,  285-87,  291-94;  Acts  ratified, 
280-85;  Fiduciary  obligations, 
296-98;  Damage  claims,  301-02; 
Agent's  commission,  305—07;  In- 
demnity, 307-08 ;  Possessory  lien, 
309;  Authorization,  310-12;  Con- 
tract terminated,  312—14 

Private  Law, 

What   is  included,   5 ;   In  Canada,   9 

Promises, 

Breach  of  contract,  93-99;  When 
independent,  94—95;  Conditional, 
95-98;    Subsidiary,    98-99 

Promissory  Notes, 

Conditions  of,  197-98;  Invalid 
forms,  198;  Interest  rate,  199; 
Payment,   238 

Provincial   Constitutions,    Amendments 
restricted,    6-7 

Provincial   Statutes,   Residuary   power, 
7 

Public  Law, 

What  it  includes,   5 ;   In  Canada,  9 

Public  Policy, 

Legality  of  contract.  40—42 ;  Void 
agreements,  41;  Halsbury  on,  42; 
Greenwood   on,   48 


Quebec  Workmen's  Compensation  Act, 

321-22 


Bestraint  of  Trade, 

Contracts  made  void,  44—49;  Eng- 
lish cases,  45;  Price  control,  47; 
Illegal  combination,  47—49;  Il- 
linois decision,  48;  Greenwood  on 
public  policy,  48 ;  Supreme  Court 
cases,    49 

Rules  of  Construction, 

Court  interpretation,  74;  Subsidiary 
rules,   75 


Sale  of  Croods  Act, 

When  adopted,  9;  Sales  contracts, 
129-30,  131,  132;  Delivery  of 
goods,   151 

Sales, 

Definition,  121;  When  valid,  121-22, 
124;  Transfer  minus  ownership, 
123;  Competent  parties,  123-25; 
Actual  and  future  goods,  125—28; 
English  rule,  126;  Statute  of 
frauds,  128-31;  Lord  Tenterden's 
Act,  129,  130;  Sale  of  Goods  Act, 
129,  131,  132;  Proof  of  accept- 
ance, 132-36;  Part  payment,  134- 
35;  Proving  a  memorandum,  135— 
36;  Work  and  labor  contract, 
136-37;  Purchaser's  title,  137- 
41 ;  Subject  to  conditions,  141— 
45;  Unspecified  goods,  143;  Fu- 
ture manufactures,  146;  By  sam- 
ple, 146-50;  Supreme  Court  case, 
148—49;  Performance  of  contract, 
151-79;  Delivery  of  goods,  151- 
62;  Warranties,  classification  of, 
162-70;  Caveat  emptor,  164,166- 
67;  Remedies  for  breach,  168-70; 
Stoppage  in  transitu,  171—74; 
Resale,  174;  Breach  of  contract, 
174-77;  Buyer's  remedy,  178- 
79;   Relation  to  bailments,   181 

Sample  Sales, 

When  title  passes,  147;  Supreme 
Court  cases,  148,  149-50 

Servants,   See  Master  and   Servant 

Sources  of  Law, 

Confederation  Act,  5 ;  Dominion 
statutes,  6  ;  Treaties,  6 ;  Provincial 
constitutions,  6-7;  Provincial 
statutes,  7;  Common  law,  7—10; 
English  act,  8;  United  States,  8; 
Canada,  8-10;  English  Sale  of 
Goods   Act,    9 

Statute  of  Frauds, 

In  Canada,  10.  36-38;  Provisions 
of.  36—38;  Enforceable  contracts, 
37-38;  English  statutes,  for  sales, 
128-29;  Lord  Tenterden's  Act, 
129,  130,  131:  Sale  of  Goods  Act, 
129.  131;  Work  and  labor  con- 
tract.   136-37 

Stoppage  in  Transitu, 

Benjamin  on,  171—72;  American 
principle  of,  172-73;  Instalment 
deliveries,  173;  Bill  of  lading 
transferred,  173—74;  Vendor's 
right,    174 

Sunday  Contracts, 

Validity  of.  50-51;  Bills  of  Ex- 
change Act,  50;  Dominion  stat- 
ute, 50;  American  cases,  51 


INDEX 


331 


Technical  Law, 

Classes    of,     2 ;     Municipal,    3 ;    In- 
ternational,   3-4;    Public    law,    5; 
Private  law,   5 
Tender, 

Obligation    of    debtor.    87-88;    Civil 
Code  of  Quebec,  88 
Third  Persons, 

Fraudulent  contracts,  52-53 ;  Rights 
and    liabilities    of,     69-70;     Con- 
tracts that  benefit,  70-72 
TiUe, 

Sales  risks,  137-41;  Ice  cargo,  139: 
General  rule,   140—41 ;  Conditional 
sale.   141-45;   C.  O.  D.  sales,   144 
Transfer  and  Negotiation, 

Assignment,    214—15;    Negotiability. 
216—17;     Indorsement,     requisites 
of.     217-26;     Delivery,     227-29 
Holder    in    due    course.     229-30 
236;     Regularity     of     instrument 
230-31;     Maturity,    231-32;     No 
tice  and  good  faith,  232-34;  Con 
sideration,    234-35;    Bills    negoti 
ated.    235 
See   also   Negotiable  Instruments 
Treaties,  Forms  of,  6 


Undne  Inflnence, 

Voidable     contract,     64—66;     United 
States    decision,     64—65;     English 
case,   65;   Eldon  on,   65-66 
Usury. 

Bank  Act,   44;   Money  Lenders  Act, 
44 ;   Recovery,  44 


Void  and  Voidable  Contracts, 

Legality  of  agreement.  40—42;   Eng- 
lish   decisions.    41.    42;    Wagering 
contracts.   42-43;    Insurance.   43 
Gaining     illegal,     43—44;     Usury, 
44;    Restraint    of    trade,    44—49 
Combinations     to     control     price 
47-50;   Sunday  contracts,  50—51 
Restraint     of     marriage.      51-52 
Third     persons     injured.      52-53 
Negligence,    liability    for,    53-54 
Unlawful  agreements,   54—59;   Se- 
curing   consent.    59-60;    Mistake 
of    intention.    60—61;    Of    expres- 
sion.   61;    Fraud.    62-64;    Undue 
influence,    64-66;    Duress,    66-68 


Wagering   Contracts, 

Illegality   of,    42-44;    Gambling,   43; 
Insurance,   43 
Warehouse, 

Purpose,  190;  Wharfinger,  190 
Warehouse  receipt  and  Bank  Act 
190-92;  Warehouseman's  respon 
sibility,  193 ;  Maclaren  on  ware 
house  receipts,  195 
Warranty, 

Definition,  162;  Express,  162;  Im- 
plied. 162,  163-67;  Civil  Code 
of  Quebec.  165;  Caveat  emptor, 
166—67;  Remedies  for  breach, 
168-70 
Workmen's  Compensation, 

When  employer  liable,  321 ;  Quebec 
Workmen's  Compensation  Act, 
321-22  ±    ^ 


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