Cyclopedia

Commerce, Accountancy,
Business Administration

Volume 3

A General Reference Work on

ACCOUNTING, AUDITING, BOOKKEEPING, COMMERCIAL LAW, BUSINESS
MANAGEMENT, ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION,
BANKING, ADVERTISING, SELLING, OFFICE AND FACTORY
RECORDS, COST KEEPING, SYSTEMATIZING, ETC.

Prepared by a Corps of

AUDITORS, ACCOUNTANTS, ATTORNEYS, AND SPECIALISTS IN BUSINESS METHODS AND MANAGEMENT

Illustrated with Over Two Thousand Engravings

TEN VOLUMES

CHICAGO
AMERICAN TECHNICAL SOCIETY
1910

AMERICAN SCHOOL OF CORRESPONDENCE

AMERICAN TECHNICAL SOCIETY

Entered at Stationers' Hall, London
All Rights Reserved

Authors and Collaborators

JAMES BRAY GRIFFITH, Managing Editor

Head, Dept. of Commerce, Accountancy, and Business Administration, American School of Correspondence.

ROBERT H. MONTGOMERY

Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public Accountants.

Editor of the American Edition of Dicksee's Auditing.

Formerly Lecturer on Auditing at the Evening School of Accounts and Finance of the University of Pennsylvania, and the School of Commerce, Accounts, and Finance of the New York University.

ARTHUR LOWES DICKINSON, F. C. A., C. P. A.

Of the Firms of Jones, Caesar, Dickinson, Wilmot & Company, Certified Public Accountants, and Price, Waterhouse & Company, Chartered Accountants.

WILLIAM M. LYBRAND, C. P. A.

Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public Accountants.

F. H. MACPHERSON, C. A., C. P. A.

Of the Firm of F. H. Macpherson & Co., Certified Public Accountants.

CHAS. A. SWEETLAND

Consulting Public Accountant.

Author of "Loose-Leaf Bookkeeping," and "Anti-Confusion Business Methods."

E. C. LANDIS

Of the System Department, Burroughs Adding Machine Company.

HARRIS C. TROW, S. B.

Editor-in-Chief, Textbook Department, American School of Correspondence.

CECIL B. SMEETON, F. I. A.

Public Accountant and Auditor.

President, Incorporated Accountants' Society of Illinois.

Fellow, Institute of Accounts, New York.

JOHN A. CHAMBERLAIN, A. B., LL. B.

Of the Cleveland Bar.

Lecturer on Suretyship, Western Reserve Law School.

Author of "Principles of Business Law."

HUGH WRIGHT

Auditor, Westlake Construction Company.

GLENN M. HOBBS, Ph. D.

Secretary, American School of Correspondence.

JESSIE M. SHEPHERD, A. B.

Associate Editor, Textbook Department, American School of Correspondence.

GEORGE C. RUSSELL

Systematizer.

Formerly Manager, System Department, Elliott-Fisher Company.

OSCAR E. PERRIGO, M. E.

Specialist in Industrial Organization.

Author of "Machine-Shop Economics and Systems," etc.

DARWIN S. HATCH, B. S.

Assistant Editor, Textbook Department, American School of Correspondence.

CHAS. E. HATHAWAY

Cost Expert.

Chief Accountant, Fore River Shipbuilding Co.

CHAS. WILBUR LEIGH, B. S.

Associate Professor of Mathematics, Armour Institute of Technology.

L. W. LEWIS

Advertising Manager, The McCaskey Register Co.

MARTIN W. RUSSELL

Registrar and Treasurer, American School of Correspondence.

HALBERT P. GILLETTE, C. E.

Managing Editor, Engineering-Contracting.

Author of "Handbook of Cost Data for Contractors and Engineers."

R. T. MILLER, JR., A. M., LL. B.

President, American School of Correspondence.

WILLIAM SCHUTTE

Manager of Advertising, National Cash Register Co.

E. ST. ELMO LEWIS

Advertising Manager, Burroughs Adding Machine Company.

Author of "The Credit Man and His Work" and "Financial Advertising."

RICHARD T. DANA

Consulting Engineer.

Chief Engineer, Construction Service Co.

P. H. BOGARDUS

Publicity Manager, American School of Correspondence.

WILLIAM G. NICHOLS

General Manufacturing Agent for the China Mfg. Co., The Webster Mfg. Co., and the Pembroke Mills.

Author of "Cost Finding" and "Cotton Mills."

C. H. HUNTER

Advertising Manager, Elliott-Fisher Co.

FRANK C. MORSE

Filing Expert.

Secretary, Browne-Morse Co.

H. E. K'BERG

Expert on Loose-Leaf Systems.

Formerly Manager, Business Systems Department, Burroughs Adding Machine Co.

EDWARD B. WAITE

Head, Instruction Department, American School of Correspondence.

Authorities Consulted

The editors have freely consulted the standard technical and business literature of America and Europe in the preparation of these volumes. They desire to express their indebtedness, particularly, to the following eminent authorities, whose well-known treatises should be in the library of everyone interested in modern business methods.

Grateful acknowledgment is made also of the valuable service rendered by the many manufacturers and specialists in office and factory methods, whose coöperation has made it possible to include in these volumes suitable illustrations of the latest equipment for office use; as well as those financial, mercantile, and manufacturing concerns who have supplied illustrations of offices, factories, shops, and buildings, typical of the commercial and industrial life of America.

JOSEPH HARDCASTLE, C. P. A.

Formerly Professor of Principles and Practice of Accounts, School of Commerce, Accounts, and Finance, New York University.

Author of "Accounts of Executors and Testamentary Trustees."

HORACE LUCIAN ARNOLD

Specialist in Factory Organization and Accounting.

Author of "The Complete Cost Keeper," and "Factory Manager and Accountant."

JOHN F. J. MULHALL, P. A.

Specialist in Corporation Accounts.

Author of "Quasi Public Corporation Accounting and Management."

SHERWIN CODY

Advertising and Sales Specialist.

Author of "How to Do Business by Letter," and "Art of Writing and Speaking the English Language."

FREDERICK TIPSON, C. P. A.

Author of "Theory of Accounts."

CHARLES BUXTON GOING

Managing Editor of The Engineering Magazine.

Associate in Mechanical Engineering, Columbia University.

Corresponding Member, Canadian Mining Institute.

F. E. WEBNER

Public Accountant.

Specialist in Factory Accounting.

Contributor to The Engineering Press.

AMOS K. FISKE

Associate Editor of the New York Journal of Commerce.

Author of "The Modern Bank."

JOSEPH FRENCH JOHNSON

Dean of the New York University School of Commerce, Accounts, and Finance.

Editor, The Journal of Accountancy.

Author of "Money, Exchange, and Banking."

M. U. OVERLAND

Of the New York Bar.

Author of "Classified Corporation Laws of All the States."

THOMAS CONYNGTON

Of the New York Bar.

Author of "Corporate Management," "Corporate Organization," "The Modern Corporation," and "Partnership Relations."

THEOPHILUS PARSONS, LL. D.

Author of "The Laws of Business."

E. ST. ELMO LEWIS

Advertising Manager, Burroughs Adding Machine Company.

Formerly Manager of Publicity, National Cash Register Co.

Author of "The Credit Man and His Work," and "Financial Advertising."

T. E. YOUNG, B. A., F. R. A. S.

Ex-President of the Institute of Actuaries.

Member of the Actuary Society of America.

Author of "Insurance."

LAWRENCE R. DICKSEE, F. C. A.

Professor of Accounting at the University of Birmingham.

Author of "Advanced Accounting," "Auditing," "Bookkeeping for Company Secretary," etc.

FRANCIS W. PIXLEY

Author of "Auditors, Their Duties and Responsibilities," and "Accountancy."

CHARLES U. CARPENTER

General Manager, The Herring-Hall-Marvin Safe Co.

Formerly General Manager, National Cash Register Co.

Author of "Profit Making Management."

C. E. KNOEPPEL

Specialist in Cost Analysis and Factory Betterment.

Author of "Systematic Foundry Operation and Foundry Costing," "Maximum Production through Organization and Supervision," and other papers.

HARRINGTON EMERSON, M. A.

Consulting Engineer.

Director of Organization and Betterment Work on the Santa Fe System.

Originator of the Emerson Efficiency System.

Author of "Efficiency as a Basis for Operation and Wages."

ELMER H. BEACH

Specialist in Accounting Methods.

Editor, Beach's Magazine of Business.

Founder of The Bookkeeper.

Editor of The American Business and Accounting Encyclopedia.

J. J. RAHILL, C. P. A.

Member, California Society of Public Accountants.

Author of "Corporation Accounting and Corporation Law."

FRANK BROOKER, C. P. A.

Ex-New York State Examiner of Certified Public Accountants.

Ex-President, American Association of Public Accountants.

Author of "American Accountants' Manual."

CLINTON E. WOODS, M. E.

Specialist in Industrial Organization.

Formerly Comptroller, Sears, Roebuck & Co.

Author of "Organizing a Factory," and "Woods' Reports."

CHARLES E. SPRAGUE, C. P. A.

President of the Union Dime Savings Bank, New York.

Author of "The Accountancy of Investment," "Extended Bond Tables," and "Problems and Studies in the Accountancy of Investment."

CHARLES WALDO HASKINS, C. P. A., L. H. M.

Author of "Business Education and Accountancy."

JOHN J. CRAWFORD

Author of "Bank Directors, Their Powers, Duties, and Liabilities."

DR. F. A. CLEVELAND

Of the Wharton School of Finance, University of Pennsylvania.

Author of "Funds and Their Uses."

THE SUPREME COURT BUILDING AT SPRINGFIELD, ILL.

Foreword

With the unprecedented increase in our commercial activities has come a demand for better business methods. Methods which were adequate for the business of a less active commercial era, have given way to systems and labor-saving ideas in keeping with the financial and industrial progress of the world.

Out of this progress has risen a new literature—the literature of business. But with the rapid advancement in the science of business, its literature can scarcely be said to have kept pace, at least, not to the same extent as in other sciences and professions. Much excellent material dealing with special phases of business activity has been prepared, but this is so scattered that the student desiring to acquire a comprehensive business library has found himself confronted by serious difficulties. He has been obliged, to a great extent, to make his selections blindly, resulting in many duplications of material without securing needed information on important phases of the subject.

In the belief that a demand exists for a library which shall embrace the best practice in all branches of business—from buying to selling, from simple bookkeeping to the administration of the financial affairs of a great corporation—these volumes have been prepared. Prepared primarily for use as instruction books for the American School of Correspondence, the material from which the Cyclopedia has been compiled embraces the latest ideas with explanations of the most approved methods of modern business.

Editors and writers have been selected because of their familiarity with, and experience in handling various subjects pertaining to Commerce, Accountancy, and Business Administration. Writers with practical business experience have received preference over those with theoretical training; practicability has been considered of greater importance than literary excellence.

In addition to covering the entire general field of business, this Cyclopedia contains much specialized information not heretofore published in any form. This specialization is particularly apparent in those sections which treat of accounting and methods of management for Department Stores, Contractors, Publishers and Printers, Insurance, and Real Estate. The value of this information will be recognized by every student of business.

The principal value which is claimed for this Cyclopedia is as a reference work, but, comprising as it does the material used by the School in its correspondence courses, it is offered with the confident expectation that it will prove of great value to the trained man who desires to become conversant with phases of business practice with which he is unfamiliar, and to those holding advanced clerical and managerial positions.

In conclusion, grateful acknowledgment is made to authors and collaborators, to whose hearty coöperation the excellence of this work is due.

(For professional standing of authors, see list of Authors and Collaborators in front of volume.)

VOLUME III

Law of Contracts and Agency	By John A. Chamberlain	Page [11]
Law in General—Contracts—Consideration—Revocation—Illegal Contracts—Mistake—Assignments—Dischargeof Contract—Warranty—Recision—Remediesfor Breach—Forms of Contracts—Appointment of Agents—Sub-Agents—Factors—Brokers—Auctioneers—RealEstate Brokers
Law of Partnership and Corporations	By John A. Chamberlain	Page [77]
Creation of Partnership—Agreements—Rights and Liabilities—Change ofMembership—Survivorship—Dissolution—Powers of Corporations—CapitalStock—Calls and Assessments—Watered Stock—Common and Preferred Stock—Dividends—Officersand Agents
Law of Negotiable Instruments, Banking, and Insurance	By John A. Chamberlain	Page [112]
Negotiability and Assignability—Law Merchant—Notes, Drafts, Bills of Exchange,and Checks—Bonds—Indorsement—Forgery—Fraud and Duress—Consideration—Defences—Dishonorand Protest—Functions and Powers ofBanks—Deposits—Loans and Credits—Discount—Exchange—Interest—InsuranceContracts—Policies—Suretyship—Subrogation—Indemnity
Law of Sales, Mortgages, and Carriers	By John A. Chamberlain	Page [179]
Sale, Barter, and Bailment—When Title Passes—Effect of Fraud—Warranties—Seller'sLien—Title to Property Bailed—Degree of Care Required—Pledges—CollateralSecurities—Redemption—Mortgages—Form of Mortgages—Foreclosure—Titleto Goods after Delivery—Stoppage in Transitu—InterstateCommerce Act—Passengers—Baggage
Law of Real Property	By John A. Chamberlain	Page [236]
Crops and Emblements—Party Walls—Fixtures—Fences—Private Ways andHighways—Varieties of Estates—Waste—Deeds—Possession—Deeds andMortgages—Transfer of Mortgages and Mortgaged Premises—Satisfaction—Redemption—Foreclosure—Partiesto Trusts—Varieties of Trusts—Rights ofTenant—Rent—Distress—Leases—Actions for Possession—Trade Marks
Law of Wills and Legal Actions	By John A. Chamberlain	Page [287]
Parties and Terms in Wills—Publication—Revocation and Alteration—Advancement,Abatement, and Ademption—Form of Wills—Varieties of Courts—LegalActions and Their Enforcement

Index		Page [311]

THE BUILDING OF THE LAW SCHOOL OF THE UNIVERSITY OF CHICAGO

COMMERCIAL LAW

PART I

LAW IN GENERAL

1. Rights. Men are endowed with certain individual rights. These rights are principally of two classes, personal and property. Men have the right to live in peace and quietude. In so far as it does not interfere with the same privilege on the part of others they have the right to be unmolested in the pursuit of happiness. They have the right to defend themselves against the attacks of others, to satisfy bodily hunger and thirst, and to preserve their bodies in health and strength.

Besides these personal rights, men have the right to acquire and keep property. This right is also subject to the limitation of not interfering with the same privilege on the part of others. Men have the right to acquire property, both chattel and real. For the purpose of rendering their existence and enjoyment secure, they have the right to keep the title and possession of this property in themselves.

In primitive times, property rights were few. Personal rights were recognized and enforced by might. As the requirements of civilized life became more complex, property rights were needed and recognized. Rules of conduct and rules for the holding and transfer of property were recognized and enforced. Might ceased to be the principal method of enforcing rights. Rules began to be recognized and enforced with regard to persons and property. These rules are known as laws.

2. Law. Law may be defined to be a rule of human conduct. It may be said to embrace all rules of human conduct recognized by courts of law. Laws are necessary to enable men to enforce and enjoy their rights, both personal and property. Customs of men become rules by which human affairs are regulated. Men may disagree as to what their rights are, or as to their exact scope or limitations. In this event, rules of conduct or laws must determine their scope and limitations. Disputes among men arise about their personal or property rights. The rules recognized by the courts in settling these disputes are laws. These rules or laws relate both to persons and property. A law which prohibits murder is a rule by which the state protects the lives of its citizens; a law which prohibits theft is a rule for the protection of property.

3. Sources of Law. Law is derived from the customs of the people and from the written declarations or agreements of the people or their representatives. The customs of the people, constituting a large part of our law, are found principally in the decisions of courts. Each state of this country prints and keeps a permanent record of at least the most important decisions of its court of last resort. Many decisions of lower courts are printed and preserved. Every law library of importance has the printed reports of the supreme court of each state of this country; as well as the reports of the higher courts of most of the countries where the English language is spoken or officially recognized. The reports of the higher courts of England, Ireland, Canada, Australia, and of many of the island possessions of this country and of England, are found in most law libraries. The second source of law is the written declaration of the people or their representatives. These declarations consist of legislative acts, treaties and constitutions. In this country, legislative acts may be either national or state. Many statutes are nothing more than recognized customs enacted into written laws. Other statutes are variations or restrictions of recognized customs. National legislative acts are numbered consecutively, printed and bound into volumes known as the Federal Statutes. Each state numbers its statutes consecutively and prints and binds them into volumes known as the State Statutes.

4. Divisions of the Law. There are two great divisions of the law, written and unwritten. The greater portion of the law consists of the customs of the people, as evidenced and preserved by the written decisions of the courts. These customs, to be recognized as law, need not be found in written decisions, but the most important ones have become embodied therein. New customs are necessary and are recognized to meet new and changing conditions. These new customs are continually adding to our unwritten law. While this great portion of the law is called unwritten law, the greater portion of it actually is in writing, and is preserved in permanent form by our court reports, both national and state.

The second division of law is known as written law. It consists of treaties, constitutions, and legislative acts. Treaties are international compacts. Legislative acts are the laws passed by the people or their representatives. In this country they consist of the laws passed by the United States Congress, and by the representative bodies of each state. Constitutions, in this country, consist of the State Constitutions and the United States Constitution. In England the constitution is not written, but is a part of the unwritten law of the land.

5. Classification of Law. A number of useful classifications of the law are recognized. Any classification is more or less arbitrary, and no classification has been recognized universally.

Law may be classified as public, administrative, and private. Public law embraces the law of nations, called international law; the laws regulating the enforcement and recognition of constitutional provisions, called constitutional law; and the laws protecting citizens against the actions of dangerous characters, called criminal laws.

The public as a unit is said to be interested in public law. Public laws are recognized and enforced in theory, at least, for the benefit of the public and not for any particular individual. For example, if a murder is committed, the state through its officers prosecutes and punishes the criminal on the theory that a wrong has been done the state. The heirs or representatives of the person murdered can sue and recover money compensation, called damages, from the murderer, but the state punishes the criminal. This work does not treat of public law.

Administrative law, sometimes called Law of Procedure, embraces the rules and regulations relating to the enforcement of personal and property rights. The laws relating to courts, the method and manner of starting legal actions, the trial of cases, and the rendering and enforcement of judgments are common examples of Administrative Law. Private law embraces the law of contracts and of torts.

Contracts consist of agreements of every nature. The great majority of dealings of men are carried out by means of contracts. This is the most important, as well as the most extensive subject known to the law.

Torts embrace all private wrongs not arising out of contracts. Any injury inflicted by one person upon the person or property of another, which is not a breach of contract, is a tort. Tort is the French word for private wrong. If A carelessly drives his automobile into B's wagon, he commits a tort. If A carelessly drives his horse over B's field, he commits a tort. If A wrongfully strikes B, he commits a tort. Torts and crimes frequently over-lap. The same act may constitute a tort and a crime. If A drives his automobile faster than the laws of the state or city permit, and while so doing runs over and injures B, he commits both a tort and a crime. He is liable to the state for imprisonment or fine for the crime, and he is liable to B in money for damages for the tort.

The same act may constitute a crime, a breach of contract, and a tort. If A, engaged as a chauffeur to operate an automobile carefully and skillfully, violates the speed law, and in so doing runs over and injures B, he commits a crime and is liable to the state for punishment or fine. He is also liable in damages to B for the tort committed, and is liable in damages to his employer for breach of contract. This work has largely to do with the law of contracts and torts.

The term Commercial Law, applied to this work, is a term used arbitrarily to embrace the laws relating to commercial affairs. It has no distinct place in the general classification of law.

CONTRACTS

6. Contract, Defined and Discussed. A contract has been defined to be an agreement between two or more competent parties, enforceable in a court of law, and based upon a sufficient consideration, to do or not to do a particular thing.

The law relating to contracts is the most important, as well as the most extensive, branch of commercial law. It touches, directly or indirectly, most of the dealings of men. It is the legal basis of all business transactions.

In the daily routine of their life, most families make many contracts. By reading the morning paper left at his door, a person impliedly agrees to pay the publisher the customary price. By ordering the daily supply of groceries by telephone, the housewife impliedly contracts to pay for their value, upon delivery, or at the customary time of payment. By purchasing a number of car tickets from the street car conductor, a person makes a contract. By ordering a lunch, a person impliedly agrees to pay the customary price. In the more important business transactions, formal contracts are written out and signed. In these transactions the parties endeavor to define their duties and obligations clearly and expressly, in order that they may understand each other and in order that neither can dishonestly claim that the contract contains a certain provision or condition. Contracts are legal or illegal, void or voidable, depending upon their form and nature. An understanding of the necessary elements of valid contract is the foundation, to the understanding of commercial law.

7. Offer, Acceptance and Agreement. To constitute a transaction a valid contract, there must be an offer on the one hand, and an acceptance on the other. This necessitates at least two parties to every contract. One must make a proposition, the other must accept it. The acceptance must be of the exact terms of the offer, to constitute a legal acceptance. If the attempted acceptance is not made in the precise terms of the offer, it constitutes a counter offer, which, to constitute a contract must, in turn, be accepted by the original offeror.

If A offers B one hundred dollars for B's horse, and B in turn agrees to take one hundred dollars, the transaction constitutes a valid contract. If A offers B one hundred dollars for B's horse, and B in turn offers to sell the horse for one hundred and twenty dollars, the transaction does not constitute a contract, for the reason that A's offer has not been accepted. B, however, makes a counter offer, which if not assented to by A, constitutes no contract. If, however, A agrees to accept B's offer to sell the horse for one hundred and twenty dollars, this constitutes a valid contract, in which B is the offeror and A the acceptor. These counter offers in response to offers may go on indefinitely without constituting contracts. So long as the response to the offer varies the terms of the offer, it constitutes a counter offer, and not an acceptance. To constitute an acceptance, the exact terms of the offer must be agreed to.

Courts lay down the principle that there must be a meeting of the minds of the contracting parties, to constitute the transaction a valid contract. This means that the offer must be accepted in its precise terms. The minds of the contracting parties cannot meet, unless the acceptance is of the exact terms of the offer. This principle is sometimes called mutuality. An acceptance must be communicated to the offeror. A mere mental operation, or an attempted acceptance, not communicated to the offeror, does not constitute a legal acceptance.

The offer, or acceptance, may be in the form of an act as well as by verbal or written communication. If a person orders a barrel of flour of his grocer, the order constitutes the offer, and the delivery of the flour and the receipt of same by the purchaser, constitutes the acceptance. The purchaser is bound to pay the market price for the flour, regardless of the fact that the price has not been mentioned.

An offer can be recalled at any time before acceptance. To recall an offer, the offeror must communicate his intention so to do, to the acceptor before acceptance. Agreements to hold offers open for a stipulated time are recognized. These options are, in themselves contracts, and to be binding must contain all the essential elements of a contract.

An offer which has been accepted constitutes an agreement. An agreement, as the word suggests, means a meeting of the minds of two or more parties. The word is frequently used as synonymous with contract, but it is merely an element of a contract. While there must be an agreement in every contract, an agreement of itself does not constitute a contract. There may be an agreement between persons under legal age, but this agreement does not constitute a contract.

Besides an agreement, or meeting of the minds, a contract must have competent parties, a legal valuable consideration, and a lawful object. These are often called the elements of a contract.

8. Parties to a Contract. A contract must have at least two competent parties. Each party to a contract may consist of one or more persons.

To be competent to make a contract, a party must be of legal age. Legal age is twenty-one years for males, and ordinarily, eighteen for females. Legal age is fixed by statutes of the different states. These statutes differ somewhat as to the legal age of females. Some fix it at twenty-one, others at eighteen, and some even younger than eighteen, in case of marriage. Intoxicated persons, insane persons and idiots are not competent to make contracts. Artificial persons or corporations can make contracts within the scope of the powers given them by the state.

A person who does not voluntarily consent to the terms of a contract is not a party to it. Where fraud or duress is used in obtaining a party's consent to a contract, the contract is at least voidable. It is not enforceable if the defrauded party objects on that ground.

9. Consideration. Consideration may be good or valuable. Good consideration consists of love and affection existing between near relations. Good consideration is a sufficient consideration to support a deed given by one relative to another. But this is the only kind of contract supported by a good consideration.

Valuable consideration has been defined to consist of some right, interest, profit or benefit, accruing to the promisor, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the party, to whom the promise is given. In short it is a benefit to the promisor, or a detriment to the promisee. All contracts, with the exception of sealed instruments, must be supported by a valuable consideration. Sealed instruments, except where abrogated by statute, import a consideration.

A promises to sell his watch to B for ten dollars. B accepts the offer by offering to pay A ten dollars. There is a valuable consideration, consisting of B's promise to pay A ten dollars.

A promises B two dollars if B will guard A's house for two hours. There may be no actual benefit resulting to A, since it may have been unnecessary to have the house guarded. But if B guards the house for two hours, A is legally bound to pay him the contract price of two dollars. The valuable consideration is the detriment or responsibility of B in guarding the house for two hours.

Mutual promises constitute a valuable consideration. If A promises B two dollars if B will work for him next Thursday, and B promises A to work for him next Thursday, the contract is mutual, and is supported by a valuable consideration. The consideration consists of the promise on the part of each of the contracting parties.

A past consideration will not support a contract. By a past consideration, is meant a benefit received in the past, for which no legal liability was incurred or exists. A gives B, his son, five hundred dollars. One year later, in consideration of the past gift, B promises to construct a dam for A. The consideration is past and does not support the attempted contract.

A consideration, to be valuable and sufficient to support a contract, need not be adequate. A mutual promise, no matter how slight or trivial, or the payment of anything valuable to the promisor, is sufficient. Sometimes the inadequacy of the consideration tends to prove fraud in the making of the contract. When it is sought to avoid a contract on the ground of fraud, the inadequacy of the consideration may be considered in connection with the question of fraud. When fraud does not enter into the question, adequacy of the consideration is not questioned.

A sells B one hundred acres of land. The deed recites a consideration of one dollar. The deed of transfer is good and the smallness of the sum named does not affect the contract.

A promise to do something which one is already legally bound to do does not constitute a valuable consideration to a contract. A owes B one hundred dollars upon a promissory note. The note is past due and A fails to pay it. A promises to pay the note within ten days, on condition that B promise to give A a barrel of apples. B agrees. A cannot compel B to deliver the barrel of apples, nor has A any defense to the payment of the promissory note, since his promise to pay the note was a promise to do something he was already bound to do.

An illegal consideration does not support a contract. Any consideration contrary to established law is illegal. A promising to pay B one thousand dollars if B will burn C's barn is an example of illegal consideration.

10. Express and Implied Contracts. Some contracts expressly set forth the exact terms and conditions to be performed by both the contracting parties. For example, A makes a contract with B, by the terms of which, B is to construct a house for A. The contract is carefully prepared in writing, B is to receive five thousand dollars ($5,000.00) when the house is completed, and the contract contains provisions as to the details of the work and materials. Such a contract is called an express contract by reason of the terms having been expressly agreed upon by the parties. A contract need not be in writing to be express. The parties may enter into an express contract orally as well. Few contracts are made, however, in which some things are not implied. For example, in the contract for the building of a house it is practically impossible, or at least, is impracticable, to set forth in exact detail all the duties of the builder. For example, it would be unnecessary to give the size of the nails and number or quantity of same to be used. The contract impliedly requires the builders to use the proper size and quantity. A contract, however, in which the parties endeavor to set forth the principal things to be done, is known as an express contract.

An implied contract is one in which the parties do not expressly agree upon some of the important terms. A, a contractor, orders of B one thousand feet (1,000 ft.) of No. 1 white pine ship lap siding. The price is not mentioned. B delivers the lumber and A by implication is obliged to pay B the reasonable value thereof. The greater portion of business contracts are implied. An implied contract should not be confused with uncertain contracts. Uncertain contracts are void by reason of their uncertainty. A offers B one thousand dollars for five acres of land. B accepts the offer. In case the parties had no particular five acres of land in mind, the contract is void by reason of this uncertainty. The parties' minds did not meet on the question of what particular piece of land was to be transferred. In most implied contracts the article to be delivered is a part of a large quantity, and the particular part does not matter. Articles ordered from stock, such as groceries, shingles, slate, cement and lumber are common examples of this principal.

11. Unilateral and Bilateral, Executory and Executed Contracts. The mutuality or meeting of the minds, constituting one of the essential elements of the contract, may result from an express promise for a promise, or from an act performed in response to a promise. A promises to sell his automobile to B on the following day for five thousand dollars ($5,000.00). B promises to pay A five thousand dollars ($5,000.00) the following day. The mutuality consists of the mutual promises of A and B. Such contracts are known in law as bilateral contracts.

A promises to pay B one thousand dollars ($1,000.00) if B will move his house to the rear of A's lot. B, without promising to do so, moves the house. This act on the part of B constitutes the acceptance of the contract and completes the mutuality. Such contracts are known in law as unilateral contracts.

A contract to be performed in the future is known as an executory contract. A promises to pay B seventy-five dollars, if he will work on A's farm during the month of August of the following year. B accepts A's offer and promises to work for A as proposed. The contract is to be performed at a subsequent date, and constitutes an executory contract.

An executed contract is one which is performed. A promises to sell his bicycle to B for fifty dollars ($50.00); B pays the fifty dollars ($50.00) to A and receives the bicycle. This contract is executed.

A contract may be executed as to one party and executory as to the other. If A agrees to sell and deliver his team of horses to B for five hundred dollars ($500.00) and B pays A five hundred dollars ($500.00) but A does not deliver the team to B, the contract is executed as to B and executory as to A.

12. Contracts of Infants. A person under legal age is known in law as an infant. The legal age is fixed by statute in the different states. In most states this age is twenty-one for males and eighteen for females. In some states the legal age for females is under eighteen in case of marriage.

An infant's contracts are voidable. Voidable does not mean that the contract is illegal. It is not contrary to law for an infant to make contracts. He may lawfully make them. The law will not compel him to carry them out. He may carry them out voluntarily if he chooses.

A competent party, contracting with an infant cannot avoid the contract on the general ground of the infancy of the other party to the contract. The infant, however, may avoid the contract by reason thereof.

An infant may ratify his contract after becoming of legal age. This ratification is effected by the infant's accepting benefits under the contract after attaining his majority. Ratification may also be effected by an infant after he has reached his majority by promising to carry out the contract. To have such a promise amount to a ratification the infant must make the promise with knowledge that he may avoid the contract if he chooses.

An infant is liable on his contracts for necessaries. Necessaries is a variable term, depending upon the social position of the infant. Those articles essential to the health and sometimes to the comfort of the infant are considered necessaries. Food and clothing are the most common examples. A person selling an infant necessaries, cannot recover in excess of their reasonable value regardless of the contract price, and cannot recover at all, if the infant is already supplied. Most courts hold that a party selling necessaries to an infant must determine at his peril that the infant is not supplied. Articles which would be luxuries for one infant, might be necessaries for an infant accustomed to wealth.

An infant is not entitled to his wages unless he has been emancipated. The father or guardian is entitled to the wages. Emancipation may be by written declaration to that effect, on the part of the father. It may also be implied from the refusal or failure on the part of the father to treat the infant as his child.

13. Novation and Contracts for the Benefit of Third Persons. If A owes B one hundred dollars ($100.00) and B owes C one hundred dollars ($100.00), the three parties may agree that A may pay C one hundred dollars ($100.00), discharging the indebtedness of both A and B. This contract is valid in law, and is called novation.

Much of our common or unwritten law was taken from the common law of England. The common law of England did not permit a third party, for whose benefit a contract was made, to enforce the contract. For example, if A and B enter into a contract by which A is to pay C some money, C cannot enforce the contract. This kind of a contract is commonly known as a contract for the benefit of a third person. With a few exceptions, the states of this country refuse to follow the English doctrine. The general American doctrine is that a third party may enforce a contract made for his benefit. For example, A, a furniture dealer was indebted to B for a bill of goods; C purchased A's business, and in a formal written contract, as part of the consideration, agreed to pay B the amount of A's bill. After the transfer of the business, A became insolvent and B, learning of the contract between A and C, sued C thereon and was permitted to recover. The general American doctrine will not permit two parties, making a contract for the benefit of a third, to rescind or avoid the contract after the third party has been notified of it, and has assented thereto. Of course, two parties cannot bind a third party to perform any condition of a contract without his consent. This would violate some of the fundamental principles of contracts. There would be no consent, no meeting of the minds, and sometimes no consideration.

14. Contracts of Insane Persons, Idiots, and Drunkards. An insane person, or one that does not understand the nature of the contract in question, is not bound by his contracts. He may avoid them. Like an infant, he may ratify them when he becomes sane, if he chooses. Statutes of all the states provide for the determination of insanity by judicial decree. Such a judicial determination is presumed to give notice to all. An idiot's contracts are the same as an insane person's.

A drunkard can avoid a contract made while he was intoxicated, and if the drunkenness amounts to insanity, it is regarded in law as such. Contracts made by a drunkard when not drunk, or by a lunatic during a lucid interval are valid and binding.

15. Contracts of Married Women. At common law, upon marriage, the wife lost her legal identity in her husband. Her estate became his, her personal property became his, and she could not thereafter enter into any legal obligation. The statutes of the states generally at the present time permit a married woman to contract as independently as a man, relative to her separate estate. In some states there are a few limitations, such as contracting directly with her husband or as surety for her husband.

16. Custom and Usage as Part of a Contract. Parties may enter into any contracts they choose, so long as the terms are legal. If parties expressly agree, either orally or verbally, on the precise terms of a contract, these terms cannot be varied by usage or custom. Usage and custom may be used, however, to explain the intent of the parties. Merchants and traders recognize various trade customs, without which it would be impossible to interpret their contracts. For example, A ordered five thousand barrels of cement of B, at eighty-five cents a barrel, to be delivered in sacks F. O. B. Mill. In a suit for the purchase price, the court permitted B to show that there was a well-known custom in the cement trade to add to the invoices forty cents per barrel for sacks, making the invoice selling price of the cement and sacks one dollar and twenty-five cents ($1.25) per barrel.

To constitute a part of the contract, usage and custom must be of such a general nature as to be considered within the contemplation of the parties.

17. Contracts in Writing. Parties may make contracts verbally, as well as in writing. A contract is not illegal because it is verbal. It is good business policy to make important contracts in writing. Their terms are easily proven. There is not the temptation to attempt to vary the terms. Parties cannot claim they did not understand each other. It may be laid down as a general rule that oral contracts are as legal as written ones. By the term, legal is meant that the law does not prohibit them. Parties may lawfully make oral contracts, and carry them out if they choose. Some contracts, however, are not enforceable at law unless in writing. These contracts are legal. Parties may lawfully make them and voluntarily carry them out, but they cannot invoke the aid of the law in enforcing their terms.

18. Statute of Frauds. The class of contracts, required by law to be in writing in order that they be enforceable, is said to be within the Statute of Frauds.

The Statute of Frauds originated in England in 1677. It was passed for the purpose of preventing frauds and perjuries. It required that certain important contracts must be made in writing, in order to be enforceable at law. The purpose of the statute was to remove the temptation of fraud and perjury in connection with the making and enforcing of certain contracts. Two sections of the English statute apply especially to contracts; the fourth and the seventeenth. The fourth section is as follows:

"No action shall be brought whereby to charge any executor or administrator, upon any special promise to answer damages out of his own estate; or whereby to charge the defendant upon any special promise, to answer for the debt, default, or miscarriage of another person; or to charge any person upon any agreement made upon consideration of marriage; or any contract or sale of lands, tenements or hereditaments, or any interest in or concerning them; or upon any agreement that is not to be performed within the space 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 other person thereunto by him lawfully authorized."

The seventeenth section of the English Statute of Frauds is as follows:

"No contract for the sale of any goods, wares, or merchandise for the price of ten pounds sterling or upwards, shall be allowed to be good except the buyer shall accept part of the goods so sold, and actually receive the same, or give something in earnest to bind the bargain, or in part payment, or some note or memorandum in writing of the said bargain, be made and signed by the parties to be charged by such contract or their agents thereunto lawfully authorized."

The English Statute of Frauds has been enacted in substance in all the states. Reduced to single propositions the statute provides:

1. That an executor or administrator shall not be bound by contract to pay damages out of his own estate, unless the contract be in writing.

For example, A is executor of B's estate. C is a creditor of B. A orally promises C to pay B's debt. This contract is not enforceable because not in writing.

2. A party promising to answer for the debt, default or miscarriage of another, shall not be bound unless the contract is in writing.

For example, if A owes B $100 and C promises B to pay A's debt, the contract is not enforceable if not in writing. This clause of the statute is discussed more at length in the chapter on suretyship.

3. A contract made in consideration of marriage is not enforceable unless made in writing.

For example, A orally promised B that if he would marry her, she would convey to him her farm. B married A, but could not enforce the contract. A promise to marry is not within this section of the statute.

4. Any contract or sale of lands must be in writing to be enforceable.