The essentials of business law

Preface

This book has not been written for lawyers, nor for professional students of the law, but for boys and girls in our secondary schools. Its purpose is to show how the rules of law, governing ordinary business transactions, have been developed, and to tell what they are. Technical law terms have been discarded as far as possible. When they have been used, care has been taken to explain and illustrate their meaning, so as to render them easily intelligible to every attentive student.

The author believes that the average high-school boy or girl can acquire an accurate knowledge of the essential principles of business law if these are set forth in clear, lucid, popular language. He has endeavored so to present them in the following pages. He has no idea that a mastery of this book will fit the student for a bar examination, or will enable him to be his own lawyer. He has the conviction, however, that it will give the student a fair acquaintance with those legal principles and ideas which are involved in ordinary business affairs, and that it will help him to know when he ought to consult a lawyer, in order to avoid business pitfalls.

It is hoped that the book will disclose to the reader the meaning of many legal terms which are constantly thrust

VI ESSENTIALS OF BUSINESS LAW

before him, in conversation and in the newspapers; that it will show him how to make, indorse, and use checks and other forms of negotiable paper ; that it will teach him his rights against hotel-keepers, common carriers, and manyothers, as well as give him much useful information about the purchase and sale, the transfer and conveyance of land and of personal property.

Francis M. Buedick.

Columbia University.

The rules of commercial law in this country have been modified by legislation since the first publication of this book. Many statutes have been drafted by the Commissioners on Uniform State Laws and enacted by various legislatures, having for their object not simply the codification of the older law, but its reformation in many respects to suit modern business practices and needs.

It has seemed desirable to incorporate these legislative changes into the text, and to note their importance. The student will observe that the law of partnership, of the sale of personal property, of bailments — especially those which involve the use of warehouse receipts and bills of lading — and the law relating to transfers of title to real property, have been modified, and, in most respects, simplified and reformed by statutes, whose provisions have been summarized in this revision. Some of these Uniform State Laws have been adopted by many legislatures and most of them probably will be adopted by all of the States, thus bringing about a uniformity in business law throughout our country which is most desirable.

Important changes in commercial law and business practices have been effected by Congressional legislation relating to interstate commerce, monopolies, postal bailments, corporations, public utilities and banking. This revision attempts to bring the text down to date upon all of these topics.

Francis M. Bukdick.

Columbia University,

CHAPTER I INTRODUCTORY The Nature and Origin of Municipal Law

1. The study of municipal law ....

2. Municipal law and the theory of a social compact

3. The social-compact theory exploded

4. Law develops as man improves his condition

5. Law was not invented, but grew .

6. Judicial decisions gave rise to legal rules .

7. Conveyance with copper scales .

8. The Roman law of contracts

9. Law is common sense, but clothed in technical forms

PAGE

1 2 3

4 4 5

7 8

Chapter II The Law Merchant And The Common Law

§ 1. The Law Merchant

10. The sources of modern business law are twofold

11. Their differences illustrated

12. Survivorship at common law

13. No survivorship between partners

14. Effect of death on outstanding contracts

15. Merchants' courts

16. Judges and juries of merchants' courts

17. These courts called pepoudrous .

18. Modern ignorance of the ancient law merchant

19. Fragments of the laAv merchant in sea codes

20. The ancient law merchant was international

21. Difficulty in applying this law of nature .

22. Decay of merchants' courts

23. Merchants' courts in America .

X ESSENTIALS OF BUSINESS LAW

PAGE

24. The law merchant in common-law courts. Second stage in

its development . . . . . . . .18

25. Parliament backs the merchants . . . . . .19

26. Third stage in the development of the law merchant . . 19

27. Lord Mansfield's methods 20

28. Fourth stage in the development of the law merchant . 21

29. Summary: Four meanings of "law merchant" . . .22

§ 2. The Common Law

30. Various significations of the term 23

31. Common law is unwritten ....... 23

32. The second signification modified in many States . . 24

33. Common law as the law of certain courts . . . .25

34. Merger of common-law and equity courts . . . .25

35. Origin of the common law ....... 26

36. Common-law courts were deliberate and spectacular . . 26

37. Eecorded precedents 28

38. Unfortunate precedents 28

39. Getting rid of inequitable precedents . . . .29

40. Legislative correction of precedents . . . . .30

41. Distinguishing and limiting precedents . . . .30

42. Principles deducible from recorded cases . . . .30

43. Flexibility of the common law .31

43. (a) Specific rules of common law 32

CHAPTEE III

§ 1. How A Contract is Made

44. A knowledge of the principles governing contracts is im-

portant 33

45. Definition and essentials of contract . . . . .33

46. Obligations which are not true contracts . . . .34

47. Quasi contracts ......... 34

48. Contract may be made by acts ...... 35

49. Offer and acceptance ........ 35

50. Intention to contract ....... 36

51. Preliminary negotiations 36

52. Offer must be definite 37

53. Definiteness of promise . . . . . . .38

54. Acceptance must be absolute and unqualified . . .39

CONTENTS xi

PAGE

55. Eight to withdraw offer 40

56. How offer may be withdrawn 40

57. The lapsing of an offer ....... 41

58. Death of the offerer . . . ... . .41

59. Communication of offer 42

60. Communication of withdrawal . . . . . . 42

61. Communication of acceptance 43

62. Necessity of consideration 44

63. Contracts under seal 44

65. What constitutes a seal . . . . . . .46

66. Delivery of a deed . . 46

67. Deed differs from simple contract, (a) In respect of con-

68. (6) Delivery upon condition .. . . . . . '47

69. (c) Estoppel by deed . .48

70. id) Merger .48

71. (e) Specialty creditors preferred . . . . . .48

72. (/) Limitations of actions ..,.,,, 49

73. ig) Statutory changes 49

74. The doctrine of consideration . . . . . .49

75. Definition of the term 50

76. Surrender of a legal right 50

77. Forbearance of a legal right . . , . . . .51

78. At the request of the promisor 51

79. Artificiality of this doctrine .52

80. The Statute of Frauds 52

81. Evils resulting from the statute 53

82. Sections IV and XVII 54

83. Contracts are not void which fail to comply with the

84. These sections have promoted artificial and technical rea-

soning 55

85. The statute as a nuisance 56

§ 2. Capacity of Parties

86. Persons engaged in business are generally capable of con-

tracting 57

87. The capacity of aliens to contract . . . . .57

88. Common-law incapacity of married women . . . .58

89. Incapacity of convicted criminals to contract . . .58

90. Incapacity of infants 59 xii ESSENTIALS OF BUSINESS LAW

PAGE

91. When the period of infancy terminates . . . .59

92. The legal force of infants' contracts . . . .60

93. Agreements by infants for necessaries are not true con-

tracts 60

94. What are necessaries? 61

95. Ratification of contracts by infants . . . .62

96. Limitations upon the infant's right to repudiate . . 63

97. Right to repudiate is personal to the infant . . .64

98. Contract of marriage can not be rescinded by an infant,

but a contract to marry can . . . . . .64

99. The contracts of lunatics and drunkards . . . .64

100. The English rule. American modifications . . .65

§ 3. Illegal Agreements

101. Illegal promises not enforceable by the law, and hence

not contracts 66

102. Express prohibition or criminality of promise not essen-

tial 66

103. Other instances of illegal contracts . . . . .67

104. Reasons for holding contracts in total restraint of trade

void 67

105. Rule laid down by House of Lords and Supreme Court . 68

106. Public policy an unruly horse 69

107. Stifiing competition and monopolizing trade . . .70 107. (a) Legislation against monopolies 70

107. (6) State legislation 71

§ 4. Want of Mutual Assent

108. Cases of apparent but unreal assent 72

109. Nature and consequences of mistake . . . . .72

110. Mistake by one party to the contract . . . .73

111. Mistake due to the act of a third party . . . .74

112. Mistake as to the existence of the subject-matter . . 74

113. Mistake as to the identity of the subject-matter . . 75

114. Nature and consequences of misrepresentation . . .75

115. Misrepresentation may be made a term of the contract . 76

116. Practical wisdom of this rule 77

117. Fraud: meaning of, in law of contracts . . . .77

118. Fraud involves the idea of active misconduct . . .78

119. Non-disclosure of the truth in connection with other cir-

120. Acts may speak louder than words 79

Xlll party

121. Misstatement of fact, not of opinion . . . .

122. Misstatement of fact, which buyer ought not to rely on

123. False statement need not be the sole inducement

124. The rights of the defrauded party . . . .

125. Disaffirmance must be made promptly

126. Duress. Its various forms and consequences .

127. Duress by threats of injury to person or property

128. Duress by threats of imprisonment .

129. Threats against the contracting party's relatives

130. Duress must be caused or be adopted by the other

to the contract

131. Undue influence defined . .

132. Relation of undue influence to fraud .

133. Rights of the victim of undue influence .

§ 5. Persons Affected by a Contract

134. Rights and obligations under a contract are generally lim-

ited to the parties

135. Substitution of third parties may be provided for in the

contract

136. Interference by outsiders with the obligations of contract

137. Rights of third persons under a contract ....

138. Reasons for the American exceptions

§ 6. Assignment of Contract

139. Liabilities under a contract not assignable

140. The assignability of rights under a contract .

141. Notice of assignment should be given

142. Assignee is subject to defenses against his assignor

143. Assignment by operation of law ....

§ 7. Discharge of Contract

144. Executory contracts may be discharged by mutual consent

145. Contracts executed by one party can be discharged only

by performance or release

146. Discharge by substitution of new contract. Novation

147. A contract may be discharged by the happening of a stip-

ulated event

148. Discharge by performance .....

149. Tender of performance .....

150. Legal-tender money of the United States .

151. Consequences of breach of contract by one party

PAGE

80 80 81 81 82 82 83 84 84

84 85 85 86

87 88 89 89

90 90 91 91 92

93 94

94 95 95 96 96

L52. When does a breach by one party discharge the other? 97

153. Breach of a term, which is not of vital importance . . 97

154. Breach of a vital or fundamental term . . . .98

155. Effect of repudiation of contract by one party, before

performance by him is due ...... 99

155. (a) Impossibility of performance 100

Chapter IV Age^^cy

§ 1. How THE Relation is Formed axd Tebminated

156. Definition of agency 101

157. Agency may result from appointment or from ratification 101

158. Conditions of ratification

159. Agency by operation of law ....

160. Legal capacity of principal and of agent .

161. Master and servant ......

162. Classification of agents: general and special agents

163. Attorney at law and attorney in fact .

164. The authority of an attorney at law is regulated

largely by the rules or usages of courts .

165. Auctioneers . . . . . . .

166. Bank cashiers

167. Brokers

168. Factor, or commission merchant . . . ,

169. Ships' husbands and masters of ships

170. Termination of agency .....

171. Notice of termination . . . . .

very

§ 2. Prixcipal's Liability for Agent's Acts

172. His contract liability 114

173. Meaning of scope of apparent authority . . . .114

174. The principal's liability in tort 115

175. Acts done outside the scope of apparent authority . .116

176. Liability for agent's wilful or malicious acts . . .118

177. Principal may be liable to criminal punishment for agent's

acts 118

178. Distinction between agent or servant and independent

contractor 119

CONTENTS XV

PAGE

§ 3. Principal's Rights Acquired through Acts of Agent

179. In case of a disclosed principal . . . . .119

180. In case of an undisclosed principal ..... 120

§ 4. The Agent's Liability to Third Persons

181. His liability in tort .120

182. His contract liability 120

183. The agent's liability for unauthorized contracts . . 120

184. The agent's liability upon contracts improperly executed 121

§ 5. The Agent's Rights Against Third Persons

185. In case of contracts . . 122

186. In case of tort . . 122

§ 6. Duties of the Principal and Agent toward Each Other

187. Duties of the principal toward the agent .... 123

188. Duties of the agent toward the principal .... 123

§ 7. Master's Statutory Liability for Servant

188. (a) Fellow-servant doctrine 124

188. (6) Statutory modifications of rule 125

188. (c) Workmen's Compensation Acts 125

Chapter V

BAILMENTS, INCLUDING THE OBLIGATIONS OF POSTMAS- TERS, INNKEEPERS, COMMON CARRIERS, AND TELE- GRAPE COMPANIES

§ 1. Nature and Classification of Bailments

189. Origin and modification of the term .... 127

190. Bailee's duty may result from agreement or from a rule

of law 128

191. Bailment is confined to personal property, which must be

delivered over in specie 129

192. Classification of bailments 130

§ 2. Bailments for Bailor's Exclusive Benefit

193. The special purpose of these bailments .... 130

194. Termination of these bailments 131

195. Duty of the bailee while the bailment continues . . 131 xvi ESSENTIALS OF BUSINESS LAW

PAGE

§ 3. Bailments foe the Bailee's Sole Benefit

196. The bailee's duty 132

197. Must exercise extraordinary care 133

198. Bailee has no right to lend the property .... 133

199. The bailor's duty 133

§ 4. Bailments for Mutual Benefit. General Principles

200. Nature and classification of mutual benefit bailments . 134

201. Duties of the bailee 135

202. Duties of the bailor 136

§ 5. Pawn, Pledge, or Collateral Security

203. Nature of this bailment 136

204. Possession by the pledgee ....... 137

205. Bights of the pledgee 137

206. Duties of the pledgee 138

207. Pawnbrokers 139

§ 6. Postal Bailments

208. Their peculiar character 140

209. Liability of postal officers 141

210. Summary 141

210. (a) Non-liability of government 142

210. (c) United States not suable 143

210. id) United States may sue 144

§ 7. Innkeepers

211. Definition 144

212. Whom must the innkeeper receive? 145

213. Treatment of sick guests 146

214. Innkeeper's liability for personal injuries to guest . . 147

215. Innkeeper's liability for guest's property .... 148

216. Statutory modification of innkeeper's liability . . . 148

217. The common-law exceptions to liability .... 149 218 Who is a guest? 151

219. Rights of the innkeeper . . . • . . . . 152

§ 8. The Hired Use of Chattels

220. A common kind of bailment ♦. . 152

221. The bailee may be liable for conversion .... 153

§ 9. Hired Services about Chattels, other than the Services of Common Carriers

222. Why this class of bailments is separated from common

carriage ......

223. Warehousemen and warehouse receipts 223. (a) Uniform vi^arehouse receipt act . 223. (6) Who is a warehouseman

223. (c) The receipt

223. {d) Negotiability of receipt

223, (e) Warehouseman's lien .

§ 10. Common Carriers of Goods

224. Definition and general duty 158

225. Excuses for refusing to carry ....!. 159

226. Common carrier's liability for goods received . . '. 159

227. Exceptions to the rule of liability . . . . .160

228. When the carrier's liability begins 161

229. Termination of carrier's liability 162

230. Modification of carrier's liability by contract . . . 163

231. Reasonable and fair regulations ...... 164

232. Statutory modifications of carrier's common-law liability 165

233. Lien of common carriers 166

233. (a) Interstate Commerce Commission .... 167

233. (&) Liability of first carriers 168

233. (o) Bills of lading .168

233. id) Statutory provision .169

§ 11. Common Carriers of Passengers

234. Duty to receive passengers 170

235. Care of passengers 171

23G. Accommodations for passengers . . . . ' . . 172 237 Treatment of passengers 172

238. Limitation of carrier's liability by contract . . . 173

239. Carrier's liability for passenger's baggage . . . 174

240. Fault of the passenger 175

241. Termination of carrier's liability 175

§ 12. Telegraph and Telephone Companies

242. Not common carriers 176

243. Nature of the company's liability 176

244. Liability may be limited or enlarged by contract . . 177

245. To whom the company is liable 178

ESSE^^TIALS OF BUSINESS LAW

§ 13. Public Utilities 245. (a) Test of a public utility. 245. (6) Public utility commissions . 245. (c) Limit of regulation 245. {d) Control of business during war .

179 179 180 181

CHAPTEE VI

BANKRUPTCY AND INSOLVENCY

246. The severity of early bankruptcy laws

247. The rigor of early law has been softened

248. Distinction between insolvent and bankruptcy

249. Bankruptcy legislation in the United States

250. State bankruptcy laws are now suspended

251. The theory of bankruptcy legislation

252. Who may be declared bankrupt

253. What are acts of bankruptcy? .

254. Courts; referees; trustees .

255. Discliarge of a bankrupt .

y laws

CHAPTEE YII

256. Its nature and origin ....... 191

257. Origin of insurance . . . . . . . . 192

258. Insurance law based upon mercantile usage . . . 192

259. The earliest form of insurance 193

260. Fire and life insurance ....... 194

261. Other forms of insurance ....... 194

262. Insurance is a contract, and generally in writing . . 194

263. Representations and non-disclosure by the insured . . 195

264. Foregoing doctrine modified in life and iire insurance . 196

265. Warranties in insurance 196

266. Waiver and estoppel 197

267. Insurance as a contract of indemnity ..... 107

268. Insurer's rights under principle of indemnity . - . . 198

269. The principle of indemnity and life insurance . . . 199

270. Various forms of life insurance 200

271. Accident insurance 200

XIX

PAGE

272. Objects and form of policy 200

273. The cost of accident insurance 201

274. Notice to the insurer 201

275. Agents of insurer 202

275. (a) Standard insurance policies 202

275. (6) State insurance 203

275. (o) War risk insurance 204

CHAPTEE VIII

§ 1. Its Origin and Objects

276. Negotiable paper originated in the usage of merchants . 206

277. Why foreign bills of exchange were used .... 207

278. Inland bills of exchange 208

279. Promissory notes 208

280. Later forms of negotiable paper 209

281. Formal requisites of negotiable paper .... 210

282. Parties who must sign 210

283. An unconditional order or promise 211

284. Time of payment 211

285. Payable to order or bearer 212

286. Bill of exchange must designate a drawee . . . .212

§ 2. Liability of the Different Parties to Negotiable Paper

287. Liability of acceptor 213

288. Liability of the maker of a promissory note . . .214

289. Other engagements of acceptor and maker . . .214

290. Qualified acceptance 214

291. Certified checks 215

292. Liability of the drawer 215

293. Liability of indorser 216

294. Various kinds of indorsement 216

295. Accommodation parties 217

296. Delivery necessary to the validity of negotiable paper . 218

§ 3. Proceedings on Dishonor

297. How negotiable paper is dishonored 218

298. What is due presentment? 218

299. Time of presentment 219

XX

300. Reasonable hour ...

301. Delay in making presentment .

302. Presentment may be dispensed with

303. Protest of negotiable paper

304. Why foreign bills must be protested

305. Different significations of protest

306. Manner of protesting paper

307. Notice of dishonor

308. Why notice of dishonor is required Time of giving notice

PAGE

310. Where notice by mail should be sent

§ 4. The Eights of a Holdeb

311. How acquired 225

312. A holder in due course, or bona fide ..... 226

313. Transfer after due . 226

314. Paper payable on demand ....... 227

315. For value 228

316. An old debt as value 228

317. Taking without notice 229

318. Holder in due course takes title free from personal de-

fenses 229

319. Real or absolute defenses 230

320. Fraud in securing the signature 231

CHAPTER IX

PARTNERSHIP— JOINT-STOCK COMPANIES— CORPORA- TIONS

PART I.— COMMON LAW PARTNERSHIPS § 1. The Nature of Partnerships

321. What is a partnership? 232

322. The agreement of parties is essential .... 232

323. Specific intent to form a partnership is not necessary . 233

324. Carrying on business together. (a) It must be lawful 234

325. (6) Meaning of business 235

326. (o) A common business ....... 235

327. (d) Sharing the profits of a business .... 236

328. Business must be carried on for profit .... 236

CONTENTS xxi

PAGE

§ 2. Partnership Property

329. It starts with the firm's capital 237

330. The firm as a person 237

331. Partnership real 'estate 238

332. Firm property after the death of a partner . . . 238

333. Firm creditors and separate creditors .... 239

334. A partner's share or interest in firm property . . . 239

§ 3. The Powers of Partners

335. A majority rules 240

336. The agency of a partner 241

337. Implied authority of a partner 241

338. Liability for the misconduct of a partner .... 242

339. Good faith, toward copartners . . . , , . 242

§ 4. The Dissolution of Partnership

340. By operation of law 243

341. By act of the parties 244

342. By judicial action 244

343. Upon dissolution, firm property is to be distributed among

the partners 244

344. Order of distribution 245

345. The proportion in which profits and losses are sharable 245

§ 5. Uniform Partnership Act

345. (a) Modified existing law 246

345. (6) Partnership real estate ...... 246

345. (c) A partner's share in firm property .... 247

345. {d) Partner's agency . 247

345. (e) Partner's liability 248

345. (/) Partnership affairs after dissolution .... 248

345. (ff) Order of distribution 248

PART II § 1. Limited Partnership

346. Borrowed from French law 249

347. Its characteristics ........ 249

348. How limited partnerships are formed .... 249

PART III § 1. Joint-Stock Companies

349. Are partnerships with peculiar features .... 250

350. Mining partnerships 251

351. Statutory joint-stock companies 251