The laws of business : with forms of common business and legal documents, for the use of students in business colleges, collegiate institutes and high schools, and as a book of reference for business men, farmers, mechanics and professional men

Front matter

from

the estate of

J. Stuart Fleming

Preface

In the compilation of the following pages the writer has endeavored to present to the reader in a concise and practical manner, the leading principles of law as it relates to business, avoiding as much as possible the technical terms with which the subject is usually invested. The primary idea in writing this work was to supply students in Business Colleges, Collegiate Institutes and High Schools, with a suitable text-book on the important subject of com' mercial law, and to place in their hands the forms of legal commercial papers more generally used by business men daily, in their transactions. It will be found a useful book of reference for business men, farmers, mechanics and others, both as to the laws of trade and in furnishing suitable legal forms and directions for drawing and using the same.

It is neither the desire nor the expectation of the author to make “ every man his own lawyer,” but it is his aim to give him directions so that he may be able to protect his own interests and to enable him to transact business in an intelligent manner. The author does not claim originality in his subject the principles of law are old, and scattered through the law books and the Acts of Parliaments for ages. He does claim originality in many cases in his methods of arrangement, resulting principally from many years of classroom work on this subject. The author asked an intimate acquaintance in business circles who had looked over advance sheets of the work, “To which chapter shall I especially refer my readers in the preface to the work ?” His reply was, “Refer them to chapter 18, on Indorsements.” This, and all the other chapters, are commended to the reader for more than a perusal — for a study, that they may prove valuable to him as a part of his mental stockin-trade always ready to be drawn upon in case of need, but neither reduced nor expended by usage.

The author desires to acknowledge his indebtedness to Judge Creasor for the many useful and valuable hints gathered from his courses of lectures, and to John Armstrong, B. A., Barrister, etc., for revising the “copy” and “proof” of this volume.

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Contents

Chapter Page

Introductory— Law and property • 9

1 Contracts — Definition and division of ... n

CHAPTER i

r (i) Definition.

(2) Void.

(3) Voidable.

(4) Joint.

(5) Several.

- (6) Severable.

(7) Executed.

(8) Executory.

(9) Mutual Promises.

(10) Seven Requisites.

(11) Possibility.

1 Definition.— A Contract is an agreement or bargain entered into between two or more parties to do or not to do some particular thing for a consideration, and enforceable by law. The Contract is the basis of all commercial tansactions and the laws governing Contracts are the laws governing all classes of business. From the business of the day laborer to that of the railway magnate, all are governed by the principles of Contracts.

Contracts are.

1. Express. — In which the terms are, at the time of making

defined in writing or openly stated and avowed.

2. Implied. —In which the law presumes what the parties

undertake to perform.*

2 Void Contract. — Is one which had from the beginning no legal effect at all except in so far as a party to it may incur a penalty.

3 Voidable Contract. — Is one which takes its full and proper legal effect unless, and until, it is set aside by sjme one entitled to do so.

4 Joint Contracts. — Are those where persons agree to do certain work

jointly.

Contracts.

5 Joint and Several Contracts. — Are those where persons bind themselves jointly to perform the work, also each one binds himself to do all the work if necessary.

6 Severable. — A Contract is said to be severable or divisible where the consideration on either side may be divided so that it can be apportioned to corresponding parts on the other side. For example Y agrees to purchase all the wheat X can furnish him, like a certain sample at a certain price per bushel. This wheat might be delivered one bushel per day or a thousand bushels per day and the consideration would be paid in such proportion.

7 Executed Contracts. — An Executed Contract is one that is completed both as to what is to be done and to the consideration. For example, you go into Mr. Brown’s shop and asked for a hat. He shows you a suitable one: he says the price of it is four dollars; you pay him and take the hat. The transaction is, complete and therefore executed.

8 Executory Contracts. — An Executory Contract is one that is to be completed by one or both parties at some future time. In case of a sale the o Wiiersh'P of the property remiins in the sellerfor the time being. Example, (i) A agrees with B to build a h ease for him by a certain date for which B is to pay him $;oo. Eximple, (2) X agrees to purchase from Y a certain horse two weeks hence for which he agrees to pay $120. The title still remains in Y and should the horse die in the interventing time Y would be the loser.

A contract may be executed as regards one of the parties; and executory as regards the other: e. g. A and B agree to exchange horses. A actually delivers his horse over and B thereupon promises to deliver his horse in one week, this contract is executed as to A and executory as to B.

9 Mutual Promises. — It will be noticed from the above that in Executory contracts there must be promises by both parties. In the above example A promises to build a house for B, and B promises to pay A $400 for doing it. The promises therefore are mutual, each depending on the other, and being the consideration for the other in the meantime.

10 Requisites.— The following are the requisites to a valid contract.

(1) It must be possible.

(2) It must be legal.

(3) It must be made by competent parties,

CONTRACTS — LEGAL AND ILLEGAL.

*3

(4) It must be assented to by each party.

(5) It requires a consideration, (generally).

(6) It must be without fraud.

(7) In many cases it must be in writing, signed by the parties

chargeable therewith, and some written contracts must be under seal.

1 1 Possibility. — 'A Contract to do an impossibility is void, because it cannot be fulfilled. If a person were to agree to move a farm from one country to another the contract could not be enforced. The thing to be done, however, must be impossible from the nature of things. Suppose A agrees to build a house for B and complete it by a certain date. A strike among the mechanics he employs renders him unable to finish his work by specified time. This would not make it a void contract as the circumstances were external and might have been foreseen or prevented. X agrees to build boat for Y, but is unable from lack of skill. This would not void the contract, nor would the sickness of one of the parties be excuse to void the contract. Because other persons could be hired who had skill to build the boat if the contractor was not skilled or was prevented by sickness.

CHAPTER 2. CONTRACTS, Legal and Illegal r Legal

Illegal.

To do an Immoral Act.

Made on Sunday.

1 Against Revenue Laws Against Common Laws.

Compounding a Felony.

In Restraint of Trade

1 Legal Contracts. — Are those where neither the thing to be done nor the consideration for it is forbidden by law. If either is forbidden by law it. is considered hurtful to the general public, hence neither parties can enforce it. Even if one party has performed his part or paid his money the law will not help him, as the contract is considered wholly vicious.

2 Illegal Contracts. — Are those in which the parties undertake to do what the law positively commands people not to do, or any contract which has for its purpose the furtherance of any object contrary to justice or common morality. This is the general principle. This subject may perhaps be best presented by taking up a number of specific cases.

CONTRACTS — LEGAL AND ILLEGAL

3 Contracts to do any Immoral Act are void. Among these may be mentioned Contracts.

( 1 ) To lead an immoral life.

(2) To publish, sell or transmit by mail, immoral and obscene pictures or publications, cr Seditious publication,

(3) Of bribery in case of elections.

. (4) Sundhy desecration either for purpose of business or pleasure.

(5) Bets and wagers.

(6) Gambling.

(7) Lotteries and raffles.

(8) Buying stocks on margins.

4 Contracts Made on Sunday.— According to our laws Sunday is a day of rest and not for work except works of necessity or mercy, hence business done on that day is done contrary to statute law and on thal account illegal.

5 Contracts Against Revenue Laws.— A few of these cases may be mentioned. Contracts in violation of the revenue law defraud the public of the revenue due which is used for the support and maintenance of government. A contract to smuggle dutiable articles into a country or to make incorrect returns of liquor or tobacco manufactured, could not be enforced nor could pay for doing them be collected.

6 Contracts against other Laws. —Among these we might mention contracts to sell liquor without license, to burn buildings, to destroy property, &c.

7 Compounding a Felony. — if a person guilty of some crime makes any agreement to pay another person or to do anything for his benefit as a consideration for not prosecuting him, it cannot be enforced. Suppose A has embezzled B’s funds, and he or his friends agree to pay B a sum of money to forbear prosecution, the payment cannot be enforced. Even though a promisory note or bond be given it cannot be collected by B. The promise not to prosecute is itself a crime that is punishable.

8 Contracts itl Restraint of Trade. A general contract whereby a person agrees not to carry on a certain trade or business or profession is illegal. This of course is gene al and not limited to a community.

An agreement not to carry on a particular business is valid upon the following conditions.

1. It must be founded on a valuable consideration.

2. The restriction must not go, as to its extent in space or otherwise, beyond what in the judgment of the court is reasonably necessary for the protection

I’HE parties to a CONTRACT.

of* the other party. A contract made by A, selling out his trade to B, agreeing not to start the same business in that community is not in restraint of trade as A may go to another place and begin again. A contract by which A would engage not to carry on a business in any place would be illegal. Combines that limit the quantity to be manufactured of any goods or commodity and in this way do away with ordinary competition so as to fix values on the goods to suit themselves, are illegal.

Chapter 3. The Parties To Contract

A

Competent Parties.

Incompetent Parties Incompetent Bind Competent Parties.

Necessaries for Incompetent Parties.

Idiots.

Lunatics.

^ Intoxicated Persons.

[Ratification of Contracts.

Infants, -j Disaffirmance of Contracts. [Agency.

Indians.

Married Women.

Corporations.

1 Competent Parties.— Every contract requires two or more competent parties to it. Competent parties must be:

(1) Of legal age.

(2) Of sound mind.

(3) If women, unmarried except in cjrtain cases.

(4) If aliens, their nation must be friendly.

(5) If Corporations, the contract must be such as is specially

allowed in their charter, or from the nature and operations of the Corporation.

2 Incompetent Parties. — Others than those possessing the foregoing qualifications are, generally speaking, incapable of binding themselves in contract, hence they are called incompetent parties. Exceptions to this are mentioned under their appropriate headings. Those incompetent to contract may be classified as follows:

By Reason of Natural or Personal Inability.

By Reason of Legal Inability.

f(i) Idiots.

(2) Lunatics.

[(3) Intoxicated Persons.

'( i ) Infants.

(2) Indians.

- (3) Married Women.

(4) Alien Enemies.

^(5) Corporations limited Charter.

by their

CONTRACTS — THE PARTIES TO.

1 6

3 Incompetent Parties Bind Competent Parties.— A Contract is

made between an incompetent person and a competent person. The competent person can generally be compelled to carry out his part, but the incompetent person’s part cannot be enforced against him. He really has a choice as to whether he will or will not carry out his part. He cannot enforce a contract tract against a competent party to his own advantage and refuse to carryout his part. He can not use the law that protects him for the purpose of defrauding others

4 Necessaries for Incompetent Parties. — The general exception to the rule that infants, lunatics, &c., are unable to make contracts is in the case where they bind themselves for the necessaries of life,

(1) Food.

(2) Clothing.

(3) Medical attendance.

(4) In case of Infants, for Education.

Each of the foregoing items must be suitable to the person’s station in life. For example, a yonng man under twenty-one years of age in circumstances of an ordinary mechanic could not bind himself for expensive luxuries of living or dress but only for such as are necessary for ordinary comfort and protection. A contract for necessaries supplied to such persons, charged at exorbitant prices could not be enforced. Only the intrinsic value of the articles could be collected.

5 Idiots. — An idiot is a person that never had reason or intellect. He .is therefore incapable of understanding the nature and effect of any contract. He is therefore incapable of doing the business pertaining to the ordinary affairs of life. If he is the owner of property by inheritance it must be managed by others for him.

6 Lunatics. A lunatic is a person who had reason and intellect but has lost them. Some lunatics have lucid intervals when tfrey are sane enough and are, during that time, perfectly capable of contracting. Contracts with or by a lunatic are voidable at his choice, if at the time of making the contract it can be shown that he was absolutely incapable of understanding what he was doing and that the other party knew of his condition.

7 Intoxicated Persons. An intoxicated person may be considered in the same way as a lunatic having lucid intervals. Intoxication by liquor or drugs must be so complete that the person is deprived of his capacity to act and think. The rule in the foregoing section 6 applies to the contract of an intoxicated person the same as to that of a lunatic.

CONTRACTS — THE PARTIES T6.

il

8 Infants. — A person under twenty-one years of age is called an infant or minor. Legally a person comes of age the day before the twenty-first anniversary of his birthday. The lajvs are very carefully framed to protect the rights of those incapable of caring for themselves. The theory of the law is “That before the age of twenty-one the human faculties are immature, undisciplined and incompetent to guard against artificial or subtlety and it therefore extends to them its protection and guardianship,” The infant who is living with a parent or guardian has not power to make contracts and bind even for the necessaries of life. The parent or guardian is liable for such supplied to the child under his protection. If the child is separated entirely from parent orguardian he has power to contract for necessaries. Although infants are generally speaking, not amenable to law on contracts, they are, however, answerable able to law for all criminal offences, trespass, assault, etc.

Exceptions. — An infant becoming owner of shares in a Stock Company is liable during minority for all calls accruing due on the same unless there was an express agreement to the contrary at the time of purchase. An infant that is a partner may rescind his partnership at his majority. He cannot however rid himself of the liabilities of the business, contracted during his continuance as a partner.

Ratification. — An infant making an executory contract may ratify it on coming of age,

(1 ) By dbing in express words or writing.

(2) By performance or part performance of it.

(3) By retaining the benefits accruing to him from it.

It will be noticed that the first is really a new contract and the second and third are new contracts by implication, if not really expressed in words. If not rescinded within reasonable time they may be considered as ratified.

Disaffirmance. — An infant may, on becoming of age, disaffirm his contracts that "are executory. This must be done within reasonable time. It will not do to wait six months or a year and then rescind them. If he disaffirms a contract on becoming of age he must restore to the other party what ever property or consideration he may have received, as far as lies in his power.

Agency and Infants, — An infant may not appoint another person as agent as the agent could not bind the infant. An infant may however, act as agent for another person capable of making contracts and bind him in contracts made on his behalf.

CONTRACTS— THE PARTIES TO.

t3

Indians. — “The Noble Red Man” is a ward of the Government, is cared for, and maintained by the Government, and is considered incapable of caring for himself or protecting his own interests. He is a sort of permanent infant, and is incapable of binding himself in a contract even for necessaries.

Married Women, — A woman unmarried — a spinster or widow — may make contracts as freely as a man. At common law a contract made by a married woman was void, the theory being that the husband ftnd wife were one person, her legal personality being merged into that of her husband at marriage. This has, however, been modified, very materially, [see Revised Statutes of Ontario, 1887, Chapter 132, and Revised Statutes of Manitoba, Chapter 95.] A married woman may contract as freely as before marriage in reference to her own property, or Separate Estate, as it is called. She may also engage in business or trade on her own account. A married woman’s property is all that she owned before marriage, all gifts, legacies, property received as heir at law of intestate estates, also all her earnings, profits in trade on her own account, &c. This does not include gifts from her husband. She may also take and enjoy all the earnings of her children, by getting an order from the judge when separated from her husband, or dese rted by him or if he is confined in prison as a criminal.

Alien Enemies. — -Under ordinary circumstances contracts made with or by citizens of other countries are as binding as those made by natural-born subjects in our own country. An alien enemy cannot, duilng time of war, make a fresh contract, or enforce any existing contract without a license from the Crown. As to contracts made before war commenced, his rights are only suspended, and the contract can be enforced upon peace being declared. It is, however, a well recognized law of nations that whenever war is declared between two countries they are enemies and all contracts existing between their citizens are suspended, and all contracts made after declaration of war are void. Commerce is suspended as the manufacturers of a country might be supplying their enemies with arms and other articles that were needed at home.

Corporations. — A Corporation is an artificial person created by law and Teally composed of a number of persons joined together and endowed with the capacity of perpetual succession. For the present purposes we will divide them into

(1) Trading Corporations.

(2) Non-Trading Corporations.

The former are principally Joint Stock Companies formed for the purpose of earning on some particular trade or business. Their charter only allows them

I

Contracts — conseN t. ig

to make contracts in their own line of trade. Those made relative to other matters would be void. Non-trading Corporations are such as Towns, Cities, 'Townships, &c., formed for carrying on public business. If a Non-Trading corporation were to engage in manufacturing implements it could not make a binding contract as it exceeds the privileges granted in its charter.

The general rule as to Corporation contracts is that a Corporation can only be bound by contracts under the seal of the Corporation.

The exceptions to this rule are

1. Trading* Corporations may by their agents enter into simple contracts without seal when such contracts relate to the objects and purposes of the Corporation.

2. Non-Trading* Corporations may enter into simple contracts (without seal.)

(a) In matters of trifling inportance or daily necessity, e. g., the hire of a servant or supply of coal.

(b) In matters of urgent necessity admitting no delay.

Chapter 4. Consent

'Mutual Consent — Definition.

Specific Offer.

General Offer.

Acceptance.

Acceptance by an Act.

- Duress.

Time.

Proposal by Mail.

Acceptance by Mail.

Mistakes.

Custom or Usage.

1 Mutual Consent may be defined as a meeting of minds. They must meet or be a unit on the same thing, else there can be no contract. The parties to every contract, however extensive or trivial, shew their willingness to make a contract by what we might term the elements of a contract, viz.,

(1) Offer by one party.

(2) Acceptance by the other party.

Example. If A, a merchant, offers a coat to B for $io, and B says rT

CONTRACTS — CONSENT*.

will accept your offer,” or other words of similar effect, we have a contract This may be done

(1) Orally, by speaking to one another.

(2) By writing (informal) e. g., letters to one another.

-(3) Formal or Specialty, by writing out, signing and adding a seal to each signature.

2. Specific Offer. — The beginning of every contract is made by one person making an offer of some kind to another. This is sometimes called making a proposal. For example, — A says to B, I will sell you this horse for $100 This is an offer. B says, I will not do that but I will offer you my cow and $50 for your horse. Here we have a second offer. There was no contract in the first case as the parties failed to agree. The second will be continued under section No. 4.

3. General offer. — A general offer is one made to no one in particular, but to every person. Example, — 'Property offered for Sale in an advertisement or at auction. A railway or other comlmon carrier makes a general offer to carry passengers or freight.

4. Acceptance. — The agreement or willingness of a party to take the offer of the other, expressed or written to the person making the offer, is acceptance. In the example section 2 B has offered his cow and $50 for A’s horse. It A says I will accept your offer, a contract is made,

Rules respecting Proposal and Acceptance.

1. The acceptance must be unconditional and identical with the terms of the proposal.

2. A proposal may be revoked before acceptance, but not after. — An acceptance cannot be revoked.

If the parties are contracting orally in each other’s presence a proposal may be revoked without notice.

If the parties communicate by correspondence, notice of revocation of proposal must reach the party to whom proposal is made before he has accepted it.

3. It matters not whether the offer is specific or general the acceptance must in all cases be specific.

5. Acceptance by an Act. — Acceptance need not always be made in words, it may be given by an act. A goes into a shop and says to the proprietor, I will give you $4 for this hat. The proprietor hands h'-m the hat, thus accepting by an action. A sends goods to B’s house, and B uses the

CONTRACTS — CONSENT.

goods. B will be liable on an implied contract for their price. A requests B, a wholesale merchant, to send him certain goods. It is understood or implied, though not expressed, that A will pay a fair market price for the goods to B.

A proposal needa^t be made to a specified individual but no contract can be formed until it has been accepted by a specified individual : e. g., A advertises a reward of $io for the recovery of his lost dog — the offer is not to any particular person but to every person. If B finds and restores the dog the contract is made and he can claim the reward.

6. Duress. — It is the theory of the law that all competent persons are free to make as many contracts as they may see proper, and of whatever kind they may desire, so long as within the limits of the law, hence it is illegal to restrain a person from making a contract, and likewise illegal to compel a person in any way to make a contract. Any contract, made because of any threat or constraint, may be voided at the option of the party who has entered into it under Duress.

7. Time. — -An offer made orally, unless otherwise specified, is supposed to be accepted immediately and in this case may be revoked or withdrawn anytime before it is accepted. An offer may be made, however, giving time for acceptance, if there be a specified sum paid by the second party as a consideration for the privilege of extended time.

Example i — X offers to sell to Y his business for $iooo, payable half cash and half in a year’s time. Y says I will give you $5 for the privilege of considering your offer and accepting or rejecting it any time within a week. The $5 are paid and a memorandum made and a receipt accordingly given by X. Here is a case of a contract within a contract, the consideration for the $5 being that Y has the exclusive right to purchase the business any, time within a week if he elects to do so.

8. Proposal by Mail. — A proposal may be made by mail or telegraph.

Such offer continues valid until it is revoked unless the time prescribed foi acceptance has lapsed, or there is lapse of reasonable time before acceptance. The acceptance of an offer is the consummation of a contract, hence a letter or telegram revoking it is of no avail unless received by the second party be fore acceptance. '

9. Acceptance by Mail, &C.— An offer is accepred by mail when the letter containing it is placed in the post office, or by telegraph when the telegraphic despatch is delivered to the Company, hefice any revocations of an offer must be received before the letter of acceptance is mailed or the telegram of acceptance is sent, or the offer wiil be enforceable.

CONI R ACTS — CONSENT.

Example. — A writes to B Aug. 12, offering him rooo bushels of wheat at $1.25 per bushel. A writes to B Aug 15 revoking the offer. B received the letter on the 14th Aug. and posted acceptance on the 16th and received the revocation on the 17th. B can enforce the contract.

1 0. Mistake. — Where the parties may not have meant the same thing or one or both may have formed untrue conclusions as to the subjeet matter of the agreement.

Where there is a mistake in the terms of agreement, and one of the parties being aware of the error seeks to take advantage of it, the contract is void.

Example. — Every person making a contract is supposed to understand the meaning of the words he uses. If I intend to order 20 chests of tea and by mistake write 220 chests in my letter, the party I order from may, if he chooses, compel me to accept and pay for the 220 chests.

1 1 . Custom OP Usage. — The custom at the time and place where a contract is made has great weight in determining the meaning of the contract.

Example. — A agrees to build a stone house for B at the rate of 50 cents per perch. In some places a perch of stone work is considered as 16^ cubic feet of wall; in other places 24^ cubic feet. If any dispute arose the custom of the locality would have to be ascertained to settle the disputed point

Chapter 5

f Definition.

| Promises Without a Consideration. i Exceptions.

Division of Considerations.

Good Consideration.

Valuable Consideration.

CONSIDERATION. ^ Insufficient Consideration.

! Illegal Consideration.

Impossible Consideration.

Assignment of a Chose in Action.

Moral Obligations.

Executed Considerations.

Failure of Consideration.

1. Definition -Consideration is some gain to the party making the promise, arising from the act, or forbearance given or promised, of the promisee, or Consideration is the price of the promise, or the cause that moves the parties to enter into a contract. It is something

(1) Given,

(2) Done, or

(3) Promised to be given or done by the person to whom

a promise is made,

CONTRACTS — CONSIDERATION.

2 3

For this consideration the person to whom the promise is given either

(1) Gives something (in case of a sale),

(2) Does something (in case of service rendered), or

(3) Promises to give or do something in the future.

A promises to build a stable for B, and B promises to pay A, as consideration for his work, the sum of One Hnndred Dollars. It will be noticed