Business law

Chap. I. Remedies in Courts of Law . . . . 139

Chap. II. Remedies in Courts of Equity . . . 141 Chap. III. How Rights of Action, arising from Breach of

Contract, may be Discharged . . . 145

PAET III. SALES

Essential Characteristics .... 148

Who may Sell 151

When the Title to the Goods Passes . . 157

Conditional Sales 161

Warranties 166

Mutual Remedies of the Parties . . . 169

PAET IV. NEGOTIABLE CONTEACTS

Essential Characteristics of a Promissory Note 175

Essential Characteristics of a Bill of Exchange 182

How the Acceptance must be Made . . 186 How Negotiable Paper Circulates . . .188

Liability of the Maker of a Note . . . 191

Liability of the Acceptor of a Bill of Exchange 194

Conflict of Laws 228

Checks 230

PAET V. CONTEACTS OF COMMON CAEEIEES

Section I. Carriers of Goods 233

Chap. I. Essential Characteristics of Common Carriers 233

Chap. 11. Duties of Common Carrier toward the Public 237

Chap. III. Rights of the Common Carrier of PAGB

252 252 255 269

PART VI. AGENCY

Chap.

I.

Chap.

II.

Chap.

III.

Chap.

IV.

Chap.

V.

Chap.

VI.

Classes of Agents . .

Creation of Relation of Principal and Agent Liability of Principal for Acts of Agent . Liability of the Agent for his Acts . Mutual Duties of Principal and Agent . How the Relation of Principal and Agent may be Terminated

263 267 276 279

PAET yil. BUSINESS ASSOCIATIONS

Section I. Partnership 286

Chap. IV. Conduct of the Business 301

Section II. Corporations 306

Chap. I. Essential Characteristics of a Corporation . 306 Chap. II. Liability of Stockholders of a Corporation

Regularly Organized 314

Chap. III. Liability of Stockholders of an Irregular Corporation 319

Chap. IV. Rights of Stockholders 323

Introduction

THE STUDY OF COMMERCIAL LAW IN SCHOOL AND COLLEGE

The selection of school and college studies is made from the double point of view of discipline and utility. The time-honored subjects of instruction have acquired a prestige for discipline of the mind which is not to be shaken, and when advocates of newer branches of study dwell upon the utility of such subjects, they are frequently met with distrust, which finds expression in the fear lest something of the discipline of the older studies be lacking in the new. Nor can it be doubted that the utility so frequently claimed for newer studies would be purchased at too high a price if clear training of the intellect, with breadth and readiness of mind, be sacrificed to gain it. These several propositions form the basis of the strife which in recent years has agitated educators, and which has flamed with peculiar violence about all proposals for a commercial education. It is not to stir the fires of controversy, or to balance the rival claims of conservatives and innovators, that we have repeated the watchwords of the contending parties, but rather to discover what light the discussion may throw upon the place and purpose of the study of commercial law in school and college.

The contrast of discipline and utility has sometimes been pushed so far that disputants seem to believe that disciplinary studies cannot be useful, nor useful studies disciplinary. A distinguished jurist is reported to have said that while in his younger days all cases appeared to him either white or black, to his maturer vision they seemed mostly gray. What is true of actions of law is true in large measure of other controversies. In education, discipline and information are not hostile, but complementary, they are two means of promoting mental growth, the problem which lies at the root of all serious educational effort. They may, indeed, be combined in unequal proportions in different branches of study, but so far from being mutually exclusive, they are generally found to be united. Among the studies which the demand for a practical, or rather a commercial, education

vii vni INTRODUCTION

has introduced into schools and colleges, few present so happy a blending of discipline and information as that of the commercial law.

The study of the law disciplines the mind in precision of thought and statement, and in logical reasoning. Above all things, the law is precise. It abhors vagueness, and tolerates no looseness of thought. To gain precision of terms, it frequently adopts modes of speech which seem prolix and barbarous, and which have been the frequent butt of jest and ridicule. But even this legal phraseology, with which, moreover, an elementary study of the law has little to do, has its uses. Partly because of their long-continued use, and more especially because they have been frequently passed upon by the courts, words and phrases which provoke the merriment of the layman have acquired a definiteness of meaning which no new formulation could give.

It is the spirit of the law to be exact. It means exactly what it says, and, under the searching analysis of generations of judges, the phrases it employs have a precision of meaning which is often lacking in other sciences. The student has missed the point of his study if he does not catch this spirit of preciseness, and it is a lesson of first importance to the pupil. The faculty of clearly stating facts in terms which admit of no question is one of the preeminent marks of a trained mind. But this mental quality, like all others, must be trained to be perfected, and for such training the study of law can hardly be excelled. One need not be versed in all the refinements of legal knowledge to appreciate the truth of this statement. The understanding of the simple rules which govern the elementary principles of law requires and promotes a grasp of language and a comprehension of the exact purport of verbal statements, whose worth cannot be estimated.

With precision of statement, the study of the law promotes clearness of thought. Its principles are but few, while their applications are innumerable. To apply a general principle to a particular set of facts, or to contrast different sets of facts with the legal decisions upon them and thus evolve general principles of law, off'ers an excellent training in applied logic. As the student progresses, he becomes impressed with the reasonableness of the law as it unfolds before him in a clear, logical system. Many times have I been told by a student that a solution stated did not seem to him so much the law as it was common sense. Nor was the student wrong in his intuitions, for with the homely phrase " common sense " we are prone to designate what we deem perfect logic.

INTRODUCTION IX

The student is helped and stimulated by finding so much that seems to him common sense embodied in the law. It strengthens his reasoning powers to find their conclusions thus confirmed, and stimidates them by directing his thoughts into new channels, and to new applications of what he has learned.

This is particularly true in the study of contracts, which forms so large a part of the commercial law. The student learns that it is the purpose of the law to carry out the clearly expressed intentions of the parties. But he finds that parties to a contract frequently fail to express their intentions in a clear and unequivocal fashion, and that ndes of law grow up which have no other purpose than to establish normal rules of conduct. The law assumes that one man does as others do in like circumstances. Thus the inherent reasonableness of the law is impressed upon the student, and he is encom-aged to test its rules by the dictates of what he calls common sense. If that fails to reach a given set of facts, he has arrived at a point where he can see clearly that in such case it is more important to have a rule than that the ride should be one way or the other. He then appreciates that there may be situations where the courts say thus and so is the law, and where legal writers flounder in their attempts to furnish an explanation.

So much for the disciphnary advantages of the study of the law, which, strong as they are, will doubtless appeal with greater force to the teacher than to the pupil. In pointing out the practical advantages of a study of the law, we need have no fear that the student will fail to grasp them. Whether or not he intends at some future day to practise the law as a profession, he will readily recognize that contracts, notes, sales, agency, partnership, and transportation concern everybody. He does not have to be told that all business rests upon contracts of various kinds, and he readily comprehends that some knowledge of the law is a valuable adjunct to any one who has business affairs. Indeed, if it is pointed out to him, he will be quick to grasp the fact that educated men of the world must of necessity have some knowledge of the famdiar laws of business contracts. Without such knowledge, gained perhaps through a long period of business experience, they would be helpless in the transaction of their affairs.

This indicates the limits within which the study of the law can properly be introduced into schools and colleges. Instruction in law must here aim to give that knowledge of the law which forms a part of the mental equipment of the well-informed man of affairs. Beyond this it cannot go. Other ideals would defeat the purposes

X INTRODUCTION

of general instruction. To give the knowledge of the expert, or even to strive to do away with the necessity for expert advice, is not to be thought of. In short, the aim of this instruction should be to enable a man to know when he needs the services of a lawyer, rather than to encourage him in the belief that he can dispense with such services.

As a means of cultivating mental power and imparting the degree of information suggested, the study of the law has an appropriate place in schools and colleges. The experience of ten years strengthens the writer's conviction that the study is interesting to the pupil and helpful to him. Its extremely practical bearing on the affairs of everyday life affords a host of opportunities for those mutual discussions of teacher and pupil which are among the most fruitful experiences of the class room.

Speculation on education is prone to outrun its practice. It is not enough to decide that a subject is fitted for instruction. Before you can carry an ideal into practice, you must find the teacher, and before it becomes general, you must find the text-book which adapts the subject to the purposes of instruction. I believe that Mr. White has written such a book, and I congratulate him upon the service he has rendered to teachers. It has been my privilege to examine carefully the manuscript of this work, and to offer such suggestions as were dictated by ten years' experience in teaching the subject.

Mr. White has sought, above everything else, to give an orderly and logical presentation of the subject of commercial law. His work is designed as a text-book, and in no sense as a reference work. So far as possible, technical terms have been avoided, and, when necessary, have been explained. There has been no attempt to disguise the difficulties of the law, but every effort has been made to make them plain by lucid exposition and frequent illustration. Mr. White has cherished the idea that a book upon the law need be neither abstract nor disconnected. As a member of the Law Faculty of the University of Pennsylvania, it has been his duty to expound the law to students, and he has sought in this book to present in simple language the elements of the law in such a way that the subject gradually unfolds before the student, and leads him, step by step, in a natural, logical manner from one proposition to another. In this effort, he has been unusually successful, and this trait of the book will, I am confident, recommend it to teachers.

ROLAND P. FALKNER.

Preface

The object of this book is to present the elementary principles of law relating to the more common business transactions, in a style so clear and free from technicality that they can be readily understood by persons unused to legal phraseology. Any schoolboy can understand these principles if they are placed before him in simple English, freed from legal verbiage. The law of contracts has been said to be nothing more than the law of common sense. The same may be said of the law of sales and agency. The discussion of negotiable contracts, common carriers, and business associations involves the use of somewhat more technical language, but the fundamental principles of these also are neither difficult nor obscure. It is the hope of the author that the book will afford a knowledge of these subjects, thorough, if elementary, and that it will do it in such a way that the student may not feel that he is studying a mere compendium of information.

The first part of the book is devoted to a brief discussion of law in general, a study of how it originated, how it develops, and how it has been divided into its many ramifications. The other parts, in order, treat of the subjects mentioned above. They do not pretend to offer a complete technical knowledge of any subject, but it is believed that they cover the leading principles in a thorough and connected manner.

It has not been the aim of the writer to offer any new legal principles. The originality of the work consists only of its arrangement and the manner of treating its subject-matter. He has freely made use of standard text-books and collections of cases, in order to arrange the subject in the clearest possible manner, and to eliminate whatever might be omitted without detracting from the value of the work as a text-book. The more technical discussion

Xll PEEFACE

has been arranged in such a way that it may be studied or not, as the teacher sees fit, without destroying the continuity of the text. No cases have been cited, as the work is not intended for the use of lawyers.

If the book succeeds in giving a practical insight into one of the greatest of sciences, and in inspiring a love for it which shall lead to a deeper study, it will have accomplished its purpose.

The writer desires to acknowledge his indebtedness to Professor Koland P. Falkner for his invaluable suggestions and advice, and for his able criticism of the book in manuscript.

THOMAS RAEBURN WHITE.

Philadelphia, November, 1900.

SUGGESTIONS TO TEACHERS

Peimaeily this work was prepared for use in schools and colleges. The subject of which it treats has therefore been arranged with a view to its being taught according to a definite plan.

The purpose of Part I. is to introduce the student to the field of legal learning — to show him how the law has been built up, and to give him some idea of its extent and its many subdivisions. Every class should of course read Part I.

Part II. leads to the distinctive branch of law which the book investigates — that treating more particularly of the dealings between man and man. Nearly all the subjects covered concern some phase of the law of contracts. The second part is intended to give the student a thorough knowledge of the meaning of a contract. It discusses, with some minuteness, its essential elements and its effect upon the parties bound under it. This part of the book is subdivided into sections. Sect. I., dealing with the " Formation of Contracts," should be studied in its entirety.

In Chap. VI., Sect. I., we meet for the first time a paragraph which is marked with a letter (A) instead of a number. The purpose of thus designating certain paragraphs by letters is to indicate those which, in the opinion of the author, are either too technical for the more elementary students, or which may be omitted in the study of the subject without serious loss. It will be found that the omission of these paragraphs will not disturb the continuity of thought, as the same matter is, wherever necessary, briefly stated in a previous numbered paragraph. Such statements are brief and general, serving as an introduction to the more detailed examination in the lettered paragraphs, which may be read or omitted, as may seem preferable.

XIV SUGGESTIONS TO TEACHERS

In Sects. II., III., IV., and V., of Part II., many lettered paragraphs will be found. In some cases, whole chapters, vide Chap. V., Sect. IV., consist wholly of such paragraphs. In such cases the entire chapter may be omitted. "With very young classes. Sects. II., III., and IV. may be omitted altogether. Sect. V., however, should be given at least a brief study by all grades.

Part III., " Sales," will be easily understood by the pupil who has studied the numbered paragraphs in Part II. All that follows Part II. presupposes a study of these paragraphs, and is much briefer, inasmuch as a thorough knowledge of elementary principles is assumed to have been gained.

Part IV., "Negotiable Contracts," is one of the most important sections in the book, but, at the same time, one of the most difficult. The more elementary classes may do well to omit it, and study Parts V. and VI., " Contracts of Common Carriers " and "Agency," in order, as these are short and easy to understand. All classes, however, should, if possible, take " jSTegotiable Contracts " in its order, as it logically comes before the study of contracts of common carriers.

Part VII., "Business Associations," while it treats of a very interesting and important subject, is the most difficult part of the book. Only well-advanced classes should attempt to give it a thorough study.

In Parts IV. and VII. many lettered paragraphs will be found. If the class is fairly well advanced, and time will permit, it will be better to omit nothing. But if lack of time prevents a thorough study, or if the class has difficulty in mastering the principles presented, the instructor, by observing the lettered paragraphs, will know what may safely be omitted.

The division of the text into paragraphs was made with a view to assist the teacher in the assignment of lessons. The division into parts and chapters was made on the basis of logical sequence. In assigning lessons in the longer chapters {e.g., in Chap. V., Sect. I. of Part II.), it will be well to note the natural divisions of the chapter {e.g., in Chap. V., Mistake, Misrepresentation, Fraud, etc.).

T. K. W.

PAET I

THE GENERAL FIELD OE LAW

1. Meaning of " Law " ; Natural Laws. — " Law," in its broadest signification, means, "a rule laid down or established." In one way or another the word necessarily becomes familiar to us all. Students of science are familiar with the rules or laws which govern the nature and growth of plants and animals ; those who have studied chemistry know that certain combinations of elements always produce a given result ; students of mechanics know that certain combinations of forces produce a force of definite magnitude and certain direction ; they can calculate precisely, even the strain supportable by a given structure. Every schoolboy knows of the law of gravitation which governs the attractions of bodies for each other, and controls the movements of the sun and planets. All these are natural laws, and, incidentally, laws that are never broken. Men have spent their lives in investigating them, but it is beyond their power to alter them in the slightest degree.

2 INTKODUCTORY

2. Laws governing Human Action ; their Origin. —

When we turn to the laws which control human action, we are confronted by a very different situation. No absolute rules were laid down by the Creator of the Universe to govern the conduct of mankind. While plants conformed strictly to the laws governing their growth, and the lower animals followed the unerring instinct which is Nature's law for them, man, by virtue of his power to reason and to will, needed something more to regulate his actions. Primitive man, perhaps, had no more need of laws than other animals, but as his power to think developed, he realized that mere physical instinct was not a sufficient guidance for him. He began to appreciate the fact that his neighbor had rights as well as himself. He saw these rights often, almost continuously, in conflict with his own. He perceived that if he was not to live in continual physical warfare it was absolutely necessary that the rights of all be regulated. Otherwise, his lot would be merely that of the wild animal, which maintains its cave dwelling by physical prowess, and is compelled to abandon it when it becomes old and helpless. A little later, the conception of right and wrong furnished another reason for the establishment of law. '' Might makes right " is not consistent with moral principle.

In order, therefore, to protect himself in the quiet enjoyment of his property and to satisfy his conscience, man was compelled to make laws to govern his own conduct. These have grown as the race has grown, and are continually being altered, and, inasmuch as man has the power to obey them or not as he chooses, a punishment, called a "sanction," has been annexed to the breach of human laws to insure individual obedience to them.

3. Classification of Laws. — In the beginning we have defined laws as " rules," and we will divide these rules into two general classes : the laAVS of Physical Science, which are natural laws, and the laws of Human Action, which are laws created by man for his own protection, except in so far as religious writings are considered to be laws laid down by the Deity. The laws of Human Action again are divided into four general divisions : the Moral Law, the Divine or Revealed Law, International Law, and Municipal Law.

4. The Moral Law. — The moral law has never been very strictly defined, nor is it very clearly definable. It may be said to be a general feeling in the community, as an aggregate, as to what is right and what is wrong. The punishment annexed to it is the disapprobation which the community visits upon the individual who oversteps the bounds. It changes, at least in some particulars, with every decade, and differs in different sections of the world, though a few cardinal principles are the same everywhere.

5. The Divine, or Revealed Law. — The divine or revealed law consists of those commands laid upon men, as they believe, by divine beings. They are usually contained in some kind of religious writings ; throughout Christendom they are found in the Scriptures. This law is astonishingly similar whether you find it in the Bible, in the Koran, or in the writings of Confucius or of Buddha. This is no doubt true because revelation is often supplemented by man's conception of what should be, or, in other words, by his conscience; and men's consciences, in the light of the education they have had, all have the same general tendency. The divine law has a double means of enforcement. It offers the hope of a reward in the future existence for conformance with its injunctions, and threatens eternal punishment as its "sanction." While few people strictly conform to this law, it is safe to say that it has a greater influence upon the everyday life of mankind than any other, and should never be thought of inconsiderately.

6. International Law. — International law, in its general or public sense, consists of those rules or precedents or customs by which independent nations have agreed, either expressly or tacitly, to govern their dealings with each other. This law approaches very near to Darwin's law of the survival of the fittest, and sometimes seems to be subject to change without notice. There are, however, a great many rules, such as those relating to the safety of ambassadors, by which the conduct of nations is so far regulated that few would think of violating them. Only strictly independent nations are recognized by international law.

7. Municipal Law. — Municipal law, with which we are concerned in this work, consists of those rules by which the civil conduct of the citizens and residents of a nation is regulated. The word "municipal," as here used, means all laws which control the actions of the inhabitants of states or nations. It does not refer to city law alone. Notice that municipal law goes no further than to prescribe a rule of civil conduct, i.e. the state regulates the actions of its citizens only so far as they might interfere with the rights of other men. Unlike the moral and divine law, it exists solely for the protection of men against each other, and takes cognizance of actions only. When it has performed that function its work is done. A man may be as wicked as he pleases, the municipal law will not interfere with him so long as he does not interfere with anybody else. Municipal law may be either written or unwritten.

8. Written Law. — Written or statutory law consists of positive enactments laid down by the legislating body of the state, as acts of Parliament in England, or acts passed by Congress, or by state legislatures, or by city councils. These acts are usually enacted to meet some need peculiar to the territory to which they apply. In some instances they are simply declaratory of known principles of law, and in others* they are passed for the purpose of varying or contradicting such known principles. According to the ancient principles of unwritten law, a married woman could not hold personal property, or make contracts. Now, by statutes passed in most states of this country, her disability is removed, and she may act as freely in all legal matters as a single woman.

9. Unwritten Law ; Civil Law. — Unwritten law, which is by far the most important body of law, is, so far as concerns English-speaking people, of two general divisions; the civil law and the English common law. The civil law forms the basis of all the continental European systems of jurisprudence, and has very largely affected English and American law. It consists of the laws promulgated by the Roman People from the time of the Tarquinian kings to the downfall of the Empire, including not only the edicts of the kings, senate, and emperors, but also legal decisions and opinions of learned writers bearing upon the same. This great body of laws was codified, i.e. was arranged, classified, and promulgated during the reign of the Emperor Justinian and by his orders. This was in the sixth century A. d. This compilation is known as the Justinian Code. A reformation of this code was made by Napoleon, and the Code Napoleon is used in France to-day. Various modifications of the latter code form a very important part of the law of those countries at that time under the sway of Napoleon, particularly Italy, Holland, Germany, and Spain. Napoleon's work as a law-maker may, to some extent, account for the dominance of military power in France, Napoleon himself being a thorough believer in the efficacy of military force, and a soldier rather than a statesman or a lawyer.

10. Importance of the Civil Law. — The study of the civil law is important to us because it has very materially affected our own law. When William the Conqueror took the English throne, in 1066 A.D., he carried with him not only the French language and French customs, but also, to a considerable extent, French laws. Moreover, some parts of our country, notably Louisiana, have been, and still are to a large degree, governed by French law rather than by the common law. All the territory which we formerly acquired from Spain, as well as our recent acquisitions, did and do contain the Spanish system of law, which of course is the civil law.

11. The Common Law of England ; its Origin. — The common law of Enghmd, inherited by us from the mother country, is by far the most important to American students. It is indigenous to English soil and had its origin in custom or usage. In very ancient times, before there were any organized courts, and when, indeed, there was little attempt at administration of justice on the part of the ruling power, the dealings of men with each other depended entirely upon custom. There was merely a general feeling that in a certain particular situation a certain line of conduct should be followed. If, in that situation, some individual acted otherwise than was customary, the disapprobation of the community was visited upon him.

In ancient times, in England, one man generally owned a very large tract of land upon which he had a great many tenants. It was the custom for a certain portion of this land to be set apart for a common pasturage for the cattle of all the tenants. Suppose, after several generations, the new owner of the land attempted to abolish this right of pasturage. He would meet with a great deal of opposition, even if there were no law to prevent him from doing as he chose. Once accepted as the guiding rule of men's actions, and after courts were established for the purpose of enforcing justice between individuals, these customs were recognized as binding laws. It then became necessary to discriminate between customs which had been in existence so long as to become laws, and customs which had not yet become firmly established, and therefore not binding upon any one. To make use of a quaint expression which we often find among old English writers, if a custom had existed " from a time whereof the memory of man runneth not to the contrary," it became a law. This meant that if in the memory of the oldest inhabitants there was no time when this custom had not been observed, it was deemed binding upon every one.