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Author

Title

This book should be returned on or before the date last marked below.

PRINCIPLES

OF BUSINESS LAW

PRINCIPLES

OF BUSINESS LAW

BY

ESSEL R. DILLAVOUPROFESSOR OF BUSINESS LAWUNIVERSITY OF ILLINOIS

AND

CHARLES G. HOWARDPROFESSOR OF LAW

UNIVERSITY OF OREGON

FOURTH EDITION

NEW YORK

COPYRIGHT, 1928, 1933, 1940, 1948, BY

PRENTICE-HALL, INC.

70 FIFTH AVENUE, NEW YORK

ALL RIGHTS RESERVED. NO PART OF THIS BOOK MAY BE REPRO-

DUCED IN ANY FORM, BY MIMEOGRAPH OR ANY OTHER MEANS,WITHOUT PERMISSION IN WRITING FROM THE PUBLISHERS.

First Printing January, 1948

Second Printing . . . September, 1948Third Printing . . . November. 1948

NOTE

The forms contained in this book have been carefully selected in order tocover the situations and problems of the subject matters as completely aspossible. They will be useful to lawyers for adaptation to specific situations inconnection with which they are to be used. Laymen will find them informativeon the contingencies and problems which should be considered, but shouldconsult their own legal counsel before executing any will or entering into anycontract or business arrangement based on these forms.

PREFACE TO FOURTH EDITION

In the preparation of the fourth edition, the authors have pre-sented the material in the same general way that was followed inthe previous editions. In order to strengthen the work and to carefor new trends, some reorganization and revision of text was calledfor. Several new cases have been added to give the text a presentday flavor. Many old cases have been retained, however, becauseit is felt that they offer the best illustration of and the soundest rea-sons for the principle of law involved.

During the past few years, major developments have taken placein numerous fields of the law. Nowhere is this more noticeable thanin the field of labor relations. As a consequence, the book dealingwith "Trade Regulations" has been reorganized and a new chapteradded which is concerned exclusively with Labor Law. Because theTaft-Hartley amendment has not been construed by the Courts, itsprovisions have been inserted somewhat in outline form without tooparticular an attempt to interpret or explain them.We again sincerely express our appreciation of the suggestions

made by those who have made use of the previous edition. Al-though in a work of this character it is impossible to incorporate allchanges suggested, they hate been exceedingly valuable to the au-thors in the production of this new edition. Many changes are thedirect result of comments made by previous users.

E. R. D.

C. G. H.

PREFACE TO SECOND REVISED EDITION

In preparing this second revised edition, the authors have keptin mind their dual purpose in writing the text: namely, to offer aneffective method of approach through a combination of text andcase material, and in the main to use the legal grouping of subjectsas a basis for presenting the relation of law to business. Conse-

quently, such alterations as have been made deal primarily withthe subject matter included, rather than with the method of ap-proach.

During the past seven years, increased use of certain new businessdevices has made necessary the inclusion of new fields of law; in-creased activity in certain fields of business has made vital otherfields of interest; and legislative enactments have in several in-stances changed materially laws in effect at the time the earlier edi-tion was written. To meet these situations, new material has beenincluded on trust receipts and banks and banking, while the sectionof the text relating to bankruptcy has been entirely rewritten. In

addition, at the request of many of our users, we have added a bookon trade regulations which deals with regulation of business andbusiness torts. Some slight reorganization of material has beenmade elsewhere, and various minor changes have been institutedto make the text more accurate, interesting, and usable.

It is our desire to express again grateful recognition of the manyhelpful criticisms and suggestions offered by those using the book.Without them, this work would fall short of attaining its coveted

goal, namely, to aid the student of business to plan wisely his future

business conduct. We are greatly indebted to those who have aidedand assisted us in many ways.

E. R. D.

C. G. H.

VII

PREFACE TO SECOND EDITION

In general, the authors have followed in the second edition thesame plan which dominated the first edition. Likewise, the sameobjectives have been kept in mind : namely, to acquaint the studentof business with the legal principles that govern the conduct of busi-ness and to train him in their application.Although no radical changes have been made in the new edition,

certain minor departures from the former organization are appar-ent. First, the subjects that deal with security relations, with theexception of real estate mortgages, are grouped together under anew division called

"Security Relations."

Second, the subjects ofnegotiable instruments and business organizations have been mate-rially reorganized in order to present the material in what is felt tobe a more logical sequence. Third, in numerous places throughoutthe text new material of importance will be found.Concerning the case material, it will be noted that many recent

and better illustrative cases have been added. In some instancesold cases have been deleted to make room for them, but quite gen-erally the new cases are illustrative of points not previously cov-ered. Many of the original cases have been reedited to includemore of the factual situations and more complete excerpts from theopinions.The authors appreciate greatly the constructive criticisms given

to them by users of the earlier edition. To them and to those whohave aided in the preparation of the present manuscript, we are

greatly indebted.E. R. D.

C. G. H.

IX

PREFACE TO FIRST EDITION

In writing this book, the authors have had two distinct objectivesin view. The first is the preparation of a text supplemented withcase material in such form that both the student and the teachermay have before them a brief statement of the fundamental prin-ciples, correlated with a selection of cases that will demonstrate howthese principles apply to concrete cases. It has been the experienceof the authors in teaching business law by the case system in uni-versities and colleges that the time allotted is too short to cover asmany subjects as should be touched upon by the business law stu-dent. In addition, they have also found that most textbooks onbusiness law do not contain enough material adequately to presentthe subject matter for a complete and full course in business law.Their second objective, therefore, is to combine the text method andthe case method so that the usual business law subjects taught incolleges and universities may be covered in the time allotted forsuch subjects.Any course planned to prepare a student for the profession of

business should be so designed as to accomplish two objectives: (1)It should acquaint the student with the general principles whichare followed in business; and (2) it should train him in the applica-tion of those principles to typical business situations. Therefore,it is the opinion of the authors that a text on business law should

set forth the fundamental legal principles which relate to the usualbusiness transactions, and, by the use of case material, should aidthe student in his application of the general principles to definite

situations.

No material rearrangement of the subject matter has been madein this book, primarily because the authors feel that any extensive

regrouping that might be made would be a change in terminologyrather than in content. The authors appreciate the attempts madeto reorient business law along the lines of the so-called functional

approach. They feel, however, that linking the cases with the textmatter through footnotes gives an opportunity to both teacher and

student to see how the fundamental principles operate in practicalsituations.

The authors have chosen cases which illustrate the applicationof legal principles to typical business situations, and which also con-

tain certain of the courts' legal reasoning in support of the prin-

ciples applied. In abstracting the eases, they have restated the

xi

xii PREFACE TO FIRST EDITION

facts, and, where possible, have eliminated all procedural material,so that the student will not be burdened with the reading of theadjective law and thus will have an opportunity to devote his fulltime to a study of how the courts apply principles to facts.

In conclusion, proper recognition should be given to Dr. L. P.

Simpson and Mr. J. L. le Master, both of the business law staff ofthe University of Illinois, for their valuable suggestions concern-

ing the subject matter and for their aid in the selection of cases.The authors also wish to acknowledge their indebtedness to Profes-sor George W. Goble and Professor William E. Britton, of the LawSchool of the University of Illinois, for their valuable suggestionsand assistance in the preparation of the manuscript.

E. R, D.

C. G. H.

CONTENTSK< >OK PAGE

INTRODUCTION 1I. CONTRACTS 21, 471

II. AGENCY 105, 547III. NEGOTIABLE INSTRUMENTS 139, 579IV. BUSINESS ORGANIZATIONS 231, 659V. PERSONAL PROPERTY 313, 735VI. SECURITY FOR CREDIT TRANSACTIONS 343, 759

VII. KEAL PROPERTY 395, 811VIII. TRADE REGULATIONS 431, 829

INTRODUCTIONCHAPTER

I. THE NATURE AND CLASSIFICATION OF THE LAW 1II. THE COURTS 10

III. COURT PROCEDURE 13

CHAPTER I

THE NATURE AND CLASSIFICATION OF THE LAWSECTION

1 In general . 12. Origin and source of law 13. Written, or statutory, law 24. The common law and the civil law 25. Public and private law 36. Criminal law 37. Law of torts 48. Tortious conduct 59. Privilege and justification 6

10. Trespass to goods 611. Trespass to land 712 Law and equity 7

CHAPTER II

THE COURTSSECTION

13. Classification of courts . 10

14. The jurisdiction of courts 1115. Jurisdiction over the subject matter 1116. Jurisdiction over the person 11

CHAPTER III

COURT PROCEDURESECTION

17. Instituting suit . 13

18. The summons *3

xiii

xiv CONTENTSSECTION PAGE19. Service of the summons 1420. Return of summons 1421. Judgment by default 1522. Framing the issues ... .... . . ... 1523. The trial ... . . ... 1624. A suit in equity: Proof and hearings, Decrees, Contempt of court ... 1625. Administrative law ... . 17

BOOK ICONTRACTS

CHAPTER

I. NATURE OF A CONTRACT - 21II. OFFER AND ACCEPTANCE 24, 471

III. CONSIDERATION 34, 481IV. VOID AND VOIDABLE CONTRACTS *. 42, 491V. UNENFORCEABLE CONTRACTS . 54, 507VI. PERFORMANCE OF CONTRACTS 66, 515

VII. RIGHTS OF THIRD PARTIES /. 79, 531VIII. DISCHARGE OF CONTRACTS 87, 536

CHAPTER I

NATURE OF A CONTRACTSECTION1. Introduction . . 212. Classification . . 21

3. Formal and informal contracts .214. Executed and executory contracts . 225. Express and implied contracts . 226. Elements of a contract . . . .23

CHAPTER II

OFFER AND ACCEPTANCEFORMATION OF AN OFFER

SECTION

7. Definition .%

24

8. Communication 249. Meeting of minds 24

10. Offer must be definite . . 2511. Auctions and advertisements for bids 2512. Tickets 26

DURATION OF OFFER

13. Duration 2714. Offer lapses after reasonable time 2715. Death or insanity 2716. Revocation 2817. Revocation of public offers 2818. Option contracts 2819. Rejection 29

CONTENTS xvACCEPTANCE

SECTION j>AGH20. Definition ... 2921. Acceptance of unilateral offer . 2922. Bilateral offer ........' 3123. Silence as assent .3124. Acceptance by offeree 3125. Acceptance must follow offer 3126. Time of taking effect 3227. Effective when received 3228. Implied 33

CHAPTER III

CONSIDERATIONSECTION

29. Definition 3430. Adequacy of consideration . 3431. Payment of a lesser sum . 3532. Lesser sum and other consideration 3533. Disputed claims . ... 3634. Composition of creditors 3635. Gratuitous promises . . . 3636. Performance of contractual obligation ... 3637. Unforeseen difficulties .3738. Performance of statutory duty ... 3739. Forbearance to sue ... 3740. Mutuality of engagement or illusory promises . 3841. Past consideration .... . .3942. Moral consideration

. .... . . 3943. New promise after bankruptcy ... 3944. Statute of Limitations .

. . . ... 39

CHAPTER IV

VOID AND VOIDABLE CONTRACTSSECTION

45. Voidable contracts 42

CAPACITY OF PARTIES

46. Competent parties 4247. Infants' contracts are voidable 4248. Executed contracts 4349. Time of disaffirmance 4450. Ratification .4451. Liability for necessaries 4552. Parent's liability for infant's contract 4553. Infant's torts 4654. Contracts of insane persons 4655. Drunkard's contracts 46

FRAUD

56. Definition 4657. Untrue statement .4758. Failure to disclose as misrepresentation 4759. Physical concealment of facts 48

xvi CONTENTSSECTION PAGri

60. Material facts 4861. Reliance by injured party . 4962. Effect of fraud 4963. Unintentional misrepresentation . . 49

MISTAKE

64. Unilateral mistake 5065. Bilateral mistake . 5066. Reformation of written agreements . 51

DURESS

67. Nature of Duress ... . . 51

CHAPTER V

UNENFORCEABLE CONTRACTSSECTION

68. Nature of illegal agreements . . . 5469. Wagering contracts ... . . 5470. Insurance contracts ... ... 55

71. Usurious contracts .... 5572. Sunday contracts . .... . 5673. Limitation of liability . 5674. Contracts to influence governmental action . 5675. Effect of illegal contracts .... 57

76. Exceptions .... . 5777. Contracts illegal in part . . 57

STATUTE OP FRAUDS

78. Written contracts ... 5779. Statute of Frauds 5880. Debt of another 5981. Contracts of executors . .... 59

82. Contracts in consideration of marriage 60

83. Sale of real estate . . 60

84. Part performance ... 60

85. Contracts of long duration 61

86. Sale of personal property 61

87. Delivery of part of the goods 6288. Manufacture of special articles 6289. Nature of the writing . . 63

90. Effect of no writing ... 63

CHAPTER VI

PERFORMANCE OF CONTRACTSCONDITIONS

SECTION91. Failure to perform 6692. Conditions precedent 6693. Time as a condition 6794. An architect's certificate as a condition . . 6895. Concurrent conditions 69

96. Tender and its effect 6997. Divisible contracts .... 69

98. Anticipatory breach .... 70

CONTENTS xvijEXCUSES FOR NONPERFORMANCE

SECTION PAGE99. Waiver 70

100. Prevention 71101. Additional hardship . . 71102. Impossibility of performance . 71103. Change of law 72104. Death or illness 72105. Destruction of subject matter . . . . .... 73106. Essential element lacking ... .... 74107. Right to recover for part performance impossibility . . . 74108. Willful breach recovery for benefits . . . 74

DAMAGES109. Specific performance distinguished 75110. Measure of damages 76111. Damages must result from breach 76112. Duty x to mitigate damages 77113. Liquidated damages 77

CHAPTER VII

RIGHTS OF THIRD PARTIESASSIGNMENT

SECTION

114. Nature of assignment . . . 79115. Requisites of assignment . . ... 79116. Personal rights . . .79117. Purchases on credit . . .79118. Wages .80119. Delegation of duties . . 80120. Responsibility for performance .... . . . . 81121. Claims for money ... .... ... .... 81122. Notice . . . ... 82123. Rights of the assignee . . ... . 82

CONTRACTS FOR BENEFIT OF THIRD PARTIES

124. Nature of such contracts . ... ... .... 83125. Donee beneficiary . . 83126. Benefit must be direct . . 84127. Creditor beneficiary . 84

CHAPTER VIII

DISCHARGE OF CONTRACTSSECTION

128. Performance payment . . 87129. Accord and satisfaction ... . . . 87130. Novation . . . 88131. Cancellation and alteration . . . . . .... 88132. Statute of Limitations ... 88

BANKRUPTCY

133. Kinds of bankruptcy . . . . .89134. Who may become bankrupts . . ... 89135. Acts of bankruptcy . 90

xviii CONTENTSSECTION PAGE136. Officers of the court 91137. Recoverable preferences . 92138. Exceptions to recoverable preference rule . 92139. Provable claims . . ... . 93140. Claims which are discharged 93141. Exemptions 95142. Preferred claims . 95143. Fraudulent conveyances 96

REORGANIZATION s

144. Introduction .... . 96145. Arrangements involving unsecured creditors 96146. Creditors secured by real property .... 97147. Wage earners' plans ... 98148. Reorganization of corporations 98

BOOK IIAGENCY

CHAPTER

I. CREATION OF THE AGENCY .... ... 105, 547II. PRINCIPAL AND THIRD PARTY 113, 552

III. PRINCIPAL AND AGENT 123, 565IV. AGENT AND THIRD PARTY ... 132, 573

CHAPTER I

CREATION OF THE AGENCYCLASSIFICATION OF AGENTS

SECTION

1. Introduction 1052. Definition 1053. Agent distinguished from independent contractor 1054. Classification of agents . 106

APPOINTMENT OF AGENT

5. Proper parties 1066. Express delegation of authority 1077. Authority by estoppel . 1088. Agent's power to appoint subagents 108

RATIFICATION

9. Definition 10910. Conditions required for ratification 10911. Other conditions 11012. Conduct constituting ratification . Ill

CHAPTER II

PRINCIPAL AND THIRD PARTYLIABILITY OF PRINCIPAL

SECTION

13. Scope of agent's authority 11314. Custom and usage 11315. Secret limitations ... 114

CONTENTS xixSECTION PAGE16. Powers enlarged by emergency 11417. Notice to agent 114

PECULIAR POWERS

18. Real estate broker 11519. Right to collect 11520. Purchase on credit 11621. Written agreements how executed 116

UNDISCLOSED PRINCIPAL

22. Undisclosed principal's contracts 11723. Settlement between principal and agent 11724. What is election 118

LIABILITY FOR AGENT'S TORTS

25. Negligent acts 11826. Willful acts 11927. Notice in event of termination 119

LIABILITY OF THIRD PARTY

28. Contracts for disclosed principal 12029. Undisclosed principal 120

CHAPTER III

PRINCIPAL AND AGENTDUTIES AND LIABILITIES OF AGENT

SECTION

30. Classification . 12331. Duty to be loyal . 12332. Use of confidential information 12433. Profits from violation of duty 12434. To obey instructions 12535. Unusual circumstances . 12536. Duty not to be negligent 12637. Duty to account 12638. To give notice 127

DUTIES AND LIABILITIES OF PRINCIPAL

39. To employ 12740. Real estate broker's commission . 12741. Compensation of sales representatives 12842. Reimbursement and indemnity 128

TERMINATION OF AGENCY

43. By act of the parties 12944. Wrongful termination and its effect 12945. Termination by law . 13046. Agency coupled with an interest 130

CHAPTER IV

AGENCY AND THIRD PARTYLIABILITY OF AGENT TO THIRD PARTY

SECTION

47. Liability on contract ... 132

48. Warranty of authority ... 132

xx CONTENTSSECTION PAGE

49. Competent principal 13350. To account for money received 13451. Liability for torts 134

LIABILITY OF THIRD PARTY TO AGENT52. On contract 13553. In tort 135

BOOK IIINEGOTIABLE INSTRUMENTS

CHAPTER

I. INTRODUCTION TO THE LAW OF NEGOTIABLE INSTRUMENTS 139, 579II. TYPES OF NEGOTIABLE INSTRUMENTS 145

III. CREATION OF NEGOTIABLE INSTRUMENTS 149, 581IV. NEGOTIATION 165, 599

V. HOLDERS AND HOLDERS IN DUE COURSE 171, 603VI. RIGHTS AND LIABILITIES OF PARTIES 177, 610VII. PERFORMANCE OF CONDITIONS PRECEDENT TO CHARGE

SECONDARY PARTIES 194, 622VIII. DISCHARGE 205, 630IX. CHECKS 209, 634X. BANKS AND BANKING 212, 636

CHAPTER I

INTRODUCTION TO THE LAW OF NEGOTIABLEINSTRUMENTS

SECTION

1. Definition of the term "negotiable" 1392. History ... 139

NEGOTIABLE INSTRUMENTS DISTINGUISHED FROM OTHER CLAIMS FOR MONEY3. Claims for money ... .... 1414. Difference between negotiation and assignment .... .1415. Negotiability of instruments other than bills and notes 142

CHAPTER II

TYPES OF NEGOTIABLE INSTRUMENTSPROMISSORY NOTES

SECTION

6. Definition 1457. Classification of promissory notes 1458. Collateral note 145

9. Judgment note 14510. Conditional sale note . 14611. Mortgage notes, chattel and real 14612. Certificate of deposit 14613. Bond 14614. Nature of bills of exchange 147

15. Classification of bills of exchange ... 147

CONTENTS xxiSECTION PAGE16. Bank draft 14717. Trade acceptance 14718. Banker's acceptance 14719. Sight and time drafts .... 148

CHAPTER III

CREATION OF NEGOTIABLE INSTRUMENTSLANGUAGE AND WORDS REQUIRED TO CREATE NEGOTIABLE PAPER

SECTION

20. Requirements of a negotiable instrument .... . . 14921. Writing and signature . 14922. The necessity of a promise . .... . 14923. The necessity of an order in a bill of exchange . . . 15024. The promise or order must be unconditional . . . 15025. Statement of transactions giving rise to the instrument . . 15026. An indication of a particular fund out of which reimbursement is to be made 15127. Security contracts upon the face of notes and bonds . .... 15128. Time and other events as conditions .... . . 15229. The sum must be certain ... ... . 15230. Instruments must be payable in money .... .... 153

TIME OF PAYMENT MUST BE CERTAIN31. In general . . 153

32. Demand paper 15333. Payment at a fixed or determinable time . . 15434. Accelerating clauses . 154

PAYABLE TO ORDER OR TO BEARER

35. The words "or order" and "or bearer" 15536. Order paper .... 15637. Bearer paper 156

FACTORS NOT AFFECTING NEGOTIABILITY38. Additional language not affecting negotiability 15739. Election by the holder to require something to be done in lieu of the pay-

ment of money .... 15840. Omissions in negotiable instruments not affecting negotiability 15941. Omissions and blanks when they may be filled 15942. Antedated and postdated instruments 16043. Ambiguous language, construction of . 16044. Liability of person signing as an agent . 161

45. Liability of infants and corporations 162

CHAPTER IV

NEGOTIATIONSECTION

46. In general I65

NEGOTIATION BY INDORSEMENT

47. Blank indorsement 166

48. Special indorsement . 166

49. Qualified indorsement . 166

50. Conditional indorsement 16'

51. Restrictive indorsement ^

xxii CONTENTSSECTION PAGE52. Transfer of unindorsed order paper 16853. Indorsement of bearer paper 16954. Surrender to the drawee not negotiation 169

CHAPTER V

HOLDERS AND HOLDERS IN DUE COURSESECTION

55. Who is a holder 171REQUIREMENTS FOR THE HOLDER IN DUE COURSE

56. Must be a holder for value 17157. Must be a purchaser before maturity 17258. Must be a purchaser in good faith 17359. Payee may be a holder in due course 17460. A holder from a holder in due course 17561. Reacquirer 175

CHAPTER VI

RIGHTS AND LIABILITIES OF PARTIESSECTION

62. Classification of parties . 177

PRIMARY PARTIES

63. The maker 17764. The acceptor ... . . 17765. Acceptance on a separate sheet of paper 17866. Promise to accept 17867. Kinds of acceptance 178

SECONDARY PARTIES

68. In general 17969. Unqualified indorsers 18070. Conditional liability 18071. Unconditional liability 18172. Qualified indorsers 18173. Accommodation indorsers 18274. Order of liability of indorsers 18375. Drawers of bills of exchange, excepting drawers of checks 184

DEFENSES OP PARTIES

76. In general 184

PERSONAL DEFENSES

77. Nature 184

78. Fraud 18579. Lack, failure, or illegality of consideration 185

80. Payment before maturity 18581. Nondelivery of a completed instrument 18682. Duress 186

83. Completion not as authorized 18784. Effect of negligence on liability of a party 187

REAL DEFENSES

85. Nature 188

86. Fraud in the inception I88

CONTENTS xxiiiSECTION PAGE87. Forgery 18988. Lack of title 18989. Material alteration to extent qf alteratioa 19090. Incapacity 19091. Illegality 19092. Nondelivery of an incompleted instrument 190

CHAPTER VII

PERFORMANCE OF CONDITIONS PRECEDENT TOCHARGE SECONDARY PARTIES

SECTION

93. Introduction 194

PRESENTMENT FOR PAYMENT94. Time of presentment 19495. Time of presentment for payment of demand notes .... . 19496. Time of presentment for payment of demand bills of exchange other than

checks . . . . . . . . . 19597. Time of presentment for payment of checks drawers . ... 19598. Time of presentment for instruments bearing a fixed maturity .... 19699. Presentment, how made 196

100. Presentment, place of 197101. By whom and to whom made 197102. Excuses for failure to present 197

PRESENTMENT FOR ACCEPTANCE103. In general 197104. Time allowed drawee to accept 198105. When presentment for acceptance is required 198

NOTICE OF DISHONOR106. Dishonor and notice 198107. Requirements of notice 199108. Time when notice must be given 199109. What constitutes mailing 200110. Place where notice must be sent 200111. By whom notice must be given 200112. To whom notice must be given 201113. Effect of notice given by or on behalf of a holder 201114. Excuses for failure to give notice 201115. Protest when necessary 202116. What constitutes protest 202117. Time within which protest must be made 203

CHAPTER VIII

DISCHARGESECTION

118. In general 205

DISCHARGE OF PRIMARY PARTIES MAKER AND ACCEPTOR

119. Discharge by payment 205120. Discharge by cancellation 206121. Discharge by material alteration 206122. Discharge by renunciation 206

xxiv CONTENTSSECTION PAGE123. Discharge by act which will discharge a simple contract 206124. Discharge by acquisition of title from the holder 206125. Discharge of secondary parties, other than sureties 207126. Discharge of surety 207

CHAPTER IX

CHECKSSECTION

127. Distinction between checks and other bills of exchange 209128. A check is not an assignment of funds . . 209129. Certification of checks 210

CHAPTER XBANKS AND BANKING

SECTION

130. Formation 212131. Agents and liability for their acts . 212132. Special deposit 213133. Specific deposit 214134. General deposit 215135. Checking accounts 215136. Forgeries 216137. Forged instruments 217138. Altered checks 218139. Payment 218140. Payment effective when 220141. Depositor's indebtedness . . . 221142. Collection items ... 221143. Effect of retention of title by depositor 222144. Duty of collecting agent 223145. Assessment of bank stock 224146. Right of setoff 224147. Double liability 225148. Preferred claims 226

149. State funds 227150. Illegal acts 227

BOOK IVBUSINESS ORGANIZATIONS

PART I. PARTNERSHIPS

CHAPTER

I. CHARACTERISTICS AND DISTINCTIONS 231, 659II. PARTNERSHIP PROPERTY 235, 663

III. RIGHTS AND DUTIES OF PARTNERS AMONG THEMSELVES . 242, 672IV. POWERS AND LIABILITIES OF PARTNERS IN RELATION TO

PERSONS DEALING WITH THE PARTNERSHIP .... 247, 677V. DISSOLUTION 251, 680

CONTENTS xxv

PART II. CORPORATIONSCHAPTER PAGK

VI. CHARACTERISTICS OF CORPORATIONS 260, 687VII. POWERS OF CORPORATIONS 269, 691VIII. ULTRA VIRES ACTS 273, 697IX. MEMBERSHIP IN CORPORATIONS 277, 703X. RIGHTS OF STOCKHOLDERS 289, 710XL MANAGEMENT OF CORPORATIONS ... 295, 717XII. DISSOLUTION OF A CORPORATION . . . 302, 722

PART III. MISCELLANEOUS BUSINESS ORGANIZATIONS

XIII 305, 725

CHAPTER I

CHARACTERISTICS AND DISTINCTIONSSECTION

1. History and definition . . . .2312. Partnership distinguished from a corporation . 2313. Who may become partners . . 2324. To carry on as co-owners a business for profit 2325. Partnership liability by estoppel . 233

CHAPTER II

PARTNERSHIP PROPERTYSECTION

6. What constitutes partnership property . 2357. Firm name and good will as firm property 2358. Partnership capital 236

TITLE TO PARTNERSHIP PROPERTY

9. Personal property 23710. Real property 237

PROPERTY RIGHTS OF A PARTNER

11. Partner's rights in specific partnership property 23812. Partner's interest in partnership property 238 913. Partnership insurance 239

POWERS WITH RESPECT TO PROPERTY

14. Power to sell personal property 23915. Power to sell realtywrongful conveyance . 24016. Power to pledge or mortgage firm property . 240

CHAPTER III

RIGHTS AND DUTIES OF PARTNERS AMONGTHEMSELVES

RELATIONS OF PARTNERS TO ONE ANOTHERSECTION

17. In general 242

18. Partner's rights to indemnity and contribution 24219. Sharing of profits and losses 242

xxvi CONTENTSSECTION PACK20. Partner's right to interest 24321. Right to participate in management 24322. Partner's right to be compensated for services 24423. Right to information and to inspection of books 24424. Fiduciary relation of the partners 24425. Partner's right to an accounting 245

CHAPTER IV

POWERS AND LIABILITIES OF PARTNERS INRELATION TO PERSONS DEALING WITH

THE PARTNERSHIPSECTION

26. Powers of partners in general 24727. Express and implied powers 24728. Trading and nontrading partnerships 24829. Notice and admissions 24830. Ratification 248

JOINT AND SEVERAL LIABILITY

31. Contractual liability .... 24932. Tort liability 249

CHAPTER V

DISSOLUTIONSECTION

33. Nature of 25134. Dissolution by act of partner when for definite term 25135. By operation of law 25136. Dissolution by court decree . .... 252

EFFECT OF DISSOLUTION BETWEEN THE PARTNERS

37. Where dissolution is caused by acts other than death or bankruptcy . . . 25338. Dissolution caused by death or bankruptcy . . 25439. Right of partners after dissolution ... . .... 25440. Continuation of the business after dissolution 254

EFFECT OF DISSOLUTION AS TO THIRD PARTIES

'41. Liability existing prior to dissolution 255

42. Notice to the creditors of the firm 25543. Notice to the public generally 25644. The liability of an incoming partner 25645. Creditors of the old firm and the new firm 256

DISTRIBUTION OF FIRM ASSETS AND LIABILITIES OF PARTNERS ON DISSOLUTION

46. Distribution of firm assets where firm is solvent . . . 25747. Firm creditors against firm assets 25748. Firm creditors against individual assets 257

CHAPTEB VI

CHARACTERISTICS OF CORPORATIONSSECTION

49. Essential features 260

50. Entity disregarded 261

CONTENTS xxviiSECTION PAQR51. Foreign corporations . . . 26252. Conditions under which foreign corporations may "do business" .... 26253. What constitutes "doing business" by a foreign corporation 26354. Incomplete corporations de jure and de facto . . 264

PROMOTERS

55. Who are promoters .... . . . 26556. Corporate liability on contracts of promoters 26557. Corporate liability for expenses and services of promoters 26658. Duty of promoters to corporation and stockholders 26659. Procedure for incorporation

^. . 266

CHAPTER VII

POWERS OF CORPORATIONSSECTION

60. In general 26961. Incidental powers . 26962. To purchase and hold property for corporate purposes 26963. Power to take and to give mortgages or to pledge property . . . 27064. To borrow money when necessary to carry out the corporate purpose . . 27065. Power to enter into partnership agreements . . . 27066. Power of a corporation to subscribe and to hold stock in another corporation 27167. Power to hold its own stock 271

CHAPTER VIII

ULTRA VIRES ACTSSECTION

68. In general - 27369. Who may object to them . 27370. Effect of an ultra vires contract . .... 27371. Ratification of ultra vires contracts by officers and stockholders . . . 27572. Liability for tort \ . . . 27573. Liability for crimes .... . 275

CHAPTER IX

MEMBERSHIP IN CORPORATIONSSECTION

74. Membership in nonstock corporations 27775. Membership in stock companies 27776. Capital stock and capital 27777. Shares of stock 278

78. A certificate of stock 27879. Bonds and shares 27880. Stock warrants 279

STOCK SUBSCRIPTIONS

81. Stock subscriptions before incorporation 279

82. Subscriptions after incorporation . 280

KINDS OF STOCK

83. Common stock 28184. Preferred stock 281

xxviii CONTENTSSECTION PAGE85. Watered stock 28286. No par stock 28387. Treasury stock 283

TRANSFER OP STOCK88. Method of transfer .... 28389. Limitation upon the right of transfer . 28590. Improper transfer 28591. Transferor's liability . 28692. Right of transferee to dividends 286

CHAPTER XRIGHTS OF STOCKHOLDERS

SECTION

93. Right to inspect books .... . . 28994. Right to attend meetings and to vote .... . 28995. Right to share in profits and dividends ... . 28996. When dividends may be declared 290

KINDS OP DIVIDENDS

97. Cash dividend . 29098. Scrip dividend 29199. Property dividend 291

100. Stock dividend ... 291101. Bond dividend 292102. Right to preference upon the increase of capital stock . 292103. Right to sue for injuries to the corporation . . 293

CHAPTER XI

MANAGEMENT OF CORPORATIONSSECTION

104. In general . 295105. By-laws . . 295106. Stockholders meetings . . 296107. Voting .... 296108. Voting pools and trust agreements 297

DIRECTORS

109. Qualifications and powers . 298110. Meetings 299111. Liabilities of directors 299

112. Compensation 300

CHAPTER XII

DISSOLUTION OF A CORPORATIONSECTION

113. Expiration of charter . . .... 302

114. Dissolution by attorney general 302115. Consolidation and merger ... 302116. Dissolution by the stockholders 303

RIGHTS OF CREDITORS

117. Right against corporate assets 303

118. Right against stockholders303

CONTENTS xxix

CHAPTER XIII

SECTION PAGE119. Introduction 305

LIMITED PARTNERSHIPS

120. Definition 305121. How formed; statutory requirements 305122. Filing and publication of certificate 306123. Name of partnership 306124. Liability of limited partner 306125. Dissolution . . . . .306

JOINT STOCK COMPANIES AND BUSINESS TKUSTS

126. Joint stock companies .... 307127. Business trusts . . 307128. Nonprofit organizations 308129. Joint adventure 368

BOOK VPERSONAL PROPERTY

CHAPTER

I. NATURE OF PERSONAL PROPERTY 313, 735II. SALES 318, 739

III. BAILMENTS OF PERSONAL PROPERTY 334, 752

CHAPTER I

NATURE OF PERSONAL PROPERTYSECTION

1. Definition 3132. Types of personal property 3133. Methods of acquiring title 3134. Original possession 3135. Transfer 3146. Accession 3147. Accession to stolen property 3158. Confusion 3159. Abandoned and lost property 316

10. Extent of ownership 316

CHAPTER II

SALES

TRANSFER OF TITLESECTION

11. Introduction 31812. Distinction between contracts "to sell" and contracts "of sale" .... 31813. Risk of loss 31814. Title passes according to intention of parties .... . . . 31915. Sale on trial 320

16. Ascertained goods .... 32017. Fungible goods 321

xxx CONTENTSSECTION I^AGE18. Unascertained goods 32119, Delivery to carrier 32230. C. 0. D. shipments 32221. Voidable title 323

WARRANTIES

22. Express warranty .... . . 32323. Implied warranty of title . . . 32424. Warranty of fitness for a particular purpose 32425. Warranty that goods are merchantable 32526. Extent of implied warranties .... 326

REMEDIES

27. Remedies of seller where buyer refuses delivery 32628. Unpaid seller's lien 32729. Stoppage in transitu 32730. Right of resale 32831. Remedies of the buyer 32832. Remedies for breach of warranty 32833. Inspection of goods . 329

NEGOTIABLE DOCUMENTS OF TITLE34. Duties of bailee 32935. Rights of purchaser 33036. Liability of indorsers 331

CHAPTER III

BAILMENTS OF PERSONAL PROPERTYGENERAL RULES

SECTION

37. Definition of bailments 33438. Distinguished from a sale 33439. Types of bailment 33540. Degree of care required 33541. Contracts against required care 33642. Effect of exceeding the bailment contract 33643. No right to deny title of bailor 337

COMMON CARRIERS44. Definition 33745. Care required of the common carrier 33746. Contract against liability of carrier 33847. Beginning of the relation 33848. Termination of the relation 33849. Rates 339

BOOK VISECURITY FOR CREDIT TRANSACTIONS

CHAPTER

I. BAILMENTS AS SECURITY 343, 759II. CHATTEL MORTGAGE 352, 771III. CONDITIONAL SALES 358, 779IV. SURETYSHIP 365, 788V. INSURANCE . . . 375, 796

CONTENTS xxri

CHAPTER I

BAILMENTS AS SECURITYSECTION PAGE1. Introduction 3432. Consignments 3433. Artisan's lien 3444. Possession 3455. Foreclosure 345

PLEDGES

6. Nature . 3457. Increase in pledged property 3468. Debts secured 3469. Sale of pledged property 347

10. Surplus after sale 348

TRUST RECEIPTS

11. Nature 34912. Rights of purchaser 34913. Rights of the entruster . ... 350

CHAPTER II

CHATTEL MORTGAGESECTION

14. Nature of mortgage 35215. Property subject to a mortgage 35216. Recording mortgage 35317. Description of goods 35418. Loans secured 355

19. Waiver 35620. Foreclosure 356

CHAPTER III

CONDITIONAL SALESNATURE

SECTION

21. Requisites of a conditional sale 35822. Other conditions 35923. Fixtures 35924. Sale for the purpose of resale 359

25. Rights of the vendor 36026. Foreclosure 361

27. Rights of the vendee4 361

TRANSFER OP TITLE

28. Title passes at time of payment 36229. Election by the vendor 36ft30. Risk of loss 368

xxxii CONTENTS

CHAPTER IV

SURETYSHIPNATURE

SECTION PAGE31. Introduction . 36532. Nature of relation 36533. Results from contract . 36534. Fiduciary relationship . 36635. Duration of relation . 36736. Surety and guarantor . . 367

RIGHTS OF CREDITOR

37. Immediate recourse to surety 36838. Subrogation .... . 368

RIGHTS OF SURETIES

39. Extension of time ... . 36940. Extension with rights reserved 36941. Change in contract terms 37042. Payment 37043. Defenses of principal . 37144. Subrogation ... . 37145. Recovery from principal . 37246. Cosureties' liability . . . . 37247. Right against cosurety . . . 372

CHAPTER VINSURANCE

SECTION

48. Introduction 37549. Types of insurance ... 37550. Formation of the agreement 37651. Delivery of the policy . 37752. Representations and warranties 37853. Fraud of the agent . . . 37854. Information vitally affecting risk 37955. Binder 37956. Insurable interest . . 379

RISKS ASSUMED BY INSURER57. Life insurance 380

58. Fire insurance 381

59. Property insured 382

60. Mortgage clause 383

61. Coinsurance 383

62. Termination of policy 38363. Lapsed policies 38464. Provisions which benefit the insurer 38565. Subrogation 385

66. Division of loss 386

RIGHTS OF BENEFICIARY IN LIFE INSURANCE

67. Rights vest at the time policy is issued 386

68. Rights of creditors 387

69. Incontestable clause 388

70. Assignment

CONTENTS xxxiii

BOOK VIIREAL PROPERTY

CHAPTER pAOBI. PRINCIPLES OF REAL PROPERTY 395

;gll

II. REAL ESTATE MORTGAGES 405* 814III. LANDLORD AND TENANT 415, 818IV. MECHANICS' LIEN LAWS 425, 823

CHAPTER I

PRINCIPLES OF REAL PROPERTYSECTION

1. Nature of .... 3952. Fixtures .......

.

,

. 3953. How title to real property is acquired . . . . 3964. Original entry, or title by occupancy . . . 3965. Transfer with the consent of the owner . ... .

. 3966. Covenants and conditions ....

..

. ... 3997. Execution of deeds . ... 3998. Recording of deeds ... . ... . 4009. Abstracts of title . . 400

10. Title by descent or will . . 400

ESTATE IN REAL PROPERTY

11. Estates in fee simple . . 40112. Life estates .40113. Remainders and reversions .... 40214. Dower and curtesy .... ..... 40215. Easements . . .... 40216. Tenancies joint tenancy, and tenancy in common 40317. Tenancy by entirety and community property 403

CHAPTER II

REAL ESTATE MORTGAGESSECTION

18. Nature of, and essential requirements under the early common law . 40519. Growth of equitable theory . . . 40520. Legal and equitable theories of mortgages ... 40521. Property capable of being mortgaged . . ... 40622. Form of mortgage 40623. Recording mortgages .... 40624. An absolute conveyance may be a mortgage 40725. Deed of trust in the nature of a mortgage 40726. Purchase money mortgages 40727. Rights of mortgagor 40828. Rights and liabilities of the mortgagee 40829. Transfer of mortgaged property 40930. Liability of mortgagor after transfer 409

TRANSFER OF DEBT AND MORTGAGE

31. Transfer of debt 410

32. Payment before default 410

33. Right to redeem 411

xxxiv CONTENTSMORTGAGE FORECLOSURES

SECTION PAGE34. Right to foreclose 41235. Types of foreclosure 41236. Foreclosure by exercise of power of sale 41337. Foreclosure by entry and by writ of entry 41338. Deficiency decree ... 413

CHAPTER III

LANDLORD AND TENANTSECTION

39. Relation created by lease 415

TYPES OF TENANCY40. Tenancy for years . . . ... 41541. Termination of lease 41542. Rights of tenant after term 41643. Tenancy at will 41644. Tenancy from period to period 41645. Tenancy at sufferance ... 41746. Tenancy for life ... . 41747. Difference between a lease and a license ... 417

RIGHTS AND DUTIES OF THE LANDLORD

48. Right of landlord to enter upon premises 41819. Right to recover for injuries to the premises 41850. Warranty of landlord as to condition of premises 41951. Duties and liabilities of landlord as to repairs of premises 41952. Recovery of owner for injuries occasioned by defects 419

REMEDIES FOR RECOVERY OF RENT53. Landlord's lien 42054. Suit on the lease 42055. Distress for rent 42056. Place of distraining . . 42157. Procedure for distress ... . 421

RIGHTS AND LIABILITIES OF THE TENANT

58. Estoppel to deny landlord's, title . . 42159. Duty of lessee to redeliver at expiration of term 42160. Duty of tenant as to care and repair of premises 42261. Improvements by lessee in the absence of an agreement 42262. Duty to pay rent 42263 Defenses to liability for rent 423

SUBLETTING AND ASSIGNING

64. Nature 423

65. Consent of lessor to subletting 42366. Rights and liabilities of sublessee 424

CHAPTER IV

MECHANICS' LIEN LAWSSECTION

67. Nature 425

68. Persons entitled to lien 426

CONTENTS xxxvSECTION PAGE69. Against whom does the lien arise 42670. Formalities required to perpetuate lien 42671. Protection accorded the owner 427

BOOK VIIITRADE REGULATIONS

CHAPTER

I. GOVERNMENT AND BUSINESS FREEDOM 431, 829II. BUSINESS TORTS 443, 845

III. LABOR AND THE LAW 450, 859

CHAPTER I

GOVERNMENT AND BUSINESS FREEDOMSECTION

1. Introduction 43!2. Police power 432

i

MONOPOLISTIC PRACTICES3. Contracts in restraint of trade .

. 4334. Exceptions 4345. Federal and state laws . . 4346. Exclusive dealing contracts 4367. Price discrimination .

. 4368. Tie-in sales ... . 4379. Patents . .... 437

10. Retail price control . . ... 43811. Public utilities .... 43912. Enforcement of legislative regulations . . 440

CHAPTER II

BUSINESS TORTSSECTION

13. Introduction 443

COMPETITION

14. Right to compete 44315. Threats or intimidation 44416. Disparagement 44417. Inducing breach of contract 445

APPROPRIATION OP COMPETITOR'S TRADE VALUES18. Trade dress of wrapper 44519. Trade-mark or name 44520. Descriptive, geographical and proper names 44521. Limited protection only 44622. Effect of wrongful use of name or mark 44723. Trade information and advertising 448

xxxvi CONTENTS

CHAPTER III

LABOR AND THE LAWSECTION PAGE24. Introduction 450

MISCELLANEOUS LEGISLATION

25. Fair Labor Standards Act .... . 45026. Social Security Act 45227. Employers' liability acts . . . 453

WORKMEN'S COMPENSATION LAWS28. Workmen's compensation acts . . 45429. Industries included .... 45530. Compensation Benefits 45631. Administration of workmen's compensation acts 45632. Objectives of organized labor and means used 456

NATIONAL LABOR RELATIONS ACT

33. In general 45734. Employee protection . 45735. Employer protection . 45836. Interference, restraint, or coercion 45937. Employer support of union 46038. Discrimination 46039. Reinstatement 46040. Refusal to bargain collectively 46141. Selection of bargaining agent 462

ENFORCEMENT OF UNION AGREEMENTS42. By the union 46243. By individual employees . 46344. By the employer . 46345. Closed shop agreements . ... 464

PICKETING AND BOYCOTTS

46. The right to picket 46447. Use of injunction 46448. Boycott 465

APPENDIX: Forms 1-10 ... . . 883

INDEX 897

TABLE OF CASES

Abraham v. Karger 749Acres v. Curtis 792Adams v. Askins 779Adamson v. Paonessa et al 533Aldridge v. Piedmont Fire Ins. Co. . 802Amberg Granite Co. v. MarinetteCounty et al 518

American Bank & Trust Co. v. Fed-eral Reserve Bank of Atlanta, Ga.,et al. 848

American Bridge Co. v. City of Bos-ton 533

American Federation of Labor v.Swing 877

American Waltham Watch Co. v.United States Watch Co 853

Americas Oil Co. v. Gurr 558Ames v. American Tel. & Tel. Co. 715Anderson v. Elem 606Andrew, State Superintendent ofBanking v. Peoples Savings Bank 639

Angus v. Downs 615Antley v. St. Mathews Nat. Bank . . 804Automobile Service Corporation v.Community Motors, Inc 783

Bailey v. Marshall 510Bailey et al. v. Austrian 487Baker Co. v. Brown 750Baldwin v. Boyce 776Baldwin et al. v. Canfield 720Barnett Bank v. Chiatovich 613Bassett et al. v. Hughes 534Batchelder v. Home Nat. Bank .... 540Battelle v. The N. W. Cement andConcrete Pavement Co 688

Baxter v. Ford Motor Co. et al. ... 747Berg v. Union State Bank 643Bettini v. Gye 515Big Lake Oil Co. v. National LaborRelations Board 867

Boelter v. Nat. Mfrs. Bank et al. . . 573Booth v. Spuyten Duyvil RollingMill Co 524

Bosshardt & Wilson Co. v. CrescentOil Co 474

Boston Foundry Co. v. Whiteman . . 678Boston Ice Co. v. Potter 479Boston Note Brokerage Co. v. Pil-grim Trust Co 644

Bowen v. Isenberg Bros. Co 752

PAGEBowman v. Press Pub. Co 552Boyden v. Boyden 492Brecher v. Brown 833Briggs v. Spaulding 721Brilson v. Moffatt et al 510Broadnax v. Ledbetter 471Brown v. Citizens' Ice & Cold Stor-

age Co. et al 691Butchers' Advocate Co. v. Berkof . . 477

Cabot v. Shaw and Others 575Carpenter v. B. & 0. R.R. Co 754Carrol v. Bowersock 524Casady v. Manchester Fire Ins. Co. . 550Cash Register Co. v. Townsend .... 497Chamberlain v. Southern Calif. Edi-son Co 700

Charlestown Boot & Shoe Co. v.Dunsmore et al 719

Chicago Grain Trimmers Ass'n v.Murphy, Director of Labor . . . 729

C. I. T. Corporation v. Corey, Sheriff 781City of Minneapolis v. RepublicCreosoting Co. ct al 523

Clark v. Foster et al 718Clark v. Marsiglia 528Clark v. Tallmadge 595Clark et al. v. Needham et al 831Clark et al. v. State Valley Ry. Co. 672Codding v. Munson 574Cohen v. Arthur Walker and Co.,

Inc 514Columbia Banking Co. v. Bowen . . 622Columbia Grocery Co. v. Marshall 632Commercial Credit Co. v. BarneyMotor Co 766

Continental Trust Co. v. Stump .... 708Cook v. Whiting 811Cosgrove v. Ogden 562Creed v. The Sun Fire Office 798Crosby v. Stratton 714

Davis v. Caldwell 493Dickinson Co. v. Hickey 628Diebel v. Kaufman 476Dodge et al. v. Ford Motor Co. et al. 710Donaldson, Assignee v. Farwell et al. 498Donn v. Auto Dealers Inv. Co 764Downing v. Lake County State and

Savings Bank et al 636xxxvn

XXXV111 TABLE OF CASESI'AGE

Eaton v. Munroe 735Ellis v. Norwich Union Fire Ins. Soc. 798Emanuel v. Bird 685Enoch v. Brandon 587

Fairbanks-Morse & Co. v. Parkeret al 779

Farnsworth v. Burdick 599Fay v. Witte 599Federal Reserve Bank of Richmond

v. Peters et al 651Federal Trade Commission v. Sin-

clair Refining Co 840Fidelity Trust Co. et al. v. LehighValley R. Co 704

Finnegan v. The Knights of LaborBldg. Ass'n et al 687

First National Bank v. CommercialBank and Trust Co 650

First Nat. Bank v. Davis et al 789First Nat. Bank v. U. S. Nat. Bank . 639First Nat. Bank of Ellsworth, Minn.

v. Ripley, Sheriff, et al 773First Nat. Bank of Shawano v.

Miller 627First State Bank of Cheyenne v.Barton 592

Flanagan v. Brown 571Flathead County State Bank v. FirstNat. Bank 611

Foster v. Abrahams 761Frank v. Mercantile Nat. Bank 540Fraser v. Glass 500Fraser v. Ritchie 695Freeman v. Huttig Sash & Door Co. 684F. T. Banking Corp. v. Gerseta Corp. 563Furman University v. Waller et al. . 484

Gagnon v. Dana et al 753Gamble v. Brown et al 636Gard v. Stevens 789General Motors Acceptance Corp. v.Hupfer 763

George G. Fox Co. v. Hathaway etal 851

Gerhard v. Travelers Fire Ins. Co. . 799Gilpin v. Savage 624Glendora Bank v. Davis et al 583Goddard v. Binney 513Goodall Real Estate and Ins. Co. v.North Birmingham American Bank 642

Goodenough v. Thayer 558Graham v. La Crosse & M. R.R. Co. 723Grant v. Smith 672Gregory v. Lee 493Groscup v. Douney 549Guaranty Safe Deposit & Trust Co.

v. Liebold 496

PAGE

Hadden v. Knickerbocker 821Ham v. Merritt 603Hamaker v. Blanchard 737Hamer v. Sidway 481Hamilton et al. v. Gordon 740Handley v. Stutz 707Hanover Star Milling Co. v. Metcalf 855Hare & Chase, Inc. v. Hutchison et

al 780Harmer v. Rendleman 638Harris v. Coe et al 759Heilbron et al. v. Guarantee Loan &Trust Co 761

Hendren et al. v. Wing et al 665Hendrickson v. International Har-

vester Co 478Hickhorn Mack & Co. v. Bradley . . 554Hightower v. Bailey et al 823Hodge et al. v. U. S. Steel Corp. ... 717Hoggan v. Cahoon 570Hollins et al. v. Brierfield Coal &

Iron Co 722Holmes v. First National Bank 637Hoover, Appellee v. Mowrer et al. . . 795

Hopkins Chemical Co. v. Read Drug& Chemical Co 850

Hudson Real Estate Co. v. Toweret al 704

Huggins v. Reynolds 735Hull v. Angus 586Hunt v. Security State Bank 630Hunt v. Wyman 740Huston v. Rankin 588Hyatt v. Allen 709

Illinois Nat. Bank & Trust Co. v.Holmes 774

Inland Compress Co. v. Simmons . . 509In re Donohoe's Estate 581In re Estate Philpott 607In re Goebel's Estate 646In re Receivership of WashingtonBank 647

In re Savarese 542In re Stovall Grocery Co 539International Business MachinesCorp. v. U. S 841

Jacob Trinley & Sons v. Goiter et al. 519Jefferson Standard Life Ins. Co. v.Wisdom C.C.A 653

J. L. Brandeis & Sons v. NationalLabor Relations Board 860

John Davis & Co. v. Bedgesoff et al. 604Johnson et al. v. Fehsefeldt 525Jones v. Cook 561Jones v. Morrison 713Jones et al. v. Cade 674

TABLE OF CASES XXXIXPAGE

Joseph, Gaboury & Co. v. South-wark Foundry & Machine Co. . . 682

Jump v. Sparling 597

Kalen v. Gelderman et al 816Karsner v. Cooper 601Katz v. Brewington 673Kaufer v. Rothman 674Kayton v. Barnett 559Keeble v. Keeble 529Kessler et ux. v. Troast et ux 550

Kinney v. Rochester German Ins. Co. 801Knickerbocker Ice Co. v. Halsey

Bros. Co 824Knowles v. Henderson 568Kridelbaugh v. Aldrehn Theatres Co. 689Knelling v. Roderick Lean Mfg. Co. 496Lambert v. Robinson et al 782Larsen v. State Industrial AccidentCommission 862

Lawless v. Temple 610Leekley v. Short et al . 611Leonard v. Union Trust Co 622Lewis v. Gray 760Liberty Trust Co. v. Tilton 608Lindquist v. Dickson 560Linz v. Schuck 485Lish v. Earnshaw 680Livingston v. Blanchard 684Loden v. Paris Auto Co 787Lord et al. v. Hull 675Loughery et al. v. Huxford et al. ... 576Louisa Nat. Bank v. Kentucky Nat.Bank 641

Lowe v. Blum et al 536Lozano v. Meyers 614Lucas v. Western Union TelegraphCo 480

Mile. Reif, Inc. v. Randau 879Macrcklein v. Maercklein 671Magazine Digest Pub. Co., Limited

v. Shade et al 791Manhattan Co. v. Morgan 579Marcelle, Inc. v. Marcus Co 531Martin v. Orndorff 532McCormick & Co., Bankers v. Gem

State Oil & Products Co 591McCurdy v. Wallblom Co 754McGill v. National Bank of Topeka 814McGuckian v. Carpenter 491McMaster v. Emmerson et al 772McMullen Machinery Co. v. GrandRapids Trust Co 785

McNabb v. Central Ky. NationalGas Co. et al 744

McNair v. Wilcox 666

PAGEMcPherson Brothers Co. v. Okano-gan County 472

Mechanics Bank of the City of NewYork v. Straiton 594

Meeker v. Mannia 563Miles v. Dodson 609Milk Wagon Drivers' Union of Chi-

cago, Local 753 v. Associated MilkDealers 876

Miller v. Seaman et al 739Minneapolis & N. Elevator Co. v.Betcher 762

Minnesota Linseed Oil Co. v. Colier 473Minnot v. Russ 634Montgomery Ward and Co. v. John-son 471

Montgomery Ward & Co. v. Na-tional Labor Relations Board 865

Moorhead Lumber Co. v. Reming-ton 823

Moreland et al. v. Mason, Sheriff,et al 547

Morgan & Co. v. Hall & Lyon Co. . . 699Morrison et al. v. Parks 475Murray v. Thompson 598Murray City v. Banks et al 790Mutual Life Ins. Co. v. Denton 797Myers v. Bibee Grocery Co 625

Nardine v. Kraft Cheese Co 483Nassau Bank v. Jones 698National Exchange Bank of Albany

v. Lester 616National Home Building & Loan

Ass'n v. Home Savings Bank .... 697National Labor Relations Board v.Arcade-Sunshine Co 868

National Labor Relations Board v.Fansteel Metallurgical Corp 870

National Labor Relations Board v.Griswold Mfg. Co 875

National Labor Relations Board v.P. Lorillard Co 873

Neldon v. Grondahl 625Nelen v. Smith Bros. Auto Sales,

Inc 630Newell v. Meyendorff 837Newell v. Randall 495New York Central & H. R.R. v. U. S. 701New York Life Ins. Co. v. Babcock 796New York Life Ins. Co. v. Veit et al. 805Nilsson et al. v. Kielman et al 489Northern Trust Co. v. Rogers et al. 634

O'Keefe v. Leistikow 741

Page v. Brant 678

Page v. Ford 585Patterson v. Missouri Glass Co. ... 566

xl TABLE OF CASESPAGE

Peerless Mfg. Co. v. Goehring et ux. 542People ex rel. Carr v. Gullborg .... 556People ex rel. Nat. Express Co. v.Coleman et al 725

People's State Bank v. Miller 603Perrine v. Barnard et al 748Pettinger v. Alpena Cedar Co 548Petz v. Voight Brewing Co 819Pierce et al. v. Cherry Valley Farms,Inc 811

Pittman v. Elder 488Planters' Chemical & Oil Co. v.Morris 581

Pope v. Hanke 508Powell v. Mutual Ins. Co 804Pratt v. Iliggenson ct al 596Price v. Warner 626Prinsen v. Russos 746Producers' Coke Co. v. Hillman et

al 517Prudential Ins. Co. v. Deyerberg et

al 807Pullman's Palace Car Co. v. Mo.

Pac. Ry. Co 722

Quinn v. Leidinger 667

Rabinowitz v. Nat. Fire Ins. Co. ... 803R. A. Myles & Co. v. A. D. DavisPacking Co 666

Rovlon Nail Enamel Corp. v.Charmley Drug Shop 843

Rice v. Bordner 538Rice v. Boyer 494Rich v. Black & Baird 565Rigs v. Sokal et ux 526Robinson et al. v. Daughtry . . . 669Rockfield et al. v. First Nat. Bank

of Springfield 612

Rodijkoit v. Andrews 531Rosenberg v. Bloom et al 541Rossi Brothers v. Commissioner ofBanks 652

Rush v. Howkins 668Ryan v. Progressive Grocery Stores,Inc 745

Sabine v. Paine 619Sandelli v. Duffy 481Sanford et al. v. Kane 508Santa Cruz Fruit Packing Co. v. Na-

tional Labor Relations Board .... 864Saunders v. Cowl et al 743Savage et al. v. Markey Mach. Co. . 488Scott v. B. & 0. R. Co. et al 706Seacoast Finance Corp. v. Cornell

et al 773

Seggebruch v. Stosor 521

PAGE

Shapiro v. Friedman 537Shemonia v. Verda 582Siegel et al. v. Chicago Trust & Sav-

ings Bank 582Simson et al. v. Klipstein 726Sines v. Superintendents of the Poor 571Slade v. Slade et al 501Slater et al. v. Slater et al 664

Sligo Furnace Co. v. Hobart-Lce TieCo 736

Smith Co. v. Moscahlades 742Smith et al. v. State of Maryland . . 794Snively v. Matheson et al 677Soehnlein v. Soehnlein 712Standard Fashion Co. v. Magrane-Houston Co 838

Standard Oil Co. v. Mitchie 852Standard Oil Co. of New York v.Henderson 660

State v. Missouri Pac. Ry. Co 694State and City Bank and Trust Co.

v. Hcdrick et al 605State ex rel. v. Farmers UnionCreamery 829

State ex rel. White v. Ferris 717State Street Trust Co. v. Ernst et al. 499Stone v. Gulh 730Strieker v. Buncombe County et al. . 618Sunshine Cloak & Suit Co. v. Ro-

quctte et al 516

Taber-Prang Art Co. v. Durant 663Texas and P. Ry. Co. v. Pottorff ... 654The American Live Stock Commis-

sion Co. v. The Chicago LiveStock Exchange 703

The Terre Haute & IndianapolisR.R. Co. v. McMurray 555

Thomas et al. v. Home Mut. Bldg.Loan Ass'n. et al 815

Thompson v. Baxter 818Tichnor Bros. v. Evans 515Tooker v. Inter-County Title Guar-anty and Mortgage Co 507

Townsend Brick & Contracting Co.v. Allen et al 771

Triphonoff v. Sweeney 597Trust Co. of America v. Conklin . . . 617Tuttle v. Buck 847

Union Nat. Bank of Massillon, Ohiov. Mayfield et al 590

United Cigar Stores Co. v. AmericanRaw Silk Co., Inc 594

U. S. v. Darby 859U. S. v. General Electric Co 832Universal Credit Co., Inc. v. Citizens

State Bank of Petersburg 768

TABLE OF CASES xliPAGE

Van Antwerp v. Horan et al 812Van Sant v. Austin-Hamill-HooverCommission Co 777

Veeder, Rec. v. Horstmann et al. ... 511Von Bremen et al. v. MacMonnies

et al 845

Wagner v. American Service Co. . . . 861Wall v. Rolls-Royce of America . . . 857Walsh v. Isgro 567Walsh v. Schmidt 819Walters et al. v. Detroit United Ry.Co 755

Ware v. Hogansville Banking Co.et al 647

Watkins Co. v. Brund et al 788Weeks v. Crie et al 512Welch v. Owenby 584Westurn v. Page 553

PAGEWettlaufer v. Baxter 593Wharf v. Wharf 680Whayne Supply Co. v. McGowan . . 660Whellkin Coat Co. v. Long BranchTrust Co 820

Whitney v. Martine 566Williams v. Johnson 691Williams et al. v. Inhabitants ofMilton 728

Wittenberg et al. v. Mollyneaux 835Woods Lumber Co. v. Moore 692Word v. Word 682Worden Co. v. Beals et al 659

Yellow Cab Co. of San Diego v.Sachs et al 856

Zazzaro v. Universal Motors 557

PRINCIPLES

OF BUSINESS LAW

CHAPTER I

THE NATURE AND CLASSIFICATIONOF THE LAW

Sec. 1. In general. Law may be said to consist of rules for theguidance of man in his relations with other men and in his relationto organized society. A single person, if isolated, would be un-affected by such rules, since they operate only in the presence ofother persons. Of course, there are laws pertaining to physicalmatter, such as the laws of chemistry and physics, but with these weare not concerned. There are also many rules controlling humanconduct which have no legal significance, such as rules with respectto manners and social conduct in the restricted sense. Human con-duct necessarily causes friction, and some plan governing and regu-lating uniformity of action is required. In order to produce theresult desired in playing a game, certain rules must be followed. Adeparture from any of these rules defeats the purpose of the game.With every breach of these rules of control, there follows some re-sult detrimental to all the participants and to the violator of therule. To the violator of the rule, it is the condemnation of theother players. To the other players, it is the loss of the desiredresult. In organized society a breach of the rules which form thelaw produces a like result.

In an organized state, agencies, such as courts, sheriffs, and otherpublic officials, are created to punish persons for violating the rulesof conduct determined by organized society. Whether the ruleviolated is one determined by organized society as a whole is notalways clearly defined. If, however, agents of society, such as the

courts, the sheriffs, and the public officials, will act at the requestof the public or of the injured party for its or his benefit, the ruleviolated is a rule of law in the strict legal sense.

Sec. 2. Origin and source of law. These rules of conduct dis-cussed above, known as rules of law, are formulated by an ever-developing process. The first source of the law is the customaryconduct of community life. Group life creates customs, and whenthese customs become stabilized to the extent that each member ofsociety is justified in assuming that every other member of societywill respect them and will act in conformity with them, it can besaid that rules of conduct have been formulated. When these rulesof conduct have received the recognition of the community in gen-

l

2 INTRODUCTION

eral and have become formally expressed in legislative enactmentsor in judicial decisions, the "Law" is made.

Conflicts between members of society arise from time to time asto the application of these rules of conduct, and, in order to deter-mine whether a member of society has violated a rule, or whether amember of society has a right to be recompensed for an injury byreason of the violation, courts are set up to settle the dispute.The court, by its decision, lays down a principle based upon a

custom or convenience, and thus creates a precedent which will becontrolling in similar future controversies. The leports of suchcontroversies are published in books known as "reported cases."In these books will be found theunwritten law, or the common lay).Although the common law is written, itls called unwrittenTaw7 incontradistinction to those rules which have been formulated intolaw by legislative action. These legislative enactments are calledwrUtenJaw

?orstatutori/ law.

Sec. 3. Written, or statutory, law. The constitution of theUnited States and the constitutions of the various states are thefundamental written law. All other law must conform to, or be in

harmony with, these constitutions. The constitutions define andlimit the powers of government for the purpose of giving protectionto the individual who lives under the government, and for whosebenefit government is formed.

Legislative enactments by Congress, by the various state legis-latures, by cities and towns, and by other smaller governmentalunits must conform to the constitutions and find in them theirauthority, either express or implied. Such legislative enactments,called statutes, form a greater part of the written law.

Sec. 4. The common law and the civil law. The term "com-mon law" has several meanings. In the section above the term isused to distinguish the law developed by the courts from that en-acted by legislatures. The term is also used, probably in its larg-est sense, to distinguish between the English system of law andthe systems of law developed in other sections of the world.The sources of the American common law for the most part are

found in the English law. The colonists were governed by chartersgranted by the King of England. These charters were general intheir nature and left much to be worked out by the people of theicolonies. Since most of the colonists were of English origin, theynaturally were controlled by the customs of their mother country.In Louisiana, and, to some extent, in Texas and California, theCivil law or the Roman law is the basis of the legal system, becausethese states were founded by French and Spanish peoples. The lawof Continental Europe is based more directly upon the Roman law.

THE NATURE AND CLASSIFICATION OF THE LAW

Sec. 5. Public and private law. Anglo-Americandivided into

twj> main divisions publi^dw an^pnvateTa^ Pub-lic law is the liw

'pertaining to the public as a whole, and may bedivided into tjlfcee general classes. (1) Constitutional law concernsitself with tne^jfaowers of the federal and state governments whichare exercised through legislation and executive orders. The extentof the powers of Congress and state legislatures to pass laws and ofthe executives oLthe federal government and the states to issueorders involves questions of constitutional law. (2) Administrativelaw is concerned with officials, boards, and commissions created bylegislative enactments for the purpose of carrying out legislativefunctions. Orders and decrees of administrative boards, such asthe Interstate Commerce Commission, the Federal Trade Commis-sion, the National Labor Relations Board, and so forth, fall withinthe field of administrative law. The term also includes the reme-dies granted to an individual who is injured by the illegal acts ofadministrative officers, boards, and commissions. (3) Criminallaw consists of statutes and general maxims which forbid certainconduct as detrimental to the welfare of the state and which providepunishment therefor.

Private law is all that body of law which pertains to the relation-ships between individuals as such in organized society. It may bebroken down into certain fields, such as contracts, agency, sales,negotiable instruments, business organizations, and so forth. Thelaw in these areas and others pertaining to business law are fullytreated in the flavin text material of this book. The law of crimesand torts will, therefore, be briefly discussed in the sections tofollow*

Sec. 6. Criminal law. Actions between persons are called civilsuits, or actions. Criminal actions are prosecuted by the state asthe moving party (plaintiff) against any citizen for the violationof a duty ^prescribed by the common or statutory law. Crimes areeither common law crimes or statutory crimes and in states wherea criminal code has been adopted, all crimes are statutory in charac-ter. Conduct which violated custom or Christian principles andshocked the community sense of propriety constituted a crime atcommon law. Blasphemy, murder, rape, riot, adultery, and con-spiracy are illustrations. By statute, "a crime or public offense isan act or omission forbidden by law, and punishable upon convic-tion by either of the following punishments: 1. Death; 2. Im-prisonment; 3. Fine; 4. Removal from office; 5. Disqualification tohold and enjoy any office of honor, trust, or profit under the con-stitution or laws of this state." In the absence of complete codifi-

cation, common law crimes are still recognized, and incomplete stat-

4 INTRODUCTION

utes are supplemented by common law as to mode of indictmentand punishment. Crimes against the United States are enumer-ated and defined by federal statute.Crimes are classified as treason, felonies, and misdemeanors.

Treason is defined by the federal constitution as follows: "Treasonagainst the United States shall consist only in levying war againstthem, or in adhering to their enemies, giving them aid and com-fort/' A like provision is found in state constitutions.

. Eglomgg are offenses usually defined by statute to include allcrimes punishable by death or by imprisonment in the state prison.Examples are murder, grand larceny, arson, rape, and so forth.Crimes of lesser importance than felonies, such as petty larceny,

simple assault, drunkenness, trespass, disorderly conduct, vagrancy,and so forth, are called misdemeanors, and are usually defined asany crimes not punishable by death or by imprisonment in the stateprison, but are punishable by fine or confinement in the local jail.It is sometimes said that every statute for the breach of which thereis a penalty by way of fine or imprisonment in the local jail is acriminal statute. There is a difference of opinion as to whetheracts in violation of city ordinances which provide for fine and im-prisonment as a penalty are crimes. Violation of traffic ordinances,building codes, and similar municipal ordinances, where prosecu-tion takes place before a city magistrate, are sometimes termed"petty offenses," or "public torts," and are not included within theterm "crime."

Sec. 7. Law of torts. The law of contracts deals with the en-forcement of rights and duties arising out of agreements created bythe mutual assent of the parties. The law of crimes deals with theenforcement of duties imposed by the state. The

^

with the .enforcement of duties e^dstin^betwee^members of society. A breach of such duties may be both a tortand a crime; foF example, assault and battery, trespass, and nui-sances. Each member of society is entitled to have certain in-terests protected. Somejpf^ these interests are ( 1 ) Freedom frombodily harm or Apprehension ofJxxjily harm. Invasions of theseinterests are called assault, battery,_and false imj3iso^^Fieedum 'from injury tcTpfopertyl Invasions of this interest arecalled trespass to goods, conversion of chattels, and trespass to land.(3) Freedom from disparagement of reputation. Invasions of thisinterest are called defamation, libel, and slander. (4) Freedomfrom invasion of the right of privacy. (5) Freedom from interfer-ence with business relationships. Invasions of this interest arecalled deceit, threats and intimidations to customers, inducement ofbreach of contract, slander of title, and trade name. For a more

THE NATURE AND CLASSIFICATION OF THE LAW 6

complete discussion of the law of business torts, see Book VIII. Ifany member of society invades such protected interests of another,the party injured has a right to be reimbursed in damages for thewrong committed. This wrong is called a "tort."

Sec. 8. Tortious conduct. Conduct is tortious if any of thefollowing elements are present: (1) If it is intentional; that is, if theactor intends his conduct to result in injury to another. A strikesB accidentally while mingling in a crowd. A here intends no harm.A's conduct is not tortious. A must intend harm. (2) If it is insuch "reckless and wanton disregard of the safety of others" that theactor should know or should have reason to know that harm willlikely result. A recklessly and knowingly drives through a stoplight. B is injured. A's conduct is tortious. (3) If it is negli-gent; that is, if there is failure to exercise due care. Due care iswhat a reasonable man, guided by those circumstances which ordi-narily regulate the conduct of human beings, would do or would notdo under the circumstances. A, a garage owner, or his employees,leave oil-soaked rags and waste near J3's stored cars. The rags ig-nite and burn the cars and adjacent buildings. A is liable for lossof the cars and adjacent buildings. A was negligent in leaving thehighly inflammable material where it might cause damage. A'slack of knowledge of the dangerous quality of the oily rags is im-material. Manufacturers of chattels which are likely to be danger-ous because of hidden defects are liable for injury caused by rea-son of the defective materials used. B is injured by reason of thecollapse of an automobile wheel. The manufacturer of the car isliable because he was negligent in using defective material and inproviding improper inspection. (4) Conduct is tortious under cer-tain unusual situations where absolute liability is imposed, eventhough the actor is innocent and exercises reasonable care. Harmcaused by dangerous or trespassing animals, blasting operations,and escape of fire are examples. Strict liability is also imposed byworkmen's compensation statutes. (5) "The unreasonable andunlawful use by a person of his own property, either real or per-sonal, or from his own unlawful, improper, or indecent activity,which causes harm to another's person, or the use of his property,or the public generally" is tortious conduct. This conduct is gen-erally described as a nuisance. Nuisances may be either private orpublic. A private nuisance is one that disturbs the interest of someprivate individual, whereas the public nuisance disturbs or inter-feres with the public in general and is in violation of some penalstatute, and hence is a crime."An owner of property, although conducting a lawful busiflfess

thereon, is subject to reasonable limitations and must use his prop-

6 INTRODUCTION

erty so as not to unreasonably interfere with the health and com-fort of his neighbors, or to their right to the enjoyment of theirproperty." Trade, business, and industrial activities are often nui-sances by reason of their location, and liability is imposed even inthe absence of negligence. For example, slaughterhouses, stables,chemical works, refineries, and tanneries, because of their offensiveodors, may interfere with the peaceful enjoyment of property of ad-jacent landowners. Likewise, garages, filling stations, rock crush-ers, and skating rinks may be nuisances because of noise ; factoriesand smelters by reason of the escape of noxious gases. Whether aparticular trade, business, or industrial activity constitutes a nui-sance depends upon the locality in which it is conducted and thenature and extent of the harm resulting from its operation. Theprinciple of law here involved is the basis of the zoning ordinancesby which cities regulate the location of business enterprises. Like-wise, under the power of the state to protect health, morals, andgeneral welfare of its citizens, known as police power, the legislaturemay declare what activities of a trade or business constitute a nui-sance and may destroy or limit such activities.

Sec. 9. Privilege and justification. A person committing aharm may be excused or have a justification by way of defense.Excuses or justifications that will deprive an act of its tortious char-acter are (1) consent; (2) self-defense; (3) authority of the lawgiven sheriffs, firemen, public health officials, and other special of-ficers; (4) recapture of chattels by the true owner on the land ofanother; (5) abandonment of nuisances and military restraints.Likewise, one may have a defense in an action for tort because theinjured party by his own conduct is guilty of contributory negli-gence, which conduct is as much the cause of the injury as the pre-vious tortious conduct of the other person. A complete presenta-tion of the law of torts is not here attempted. Two of the morefrequent torts, trespass to goods and trespass to land, are discussedin the following sections.

Sec. 10. Trespass to goods. Unlawful interference by oneperson with the property of another is a trespass. One is entitledto have exclusive possession and control of his personal propertyand may recover for any physical harm to his goods by reason of thewrongful conduct of another. Conversion is the wrongful disposi-tion and detention of goods of one person by another. A party inpossession of the goods of another, who upon demand wrongfullyor for insufficient cause refuses to return the same, is guilty of con-version. Any exercise of dominion by another of the true owner'sgoods is a tortious act entitling the owner to recover either the

goods or damages. For example, the wrongful sale of goods by abailee, by an agent, or by a pledgee of goods is trespass to goods.

THE NATURE AND CLASSIFICATION OF THE LAW 7Sec. 11. Trespass to land. The one in exclusive possession of

land is entitled to enjoy the use of the land free from interferenceof others, either by direct interference or by indirect interferencethrough instrumentalities placed upon the land. Entry upon theland of another is a trespass even though the one who enters is un-der the mistaken belief that he is the owner by purchase, or has aright, license, or privilege to enter thereon. Intention to enter orinvade the premises of another without consent of the owner isa trespass. In absence of negligent conduct, no trespass is com-mitted if a person or his goods are accidentally placed upon an-other's land; thus, property placed upon another's land withoutnegligence on the part of the owner does not make the owner ofproperty a trespasser.At common law, the owner owns the air space above the land.

Consequently, stretching telephone and high-tension wires aboveone's property without consent is a trespass. Whether airplanesflying over the land of another is a trespass raises some doubt.The interference with the right of exclusive possession is the basisof trespass. It is doubtful whether an owner of land has exclusivepossession of the atmosphere above the land. The United StatesAir Commerce Act of 1926 and the Regulations of the Secretary ofCommerce, 1928, as well as the Uniform State Law for Aeronautics,provide that the "navigable air space" above the "minimum safealtitudes of flight" shall be "subject to a public right of freedom ofinterstate and foreign air navigation." The Uniform State Lawprovides that "The ownership of the space above the land and wa-ters of this state is declared to be vested in the several owners of thesurface beneath, subject to the right of flight. . . . Flight in air-craft over the lands and waters of this state is lawful, unless at sucha low altitude as to interfere with the then existing use to which theland or water, or space over the land or water, is put by the owner,or unless so conducted as to be imminently dangerous to persons orproperty lawfully ,on the land or water beneath." Landing aircrafton another's land is unlawful, except where a forced landing is nec-

essary. Although such forced landing is not a trespass, neverthe-less, the owner of the aircraft is liable for all damages caused bysuch landing.

Sec. 12. Law and equity. The term "equity" is peculiar toAnglo-American law. Equity arose because of the failure of thelaw to give adequate and proper remedy. In early English law,the courts could not give remedies for injuries received unless theKing's original writs covered the particular remedy sought. Con-sequently, the proceedings at law were so limited that it was oftenimpossible to obtain justice in the King's Court.

In order that justice might be done, the person seeking a remedy

8 INTRODUCTION

sought redress from the King in person. Since the appeal was tothe King's conscience, he referred such matters to his spiritual ad-

viser, the Chancellor. Such an individual was usually a church of-ficial, and in giving a remedy he usually favored the Ecclesiasticallaw and the Civil law.By such method there developed a new system of procedure and

new rules. Actions involving these rules were said to be broughtin "Chantry" or in "Equity." in contradistinction to suit "at law"in the King's Courts.

Many rights not recognized in the common law were created andenforced. For example, trusts in lands were recognized; Rescissionwas allowed on contracts created through fraud; injunction andepecifijLUgrformance were developed.Law as a remedy gives only money damages, whereas equity

gives the plaintiff what he bargains for. Thus, A, by contract,agrees to deliver to B, for a consideration, a very valuable article,something that cannot be duplicated. Upon A's breach B's onlyremedy in law is money damages, which are not adequate, becauseit is the specific article that B desires. In equity, however, B can,by specific performance, force A to deliver the article.

Again, if A persists in trespassing upon J3's land, B's remedy inlaw is damages for injury done. A may pay the damages and tres-pass again. In equity, however, B may enjoin A from going on hisland, and, if A continues, he is subject to arrest for contempt ofcourt.

Further, a trustee, having legal title and the right to manage andcontrol an estate, may sell the estate or employ it for his own use.By a bill in equity, however, the beneficiary may enjoin the trusteefrom further misuse and may force him to give an accounting.

In a few states, courts of equity are separate and distinct fromcourts of law. In most states the equity and law courts are organ-ized under a single judge who has two dockets one in law, theother in equity. Whether the case is in equity or law is determinedby the remedy desired. Modern Civil Practice Acts have abolishedthe common law names heretofore used to distinguish differentforms of actions at law and in equity. The first pleading in civilactions, whether at law or in equity, usually is called the "com-

plaint." The first pleading by the defendant is called the "an-swer."

Review Questions and Problems

1. Give a definition of law. Is there law or the need of it where thereis only one inhabitant in a locality?

2. What is the source of the common law? How are its principles de-rived? From what country did we receive it?

THE NATURE AND CLASSIFICATION OF THE LAW 93. Distinguish between public and private law. Name three general

classes of public law; private law.4. Who are the parties in a criminal action; in a contract action?5. What kind of crimes are burglary, arson, and rape; trespass, va-

grancy, and petty larceny?6. A receives a ticket from a traffic policeman for over-parking. Has

he committed a crime?7. Distinguish between the law of contracts, crimes, and torts.8. A hits and slightly injures B during a friendly scuffle. Is A guilty

of a tort? A throws a brick in a crowded street intending to break B'swindow, but h?ts and injures C. Is A liable to B and C? Has A com-mitted both a tort and crime?

9. A, a patent medicine manufacturer, without B's permission, pub-lishes an advertisement including B's picture, with laudatory statementsby B of the value of the medicine. B is a doctor. Is A liable to B?

10. A is invited as a guest to come upon B's land. C without invita-tion enters B's land with A. Is C a trespasser?11.5 has A's permission to place his automobile upon A's lot for three

weeks. After three weeks have elapsed, B goes upon A's lot to get hiscar. Is B guilty of trespass?

12. Ay while engaged in blasting stumps upon his land, exercises everyreasonable caution, places warning signs, and so forth. However, rocksand debris are thrown upon B's adjoining land. Is A liable to B?

13. A, driving his car in a reckless manner, collides with 5, causing B'scar to enter C's yard, throwing out D, who lands in C's yard, causingdamage to C's property. Is A liable to 5? Is B liable to C? Is D lia-ble to C?

14. A parks his car upon a dark street without parking lights. B rwhile negligently driving down the street, hits and damages A's car. HasB a defense in an action by A?

15. A, an aviator, while flying above the prescribed statutory heightabove B's land, is compelled because of engine trouble to land upon B'sproperty. Is A liable as a trespasser? In landing, A damages growingcrops. What liability has the owner of the aircraft?

16. A has owned and operated for a number of years a smelter andfoundry. A large residential district has developed near the factory.A small stream adjacent to the factory passes through a park createdwithin the residential district. Pollution of this stream by the factoryhas become obnoxious to the residents. Fumes and noises from the fac-tory are harmful and disturbing to the people of the vicinity. Whatremedy, if any, has a resident of the community against A?

17. Where did equity law have its origin? When are the laws ofequity applicable? Who usually presides at the equity courts?

18. What is the written law? What forms the foundation of thewritten law?

CHAPTER II

THE COURTS

Sec. 13. Classification of courts. The courts of the UnitedStates are created by the authority of the constitution, and theirjurisdiction is limited by the grant of power given to the federalgovernment by the states through the constitution. The constitu-tion of the United States provides in Section 1, Article III, that"The judicial power of the United States shall be vested in one Su-preme Court and in such inferior courts as the Congress may fromtime to time ordain and establish. The judges both of the Su-preme and inferior courts shall hold their offices during good be-havior, and shall, at stated times, receive for their services, a com-pensation which shall not be diminished during their continuancein office."

The Supreme Court of the United States, created by the consti-tution, is the court of last resort to which cases, upon proper ques-tion from the inferior courts, are appealed. The United Statescircuit courts^^ ten fed-eral jurisdictional

^circuits. Three judges usually occupy the bench

oT^^^ntliese courts. AL present there are 48 circuit judgesThese courts review cases appealed from the federal district courts.The trial courts of the federal judicial system are called the UnitedStates district courts^. Each state in the union contains one ormore federal districts, and each district has one federal districtcourt and one or more district judges. At the present time, thereare 84 federal districts and approximately 163_federal districtjudges. The judges in all federal courts are appointed by the Pres-ident of the United States, by and with the consent of the senate.The state courts, although not subject to uniform classification,

for the sake of convenience may be grouped as follows: state su-preme courts, or courts of higher appeal; courts of claim; inter-mediate courts o7 appeal ; and trial courts^ "'rhe trial courts mayGeTurthef classified into circuit courts, municipal courtg, countyrcnuifor probate courts, and justice of the peace courts? Courts inthe latter classes are' said to be courts of orfginaTjurisdiction, andmay be further divided, depending upon the particular subject mat-ter adjudicated. For example, the circuit courts in some statesmay hear damage suits as a civil or law court, criminal cases as acriminal court, and equity cases as a court of equity. In otherstates there may be separate and distinct courts which adjudicate

10

THE COURTS 11

probate cases, such as the administration of estates, the relation-

ship of guardians and wards, and so forth. The minor courts, suchas the justice of the peace courts, have jurisdiction over cases in-volving small sums of money and minor violations of the law.For an exact classification of the courts of any state, the laws of

the particular state involved should be consulted.Sec. 14. The jurisdiction of courts.

"

Jurisdiction means the

power given to a court bv the constitution or the legislature to ad-judicate concerning the subject and parties, to determine the cause,to render a judgment, and to carry such judgment into effect/'For example, "probate courts shall have the original jurisdiction ofall probate matters, namely, the settlement of estates of deceased

persons, the appointment of guardians and conservators, the settle-ment of their accounts, the regulation of all matters relating to ap-prentices and the supervision of the sale of real estate of deceasedpersons for the payment of debts/'

Sec. 15. Jurisdiction over the subject matter. In order that acourt may act, it must have jurisdiction over the subject mattercoming before it. That is, the subject matter of the cause mustcome within the limits of the court. For example, a probate courtwould not have jurisdiction to determine questions of law involvinga civil suit for damages. Likewise a court has certain geographicallimits within which it must act. A circuit court in one countywould have no jurisdiction to determine title to the land lyingwithin the boundaries of another county. Likewise a court in onestate would have no jurisdiction to hear a case upon an actionablecause arising in another state.Courts are also limited in their jurisdiction as to the amount of

money involved in the suit. For example, a "justice of the peaceshall have jurisdiction in all actions on book accounts where theamount of the balance owing to the plaintiff shall not exceed $200."

Sec. 16. Jurisdiction over the person. In order to render a

binding judgment, a court must have jurisdiction not only over thesubject matter, but also over the person of the defendant.

This jurisdiction is accomplished by a summons which issues outof the court in which the case is to be tried, and is delivered to thesheriff to be served upon the individual made defendant in the suit.Every person sued is entitled to such notice, either by personal

service or by publication, in order that opportunity may be givento defend.The summons must be served within the geographical limits of

the court, because the officers of one governmental unit have no