A Manual of Commercial Law : containing a clear, concise and logical exposition of the rules related to business transactions and the management of affairs

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Preface

rx*\

In the following pages the author has attempted fZ\ to state clearly, with reasonable accuracy and in

language as free as possible from technicalities, the elementary rules and principles of American law with which it seems most important that business men should be familiar. The object was to make an in- •lj structive manual for general readers and men of af-

^ fairs, and a practical text-book for use in schools

and colleges where business branches are taught. <C Keeping the primary purpose of the book in view

.-> an effort has been made to render it as practical as

possible. Business men are interested chiefly in knowing the general nature and extent of their legal rights and duties. Technical details of jurisdiction and procedure have been excluded as the space necessary ; . for their discussion is much better occupied with the

} practical rules relating to the formation, interpreta-

tion and discharge of contracts in general, to bills and notes, to the rights and liabilities of shareholders in business corporations, to sales of chattels and the like. To the same end such topics as mandate and loan for use in bailment law are dismissed with a word, while pledge and carriers of goods have been relatively expanded. Competency to marry and the

(iii)

150130 iv PREFACE.

causes for divorce have been ignored, while a chapter has been devoted to chattel mortgages, and agency, partnership and fire insurance have been given space bearing some relation to their general importance from a commercial point of view.

Should the book be adapted to elementary work as arranged in some of our law schools, it will be because the author, in writing to meet one want, has been fortunate enough to meet some others.

As originally prepared, the text was supported, illustrated and expanded by the citation of cases. This plan was abandoned as not consistent with the purposes of the book and instead lists of leading text-books have been inserted at the end of chapters or topics. While these will be found useful chiefly to teachers by furnishing more ample statements of the law and as indexes to the decided cases, it is hoped that they will prompt and assist students to carry their studies further than the text.

Wherever a conflict between the decisions of the several states has been indicated, the teacher should ascertain, or, if possible, have his students ascertain, the local law, to be noted on the margin of the book. Upon matters of local statutory regulation, a similar course should be pursued.

. The author takes pleasure in acknowledging his indebtedness to William Ward Wight, Esq., Librarian of the Milwaukee Law Library, for many valuable suggestions.

LANDLORD AND TENANT.

1227*1259. Including the form and requisites of a

. lease of lands 538-548

COMMERCIAL LAW.

Chapter I. Of Law In General

§ 1. The law a system. — The law, so called, consists of a mass of rules and principles so closely re* lated and interwoven as to constitute, among all civ ilized peoples, a more or less harmonious system. It is therefore necessary to an adequate understanding of any of its parts or branches to know something of the nature of law in general, including its origin, the necessity for its existence, and the manner in which it controls or influences human conduct.

§ 2. Different meanings of the word "law." — In its widest sense the word "law" signifies a rule of action ; that which is set, fixed, prescribed or laid down beforehand. So defined it includes not only, the rules of action that control or influence the conduct of men in communities, whether such rules are recognized and enforced by the authority of states and nations, or by public opinion merely, but it is descriptive of the order, sequence, or course of nature. We therefore speak of the laws of gravitation, of mechanics, or of optics.

Much confusion arises from a failure to distinguish between what are rather vaguely called moral laws, and technical or positive law. If a rule of conduct is merely moral, either in the sense of being right according to generally accepted notions of what constitutes virtue or goodness among men, or because,

2 COMMERCIAL LAW. § g

for some other reason, it meets with more or less general approval, it differs from actual or positive law in that the power of the state can not be appealed to in case it is disregarded.1

§3. Same — Positive law — Definition and nature. — Technical or positive law — the law of the courts and lawyers — may be defined as a general rule of conduct, or of external human action, prescribed and enforced by public authority. By public authority is meant the state ; and a state may be defined as a community of persons, living within certain limits of territory, under a permanent organization which aims to secure the prevalence of justice and to promote the common peace and welfare by self-imposed laws.

§ 4 . International and municipal law distinguished. — Law is either international or municipal. International law, also called the law of nations, is that system of positive rules which is prescribed by the common consent of Christian nations, and which regulates their intercourse with one another. It has sometimes been .denied to be positive law at all, because there is no international tribunal to which a nation may appeal if its rights are invaded by another.

Municipal law, on the other hand, is not prescribed by the common consent of nations, but by the supreme power in the particular state or nation. It is without binding force outside the territorial limits of such state or nation, except so far as other states or nations see fit, in exceptional cases, to recognize and apply it." Municipal law, therefore, is a rule of civil conduct prescribed and enforced by the supreme power in a state, regulating the inter-

1 The phrases, law of nature, law of God, divine law, law of reason or right reason, natural justice and natural equity, are also rather loosely employed, but usually to describe those rules or precepts which meet with the general approval of mankind, because they satisfy what we call the conscience or the moral sense.

§ 5 OF LAW IN GENERAL. 3

course of the state with its inhabitants and of those inhabitants with each other.

§ 5. Moral basis of positive law. — From the distinctions already drawn we must not understand that law in its technical sense is without an ethical or moral basis. It is, in a great measure, the reflection of the conceptions and cbnvictions of the people among whom it has grown up, not only of what has seemed morally just and proper, but of what they have deemed reasonable, convenient and expedient, in view of their circumstances of climate, occupation and surroundings. On the other hand, the positive law does not define and enforce all moral duties, both because they are often very difficult to ascertain, and because of the practical difficulties in the way of their enforcement by state authority. Thus, the moral law requires us to be charitable, the municipal law does not ; the moral law demands that he who promises shall perform, but the municipal law enforces only such promises as are made in a certain form or under certain prescribed circumstances, as will shortly appear.

§ 6. American law largely of English origin. — A large part of the municipal law of the several states of the Union, with which we most frequently come in contact, was transplanted to American soil by the English colonists. An inquiry into the sources of the English law is, therefore, to a great extent, an inquiry into the sources of our own.

§ 7. Common or customary law. — Custom is thought to be the earliest form of law-making, and a large share of the law which governs us had its rise in usage, or the general and long continued observance of a certain course of conduct among our English ancestors. Law so made is called common, customary, or unwritten, law, because it is not, like the written or statute law, expressed in any set form of words.

The customs out of which the common law has grorfu doubtless had their origin, to a great extent, in reasons of expediency and convenience, and in popular conceptions of justice and moral and religious truth and propriety. Originally enforced by public opinion or private vengeance, the state finally, by its judges, recognized these customs and assumed them to be law, and they thus acquired the characteristics, force, and sanctity of positive law, the same as statutes or express acts of the legislature. . § 8. The law merchant. — Much of the common law is made up of what is called the law merchant. This consists of the general customs and usages of merchants. Many of these customs did not originate in England, but became known to Englishmen through commercial intercourse With other nations of Europe, and were incorporated into the English law by judicial and legislative sanction. The rules of the law merchant, therefore, are a part of the law of other enlightened commercial nations. The phrase, law merchant, however, is not synonymous with commercial law in its widest sense, for the commercial law of any state or country includes, not only the law merchant, but also whatever other rulea of law, written or unwritten, govern generally, or to any considerable extent, the transactions of merchants and business men.

§ 9. Evidences of the common law. — The chief evidences of the common law are found in the printed accounts of decided cases in which its rules and principles have been recognized and applied by the courts. These cases are collected in volumes called reports. The cases themselves are termed precedents, for they embody authoritative statements of what the courts deciding them deemed to be the rule of law governing the particular states of fact before them. The rule thus established is followed in subsequent cases. A judicial decision is a precedent, not only for the decision of later cases which are identical in all their essential details, but for the decision of later cases

§ 10 OF LAW IN GENERAL. 5

where the facts are such that the rule or principle previously applied ought in reason to govern the decision. Thus, to decide that one carrying by stage coach and horses should answer for injuries to his passengers due to defects in his vehicle which he might, by the use of care and diligence, have discovered and remedied, decides nothing directly as to the liability of a railroad company for defects in its cars ; yet by just argument or inference the carrier by rail should be at least as strictly answerable for defects in his vehicles as the carrier by coach, and so it is held.

§ 10. Equity, — Early systems of law are inclined to be rigid and inflexible and do not readily mold themselves to the wants of advancing civilization. This was true of the common law. It became the practice in England, therefore, in cases where the common law was powerless to afford redress, to appeal to the king as the source and the repository of justice. The king finally clothed a great officer called his chancellor with the power to grant relief in these exceptional cases. This practice gave rise in England to a distinct court, termed the high court of chancery, which administered justice in cases where the common law was deficient, either because it failed to recognize a right, or, recognizing it, failed to afford adequate means for its enforcement. At first the chancellors proceeded with little regard to rule or system, assuming that they had power to decide according to natural justice, or equity in its broadest sense. But finally the rules and principles according to which they administered justice grew into a system scarcely less strict and rigid than common law itself. Equity in its technical sense has therefore come to mean, not natural justice, in its widest sense, but that particular kind of justice administered in courts following the practice of the high court of chancery in England in the exercise of its extraordinary jurisdiction. In other words, it is

6 COMMERCIAL LAW. § H

a system of rules and principles, forming a part of the positive law in those states and countries whose law, like our own, is derived from that of England, which, by reason of its peculiar scope and structure, supplements and supplies the deficiencies of the early common law and mitigates its rigor and harshness Some practical examples of jurisdiction and relief in equity are found elsewhere.1

§11. Unwritten law in America. — The English settlers of America brought with them so much of their law, common, statutory, and equitable, as was adapted to their changed circumstances and surroundings. From the early English colonies, whence the tide of settlement has mainly flowed, the unwritten law has been carried westward, and is in force by virtue of express or tacit adoption, and with greater or less modifications, in all the states of the Union except Louisiana. This state, bepg settled by the French, has a system founded upon the Roman or civil law.

§ 12. Written law — Constitutions — Statutes — Treaties. — The common law and the principles of equity are collected from the printed reports of decided cases, and from the writings of those learned in the law. In this sense they are written. They are not expressed in any fixed or unvarying form of words, however, but according to the taste or accuracy of the judge or writer announcing them. In this sense they are unwritten. Many laws, however,, are enacted by the law-making authority in a fixed and unvarying form of words, and for this reason are called written laws, being evidenced by the records of the law-making body and the copies of such records published by authority of law.

Written law with us consists of (1) constitutions, (2) statutes, (3) treaties.

§ 13. Constitutions. — In every country where the freedom of the subject is regarded, there is a funda-

lPostt §44, etseq.

§ 14 OF LAW IN GENERAL. 7

mental law embodied in a written document, or implied in its institutions and usages, which defines with more or less precision the character and framework of government. In the United States the word 11 constitution" means the written instrument agreed upon by the people of the Union or of a particular state as the absolute rule of action and decision for all departments and officers of the government in respect to all the points covered by it, which must control until changed by the authority which established it, and in opposition to which any act or ordinance of such department or officer is null and void.

§ 14. Statutes. — A statute is the written will of the legislature, solemnly expressed according to the forms necessary to make it a law. In this country, it is an act of congress or of the state, or territorial legislature, passed and promulgated according to the requirements of the constitution of the state or United States.

§ 15. Federal and state laws. — Within the scope of the powers delegated to it by the people at the adoption of the federal constitution, the general government is supreme, and all laws of the several states are inoperative and void in so far as they are in conflict with the federal constitution and the laws and treaties made under it and by its authority. So, too, all laws made by congress must conform to and find authority for their existence in the federal constitution, or they are mere waste paper.

Each state has its constitution. This establishes the several departments of government and distributes the powers of government among them, points out the manner of their exercise, and prohibits the exercise of certain powers which, in the opinion of the people, it is unwise to entrust to the hands of those who shall represent them in administering the government. Every law of the state must conform not only to the constitution, laws, and treaties of the United States, but also to the constitution of the state enacting it, otherwise it is, in like manner with an unauthorized federal statute, illegal and void.

To such laws as are in conflict with the federal or state constitution, the term "unconstitutional law " is applied.

§ 16. The effect of statutes upon the prior law. — A statute may introduce into the law of a state an entirely new rule without abrogating, or, in legal phrase, repealing, any prior rule of law, common, equitable or statutory ; or it may be merely declaratory of the pre-existing law and passed to remove a doubt as to its existence or limits ; or it may repeal and abrogate, in whole or in part, some prior rule, unless such rule be a part of the constitution. What its effect shall be depends upon the intention of the legislature as ascertained by the courts in the discharge of their duty of interpreting and applying the law.

Chapter II. Of Lbqal Bights — And Particularly Of Thb Bight

OF PBOPEBTY.

§ 17. Legal righted Wrongs. — The primary object of law is to promote the greatest good of the greatest number. Its immediate object, however, is the creation and protection of legal rights ; or, what is the same thing, the creation and enforcement of legal duties, for every right implies a duty to respect it A legal right is the power or capacity residing in one person of controlling, with the assent and assistance of the state, the actions of others. Whosoever disregards or invades it commits a legal wrong. A wrong may be civil, in which case the state merely assists the injured party in getting a remedy ; or it may be criminal, in which case the state pursues and pun* ishes the wrong-doer through an action in its own name.

Civil wrongs are of two classes ; torts and breaches of contract.

A tort is a wrong independent of contract such as libel, slander, assault, trespass, negligence, and the like.

A breach of contract is the refusal or neglect of a party to a binding agreement to perform the duties thereby imposed upon him.

§ 18. Rights — Primary and remedial. — A primary right is one that is given for its own sake and exists before any wrongful act has been done. Thus, the right to be secure in one's person from attacks or assaults is a primary right, and the same is true of the right of every person to have contracts in his favor performed. But when one of these rights has been invaded, as by an assault and battery, or the breach of a contract, there arises in favor of the party injured and against the wrong-doer what is sometimes called a secondary or remedial right, i. e., a right to reparation consisting, ordinarily, in civil cases, of an award of money, called damages.1

§ 19. Substantive and remedial law. — The greater part of the law is concerned with defining rights and duties. This is called substantive law.

But as rights are sometimes invaded and the performance of duties withheld, there is necessity for a set of rules prescribing the course of action to be taken for the redress of wrongs. This is called the remedial or adjective law, or the law of procedure. Its object is the prompt, safe, and orderly application of an adequate legal remedy for wrongs actually done."

§ 20. Against whom available. — A right may be available against all persons indefinitely and not against one person more than another. Thus, if A owns a field every person is bound to respect his ownership or proprietary right therein. His right of ownership is, in this respect, similar to the right to personal security or to reputation, available against the world, so that whoever invades it becomes a wrong-doer. Rights of this sort are called rights in

T6TYI.

If, on the other hand, A has deposited $1,000 in bank, he has a right to a return of the money available, not against all persons indefinitely, but against the banker only. The right of a servant to his wages against the master is of the same general kind, and so of the right of one whose land has been trespassed upon to have compensation from the wrong-doer. Rights of this sort are called rights in personam, because they are available against a certain determinate person and not against all persons indefinitely.1

1 Post, chap, zviii. • Post, chap. iii. • Post, § 48.

{ 21 OF LEGAL RIGHTS. \%

§ 21. The right of property. — To acquire and appropriate objects external to himself and to render them fit to support his existence and contribute , to his comfort seems inherent in the nature of man, and occupies an ever-growing share of his attention. Whether private ownership has existed from the beginnings of society, or whether, and to what extent, it is the offshoot of ownership in common by the family or the tribe, we can not stop to inquire. We must be content to examine the right of private property much as the law now defines it, without inquiry into its beginnings in the social state.

§ 22. What may be the subjects of property. — While light, air, the sea, and' the waters of the great navigable rivers are not the subject of private ownership, everything else is, or may become such.

§ 23. Property defined. — Property, or more properly the right of property, is practically synonymous with ownership, and signifies, in general, the right in one person to have, control, enjoy and dispose of a thing to the exclusion of every other person. In recognizing, defining and protecting this right, the law has in view not only a certain measure of abstract justice toward individuals, but equally, perhaps, the encouragement of thrift and industry and the prevention of the hostility, contentions and consequent disorder which rival claims would otherwise produce. The term propertyis also commonly used to describe the object of the right of ownership, or the particular money, land, goods, or other thing over which the right is exercised.

§ 24. Classes of property. — Property, or things over which rights of ownership may be exercised, is divided in English and American law into two great classes, Real and Personal. According to Blackstone, things real are such as are permanent, fixed or immovable, and which can not be carried out of their place, as lands and tenements; things personal are goods, money, and all other movables, which may attend the owner's person wherever he thinks proper to go.

The necessity for distinguishing between real and personal property arises from the fact that they are governed by systems of law in many respects different.

The law of real property was largely developed out of the feudal system, which had but little influence upon the law of personal property. The latter grew up to a great extent from the customs of merchants. Real property can only be conveyed or disposed of in accordance with the law of the place where it is situated, while a transfer of personal property is usually governed by the law of 'the place where the transaction occurs.1

Personal property may usually be transferred by simple and informal means, while real property must be conveyed by a deed or formal written instrument of grant, recorded in a public office.*

Real property is subject to dower ; personal property is not.

Upon the death of the owner of real estate it descends to his heirs under rules peculiar to that class of property ; personal property goes to the executors or administrators of the deceased owner to be applied as the will or the law may direct. Students so inclined may read with profit, in this connection, the chapters on Real Property in another part of the book.4

§ 25. Things in action and possession. — The coins in my hand, like goods on my shelf, are so far within my possession and control that I need not resort to legal proceedings to gain the possession and enjoyment of them. They are therefore called choses (things) in possession. If payment of a debt is denied or withheld, however, my lawful remedy is by suit in court for its recovery, and my property con-

*Po8t, § 1206. *Po8tt chap, lxiv, et seq.

§ 26 OF LEGAL EIGHTS. 13

sists of a mere right of action to compel payment or restitution. This right, which is regarded as a species of personal property, is called a chose (thing) in action. But what seems a better classification is suggested; thus :

§26. Corporeal and incorporeal property. — Such objects of ownership as can be seen, touched, and appreciated by the physical senses are termed corporeal property. On the other hand, certain rights or combinations of rights recognized by law which may, by being realized and enforced, give us the enjoyment and control of tangible things, are likewise property in the eye of the law. As they can not be seen, handled or appreciated by the physical senses, they are termed incorporeal property. To this class belong choses in action, so called, including book-debts, debts due on all sorts of written securities, as bills of exchange, checks, promissory notes, and bonds, and shares of stock in corporations, shares in partnerships, and the rights under policies of insurance. In fact, every right to proceed in a court of law or equity for the recovery of money or some valuable thing is property of this class. Many of these rights, with the securities which evidence them, are treated in many respects like tangible property, and may be bought and sold, transferred and assigned. They constitute a portion of the wealth or assets of every business man the same as merchandise or money on hand. Of the same general nature are the rights of an author, either at common law or under copyright statutes, a patent for an invention, a trade-mark, and the good-will of a business, as elsewhere defined.1 So real property is also classed as corporeal and incorporeal."

§ 27. How the right of ownership is qualified. — The right of ownership is qualified by the following, among other things :

1. By the right of the state or the United States to take private property for public use upon making just compensation. This is called the right of eminent domain. Examples of its exercise are where the government condemns a site for a post-office or other public building, or where the state permits the condemnation of a right of way for a railroad.

2. By the right of the government to levy and collect taxes.

3. By the general principle that we must so use our own as not to interfere with the rights of others.

4. By various restrictions touching the manufacture, sale and use of certain things on grounds of public policy, as the manufacture and sale of intoxicating liquors, or the erection of wooden buildinga within certain limits called fire limits.

5. By circumstances of overruling necessity justifying the sacrifice of private property without making compensation therefor, as where buildings are blown up to stay the progress of a fire.

6. By pledges, liens and mortgages, and by easements and servitudes whereby some of the elements of ownership are granted out to others.1

§ 28. How ownership is acquired — Title. — The word "title" is generally used to describe the source or foundation of ownership, or the means whereby ownership is established. Title may be acquired in various ways, as for example, (1) by occupancy; (2) by accession and confusion; (3) by gift; (4) by will; (5) by intestate succession ; and (6) by contract, including sale and assignment.

§ 29. Occupancy. — Things abandoned by the owner (thrown away) belong to him who first takes them with intent to make them his own. The general rule is that a finder of lost property is entitled to it as against all the world except the true owner.* A finder, however, and for stronger reasons a thief, can not hold as against the true owner, nor can he trans*

1 See, for example, Pledge, post, § 940, et acq. 9 Post, §916.

§ 80 OF LEGAL EIGHTS. 15

mit to another, however innocent, a title which will enable the latter to hold as against the rightful proprietor,1 except in certain cases of money and negotiable instruments indorsed in blank or payable to bearer, as later explained.*

§ 30. Accession and confusion. — Accession is a sort of title to property by virtue of its becoming annexed to or incorporated with the property of one who thus becomes the owner.

The owner of property is usually entitled not only to its natural increase, as in the case of animals, but to the profits accruing from its use, as the interest on invested capital, or the profits arising from the employment of a ship or coach. But the property of one may become so mixed and confused with that of another, either by accident, or the innocent error of one owner, or by his design, or by the act of a stranger, that it can not be identified or separated. It may then form a mass of the same kind as its parts, or an entirely new thing, the value of which may be less or greater than one or all of its parts. The rules applicable in all these various cases can not be accurately stated within brief limits. It will be sufficient to say that where the addition or change of form is made by one under the employment of the owner, whatever is added belongs to the owner, whatever its value may be. The manufacturer or mechanic has, at most, a mere right to retain the property as security for his pay. But where the property of one is converted into a new kind or species by the act of a trespasser, the new thing belongs to the party trespassed against so long as his property can be identified in the new thing. This rule has been applied to timber cut into ties, to wood burnt into charcoal, and even to corn made into whisky. But some courts refuse to apply this rule where a change wrought in good faith has produced an article of much greater value than the property taken.