Commercial Law Part 2

Contracts--Consideration and Enforceability

CONSIDERATION MAY BE ANOTHER PROMISE OR AN ACT.--The second great requisite in the formation of simple contracts is consideration. A price must be paid for a promise in order to make it binding. The price paid may be another promise, in which case the contract is bilateral, or the price paid may be some act actually done or performed, in which case the contract is unilateral.

ADEQUACY OF CONSIDERATION IMMATERIAL.--Not any act, or the promise of any act, is sufficient consideration, as will be seen. Nevertheless, in general the law does not attempt to gauge the adequacy of the consideration; that is, parties may make such bargains as they wish as far as the price is concerned. A may say that he will sell his horse, which is worth $300, for $100, or for a promise to pay $100. That will be a perfectly good contract, if accepted, in spite of the fact that the promised horse is worth more than the promised price. Such difference in the value of the promise and the value of the price may go to a great extreme. The horse may be a thousand-dollar animal, and the price promised only $100, but when you wish to push the case to an extreme you are likely to get into this difficulty: Did the parties really mean to make a bargain? If what they were doing was arranging for a gift of the horse and putting up some little alleged consideration as a blind, that will not do; but any exchange the parties really in good faith bargain for, with certain exceptions hereafter stated, is sufficient.

A SMALLER SUM OF MONEY IS NOT SUFFICIENT CONSIDERATION FOR THE PROMISE SIMULTANEOUSLY TO PAY OR DISCHARGE A LARGER LIQUIDATED SUM.--This is the princ.i.p.al exception, that in contracts or promises relating to a fixed sum of money, the consideration cannot be the simultaneous payment or discharge of a smaller sum of money on the other side. If A promises B $100, it will not be good consideration for B to promise in exchange $50, or even $99.99, payable at the same time and place. In other words, the law does require adequacy in exchanges or agreements to exchange money. A owes B $100 and says to him, "I can't pay it all," or "I don't want to pay it all. Will you let me off for $50?" B replies, "Yes, I will take $50." That agreement is not binding, and even if the $50 is actually paid, B may afterwards come and say, "You paid me only part of the debt you owed me. It is true I said I would call the whole thing square, but there was no consideration sufficient in law for my promise, since you paid me only part of what you were bound to." This rule of common law, though generally well established, does not exist or is much qualified in a few States, such as: Georgia, Maine, Mississippi, New Hamps.h.i.+re, North Carolina, Virginia.

UNLIQUIDATED CLAIMS MAY BE DISCHARGED BY ANY AGREED SUM.--The case cited in the preceding paragraph must be distinguished from another. Suppose A owes B some money for services, the price of which was never exactly fixed, but which B says are of the value of $100. Then if B agrees to take $50 in satisfaction of his claim against A, B is bound; the transaction is effectual. The difference is between what is called a liquidated and an unliquidated claim.

DEFINITION OF LIQUIDATED CLAIM.--A liquidated claim is one of an exact amount definitely fixed. Such a claim, as has been said, cannot be satisfied by partial payment or promise of partial payment. But an unliquidated or a disputed claim--a claim subject to a real bona fide dispute, not merely a dispute trumped up for the purpose of disputing a good claim--may be discharged by any payment on which the parties agree.

The law does not know how much the unliquidated claim is worth, and will allow parties to bargain for the sale of the unliquidated claim, just as it will let them bargain for the sale of a horse for which they may fix such a price as they choose, and that price will not be revised.

EFFECT OF RELEASES AND RECEIPTS.--If, however, the original claim were liquidated and undisputed, is there any sort of paper the debtor could get from the creditor that would release him absolutely? A receipt in full would not do it; a receipt in full is something to which business men attach more virtue than it possesses. It is merely evidence of an agreement to accept what has been received in full payment and proof may be given as to just what consideration pa.s.sed for the receipt in full.

As we have seen, such an agreement is not valid without consideration, and payment of part of a debt admittedly due is not sufficient consideration. The really effective instrument at common law is the release under seal. That will do the work whether the debtor paid part of the debt or not, since a sealed instrument needs no consideration. In jurisdictions where seals have been deprived of their efficacy at common law an insuperable difficulty, however, exists. In a few States--Alabama, Arkansas, Connecticut, Michigan, Mississippi, New Hamps.h.i.+re, New York, North Dakota, South Dakota, Tennessee--a receipt in full has been given the effect which the common law gave to a sealed instrument.

OTHER ILl.u.s.tRATIONS.--Suppose the agreement to settle a liquidated claim were oral and suppose a witness heard the words. Such circ.u.mstances would not make any difference. It is a.s.sumed in all that has been said that the facts are proved. Suppose that neither party denied the facts.

Let the creditor admit that he did receive this $50 as a full payment and did give the debtor a receipt in full. Still, he can say, "I propose to break my agreement since it was not supported by sufficient consideration, and I shall collect the balance." Another question is this: Suppose a man had a $100 bill and he wanted some change very badly, and another man had $99. Could the former take that for the $100 bill? He could. If a man wants a particular kind of money, as gold, or silver, or quarters, the principles stated do not apply; they apply only to dollars and cents as such.

PAST CONSIDERATION.--Strictly speaking, the term past consideration is a misnomer; something which is given before a promise is made cannot const.i.tute a legal consideration. The courts have held that a warranty made after a sale has been completed is invalid. It has also been held that a guaranty after the obligation guaranteed has been entered into also is invalid unless there be new consideration. Although this is the general rule, there are several exceptions where a past consideration is recognized. Williston gives these exceptions as follows, although the boundaries between the groups are sometimes indefinite: "(1) Promises to pay a precedent debt; (2) Promises in consideration of some act previously done by the promisee at the request of the promisor; (3) Promises where past circ.u.mstances create a moral obligation on the part of the promisor to perform his promise. Under this head may be included cases of ratification and adoption of promises previously made for sufficient consideration but invalid when made for lack of authority or capacity."

PAYMENT OF PART OF A DEBT BY ONE WHO IS NOT THE DEBTOR.--Suppose a little different case: A owes B $100 for a liquidated claim. A's father says to B, "If you will let my son off, discharge him from this claim, I will pay $60, not a cent more." B agrees, and the $60 is paid. Now B never can get any more; the bargain is binding, and the reason is, that although A was bound to pay the whole $100, and could not, by paying B a part of the claim, give good consideration to B for his promise to cancel the balance. A's father was not bound to pay a cent and he may bargain for any exchange in return for a payment which he was not bound to make at all. Therefore, he may bargain that the debt shall be discharged.

PERFORMANCE OR PROMISE OF PERFORMANCE OF A LEGAL DUTY IS NOT SUFFICIENT CONSIDERATION.--In other words, the thing which will not be good consideration, whether done or promised, is the performance or partial performance of something which the man who performs or promises is under a legal duty to do anyway. If he ought to do it anyway, then it will not serve as a price for a new promise or agreement to discharge it. Another ill.u.s.tration of that may be given: Suppose a contractor agrees to build a house for $10,000; he gets sick of his job when he is about half through, says that it is not possible for him to make any money at that price and he is going to quit. "Well," the employer says, "if you will keep on I will give you a couple of thousand dollars more." Accordingly the builder keeps on. That won't do. The builder in keeping on building is doing no more than he was previously bound to do. If he wants to have a binding agreement for the extra $2,000 with his employer, he must secure a promise under seal, for his own promise of performance will not support the promise to pay.

FORBEARANCE AS CONSIDERATION.--Another kind of consideration that is worth calling attention to is forbearance. A has a valid claim against B. He says he is going to sue. B says if he won't sue, or won't sue for the present, B will pay him an agreed sum. That is a good contract so long as it is not open to the objection referred to a moment ago; that is, so long as A's claim is not for a liquidated sum of money and B's promise is not merely a promise to pay part of that liquidated sum. A may promise what B requests, either to forbear temporarily or to forbear perpetually. Either will be good. But suppose A has no valid claim against B, but B is reputed to be rather an easy mark in the community and A is a person of little scruple; he accordingly trumps up a claim against B with the hope of getting a compromise. Is forbearance of that claim by A good consideration for B's promise? It is not. A's claim must be a bona fide one in order to make surrender of it or the forbearance to press it, either temporarily or permanently, a good consideration for a promise of payment.

STATUTE OF LIMITATIONS.--Another case of a promise relating to a subject of very frequent importance in commercial law, and law generally, is a promise to pay a debt barred by the statute of limitations, and this occasion requires a preliminary word in regard to that statute. This statute prohibits the bringing of an action or a claim after the expiration of a certain period. It is a different period for different sorts of claims. Action on a judgment in most States may be begun within twenty years after such judgment is rendered; so in some States may an action on a contract under seal. On the other hand, ordinary contractual claims generally expire in six years. Claims in tort, that is, for injury to person or property, last even a shorter time, but the ordinary contractual statute of limitations is six years. The statute begins to run against a promissory note, or other contract, not from the time when it is made, but from the time when it is by its terms to be performed. A note made now, payable the first of January next, will not be barred until six years from the first of January, not six years from now; and if it was made payable in ten years, as a mortgage note might well be, the statute would not bar it for sixteen years.

PROMISE TO PAY BARRED DEBT.--It has been held, though the reasons are not very easy to explain, that a new promise will revive a debt so far as the statute of limitations is concerned. There need be no consideration for such a promise other than the existence of the old indebtedness; that is said to be a sufficient consideration, although, of course, it can hardly be said to be given as a price for the new promise. Take a promissory note payable January 1, 1905. If nothing happens, that is barred on January 1, 1911, but if in 1911 or 1912 the maker says, in effect, "I know I owe that old note. I have not paid is, but I will pay it," he will be liable on that new promise, and the statute will begin to run again and run for six years from the making of that new promise. It is not enough that the debtor should admit that there was a liability; he must promise to pay it in order to make himself liable. Suppose, instead of a new promise made after the statute had run in 1911 or 1912, the maker had said before the maturity of the note, we will say in the course of 1910, "Don't worry about that note, I shall pay it," that also will start the statute running afresh. In other words, the new promise may be made before the maturity of the note, or before the statute has completely run as well as after the statute has completely run. In either case the new promise will start a fresh liability and keep the note alive for six years from the time the new promise was made. Of course, if the new promise is made the day after maturity of the old obligation, the total effect will be simply to extend the time of the statute one day, because only one day of the six years had run at the time the new promise was made, and counting six years from the date of the new promise gives only one day more.

PART PAYMENT OF BARRED DEBTS.--Not only will a new promise in express terms keep the statute of limitations from barring a claim, but any part payment will have the same effect, unless at the time the part payment is made some qualification is expressly stated. A debtor may say, "I will pay you this part of my debt, but this is all," and incur no further liability; but a part payment without such a qualification starts the statute running afresh as to the balance of the debt. It is by these part payments that notes are frequently kept alive for a long series of years. Interest payments are as effectual for the purpose as payments on account of part of the princ.i.p.al. A new six years begins to run from each payment of interest. The debtor may, however, say, "I will pay you half this debt," or "I will pay you the debt in installments of $10 a month." Such promises are binding according to their terms, and do away with the statute of limitations to that extent, but they do not enable the creditor to recover anything more than the debtor promises. A question may be asked here which is frequently of importance regarding an outlawed note with a payment of interest thereon by the maker. Would an endorser who had waived demand and notice be liable for six years more? Yes, if the payment was made before the statute had completely run in favor of the endorser. Otherwise, no. And if the endorser had not waived demand and notice, the statute could in no case be prolonged against him by any act of the maker.

REVIVAL OF DEBTS DISCHARGED BY BANKRUPTCY OR VOIDABLE FOR INFANCY.--A somewhat similar sort of revival of an old obligation may occur where a debt is discharged in bankruptcy. If a discharged bankrupt promises to pay his indebtedness or makes a payment on account of it, it will revive his old obligation and he will be liable again. And, similarly, though one whom the law calls an infant (that is, a minor under the age of twenty-one) who incurs indebtedness prior to his majority, can avoid liability (unless the indebtedness was incurred for what are called necessaries, that is, food, clothing, shelter and things of that sort); yet if he promises after he has become of age that he will pay these debts, from which he might escape, thereafter he is liable.

CONTRACTS WHICH MUST BE IN WRITING.--There is, in some contracts, one other requisite, besides those already mentioned, necessary to make them enforceable, and that is a writing. It has already been said that writing is not, as such, essential to the validity of contracts, but there are exceptional kinds of contracts which the law has required to be in writing for many years. This is by virtue of what is known as the "Statute of Frauds." This was pa.s.sed in England in the year 1676, and is known as "Chapter 3, of the Statute of 29, Charles II." This statute was pa.s.sed for the purpose of preventing frauds and perjuries which were particularly prevalent at the time it was enacted. It is doubtful as to how much good the statute has accomplished. There is no question that in many cases it has caused fraud and perjury rather than prevented it. The statute, however, as pa.s.sed in England, has been reenacted in practically every State in this country with slight modifications, and it is, therefore, a part of contract law to which attention must be given. Originally, the statute read as follows: "No action shall be brought (1) whereby to charge any executor or administrator upon any special promise to answer damages out of his own estate; (2) or whereby to charge the defendant upon any special promise to answer for the debt, default, or miscarriage of another person; (3) or to charge any person upon any agreement made in consideration of marriage; (4) or upon any contract or sale of lands, tenements, or hereditaments, or any interest in or concerning them; (5) or upon any agreement that is not to be performed within the s.p.a.ce of one year from the making thereof; unless the agreement upon which such action shall be brought, or some memorandum or note thereof shall be in writing, and signed by the party to be charged therewith or some person thereunto by him lawfully authorized." A word of comment is necessary to explain the general import of these various sections.

Section 1: An executor or administrator is appointed to settle a deceased person's estate. He is not obliged to personally pay the debts of the deceased person out of his own pocket, if the estate is not sufficient. His liability is limited by the a.s.sets of the deceased, but if, in order to save the credit of the deceased or for any other reason, he chooses to promise "to answer damages out of his own estate" that promise must be in writing. This is the situation referred to by this section.

Section 2: This is a very important cla.s.s and leads us to call attention to the distinction between a guaranty and a contract somewhat similar.

Suppose A writes to Jordan, Marsh Company: "Please sell B six good s.h.i.+rts and charge the same to my account." That is not a guaranty. A is in that case a purchaser just as much as if he ordered the s.h.i.+rts sent to himself. Nor is it any more a guaranty if it was further agreed between A and B that B should pay A for the s.h.i.+rts. On the other hand, if A should write to Jordan, Marsh Company, "Let B have six s.h.i.+rts and if he doesn't pay, I will," then you would have a guaranty. It is of the essence of a guaranty that there should be a princ.i.p.al debtor and that the guarantor's liability should be only secondary. A guaranty must be in writing. To put the matter in another way, when there are three parties to a transaction like the above, the writing is necessary. Where there are two parties, no writing is necessary. Where A says to Jordan, Marsh Company, "Let B have six s.h.i.+rts, and if he doesn't pay, I will,"

we have three parties: A, the guarantor; B, the princ.i.p.al debtor, and Jordan, Marsh Company, the creditor. This must be in writing. Where A says to Jordan, Marsh Company orally, "Give B six s.h.i.+rts and charge to my account," we have simply two parties, A, the princ.i.p.al debtor, and Jordan, Marsh Company, the creditor. Hence no writing is necessary. In connection with this section, it must be kept in mind that some oral contracts which would be good under this section may not be enforceable under another section which we shall refer to later, because the amount involved is over a specified sum.

Section 3: The agreement referred to by this section is not the contract or promise to marry, but is for a marriage settlement such as a promise to make a payment of money or a settlement of property in consideration of a marriage actually taking place.

Section 4: Any contract for the sale of land, or any interest in or concerning land, requires a writing in order to make it binding. The commonest kind of contracts in regard to land are leases or contracts for leases. An oral lease creates what is called a "tenancy at will,"

that is, the agreement, in so far as it specifies a fixed term, is wholly invalid, but while the tenant occupies he must pay at the agreed rate; but he has no right to stay in; he may be turned out, even though he pays his rent promptly, on notice equal to the time between rent days; and, similarly, he has a right to go out on giving the same short notice.

Section 5: An agreement not to be performed within a year must be in writing, and this provision of the statute has been the subject of rather an odd construction by the courts. The words "not to be performed within a year" have been construed to mean "which cannot possibly be performed within a year." Suppose A hires B for a year from to-morrow and contrast with that case a promise to hire B for B's life, or for the promisor's life. Now the first of those bargains is within the statute and must be in writing, but the second, although it seems for a much longer period, being for the whole life of the promisor or promisee, is not within the statute. The man on whose death the promise depends may die within a year, so there is a possibility of performance within a year. A promise to employ B for all his life, since that may possibly be done within a year, need not be put in writing. But a promise to hire a man for a year from to-morrow cannot be performed in a year. True, he may die within a year, and then the contract cannot be enforced, but there will be no performance. What was agreed, by the parties, was service for a year from to-morrow and that cannot possibly be done earlier than a year from to-morrow.

SALE OF GOODS.--A contract for the sale of goods exceeding in value a certain amount must also be in writing unless part or all of the goods have been delivered or part or all of the price paid. The value of the goods which brings a sale within this section of the Statute of Frauds varies in different States, and local statutes, therefore, should be consulted to ascertain the law in this connection.

Besides the kinds of contracts enumerated in the English statute and which have generally been adopted in this country there are two or three other cla.s.ses of contracts which in a number of States are required by statute to be in writing. Of this sort is a contract to make a will.

That is not a very common sort of contract, but sometimes a man promises in consideration of certain services to make a will in another's favor.

The possibility of fraud in such cases is considerable. The testator is always dead before the question comes up, and then if the alleged promisee were allowed to prove by oral statements a contract to bequeath the testator's property on terms which the promisee says were agreed upon between them, it would afford a chance to produce the same effect as if oral wills were allowed. So a contract of a real estate agent for commissions is in some States required to be in writing. A contract with an agent empowering him to sell real estate, though not regarded at common law as within the prohibition of the section of the statute for the sale of an interest in land to be in writing, is by special enactment in many States required to be in writing. A contract for a loan of money reserving a rate of interest higher than that ordinarily allowed by law is sometimes required to be in writing.

WHAT CONSt.i.tUTES WRITING.--The writing being a matter of proof, it is not essential that it be made at the time the contract is entered into.

If made at any time before an action upon the contract is begun, that is a sufficient compliance with the statute. The writing, in order to be sufficient, must show who the parties to the agreement are, if not by naming them, by such a description as points to a specific person. Thus a letter addressed simply "Sir," and signed by the party charged, but not containing the name of the person addressed, is not sufficient. It is also required that all the terms of the contract appear in the writing, such as the subject matter, price, terms of credit or any express warranty, but, as often happens, they need not all be expressed in one writing. Contracts are frequently made as the result of an extended correspondence, and in such a case the various letters can be put together and construed as one writing if they obviously refer to one another, and thus all the terms appear in writing. The statutes in some States require "subscription" of the signature, and in that case the signing must be at the end; but where there is not such requirement a signing in the body of the instrument is sufficient.

ALTERATION OF WRITTEN CONTRACT BY SPOKEN WORDS.--Failure to understand and observe the rule restricting parol evidence to vary written contracts leads to a great deal of trouble. The parol evidence rule is this: Where parties have executed a written contract purporting to state the terms of their agreement, the court will not receive evidence that they orally agreed to something less or more or different, at or before the time when the written agreement was executed. That written agreement is taken as conclusive evidence of the contract made at that time. In trying to ascertain what the writing means, however, the court will permit the surrounding circ.u.mstances to be shown, and the meaning of technical or trade terms or abbreviations may be proved. It may be shown also that the parties did not intend the written agreement to be effective until some particular event happened; but if the writing was executed as an expression of the intention of the parties at that time, the only endeavor of the court will be to ascertain the meaning of the written words and to enforce them as written. The question of oral agreements made subsequent to the writing is not so simple. We must here distinguish between (1) contracts of which the law requires written evidence because they are within the Statute of Frauds, and (2) contracts which the law does not require to be in writing, but which, nevertheless, are written. Contracts of the latter sort may be rescinded, added to or subtracted from by any subsequent agreement which conforms to the requirements of the law governing mutual consent and consideration, though of course it is very desirable, to avoid dispute, that any variation or rescission of a written contract should itself be in writing. If, however, the Statute of Frauds required the original contract to be in writing, though it may orally be rescinded, it cannot be varied by oral agreement. To permit such an oral agreement would in effect violate the Statute of Frauds by permitting an agreement partly in writing but partly oral to be enforced. Thus, if a written contract for the sale of goods (exceeding in value the amount permitted to be contracted for orally) was made, and the parties afterwards orally agreed to change the price, the time of delivery, or any other terms of the contract, the subsequent oral agreement would be invalid.

THE LIMITS OF CONTRACTUAL RELATIONS.--As a general rule a contract does not impose liabilities or confer rights on a person who is not a party to it. It follows from the very nature of a contract that a person who is not a party to it cannot be included in the rights or liabilities which it creates, so that he will be ent.i.tled to sue or render himself liable to be sued upon it. A contract is the result of a voluntary agreement entered into by the parties. Therefore, any contractual rights or liabilities existing by virtue of such voluntary agreement between Smith and Jones are no concern of White and Black. They cannot be bound by any of the provisions of the contract between Smith and Jones, nor can a breach of that contract give them any rights. There are apparent exceptions to the rule we have just mentioned. One is in the case of agency. Here one person represents another in entering into a contract.

A contract, however, made by an agent can bind a princ.i.p.al only by force of a previous authority or a subsequent ratification, so that really the contract which binds the princ.i.p.al is his own contract. The other exception is where the rights and liabilities created by a contract may pa.s.s to a person other than the original party to it, either by act of the parties themselves or by operation of law. Such would be the case where Smith and Jones have performed the terms of their contract except that Smith has not paid the agreed amount to Jones. Jones a.s.signs his right to collect this amount to White. Such an a.s.signment is permissible, as we will learn when we consider that subject later on.

Such is an a.s.signment by act of the parties themselves. Even this exception is limited, as the obligations incurred in purely personal service contracts are not subject to a.s.signment. Thus, if I employ artist Greene to paint my portrait, he could not a.s.sign this contract and compel me to accept a portrait painted by artist Brown.

THE RULE OF LAWRENCE v. FOX.--We shall now take up a very generally recognized exception to the principle we have just discussed. The question in its simplest form is this: If Smith and Jones make a contract for the benefit of Greene, may Greene sue on that contract?

From what we have said in the preceding paragraph a negative answer might seem to be correct. However, to-day, stated in general terms, and leaving out of the question the limitations recognized in various jurisdictions, the very general rule is that a third party (Greene in our ill.u.s.tration) may enforce a promise made for his benefit, even though he is a stranger both to the contract and to the consideration.

In other words, it is held not to be necessary that any consideration move from the third party. It is enough if there is a sufficient consideration between the parties who make the agreement for the benefit of the third party. So in the leading case of Lawrence v. Fox, 20 New York 268, where a debtor of the plaintiff had loaned money to the defendant and the defendant had promised him to pay the plaintiff, although the plaintiff was not a party to the contract, it was held that where a promise is "made to one for the benefit of another, he for whose benefit it is made may bring an action for its breach."

QUALIFICATION OF RULE.--We must call attention to one qualification quite generally recognized. Under this rule, that a beneficiary may enforce a contract, it is necessary that the contract must have been intended for the benefit of a third person. It is not sufficient that the performance may just happen to benefit a third person; it must have been intended for the benefit of a more or less definite person. Thus, where a county board had entered into a contract with a construction company which was building a bridge for it and maintaining a temporary foot bridge during the operation, by the terms of which contract the construction company a.s.sumed responsibility for all injuries suffered by pedestrians using the temporary foot bridge, it was held that a person who was injured because of the failure to light the foot bridge properly, was not such a third person as might sue under the rule of Lawrence v. Fox, on the contract made between the county board and the construction company.

APPLICATION OF RULE.--The rule in Lawrence v. Fox has been applied to contracts under seal in many jurisdictions, although there are some decisions to the contrary. A common application of this doctrine is found in the sale of real property with a mortgage upon it. The new purchaser as a part of the purchase price makes an agreement whereby he a.s.sumes the payment of the mortgagee. The question of whether the mortgagee, who is really the third party for whose benefit the contract is made, may sue the new owner, is generally answered in the affirmative.

CAPACITY OF PARTIES.--All persons are ordinarily presumed to be capable of contracting, but the law imposes upon some--in varying amounts and for their own protection--disabilities to make contracts which may be enforced against them; and, upon some, for considerations of public policy, disabilities to make enforceable contracts. These persons are (1) Infants; (2) Insane persons; (3) Drunkards; (4) Married women--to a limited extent; (5) Aliens; (6) Artificial persons or corporations.

WHO ARE INFANTS.--All persons under the age of twenty-one are considered infants, except that in some States, by statute, women attain their majority at eighteen. The law endeavors to protect those who have no experience and judgment against the loss of their property because of their inability to deal safely with others who might take an advantage of that fact. It may well be that one who has nearly attained his majority is as able in fact to protect his interests as one of full age, but the essence of the law is that it is a rule of universal application, and the law cannot measure the ability in each particular case. To do the greatest good for the greatest number, therefore, it conclusively presumes that those under twenty-one have not yet gained the ability to cope with others in the preservation of their property.

CONTRACTS OF AN INFANT.--An infant's contracts are voidable; that is, though they bind the other party to the bargain the infant himself may avoid them. If he avoids them the adult with whom he contracted is ent.i.tled to recover whatever he may have given the infant which still remains in the latter's possession; but if the infant has spent or used, or for any reason no longer has the consideration which the adult gave him, the infant may avoid his own obligation if he has not already performed it, and if he has already performed it he may reclaim what he has given. After he comes of age, but not before, the infant may ratify his contracts and they then become binding upon him. The retention after coming of age of property received by the infant during his minority amounts to a ratification. There are a few obligations of an infant which on grounds of public policy are binding upon him. This is true of a contract to perform military service. The marriage of an infant is binding though his engagement is not. It is frequently said that his contract for necessaries is binding; strictly this is not true. The infant is liable for necessaries, but his obligation does not depend upon his contract; it is an obligation imposed by law--what has been called a quasi-contract. The importance of this distinction is shown if the price agreed upon exceeded the real value of the necessaries. If the contract were binding, the infant would be bound to pay the agreed price, but in fact he is liable only for the fair value. What is necessary for an infant depends upon his station in life, upon whether he already has a sufficient supply of the necessary article in question, and upon whether he is receiving proper support from a parent or guardian. The privilege of an infant is generally held to exist even though the party dealing with him not only reasonably believed the infant of age, but had received actual representations from the infant to that effect.

INSANE PERSONS AND DRUNKARDS--The law affords protection to insane persons and, to a less extent, to drunkards, for the same reason as in the case of infants, namely, that those who are incapable of understanding what they are doing and of comprehending the effect of their contracts upon their property should be safeguarded against the designs of the more capable. This protection is given them by declaring some of their contracts void, and allowing them, or those legally representing them, to avoid all others with the exception of a few.

Also, as in the case of infants, this privilege as to such contracts is for the insane person's protection only, and the other party to the contract may not avoid it by pleading that it was made with an incompetent person.

WHOM DOES THE LAW CONSIDER INSANE?--Modern science has clearly established that a person may be insane on one subject, and yet possess a clear understanding and be perfectly sound on another. If the contract deals with a subject of which the person has a clear understanding, he is not in need of protection and is given none. Those only are given the protection who do not possess the mind to understand in a reasonable manner the nature and effect of the act in which they engage.

BINDING OBLIGATIONS FOR NECESSARIES.--The insane must live as well as the sane; consequently they are bound to pay for necessaries furnished them but only the reasonable value, as has been explained in the case of infants. The rules for determining what these necessaries may be are the same as in the case of infants.

OTHER CONTRACTS.--It is often a difficult matter to know when a person is insane, much more difficult than it is to determine a person's age.

One of the contracting parties may have acted in perfect good faith, being ignorant of the other's unsoundness of mind and having no judicial determination of insanity or other warning to put him on his guard. The contract even may be reasonable in its terms, and it may have been so acted upon that the parties to it cannot be restored to their original position. In such a case, while the law should protect the incompetent, it would be clear injustice to protect him to such an extent as to make the other party suffer through no fault of his own. It has been quite generally determined in this country, therefore, that where a person does not know of the other's insanity and there has been no judicial determination of such insanity to notify the world of it, and the contract is a fair one, and has been so acted upon that the parties cannot be restored to their original position, it is binding upon the lunatic as well as upon the other party.

VOID CONTRACTS.--In some States it is held, however, that all contracts of an insane person are void. In such States the rule above stated would not hold. The law of each State must be consulted to determine the law in the particular State. In some States, notably New York and Ma.s.sachusetts, an insane person's deed of lands has been held to be void, without reference to whether or not the other party entered into the contract in good faith without notice, or that it has been so far acted upon that the parties cannot be restored to their original position. As in the case of infants, an insane person's power of attorney has been declared by high authority to be absolutely void.

VOIDABLE CONTRACTS.--In most jurisdictions an insane person's contracts are voidable by him or by his guardian, provided (1) that the other person knew of his insanity at the time of making the contract, or (2) he had been declared insane by some court, or (3) the parties can be restored to their original position.

RATIFICATION AND AVOIDANCE.--When the insane person's reason has been restored, if the contract is a voidable one, as explained in the foregoing rules, though he may by acts or words avoid the contract he made during his insanity, he may in like manner ratify it, or he may ratify it by not avoiding it within a reasonable time after recovering his reason while continuing to keep something capable of being returned, which he obtained under the contract.

WHAT CONSt.i.tUTES DRUNKENNESS.--It is not ordinary drunkenness which excuses a man from his contracts, and enables him to claim the protection given generally to incapable persons. The person must have been utterly deprived of his reason and understanding, so that he could not comprehend the nature or effect of the act in which he was engaged.

That he was so much under the influence of liquor that his judgment was not as good as in his normal state does not excuse him.

MARRIED WOMEN.--It is practically impossible to state in brief form the law upon the subject of married women's contracts. The difficulty arises from the diverse changes made in the plain and clear rules of the common law by statutes in the different States. The old law is wholly incompatible with the enlightened view now held in regard to women, their family, social and business standing, and the changes have been made to give them the rights to which they are justly ent.i.tled. But, inasmuch as the statutes have not been uniform in the different States, the law to-day is not wholly uniform. The statutes and decisions in each State must be consulted to determine the law on the subject as it is to-day. Through these changes the law has become very complicated, and business men should obtain legal advice before entering into important business dealings with married women.