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Summary of Fraud in Securing Signatures and Related Defenses

Key Concepts:

Fraud in securing a signature refers to situations where a person’s signature is obtained through deception or misrepresentation, potentially providing a defense against enforcement of a negotiable instrument.
Legal outcomes depend on whether the signer was tricked into signing or knowingly signed a misrepresented document, and whether the subsequent holder is a holder in due course (HDC).

Case Example:

Scenario:
Person A contracts with B to sell grain-seeders and asks B to write his signature on a paper for manufacturers to recognize it when ordering machines.
Later, A fraudulently writes a promissory note for $1,000 over B’s signature without B’s consent and negotiates it to C.
C, who is a holder for value, takes the note before it is due and without knowledge of the fraud.
B refuses payment; C sues B but loses because B never actually signed the note.
Legal outcome:
B’s defense that he never signed the note is valid against any holder, including an HDC.
This represents a real and absolute defense because the signature was forged.

Distinction Between Two Types of Fraud in Signing:

Type of Fraud Case	Signer’s Knowledge	Defense Against Holder in Due Course (HDC)
1. No signature on the instrument at all	Signer did not sign the paper	Absolute defense; signer is not liable
2. Signer signs a misdescribed or misread paper	Signer knows they are signing a document but misled about its nature	Depends on negligence: non-negligent signer has absolute defense; negligent signer’s defense fails against HDC

Important Legal Principles:

Real/Absolute Defense:
Applies when the person did not sign the instrument or was not negligent in signing a misrepresented document. The signer is not liable to any holder, including HDCs.
Equitable or Personal Defense:
Applies against the original party who committed the fraud (e.g., Y in the example of misdescribed papers). This does not necessarily protect against a holder in due course if the signer was negligent.
Negligence Standard:
If the signer knows he is signing a document but fails to exercise reasonable diligence to understand what it is, the defense against an HDC may be lost. The law expects a person to take reasonable care before signing.

Practical Implications:

Persons asked to sign documents should exercise caution and verify the nature of the instrument they are signing.
Forged signatures provide an absolute defense against payment.
Misdescribed documents require analysis of the signer’s knowledge and diligence.
Holders in due course are protected unless the defense is absolute (e.g., forgery or non-negligence in signing).

Key Insights:

Forgery is an absolute defense against all holders.
Misrepresentation can be an absolute defense only if there was no negligence by the signer.
The law balances protecting innocent holders who acquire instruments in good faith with protecting individuals from fraudulent obligations.

This summary highlights the legal nuances of fraud in securing signatures, focusing on the distinction between no signature versus misdescribed documents, and the role of negligence in determining defenses against holders in due course.

and the
alteration.

Fraud in securing the signature.—This, too, may be a real defense. For example, A contracted with B to sell grain-seeders, and asked B to write his signature on a piece of paper to be sent to the manufacturers of the seeders, so that they might know his signature when he ordered machines. Later A wrote a promissory note for a thousand dollars over B’s signature, and negotiated it for full value to C, who took it before due and without notice of A’s fraud. B refused to pay the note. C sued him and was beaten. B’s defense, that he never signed the note, was available against any holder.
At times persons are tricked into signing papers which are misread or misdescribed to them. X is asked to sign a contract of agency for the sale of some article; or a contract of guarantee that Y will pay for certain property if it is sold to him; or to sign a paper as a witness to Y’s signature. Trusting to the statement of the nature of the writing, he does not examine it before signing. It turns out that the paper thus signed is a bill of exchange or a promissory note. Of course he has a good equitable or personal defense against Y. Whether he has a real or absolute defense against a holder in due course depends upon whether he acted negligently in signing the paper. If his conduct was not negligent his defense is absolute. Otherwise the holder in due course will recover. The distinction between the two classes of cases mentioned in this paragraph is this. In the first the defendant does not sign any paper. In the second he knows he is signing something. It is his duty, therefore, to use reasonable diligence to learn what the paper is.

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The by persons engaged in an illegal business, such as carrying on a gambling-house, to compel their copartners to divide the illegal gains, but always without success. courts refuse to protect a gambler, or other criminal law- breaker, against the cheats of his copartners.

(b) Meaning of business. Three hundred years ago only those who were engaged in merchandising-in trading as merchants were treated as partners. In other words, mercantile business only was carried on by partnerships. A firm, or partnership of farmers, or of real-estate dealers was never heard of. At present, however, the term “business ” in partnership law includes every trade, occupation, or profession. Accordingly, we have partnerships of mechanics, of farmers, of real-estate dealers, of insurance agents, of theatrical managers, of lawyers, of doctors, and many others. Still, the old, narrow conception of “business” lingers on in some lines of work, such as farming on shares. A lets his farm, with its stock and implements, to B, who agrees to cultivate it for a year on shares-that is, to receive a share of the profits of the farm, the remainder to go to A. This is not a partnership, but a lease of the farm, A receiving his share of the profits as rent, and B his share as wages.

Again, a business means something more than doing a particular piece of work. Two carpenters agree to make certain repairs for a certain sum upon the house of A; who furnishes all the material; or two lawyers agree to try a lawsuit for B for a stipulated sum; here is no indication that the carpenters or the lawyers have entered into a partnership. They are not carrying on a business, but are doing a single, isolated piece of work.

(c) A common business.-Not only must persons be engaged in carrying on business in order that they be partners, but they must own that business in common. Hence, a pooling arrangement is not a partnership. Com

the 231 only claim is against his transferor and those who indorsed, and thus guaranteed the validity of the paper after its alteration.

piece be a real defense. For example, A contracted with B to 320. Fraud in securing the signature. This, too, may of paper to be sent to the manufacturers of the seed- sell grain-seeders, and asked B to write his signature on a ers, so that they might know his signature when he ordered machines. Later A wrote a promissory note for a thousand dollars over B’s signature, and negotiated it for full value to C, who took it before due and without notice of A’s fraud. B refused to pay the note. C sued him and was beaten. B’s defense, that he never signed the note, was available against any holder.

At times persons are tricked into signing papers which are misread or misdescribed to them. X is asked to sign a contract of agency for the sale of some article; or a contract of guarantee that Y will pay for certain property if it is sold to him; or to sign a paper as a witness to Y’s signature. Trusting to the statement of the nature of the writing, he does not examine it before signing. It turns out that paper thus signed is a bill of exchange or a promissory note. Of course he has a good equitable or personal defense against Y. Whether he has a real or absolute defense against a holder in due course depends upon whether he acted negligently in signing the paper. If his conduct was not negligent his defense is absolute. Otherwise the holder in due course will recover. The distinction between the two classes of cases mentioned in this paragraph is this. In the first the defendant does not sign any paper. In the second he knows he is signing something. It is his duty, therefore, to use reasonable diligence to learn what the papeer is.

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it is due he refuses to pay it. A sues him, and B sets up as a defense that A cheated him; that the horse was so unsound and vicious as to be good for nothing, and that it had been tendered back to A, who refused to receive it. That is a good defense. It is inequitable that A should enforce the payment of the note. Hence the defense is sometimes spoken of as an equitable one. Had A negotiated the note to C before due, for value and without notice, the latter could have enforced it free from that defense-that is, the defense is personal against A, or one who has no better title than A, but it is not available against a holder in due course.

Real or absolute defenses.-These are available against any holder of the paper. They are called “real,” because they attach to the res (the thing)-i. e., the paper itself. They are called absolute defenses in order to contrast them with the equitable defenses referred to in the last paragraph-i. e., defenses based upon the unfairness or in- justice of the plaintiff’s attempt to enforce the paper. Legal incapacity of a person to make a contract is a real or absolute defense. An infant maker of a note or acceptor of a bill can plead his legal incapacity and avoid the instrument even against a holder in due course. Such a holder must look for redress from his indorser. The indorser
would be liable to the holder whether he indorsed with knowledge of the maker’s or acceptor’s infancy or not, for the indorser, it will be remembered, impliedly engages that the paper is valid.

Another example of a real or absolute defense is afforded by the alteration of negotiable paper. A note is made for one hundred dollars, and is changed to one for a thousand dollars. Though the alteration may have been made so skilfully as to render detection by the holder impossible, it is an absolute bar to his recovery against the maker, or any one who became a party prior to the alteration. His

Sum Summary of Key Legal Principles on Partnership Formation and Business Law

This excerpt from Essentials of Business Law explores fundamental aspects of partnership formation, particularly focusing on the intent and substance of agreements, and the requirement that the business be lawful. The discussion highlights the legal nature of partnerships, clarifying common misconceptions and emphasizing legal substance over form or intent.

Key Insights on Partnership Formation

Partnership is determined by substance, not intent:
A person may unintentionally become a partner even if neither they nor their lawyer believe the contract will create a partnership. The legal nature of the contract governs partnership status, rather than the secret intent or language used by the parties.
Ownership and profit motive are crucial:
If individuals become joint owners of a business operated for profit, a partnership exists. For example, shareholders in a cooperative grocery store are partners if the store sells goods to outsiders for profit. Conversely, if the store’s sole purpose is to serve members by purchasing and distributing goods at wholesale prices without profit, then no partnership exists.
Naming or calling an agreement a partnership is insufficient:
Merely labeling an organization as a partnership does not create one if the substance of the agreement does not meet the legal criteria.

Legal Requirements for Partnerships

Requirement	Explanation
Lawfulness of business	The business conducted by partners must be lawful. Illegal enterprises cannot form valid partnerships.
Joint carrying on business	Partners must carry on a business together with the intent to share profits.

The lawfulness of business is a universal legal principle. No jurisdiction recognizes partnerships formed to conduct illegal activities.

Historical Legal Precedent Illustrating Lawfulness Requirement

An illustrative case from nearly 200 years ago involved a highway robber in England who sued his accomplices for their share of stolen goods.
The court dismissed the suit and fined the plaintiff’s lawyers for contempt, underscoring that courts will not enforce agreements founded on illegal activities.
The plaintiff ultimately faced legal consequences unrelated to the case, reinforcing the principle that illegal partnerships have no legal standing.

Clarifications on Cooperative Business Structures

In cooperative enterprises, the distinction between a partnership and a non-partnership cooperative depends on the purpose and profit motive:
If the cooperative sells goods externally at a profit, stockholders are partners.
If the cooperative exists solely to provide goods to members at cost or wholesale prices, stockholders are not partners.

Core Legal Principles Summarized in Bullets

Partnership status depends on actual business operations and profit-sharing, not the parties’ subjective beliefs or contract labels.
A lawful business purpose is mandatory for a valid partnership.
Courts will reject and refuse to enforce illegal partnerships.
Cooperative entities may or may not be partnerships depending on whether their operations generate profit from external sales.
Legal advice or parties’ intentions are subordinate to the objective legal nature of the agreement and business conduct.

Conclusion

The formation of a partnership hinges on the legal substance of the relationship and business activities, rather than the parties’ secret intentions or the terminology used in their agreements. The business must be lawful, and the parties must engage jointly in carrying out the enterprise with a view toward profit. Illegal agreements, regardless of any claimed partnership status, are void and unenforceable. This ensures that the law recognizes partnerships based on real, lawful commercial cooperation and profit-sharing, protecting the integrity of business relationships and commerce.

Keywords

Business law principles

Partnership

Lawful business

Profit motive

Cooperative enterprise

Legal substance

Joint ownership

Contract intent

Illegal partnerships

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the relation without intending to do so. He may think, and his lawyer may advise him, that a contract which he is about to make will not create a partnership. They may be mistaken as to the legal nature of the contract. It may result, although they think it will not, in making him and others owners of a business carried on by them in common with a view to profit. If it does he is a partner although he did not intend to become one. A person who becomes a stockholder in a cooperative grocery-store is a partner with the other stockholders, if goods are to be sold to outsiders at a profit, whether he thinks this is a partnership or not. If the store were opened, however, simply for the benefit of its members, its purpose being the purchase of goods and their distribution among the members at wholesale prices, the stockholders would not be partners. Nor would the result be different if they thought they were organizing a partnership and called it by that name. In short, it is not the secret intent of the parties nor their language, but the substance of their contract, which determines whether a partnership has been formed or not.

Carrying on business together. (a) It must be lawful.—If the reader will refer to the first paragraph of this chapter he will notice that in only one of the definitions is the express statement made that the business must be lawful. Such is the rule, however, in every jurisdiction. Nearly two hundred years ago a highway robber had the rashness to bring an action in England against his copartners, who had refused to divide the spoils of their joint labors, amounting, as he claimed, to more than two thousand pounds. It is almost useless to say that the action was dismissed, and the plaintiff’s lawyers were heavily fined for their contempt of court in bringing the suit. The plaintiff seems to have gone scot-free for the time, but we are assured that, five years later, he was hanged for some other offense. Various attempts have been made in this country

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associates, the law is very stringent in holding him to the utmost good faith in all his conduct toward them. If he buys goods for the firm at a bargain he must give them the full benefit of the bargain. He is bound to devote himself honestly and exclusively to the firm’s business, unless the partnership contract exempts him from such duty, and he must not carry on business in competition with that of his firm.

§ 4. THE DISSOLUTION OF PARTNERSHIP

By operation of law.-A partnership is dissolved, without any agreement or act of the parties, when the law prohibits its continuance. War breaks out between the United States and Spain. This dissolves a partnership be- tween citizens of the two nations living in their respective countries, because commercial intercourse between the two states has become unlawful. At common law the marriage of a female partner dissolved a business partnership of which she was a member. Her interest in the firm passed to her husband, and “her legal personality for many purposes became merged in his.” At present, both in England and in many of our States, married women have been relieved from this rule, and may be members of business partnerships as though they were unmarried.

A partnership is dissolved by operation of law, also, upon the natural death of a partner, or upon his bankruptcy (which event, as we have seen, is regarded as his financial death). Neither the personal representative of the deceased partner nor the assignee of the bankrupt partner has any right to enter the firm. He may be a person whom the surviving partners would not choose as a business associate, and they have the right of choice, as we have already pointed out. And yet, whatever interest the deceased or bankrupt partner had in the firm vests in and belongs to his personal representative or assignee. It is clear, therefore,

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club, a political committee, a masonic or other lodge, a religious association, a social-reform organization, or any similar body of persons is not a partnership. It may own property, it may have a treasury, it may charge admission fees to games or entertainments, but it is not a partnership, for the simple reason that it is not a business association existing for the sake of making money. Accordingly, its members are not agents for the association or for the other members in making contracts or incurring obligations. A person who sells goods to such a body must look for his pay to the members who ordered them and those who actually authorized or have since ratified the purchase.

§ 2. PARTNERSHIP PROPERTY

It starts with the firm’s capital.-One of the chief reasons for forming a partnership is the accumulation of a fund larger than any one partner is able or willing to embark in the business. This fund is known as the firm’s capital. It may consist of money, or of goods, or of land. The partners may contribute equally or unequally to it. One may furnish all the capital, while the other or others contribute skill and experience, which are thought to be quite as necessary to the success of the enterprise as money. At times a partnership has very little money capital, as in the case of a firm of insurance agents, or of physicians or of young lawyers. In every case, however, as soon as the capital has been contributed and the partnership has been organized, that capital ceases to be the separate property of the partners, and becomes the property of the firm. With it the firm carries on its business and acquires other
property.

The firm as a person.-By the custom of merchants & partnership is treated very much as though it were a Corporation-an artificial person. Not only is it the owner

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merchants as to treat the firm title as continuing after A’s death, but controlled entirely by B. He can sell the property, convert it into cash, pay the firm’s debts, and divide the balance between A’s personal representatives and him- self. If he does not do this promptly, A’s representatives
can force him to do it, or can have a receiver of the firm’s property appointed to do it.

Firm creditors and separate creditors.-The common law also treats firm property as owned by the partner- ship, and not by the individual partners, when a contest occurs between firm creditors and the creditors of a partner. A and B are partners in a manufacturing business. They are indebted to X for coal for their factory. A is indebted to Y for coal for his house. Y gets a judgment against A for the debt, and levies his execution on firm property. The next day X gets a judgment against A and B for the firm coal, and levies his execution also on the firm property. When the property is sold it brings only enough to pay X’s judgment. Y will be entitled to nothing, for his execution was not a lien on the firm title to the property, as was that of X, but only on A’s individual interest in that property, which turned out to be worth nothing.
A partner’s share or interest in firm property.- We have just spoken of a partner’s individual interest in firm property. Perhaps the nature of this interest ought to be explained. This can best be done by comparing it with the interest which a person has in property which he owns in common with another. Suppose A and B buy a horse, each paying one-half the price. They are common owners of the horse, each one owning a one-half interest. Each may sell his interest to a third party, or that interest may be levied on and sold by a judgment creditor of either. But I neither one can sell the horse without actual authority from the other.
But suppose that A and B are equal partners, and the

ESSENTIALS OF BUSINESS LAW
mon carriers often agree to pool the receipts of their business between points where they are competitors, as between New York and Chicago, and divide the sum total in certain proportions. Each carrier controls his own business as conveyance, his own servants, and pays his own expenses, before the arrangement was made-has his own means of and collects for his services. At the end of the year the sums received by the different carriers are added together, and the share of each in that aggregate under their agreement is determined. If one has collected more than his share the surplus must be handed over by him to the others. If he has collected less he is entitled to the deficit from the others. But there is no partnership, and each carrier is liable for his own debts and not for those of the other members of the pool.

(d) Sharing the profits of a business.-A hundred years ago it was understood to be the law, both in England and in this country, that if one person was to receive from the owner of a business a share of its profits, for money loaned or for property leased or sold, or services rendered to the owner in such business, they were partners as to third persons. But that view has been discarded by the English courts, and by nearly all of the courts in this country. Unless the person loaning the money or supplying the property, or rendering the services is to become one of the proprietors of the business, he will not be a partner, for he will not be carrying on the business in common with the other.
Business must be carried on for profit.-The institution of partnership was devised by merchants, who carried on business for gain. They did not combine their skill and capital for charitable or benevolent purposes, but for those of trade. Money profit is still the aim and end of partnership. Persons who form associations for any other purpose are not partners. A musical society, an athletic

of the firm property, but it may make contracts with the persons who compose it. In partnership bookkeeping the firm appears as a debtor to its different members for its On the other hand, it appears as creditor of each partner capital, as well as for any money which they may lend it. for the amounts which he draws out of the business. One partner often gives promissory notes to the firm for money borrowed from it, and receives its promissory notes payable to his order for money which he has loaned to it. In all such and many other transactions, mercantile custom recognizes the personality of the firm. But this custom has not become a part of the common law. While for certain purposes it treats partnership property as though it were owned by the firm as a person, it makes a sharp distinction between a partnership and a corporation. The latter is an artificial person, but not so the former at common law.

Partnership real estate. This distinction comes out very clearly in the case of lands. Suppose a corporation is duly chartered under the name of John Smith & Sons. A deed of land to the corporation in that name passes a perfect title to it, and it can convey the land in that name to another. But if John Smith & Sons is the firm name of a partnership composed of John Smith, Jacob Smith, and Nelson Smith, and certain land is bought with firm funds and for firm use, the deed should name the three men as grantees. If the land is sold by the firm their individual names should be used as those of the grantors. This is because the common law refuses to treat a partner- ship as an artificial person.
Firm property after the death of a partner. We have said that the common law treats firm property for certain purposes as though it were owned by the firm, and
not by the individuals composing it. This it does upon the death of a partner. Take a firm composed of A and B. A Idies. The common law has so far adopted the custom of

Summary of Key Concepts from “Essentials of Business Law” on Partnerships and Partner Authority

This excerpt from Essentials of Business Law discusses critical legal principles regarding the authority and liabilities of partners within a partnership. It particularly focuses on the implied authority of partners, the potential liability for misconduct, and the importance of good faith among copartners.

Implied Authority of Partners in Different Types of Partnerships

Definition of Implied Authority:
Partners have the power to act on behalf of the partnership in ways that are customary and usual within their particular type of business. This authority is implied by the nature of the partnership’s business and does not require explicit consent for every act.
Authority in Non-Trading Partnerships:
Applies to partnerships involving professions such as lawyers, physicians, bankers, merchants, or manufacturers.
A partner’s authority aligns with the general usage and customary practices of that business line.
Authority in Trading or Commercial Partnerships:
If the partnership is engaged in buying or selling goods on credit, partners have very broad implied authority.
This includes the power to:
- Hire employees or servants
- Buy and sell goods
- Pay and collect debts
- Borrow money
- Issue negotiable instruments (e.g., promissory notes) in the firm’s name
This authority is extensive and can be abused, potentially causing significant financial harm to innocent partners.
Risk of Abuse:
A partner might misuse this authority by purchasing goods or borrowing money ostensibly for the partnership but using them for personal purposes, then absconding and leaving the remaining partners liable for the debts.

Liability for Misconduct of a Partner

Doctrine of Partner’s Agency:
Each partner acts as an agent of the partnership, which means that their actions within the scope of their authority bind the partnership and the other partners.
Contractual Liability:
Partners may become liable for contracts entered into by another partner, such as wages for employees, purchase prices for goods, or negotiable paper, even if they did not personally approve or benefit from the transactions.
Tort Liability:
Partners can also be held liable for wrongful acts (torts) committed by a partner within the scope of partnership business.
Example given: If a partner wrongfully seizes and sells property mistakenly believed to belong to a debtor but actually owned by a third party, all partners can be sued for conversion (unauthorized sale or appropriation of property).
Legal Principle:
The partnership and each partner are responsible for wrongful acts committed by a partner acting as an agent within the partnership’s business scope.

Good Faith Toward Copartners

The text emphasizes the importance of good faith among partners due to the extensive authority each partner holds over the partnership’s financial obligations and liabilities.
Because a partner’s actions can significantly affect the fortunes of the other partners, there is an implied duty of honesty and loyalty to avoid abuse of that power.
This principle underscores the vulnerability of partners to the misconduct or abuse of another partner’s authority.

Key Insights and Legal Implications

Concept	Details	Implications
Implied Authority	Partners can act based on customary business practices	Partners are legally bound by acts done within this scope, even if other partners did not explicitly consent
Authority in Trading Partnerships	Very broad authority including hiring, buying/selling, borrowing, issuing negotiable instruments	High risk of abuse; innocent partners may face financial ruin due to one partner’s misconduct
Liability for Contractual Acts	Partnership liable for contracts entered by any partner	Partners must be cautious about the actions of their copartners
Liability for Torts	Partnership liable for wrongful acts of partners within scope of their authority	Third parties may sue all partners for damages caused by one partner’s misconduct
Good Faith Among Partners	Partners owe a duty of honesty and loyalty	Ensures trust and limits misuse of authority, protecting partnership interests

Summary Table of Partner Authority and Liability

Aspect	Description	Example/Notes
Implied Authority	Authority inferred from business type and customs	Lawyer partners have authority typical of legal practice; trading partners have broad commercial powers
Scope in Trading Partnerships	Hiring, buying/selling, borrowing, issuing negotiable paper	Enables day-to-day business operations but opens potential for abuse
Contractual Liability	Partners liable for contracts made by any partner within partnership scope	A partner can bind the firm to debts or obligations without explicit approval
Tort Liability	Partners liable for wrongful acts (torts) committed by partners acting in partnership interest	Conversion of third-party property by a partner leads to liability for all partners
Duty of Good Faith	Partners must act honestly and not abuse their authority	Prevents fraudulent or self-serving acts that harm the partnership

Conclusion

This section from Essentials of Business Law highlights the significant authority granted to partners by implication, especially in trading partnerships, and the legal risks and liabilities that arise from such authority. While this enables efficient business operations, it also places partners at risk of financial loss due to the misconduct or abuse of authority by a single partner. The doctrine of partnership agency makes all partners jointly responsible for such acts, whether contractual or tortious, underscoring the critical need for good faith and trust among partners to maintain the partnership’s integrity and financial stability.

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made if the partnership is one of lawyers, or physicians, or bankers, or merchants, or manufacturers. He has implied authority to do whatever, by the general usage of that particular line of business, is ordinarily done by those who carry it on.

If the partnership is a trading or commercial one—that is, if it is engaged in buying or selling on credit—he has implied authority to hire servants, to buy and sell goods, to pay and collect debts, to borrow money, and to issue negotiable paper in the firm’s name—a very extensive authority, and one which can be and has been grossly abused, to the financial ruin of innocent copartners. For a partner may buy goods or borrow money, pretending they are for the firm, then use them for his own purposes, and run away, leaving his copartners to pay for the goods or repay the money.

Liability for the misconduct of a partner.—The doctrine of a partner’s agency, which we have been considering, enables him not only to subject his copartners to contract liabilities for the wages of servants, for the price of goods, or for the payment of negotiable paper, to which they never assented, and from which they never had any benefit, but it makes it possible for him to subject them to liabilities in tort. One partner goes out to collect a debt due the firm. He seizes and sells certain property which he believed was owned by the debtor, but which in fact belonged to a third party. Such owner has a perfect action in tort against all the partners for the conversion—the sale for their benefit—of this property. In short, the same rule applies here which was laid down in the chapter on Agency, that the principal (here the firm as well as each copartner) is answerable for the wrongful acts of his agent, done within the scope of his agency.
Good faith toward copartners.—Because of this great power which each partner has over the fortunes of his

CHAPTER X PROPERTY-ITS ACQUISITION AND TRANSFER § 1. NATURE AND FORMS OF PROPERTY

Meaning of term.-Property, in its broad, popular sense, includes whatever the law permits a person to own- that is, to possess, to enjoy and to dispose of, to the exclusion of every one else. Some things are excluded from private ownership. The air, the sea, the Great Lakes, running water, are the chief examples of this class. A person may have the right to enjoy them temporarily, but he can not acquire an exclusive ownership of them; he can not make them his private property. But these are exceptions to the general rule. Nearly everything in the material world may be owned by individuals.
Real and personal property.-Our law divides all objects of private ownership into real and personal property, a division which corresponds substantially with that of the Roman law into immovables and movables. The terms “real” and “personal “were not selected, however, as were the corresponding terms of the Roman law, as descriptive of the sort of things included in each class. They
were first applied to actions, and were afterward ex- tended to property with the meanings which they had acquired in connection with actions.” A real action was one brought for the recovery of the res-the thing itself; while a personal action had for its object the recovery of dam- ages from some person for the breach of a contract or other *259

authority, PARTNERSHIP AND CORPORATIONS 255
do acts not authorized by the charter of incorporation. Acts attempted by them or by officers outside the scope of charter power. It is important, therefore, for persons dealing with are said to be ultra vires-beyond their legal corporation to know the limits of its charter powers, and to see that all contracts with it are such as are clearly authorized. If they are unauthorized they are generally not enforceable against the corporation, or by it.

Contracts by corporations.-The old rule of the common law was that “a corporation being an invisible body could not manifest its intention by any personal act or oral discourse, and, therefore, could act and speak only by its common seal.” This rule proved to be very inconvenient, and has been eaten away by exceptions until little if anything of it remains. In this country a corporation makes contracts through its authorized agents, precisely as a natural person would, and is called upon to use its seal only when a natural person would need to use a seal.

Whenever a corporation enters into a written contract, or makes a conveyance of property, its name should appear in the body of the writing, and its name should be signed thereto. Following the signature of the corporate name should be the signature of the officer or agent who writes
that name.

Dissolution of corporations.-A corporation may be dissolved in various ways. If it is chartered for a limited period, as for fifty years, it will be dissolved by the expiration of that period.

In England Parliament may dissolve a corporation at any time, but in this country one of our State legislatures can not annul a corporation’s charter unless it reserved the right to do so when it granted the charter. This is because the Federal Constitution provides that “no State shall pass any . . . law impairing the obligation of contracts.” (Article I, Section 10.) In the great case of Dartmouth College against Woodward, the

254 the business ESSENTIALS OF BUSINESS LAW

proves money which they paid for their stock may be taken by stockholders have no liability for its debts. To be sure the creditors, for that is owned by the corporation; but in case unsuccessful, that is all the stockholders lose. They are under no personal obligation to creditors, as partners are. Such, at least, is the general rule. 355. Transferability of stock.-It will be noticed that certificates of stock are not ordinarily negotiable instru- are not made payable to order or to bearer, and they provide that the transfer shall not be deemed complete until it is entered upon the books of the company. Still, if the owner indorses them on the back, and delivers them to an agent with instructions to use them in a particular the agent will be able to give a perfect title to them to one who buys for value and with notice of the agent’s limited authority.
ments. They way, At times all the stock of a corporation is owned by its officers, but in the case of our great railroad, telegraph, and manufacturing corporations, the stock is owned by multitudes of persons scattered all over the country. It is constantly changing hands, and a large part of the business of the stock ‘exchange in our large cities consists in real or fictitious sales of these stocks.

The power of stockholders.-While the artificial person, the corporation, owns the property and owes the debts, its conduct is determined by the stockholders. They are the power behind the throne. It is true that they do not hold frequent meetings, and that when they do gather they do not consider the details of business; but their will is supreme. Ordinarily they choose a board of directors, who select a president, a treasurer, and a secretary, and to these officials the stockholders commit all the details of management. Still, the lines of general policy are, or can be, marked out by the stockholders. Even the stockholders, however, have no legal power to

258 ESSENTIADAW
its use as an instrument of commerce is greatly enhanced, take. In short, the certificate is made fully negotiable, and If it is indorsed in blank, a person to whom it is offered for taking it. Hence, the owner of a certificate of stock should sale or as collateral security for a loan, runs little risk in never indorse it in blank and leave it with anyone who is not thoroughly responsible for its loss or misappropriation. The act provides that one who delivers a certificate to another with the intent to transfer title to him may be compelled to indorse it. Again, one who transfers a certificate for value warrants that it is genuine; that he has a legal right to transfer it and that he has no knowledge of any fact that would impair the validity of the certificate. Provision is made for enforcing the rights of creditors of the owner against the certificate. The alteration of it does not divest title to it, and in case of its loss or destruction a new certificate may be issued upon prescribed terms.

358 (d). Supervision of corporations.-Modern legislation subjects these artificial persons to careful supervision, with a view to protecting stockholders and the public. They are required to file reports periodically giving the facts connected with their organization, their capital and the con- duct of their business, so that the public may form an accurate opinion of the value of their stock. The Federal 311.) Trade Commission has authority to investigate many corporations and to require reports. (Act Sept. 26, 1914, Ch. rob

PARTNERSHIP AND CORPORATIONS 245

in collecting and paying debts. But he is not an agent for making new contracts. treated as In England any real estate owned by the firm is to be personal property in settling up its business. It is to be converted into cash, as though it were a stock of goods. But, in this country, it is treated as personal prop- erty only so far as its proceeds are needed to pay firm debts. Beyond that point it preserves its character as real property. It descends to the heirs of partners, and their wives have dower interests in it. The nature and importance of this distinction will be made clear in the next chapter, on Property.

Order of distribution. The property of a partner- ship, after it has been turned into money, is distributable in the following order:

(1) Debts and liabilities, owing to persons who are not partners, are to be paid. If there is not firm property enough to pay these in full, each partner is liable for every dollar of them.

(2) When all outside debts have been paid the next claims in order are those for money loaned to the firm by the several partners. If there is not enough to pay these claims in full they are to share ratably. Suppose partner A has loaned ten thousand dollars and partner B has loaned five thousand dollars, and there is a balance of seventy-five hundred dollars after paying outside debts. A and B will each receive fifty cents on a dollar of his claim.

(3) The next claims to be paid are those for capital, and here again the partners share the balance in proportion to their contribution to the capital of the firm. If one contributed all the capital, he will receive all the balance. (4) If, anything remains after paying the three preceding classes of claims it will be divided in the proportion in which the profits of the business were to be shared.

The proportion in which profits and losses are sharable. This is ordinarily fixed by the terms of the

Summary of Real Property Concepts and Legal Definitions

This text explores the historical development and current understanding of real property (realty) and personal property (personalty) within property law, emphasizing the distinction between the two and the forms of real property recognized in legal contexts.

Key Historical Development

Twelfth Century Legal Rule: It was established that real actions (legal claims) could only be brought concerning land property.
For non-land property, defendants could avoid liability by paying damages, rather than facing real actions.
This legal differentiation led to the terminology:
Real property/realty: Property in land.
Personal property/personalty: All other kinds of private property.
Despite the original reason for these terms fading, they remain in use today.
Modern application: Owners can bring real actions for recovery of personal property (e.g., a horse), similar to recovery actions for land or buildings.

Definitions and Classification of Property

Term	Definition/Meaning
Real Property (Realty)	Property related to land, including the land itself and interests in land.
Personal Property	All other forms of private property not related to land (movable goods, animals, etc.).
Real Action	A legal action concerning recovery or rights related to real property (land).
Damages	Monetary compensation paid to settle liability in cases regarding personal property disputes.

Forms of Real Property

Real property exists in two primary forms:

Form	Description	Examples
Corporeal Realty	Ownership of the physical land and everything attached or beneath it.	Soil, buildings, mines, veins of gas or oil, bodies of water, and airspace above the land.
Incorporeal Realty	Ownership of rights to use another’s land for specific purposes without owning the land itself.	Easements such as rights of way or rights to lay pipes for utilities (gas, water, electricity).

Explanation of Corporeal Real Property

Corporeal real property includes:
The soil and all natural elements on or under the land.
Buildings and other permanent structures.
Subsurface resources such as mines, veins of oil or gas.
Surface bodies of water.
The airspace above the land extending vertically “from the center of the earth to the highest heavens” (an ancient legal principle).
Interference with this property (e.g., passing a bullet, flying a kite, or a balloon over the land) is legally considered trespass, similar to physically driving cattle through the land.
However, minor intrusions may not always justify legal action due to their trivial nature.

Explanation of Incorporeal Real Property

These are non-physical rights related to land.
The primary example is the easement:
A right to use another’s land for a specific purpose without owning the land.
Common easements include:
- Right of way: Permission to pass over someone else’s land by foot or vehicle.
- Utility easements: The right to lay and maintain pipes or cables for utilities like gas, water, oil, or electricity.

Legal Implications and Terminology

The distinction between corporeal and incorporeal real property is fundamental in property law.
Easements represent a key form of incorporeal property, emphasizing the importance of rights over physical ownership.
Trespass applies to unauthorized physical intrusion into corporeal real property.
The scope of ownership extends vertically above and below the land, reinforcing comprehensive control over the property.

Core Concepts and Legal Principles

Real property law differentiates between ownership of land and ownership of rights related to land.
Real actions were historically limited to land and later expanded in practice.
Easements are legal interests granting limited use of land without transfer of ownership.
The airspace and subsurface included in land ownership reflect the broad scope of property rights.
Trespass law protects corporeal property owners against unauthorized physical intrusions.
The historical distinction between real and personal property underscores legal treatment of different property types.

Summary of Key Insights

The concept of real property evolved from medieval legal rules focused on land.
Real and personal property remain standard legal categories, though the original rationales have become less relevant.
Real property is divided into corporeal (physical land and attachments) and incorporeal (rights to use land).
Easements exemplify incorporeal real property, critical to land use and utility infrastructure.
Ownership rights extend vertically, including airspace and subsurface resources.
Trespass laws protect owners’ rights to exclude others from their corporeal property.
Legal remedies differ depending on whether the property is real or personal, but modern practice allows real actions for recovery of certain personal property.

Glossary of Terms

Term	Definition
Real Property	Land and interests in land including corporeal and incorporeal forms.
Personal Property	Property other than land, such as movable goods or animals.
Easement	A legal right to use another person’s land for a specific, limited purpose.
Corporeal	Physical, tangible property related to land.
Incorporeal	Intangible rights related to land, such as easements.
Trespass	Unauthorized physical intrusion onto someone’s land.
Real Action	Legal action concerning recovery or rights related to real property.

This analysis provides a comprehensive understanding of the historical and legal framework distinguishing real and personal property, the forms of real property, and the nature of ownership rights in land and its related interests.

260 ESSENTIA

obligation. During the twelfth century the rule was established that the only property for which a real action could be brought was property in lands. If the action related to
any other form of property the defendant might relieve himself from liability by paying damages. From this time on the term real property or realty is employed to designate
property in land, and personal property or personalty to designate every other kind of private property. The terms are still used in that way, although the reason for their
original selection disappeared long ago. At present an owner can maintain a real action for the recovery of his horse which has been wrongfully taken from him as he can
for his house.

Two forms of realty.—Real property assumes two forms, corporeal and incorporeal; or, in other words, ownership of the land itself, and ownership of the right to use the land of another for a particular purpose. Easements furnish the chief examples of incorporeal real property in this country. A right of way over the land of an-
other—that is, a right to drive or walk, to pass and repass over it—is an easement in such land. So is a right to lay and maintain pipes in the land of another for the purpose of conducting gas, water, oil, or electricity across it.

Corporeal real property or land includes not only the soil and buildings thereon, but whatever is beneath the surface and above it. In the language of ancient authors it extends from the center of the earth to the highest heavens.

It embraces mines, veins of gas or oil and the like below the surface, bodies of water on the surface, and the vacant space above the surface. If my neighbor shoots a bullet or sails a kite or passes a balloon through the air over my field he commits trespass precisely as though he drove a herd of cattle through that field. True, I would be very foolish to sue him for such a trifling interference with my right of property. So I would if I sued one who walked

PROPERTY-ITS ACQUISITION AND TRANSFER 263

if one is to become owner of it he must acquire title to it through one or the other of those governments. If an owner abandons land, or dies without a will and without heirs, it reverts to the State. Title to personalty may be obtained by occupancy even now. Such is the title of the finder of abandoned chattels, or of those which have been lost and are not reclaimed. It is also the source of title which the hunter and the fisherman gains to his lawfully captured game and fish.

(b) Title by prescription and possession. This differs from title by occupancy in that the latter vests as soon as the occupant takes possession, while title by pre- scription does not become complete until one has kept pos- session for a certain period. This period is generally fixed by statute, and a longer period is required in the case of land than of personal property. As a rule, title to land by prescription, as against the State, is acquired by forty years’ uninterrupted possession under a claim of owner- ship. As against any one but the State it is acquired by such possession for twenty years. The legal theory under- lying this form of title is that a grant or transfer of the land is to be presumed to one who has been allowed to retain possession of it as owner for the statutory period. Under statutes of limitations persons gain a perfect title to personal property by possession under a claim of owner- ship for periods varying as a rule from three to six years. 367. (c) Title by natural increase.-The products of one’s land, the offspring of one’s animals, the milk from one’s cows, and the wool from one’s sheep are examples of property acquired by this method.
(d) Title by one’s labor.-Intellectual productions of every sort furnish examples of acquisition by one’s labor. It is true, the author of such productions can make his title to them secure only by complying with certain statutes. If he has written a book, or invented a machine, he may

PROPERTY-ITS ACQUISITION AND TRANSFER 267

debts I was owing when the gift was made. I have no legal right to be generous a at the expense of my creditors. Other examples of obtaining property by the consent of the former owner are afforded by conveyances of land, which will be described in the next section, and by sales of personalty, which will be dealt with in the next chapter.

(b) With the implied consent of former owner.- An example of title acquired in this way is that obtained by the husband or the wife in the other’s property upon their marriage. By the common law the husband took the lion’s share. Still, under the theory of that law, he took it with her implied consent. He became entitled to the rents and profits of her lands during their joint lives, and, if a child was born, to the use of such lands during his life. This latter right was called “tenancy by courtesy.” He became the absolute owner of her personal property in possession, and had the right to reduce to possession all her choses or things in action. On the other hand, she acquired an interest in his lands, although an interest much less than his interest in hers.

Statutes have taken from the husband most of his rights of ownership in the property of the wife. As a rule, in this country, marriage does not give to him any right to take her personal property without her actual consent, and she may defeat his tenancy by courtesy in her real property by conveyance or by will. Her common-law interest in his real estate is still pre- served, and in some States has been increased by statute. That interest was known as 66 dower “-a right, upon the death of her husband, to the possession and use of the third part of all the lands owned by him during their marriage. A wife can not be deprived of her dower without her con- sent unless she is guilty of gross marital infidelity, or unless her husband’s title is swept away by an ownership superior to his. For example, if a husband buys land subject to a

PROPERTY-ITS ACQUISITION AND TRANSFER 261

across my pasture in either case he has violated my right of real property. He also violates it if he strings telegraph or telephone wires any part of it overhangs my soil. over my lot, or builds a structure or plants a tree so that or my lawn without my permission. But

Two forms of personalty.-Personal property is divided into things in possession and things in action, or tangible and intangible personalty. Of the first kind are goods, animals, and other material objects. Of the latter kind are debts and liabilities. The owner of a thing belonging to the first class has it in his possession and actual enjoyment, while the owner of a bill of exchange, or of any security for money, or of a contract right or an obligation of any sort, has only a right to obtain possession by means of a legal action.

Realty may become personalty.-Coal, or rock, or oil, or gas, or water in its natural state beneath the surface is realty. But as soon as it is detached from the earth, as a separate thing, it is transformed into personalty. So trees and other natural products of the soil are realty until they are severed from the land, while after severance they are personalty. Some crops are treated by our law as personal property for most purposes even before severance. Speaking generally, they are crops which are not of spontaneous growth, but result from special culture of the soil, and “which return the labor and expense bestowed upon them strictly within the year.” Corn, wheat, oats, potatoes, are examples of this class. Grass is not, for the growth of any one year is not due to the labor and seed of that year. Even crops which are the result of yearly labor are not always treated as personal property. A sale of land upon which such crops are growing carries them as a part of the vendee he must expressly reserve them by a stipulation that they shall not go with the land.

262 ESSENTIALS OF BUSINESS LAW O

Personalty may become realty.-It is a maxim of the common law that “whatever is applied to the soil be Accordingly, when bricks and stones and mortar and lumber and nails are worked into a permanent building they are a part of the real estate. It is longs to the soil.”

building, and so with gas, steam, or water pipes put into a with any other article which is affixed to the realty, with a view to its becoming a permanent accession thereto. Such an article is known as a fixture. It has not lost its identity, but it has changed its legal character. It has ceased to be personalty and has become realty. A sale of a house and lot carries with it all fixtures, unless they are expressly re- served by the vendor.

It is to be borne in mind, however, that articles which the law regards as fixtures, as between the owner of the land and his transferee, are not always so regarded as be- tween the landlord and tenant. If a tenant puts into a rented building machinery, or a furnace, or gas-fixtures, or shelving and counters, or similar things, for his use as ten- ant, they do not become a part of the realty as a rule. For the encouragement of trade the law regards them still as personalty, and permits the tenant to remove them at any time before his lease expires.

§ 2. METHODS OF ACQUIRING PROPERTY

By one’s own acts. (a) Occupancy. Property may be acquired by one’s own acts in one of four ways, the first of which is occupancy. This is undoubtedly the most ancient method of acquiring ownership either of lands or of chattels. In our day, however, it is not a very important source of title. Indeed, it is scarcely possible in this country to become an owner of land by occupancy alone. According to our law, whatever land is not owned by natural or artificial persons belongs to the State or the nation, and

keep others from enjoying them by retaining them in his exclusive possession. But the moment he makes them pub- copyright of the one or letters patent for the other. Ilic they become common property, unless he has secured a In this country letters patent are issued by the United States Patent Office, and secure to the inventor for the period of seventeen years “the exclusive right to make, use, and vend the invention throughout the United States and its territories.” The United States statutes provide for the copyrighting of almost every sort of literary production- of books, maps, charts, dramatic or musical compositions, paintings, engravings, and so on. A copyright secures to the author the exclusive right to multiply copies of his production for a period of twenty-eight years, with a possibility of renewal for fourteen years more. Recent statutes in this country and in some European states provide for international copyright. Under this legislation, an American author can copyright his books in England and an English author can copyright his books here.

Property acquired upon another’s death. (a) By will. The law permits an owner to transmit his property to others upon his death, though it does not give him absolute liberty of disposition. In certain cases he is not allowed to devise or bequeath to corporations all of his property; and, generally, he is prohibited from tying up his property, or limiting, beyond a fixed period, the power of the one to whom he gives it, to dispose of it as he sees fit.

The instrument by which a person disposes of his property upon his death is usually called his last will and testament. Anciently the term “will” was confined to realty, and “testament” to personalty. By the former instrument the testator was said to “devise” his lands, while by the latter he was said to “bequeath” his personal property or chattels. This distinction is not insisted upon at
present.

Summary of Key Concepts in Property Law from “266 Essentials of Business Law”

This excerpt from 266 Essentials of Business Law focuses on the distinction between real and personal property in the context of inheritance and property acquisition, particularly emphasizing how property is transferred upon death or through gift during a living owner’s lifetime.

Key Insights on Property Types and Inheritance

Property Classification: Property is divided into two main types:
Real Property: Land and anything permanently attached to it.
Personal Property: All other property not classified as real, such as money, promissory notes, and movable possessions.
Inheritance of Real Property:
Real property “descends to the heirs” immediately upon the death of the owner.
The heirs become owners of the real estate at the moment of death, without the need for any intermediary process.
The identification of heirs and their shares depends on state statutes, which vary and must be consulted to determine rightful claimants.
Inheritance of Personal Property:
Personal property does not pass immediately to the next of kin upon death.
An administrator (appointed by a court such as a surrogate, probate court, or orphans’ court) must take control of the personal property.
The administrator is responsible for:
- Collecting debts owed to the deceased.
- Paying debts owed by the deceased, including funeral expenses.
- Distributing the remaining property to the next of kin under court supervision.
The “next of kin” may or may not be the same as “heirs,” depending on state law.
Distinction Between Heirs and Next of Kin:
These terms are not always synonymous.
State laws specify who qualifies as heirs or next of kin and their respective entitlements.
The distribution shares can differ based on these classifications.

Acquiring Property from a Living Owner

Acquisition by Gift:
A person may acquire ownership of property through a gift from the living owner.
For a gift to confer perfect title, it must be absolute and complete.
Examples of Gift Transfers:
If the donor gives a promissory note or check to a donee as a gift, the donee obtains perfect title to that note or check.
If the donor merely promises to give money (e.g., handing over a promissory note with a promise to pay), the donee does not acquire title to the money until payment is made.
If the donor retracts the promise or dies before fulfilling it, the donee receives nothing.
Creditor Claims on Gifts:
Even after a gift is completed, if the donor’s creditors have claims, they may force the donee to surrender the gifted property.
This applies if the donor does not have sufficient other property to satisfy creditor claims.

Table: Summary of Property Transfer on Death

Aspect	Real Property	Personal Property
Transfer Timing	Immediately upon death to heirs	Requires appointment of administrator
Ownership at Death	Vests automatically with heirs	Title held by administrator initially
Role of Court	Usually not involved in transfer itself	Court appoints administrator and supervises distribution
Heirs vs Next of Kin	Property descends to heirs	Distributed among next of kin
State Law Importance	Determines heirs and share distributions	Determines next of kin and distribution

Important Legal Principles

Immediate Vesting of Real Estate: Real estate ownership passes instantaneously upon death to heirs, highlighting the automatic nature of real property descent.
Administrator’s Role: The necessity of an administrator to manage personal property underlines the complexity of personal property succession and safeguards creditors and rightful recipients.
State Statutory Variations: The law governing heirs, next of kin, and property shares is not uniform across states, emphasizing the importance of local legal frameworks.
Gifts Must Be Complete to Transfer Title: The principle that a gift must be absolute ensures clarity in ownership transfer and protects donors and donees.
Creditor Protection: The ability of creditors to reclaim gifted property if the donor’s assets are insufficient underscores the balance between donor generosity and creditor rights.

Core Concepts

Heirs: Persons entitled to inherit real property under state law.
Next of Kin: Persons entitled to inherit personal property under state law; may differ from heirs.
Administrator: Court-appointed individual responsible for managing the deceased’s personal property estate.
Gift: A voluntary transfer of property without consideration that must be complete to be effective.
Promissory Note: A written promise to pay a sum of money, which can be gifted or used as an asset.
Title: Legal ownership of property.

Summary of Legal Processes for Property Transfer

Real Property Transfer Process:
Occurs automatically at death.
Ownership passes to heirs without court intervention.
State law determines the heirs and their shares.
Personal Property Transfer Process:
Requires appointment of administrator by a proper court.
Administrator collects and pays debts, manages estate.
Distributes remaining assets to next of kin per court order.
Ensures debts and expenses are settled before distribution.
Gift of Property:
Must be absolute to confer title.
Incomplete gifts (promises to give) confer no title.
Creditors can reclaim gifts if donor’s assets are insufficient.

Conclusion

This excerpt provides a clear distinction between how real and personal property are handled after death, emphasizing the automatic vesting of real property in heirs, versus the court-supervised management and distribution of personal property. It also highlights the importance of absolute gifts in acquiring property from living owners and the protection of creditors even after gifts are made. Understanding these principles is essential for navigating property law, inheritance rights, and the legal transfer of assets.

266 ESSENTIALS OF BUSINESS LAW
property is real or personal. Real property “descends to the heirs,” while personal property is “distributed by the administrator among the next of kin” of the deceased. At times the “heirs” and the “next of kin” are the same persons, but this is not always the case; and the statutes in each State must be examined in order to determine who are heirs and who are next of kin, as well as the shares which such persons are entitled to in the property of their intestate.
It should be stated that as soon as a person dies without a will, his real estate vests in his heirs—they become its owners at the very moment of his death. Not so in the case of personalty. The title to that does not pass at once and directly to the next of kin. An administrator must be appointed by the proper officer or court—the surrogate in some States, in others the probate court, or the orphans’ court, or a similar tribunal—who takes title to the personalty, settles the affairs of the intestate, collects debts due to him, pays debts owing by him, including the funeral expenses, and distributes the balance under an order of the surrogate or of the proper court among the next of kin.

Acquiring property from a living owner. (a) With his express consent.—A person may become the owner of property by gift from another. In order that a donee’s title be perfect, the gift or donation must be absolute or complete. If I own the promissory note or check of A, and hand it over to B as a gift, his title to it is perfect, and I can not recover it. If I hand to B my promissory note or check for the same amount as a gift he does not get title to the money named in the paper. I have simply promised to give him the money, and if I repent of my generosity and refuse to keep my promise, or if I die before the promise is performed, he takes nothing. Even if I have completed the gift my creditors may compel the donee to surrender it, if I have not sufficient property without it to pay the

Bes horse B 18 L M M Corpos, umele accepts the offer in to comes owner of the horse, and A is entitled to receive at bargain and sale. The moment B accepts the offer he be- you my horse now for two hundred dollars, and give you a once two hundred dollars. Had A’s offer been: “I will sell month in which to pay for him,” and B had accepted the offer, the transaction would still have been a bargain and sale, although a sale on credit. B would have become the owner of the horse, but A would not be entitled to his money for a month.

The doctrine of potential existence.-Ordinarily a present sale can be made only of property which is in present. actual existence. That is the invariable rule in England at In this country, however, most courts have adopted the doctrine of an old English case, decided in 1603, to the effect that things which are the natural product or expected increase of something already owned by the seller, are to be treated as having a potential existence, and, hence, as proper subjects of a present sale. Accordingly, a person may make a present sale of the future offspring of his animals; or of products from them, as milk, or butter, or eggs, or wool; or of the future crops of his land. After making such a contract no further act is necessary by either seller or buyer to pass title from the former to the latter. As soon as the thing comes into actual existence the buyer’s title and right to possession are perfect.
In case of an agreement to sell, title never passes at the time the contract is made. At what time in the future it is to pass from the seller to the buyer depends upon two considerations: First, the nature of the thing contracted for; second, the intention of the parties to the contract. The first consideration can be disposed of very quickly. the wife’s lle land der ent.-The judg d under

269 PROPERTY-ITS ACQUISITION AND TRANSFER

most frequently used-the quit-claim deed and the warranty deed. By the former the grantor professes to convey only such title as he holds to the land described in the deed. The grantee takes the property subject to any defects which may exist in the title, and has no right to recover any of the price he has paid, though it turns out that his title is good for nothing. The following is a short form of the quit-claim deed authorized by the statutes of Indiana: a sum of s entitled er, direct- to satisfy personal first; but ed upon in full. n one is es to his it, and he may nd disconvey. equent inter- is re-taking must f our s was eed.- d, are h are

I, John Smith, of Marion County, Indiana, quit-claim unto James Jackson, of Harrison County, Indiana, the following described premises [then should follow a full and accurate description of the land] for the sum of one thousand dollars. In Witness Whereof, I have hereunto set my hand and seal this first day of March, 1902.
JOHN SMITH. [SEAL]

(b) Warranty deed. By this instrument, the grantor not only undertakes to convey title to the premises described therein, but to warrant and defend the grantee against all lawful claims to the property. According to the Indiana statutes, the deed set forth in the last paragraph can be converted into a full warranty deed, by substituting the words “convey and warrant” for the word quit-claim. In most States, however, a warranty deed declares that the party of the first part grants, bargains, sells, conveys, and confirms unto the party of the second part, and to his heirs and assigns forever the described premises; and the party of the first part (the grantor) binds himself, his heirs, executors, and administrators to warrant and forever de- fend the said premises in the quiet and peaceable possession of the party of the second part (the grantee), his heirs and assigns, against the said party of the first part, and against all and every person and persons whatsoever law- fully claiming the same.

Mortgages of land.-The owner of land often wishes to borrow money and give security therefor on the

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If the thing contracted for is not in existence (actually or potentially) it is clear that title can not pass until it comes into existence. For example, L borrows money from P and gives him a writing, that he thereby sells, assigns, and sets over to P all the halibut that he and his crew may catch on their next voyage. Although the language of the agreement is that of a present sale it can not take effect as such, for the halibut are not yet caught.

The intention of the parties. (a) If expressed.- Assuming that the subject of the contract is in existence, or that it comes into existence before the time named by the parties for title to pass, it is well settled that title will pass at the time agreed upon and not before. The common- est example of this sort of transaction is the “conditional sale.” Sewing-machines, pianos, and various other articles are sold upon the express condition that title is not to pass to the purchaser until they are paid for. In the absence of a statute on the subject the common law gives full effect to this contract; enables the seller to keep the title, and prevents the buyer from passing the title to anybody else until the entire price is paid. In some States, however, legislation requires such a contract to be reduced to writing, and filed in the office of the town clerk or similar official, in order to prevent the buyer from passing title to his creditors or to bona fide purchasers.
(b) Intention implied from conduct.-Very often, indeed, in the great majority of cases, the parties to a sale contract do not state in express terms their intention as to the time when title is to pass. If a lawsuit arises from such a transaction it becomes necessary for a court to decide what the implied intention of the parties was. To enable it to do this satisfactorily certain rules have been adopted. It should be borne in mind that these rules are applied only when the parties have failed to express their intention. wordt mudic of ravud all to sq

when the sk of get- essel sells he owner of finda condiition by ing the dollars, ve have e to B. ndition A has for the he law to be sale. place o the ness. one to be
sell-lied lled war- ppy ge- ar- ded hat any

SALES OF PERSONAL PROPERTY

the term in its narrow, and, 291 as we think, its only proper contract. On that account we have refrained from calling w of these implied engagements of the seller warranties. The following is an example of an express warranty, using sense: A offers his horse to B for two hundred dollars. B “I will take him at that price if you will warrant that he is sound.” A replies, “I warrant him sound,” or answers, “He is as sound as a dollar,” or He is as sound as any horse in the world.” Here is a sale of the horse with an passes to B and he is bound to pay the price. By the express warranty added. By the contract of sale title collateral or additional agreement of warranty A is bound B damages if the horse is not sound.

to pay The word warrant need not be used in order to have an express warranty. Any positive statement of fact by the seller as to the nature, quality, or condition of the thing which he offers for sale, inducing the other party to buy, is generally to be regarded as a warranty.

§ 4. DUTIES OF BUYERS

To take title to the goods.-The first duty of the buyer is to take title to the thing which he has agreed to buy. If the transaction is a bargain and sale the title passes to the buyer the moment the bargain is struck, and he can not throw it back upon the seller without his assent. From that moment the risk of loss is on the buyer. Although the property may be destroyed or may fall in value, he must pay the agreed price.

But suppose the transaction is a contract to sell. Can the seller force title upon the buyer by tendering the agreed article? In England and in many of our States he can not. Even though the seller tenders the very thing which the contract calls for, and tenders it at the stipulated time and place, the buyer can prevent title passing to him by

well in Australia and was adopted in other British colonies, With modifications, it has been adopted in Great Britain and in several of our States. 383 (c). Early attempts at legislation in this country were not altogether successful. Some statutes were declared unconstitutional, as in Illinois and Ohio, and others, as in New York, were drafted upon erroneous principles and did not meet the needs of the people, who were seeking for a system which should secure freedom, safety and cheapness in the transfer of land titles. A second statute in Illinois avoided all conflict with the constitution, and has proved successful in practice, as has a similar act in Massachusetts.

383 (d). Uniform Land Registration Act. This was drafted by the Conference of Commissioners on Uniform State Laws and has been adopted in several States. Its purposes are stated as follows: “For the certain, cheaper and more speedy settlement, registration, transfer and assurance of titles to land, there is hereby established a system of land title registration, having the following purposes in detail: (1) To establish courts of land registration. (2) To provide for the appointment and duties of registrars of title. (3) To regulate proceedings to obtain registration of title. (4) To authorize the adjudication of title. (5) To prescribe the nature of certificates of title. (6) To provide for the registration of subsequent dealings with registered titles. (7) To regulate sundry proceedings after registration of title. (8) To determine the legal effects of registration of title. (9) To establish an assurance fund. (10) To regulate the fees for registration of title.” 1 The courts of land registration are to be open, except on Sundays and legal holidays. Proceedings are instituted 1 The law forms Ch. 28, L. 1918, in Utah; Ch. 62, L. 1916, in Virginia. Its substance is embodied in the New York Real Prop- erty Law by Ch. 572, L. 1918. b.

Summary of Extract from “268 Essentials of Business Law”

This excerpt from Essentials of Business Law focuses on key legal principles related to property rights, specifically addressing title acquisition without owner consent, bankruptcy implications on ownership, and conveyance of real property. It highlights the mechanisms by which property titles can be transferred involuntarily through legal processes such as judgment executions and bankruptcy, as well as the formalities required for the lawful conveyance of real estate.

Key Insights and Core Concepts

Loss of Title Through Mortgage Foreclosure
When a mortgage is foreclosed and the land is sold to satisfy the mortgage debt, the original owner’s title is lost. This loss extends to any associated interests, such as a wife’s dower right. Therefore, foreclosure extinguishes both the husband’s title and the wife’s dower.
Title from Living Owner Without Consent
Titles can be acquired from an owner without their direct consent under specific legal circumstances:
Judgment and Execution:
When a creditor obtains a money judgment against a debtor, the creditor can execute a court order to seize and sell the debtor’s property to satisfy the judgment.
- Priority is given to personal property, which must be taken and sold first.
- If personal property is insufficient, real property may be seized and sold.
Bankruptcy:
Upon judicial declaration of bankruptcy, all of the bankrupt’s property transfers to an assignee or trustee.
- The trustee becomes the legal owner.
- The trustee’s duty is to liquidate the assets and distribute proceeds to creditors.
Conveyance of Real Property
Real property transfer is strictly regulated:
Written Conveyances:
Under the English Statute of Frauds, any estate or interest in land must be transferred via a written document.
Exceptions:
Leases of three years or less may be exempted from the written requirement.
Formalities:
Conveyances generally must be signed by the party transferring the property.
- The conveyance is typically required to be under seal.
- In some jurisdictions, the “seal” may be a simple flourish or signature, rather than a physical seal.
Types of Deeds
Although various deed types exist, the text references only two main types to be described further:
Quit-claim deed (description incomplete in the excerpt).

Detailed Explanation of Legal Mechanisms

Legal Mechanism	Description	Key Legal Effect	Priority/Order of Action
Mortgage Foreclosure	Mortgage debt unpaid, land sold to satisfy debt	Original owner’s title and wife’s dower lost	Sale extinguishes prior ownership rights
Judgment and Execution	Creditor obtains judgment, property seized to satisfy debt	Property sold to pay creditor	Personal property sold first, then real property
Bankruptcy	Debtor declared bankrupt, property transferred to trustee	Trustee becomes legal owner, liquidates property	Trustee pays creditors from proceeds
Conveyance of Real Property	Transfer of land estate by written document	Valid transfer only if document signed and sealed	Written conveyance required except short leases

Important Legal Terms and Definitions

Term	Definition
Mortgage Foreclosure	Legal process by which a lender seizes and sells property due to borrower’s non-payment
Dower	Wife’s legal right to a portion of her husband’s estate upon his death or loss of title
Judgment Execution	Court order allowing creditor to seize debtor’s property to satisfy a money judgment
Bankruptcy Trustee	Court-appointed individual who manages and liquidates bankrupt’s assets to repay creditors
Conveyance	Legal transfer of title or interest in real estate, typically via a written and signed deed
Statute of Frauds	Law requiring certain contracts, including real estate transfers, to be in writing to be enforceable
Quit-claim Deed	A deed transferring whatever interest the grantor has without warranties or guarantees

Summary of Key Legal Procedures

Foreclosure and Effects on Ownership
Mortgages create a lien on property; failure to satisfy the mortgage debt allows foreclosure, resulting in the loss of title and any dependent rights (e.g., dower).
Seizure and Sale Under Judgment
Creditors can enforce money judgments by selling the debtor’s property. The law prioritizes personal property before real estate to satisfy debts.
Bankruptcy Transfers
Bankruptcy effectively transfers ownership to a trustee who manages asset liquidation. This ensures equitable repayment of debts but divests the bankrupt of property rights.
Requirements for Real Estate Conveyance
The transfer of real estate interests must be formalized in writing and typically requires a seal or equivalent. This rule ensures clarity, prevent fraud, and enforceability.

Not Specified/Uncertain Information

The excerpt cuts off before providing detailed descriptions of the types of deeds beyond mentioning the quit-claim deed, so further distinctions or descriptions of deeds are not specified.
Specific procedural details for foreclosure, bankruptcy processes, or execution sales beyond the general principles described are not specified.
Jurisdictional variations in the requirement of a seal or the exact nature of the seal are mentioned but not elaborated.

Conclusion

This section of the Essentials of Business Law provides foundational knowledge on how property titles may be lost or transferred under legal processes without the owner’s voluntary consent, emphasizing the importance of written conveyances in real estate transactions. It clarifies the legal consequences of foreclosure, execution sale, and bankruptcy on property rights and introduces the formal requirements for transferring real property interests. The principles outlined are crucial for understanding property law within a business context and ensuring proper legal compliance in real estate dealings.

268 ESSENTIALS OF BUSINESS LAW

mortgage, and that mortgage is foreclosed and the land sold to satisfy it, the husband’s title is lost and the wife’s dower is lost too.

Title from living owner without his consent.—The chief examples of this class are titles derived under judgment and execution against the former owner, and under a decree in bankruptcy. When a judgment for a sum of money is obtained by A against B, the former is entitled to have an execution issued to a sheriff or like officer, directing him to seize and sell enough of B’s property to satisfy the judgment and the sheriff’s expenses. As a rule, personal property, if there is any, must be taken and sold first; but when this is exhausted, real property may be levied upon and sold until the judgment and expenses are paid in full.

In the chapter on Bankruptcy we saw that when one is judicially declared a bankrupt, all his property passes to his assignee or trustee, who becomes legal owner of it, and whose duty it is to convert it into cash in order that he may pay the expenses of the bankruptcy proceeding, and distribute the balance among the bankrupt’s creditors.

§ 3. CONVEYANCE OF REAL PROPERTY

Real property is transferred by a written conveyance.—By the English statute of frauds, to which frequent reference has bee. made, a conveyance of an estate or interest in land (except leases for three years or less) is required to be in writing and signed by the party undertaking to convey the same. As a general rule this conveyance must also be under seal, although such seal in some of our States may consist in a mere flourish of the pen, as was pointed out in the chapter on Contracts.
Various kinds of deeds. (a) Quit-claim deed.—While deeds, or written and sealed conveyances of land, are of various kinds, we shall describe only the two which are

SALES OF PERSONAL PROPERTY 295

do is to give notice to the common carrier who has the goods not to deliver them to the buyer. He may also exercise it effectually by taking actual possession of the goods from the carrier, or from a warehouseman, or from any one else, before they have reached the possession of the buyer. If the goods are in the hands of a railroad or steam- ship company or other large carrier, notice of stoppage may be given either to the particular agent who happens to be in control of them, or to the company or principal through a general agent. In the latter case the company has a reasonable time in which to communicate the notice to its proper agent or servant.

(d) The common carrier is bound to comply with the notice. If a common carrier or other middleman de- livers the goods to the buyer after valid notice of stop- page in transitu has been given, he is guilty of wrong-doing against the unpaid seller, and may be compelled to pay him for them. In order to render the carrier thus liable, the notice must be a valid one-that is, it must have been made properly, and the seller’s right to make it must not have been waived or lost.

The way in which he most frequently loses the right is by a transfer of the bill of lading for the goods. For example, X in New York sells and ships goods to Y in Chicago. When he delivers them to the carrier he takes a bill of lading-that is, a document by which the carrier acknowledges that he has received the goods, and promises to transport them to Chicago and there deliver them to Y or his assigns. This bill of lading is sent to Y. If he transfers it to a banker or other person, who takes it for value and in good faith, such transfer ends the unpaid seller’s right to stop the goods. This is due to the fact that the common law following the law merchant treats a bill of lading as having some of the qualities of a negotiable instrument. Its transfer to a bona fide purchaser gives him

300 ESSE the sale of goods.

sale of wood, or logs, to be cut from those trees is one for therefore, for an interest in real property, but one for the graph 389, and rejects the English and New York rules, The act adopts the Massachusetts rule stated in para- As the statute has been adopted in New York, it takes the place of the old rule on this point as well as on the point stated in paragraph 391 about time of part payment, and in paragraph 390 as to subscription of memorandum, On the subject of acceptance, it provides that this occurs “when the buyer, either before or after delivery of the goods, expresses by words or conduct, his assent to becoming the owner of those specific goods.”

Potential existence.-The act follows the English statute in rejecting this doctrine. goods It defines “existing ” as those “owned or possessed by the seller,” and “future goods” as those “to be manufactured or acquired by the seller,” and it declares that “where parties purport to effect a present sale of future goods, the agreement operates as a contract to sell the goods.”
Conditional sales.-The Commissioners on Uni- form State Laws have prepared a separate act covering this topic, which modifies the common law rules, as well as existing statutes, referred to in paragraph 396. Its chief objects are to relieve a conditional vendee from forfeiting all claim to the property, upon his failure to pay an instalment of the price, and to enable him to pass title to the property, unless the contract is in writing and filed. If adopted generally by the States it will greatly improve the law on this topic.
Goods represented by document of title.-On this English statute and modifies common law rules. It defines point the Uniform Sales Act diverges radically from the rant, warehouse receipt or order for the delivery of goods, document of title as including any bill of lading, dock war-The seller wder to the the landing of the powder. He failed to buyer in Cuba while that island belonged to Spain, and to procure proper permits from the Spanish Government for mits, and when the powder procure the per- was landed it was seized and confiscated by the Spanish officials, and the buyer was com pelled to pay a large fine for having powder in his possession price of the powder the buyer denied liability therefor, and set up a claim against the seller for the fine which he had and gave him judgment against the seller for $3,472.49- been forced to pay. The court decided in the buyer’s favor, the amount of the fine-with interest from the date of its
payment.

For breach of warranty the buyer has a claim for damages. If he has paid the price he may sue for the damages. If he has not paid it he may set up his claim by way of a partial defense to an action against him for the price. This is his only right in England and in many of our States, unless the seller was guilty of fraud in inducing him to buy. In some of our States, however, the courts give the buyer the same right to rescind a sale contract for an innocent warranty that they do for fraudulent representations.
The measure of damages for a breach of warranty is ordinarily the difference between the actual value of the article sold and its value if it had been such as it was war- ranted to be. In a recent English case a dealer in orchids sold a plant, warranting it to be a white orchid. When it flowered two years later it proved to be a Had it flowered white it would have been worth one hundred guineas, but as a purple orchid it was worth only s shillings sixpence. The purchaser was entitled to the difference between those sums. c The buyer may be entitled to special damages for breach

The seller wder to the
the landing of the powder. He failed to buyer in Cuba while that island belonged to Spain, and to procure proper permits from the Spanish Government for mits, and when the powder procure the per- was landed it was seized and confiscated by the Spanish officials, and the buyer was com pelled to pay a large fine for having powder in his possession price of the powder the buyer denied liability therefor, and set up a claim against the seller for the fine which he had and gave him judgment against the seller for $3,472.49- been forced to pay. The court decided in the buyer’s favor, the amount of the fine-with interest from the date of its payment.

For breach of warranty the buyer has a claim for damages. If he has paid the price he may sue for the damages. If he has not paid it he may set up his claim by way of a partial defense to an action against him for the price. This is his only right in England and in many of our States, unless the seller was guilty of fraud in inducing him to buy. In some of our States, however, the courts give the buyer the same right to rescind a sale contract for an innocent warranty that they do for fraudulent representations.
The measure of damages for a breach of warranty is ordinarily the difference between the actual value of the article sold and its value if it had been such as it was warranted to be. In a recent English case a dealer in orchids sold a plant, warranting it to be a white orchid. When it flowered two years later it proved to be a Had it flowered white it would have been worth one hundred guineas, but as a purple orchid it was worth only shillings sixpence. The purchaser was entitled to the difference between those sums. The buyer may be entitled to special damages for breach

Summary of Buyer’s Duties and Seller’s Remedies in Contractual Sales

This text discusses the buyer’s duties in a contract for the sale of goods, as well as the seller’s remedies when the buyer breaches the contract. The content is derived from legal principles governing sales contracts, focusing on title transfer, possession, payment obligations, and remedies available to sellers.

Buyer’s Duties in a Sales Contract

The buyer has three primary duties upon entering into a sales contract:

To Accept Title to the Property

The buyer is obligated to accept the title to the goods as stipulated in the contract.
If the buyer refuses to accept title, this refusal constitutes a breach of contract.
Despite the breach, title and ownership remain with the seller until properly transferred.
The seller retains the responsibility to care for the property and dispose of it as best as possible.
In some jurisdictions, the seller may compel the buyer to accept title by tendering the goods at the agreed time and place.

To Take Possession of the Goods

The buyer must take possession of the goods purchased.
If the contract does not specify a time for taking possession, the buyer must do so within a reasonable time after title passes.
Failure to take possession timely may result in the buyer being liable to the seller:
- For reasonable charges related to the care and custody of the goods.
- For any damages caused by the buyer’s neglect or delay.

To Pay for the Property

The buyer must pay the agreed-upon price for the goods.
If no price is specified, the law requires payment of a fair and reasonable price.
- For goods with a general market price (e.g., grain, fruit, ordinary merchandise), the buyer must pay the market price.
- When goods lack a market price or the market price has been artificially manipulated (e.g., by trusts or market cornering), the buyer must pay the fair value of the goods.
The duty to pay is fundamental and binding once the price is agreed or reasonably inferred.

Seller’s Remedies in Case of Breach by Buyer

When the buyer breaches the contract, the seller has specific remedies:

If the buyer fails to pay the agreed price after the title has passed, the seller can sue for the price.
If the buyer wrongfully refuses to accept the goods tendered by the seller, the seller is entitled to recover damages for that breach.
The seller’s right to recover damages is the only remedy available for refusal to accept delivery, as the seller still holds title and ownership of the goods until properly transferred.

Key Legal Principles and Insights

Aspect	Buyer’s Duty	Seller’s Remedy
Acceptance of Title	Must accept title; refusal is breach but title remains with seller	Can compel acceptance in some states; entitled to damages for refusal
Taking Possession	Must take possession within reasonable time after title passes	Can charge for care and custody; recover damages for neglect
Payment for Goods	Must pay agreed price or fair market value if none specified	Entitled to sue for price if unpaid after title passes
Market Price Determination	Pay market price for salable goods; pay fair value if market is unreliable	Not specified explicitly for seller

Additional Notes

Title Transfer and Tender: Tendering goods at the agreed place and time is critical in transferring title in some states, and the seller may force acceptance under such conditions.
Reasonable Time: When timing is not specified, “reasonable time” is a flexible legal standard depending on the circumstances.
Fair and Reasonable Price: The concept protects both buyer and seller when no explicit price is set or when market manipulation occurs.
Damages: Damages refer to compensation to the seller for losses caused by the buyer’s breach, including costs of storage, deterioration, or resale losses.

Summary of Core Concepts

Buyer’s acceptance of title is a contractual obligation with legal consequences for refusal.
Possession must be taken promptly, or the buyer compensates the seller for care and damages.
Payment is mandatory at the contract price or a reasonable equivalent.
The seller’s remedies include suing for price and recovering damages but do not include forced transfer of title beyond tendering the goods.
These rules ensure fairness and responsibility in the transfer of ownership and payment in sales contracts.

This summary captures the essential legal duties of buyers and the corresponding remedies of sellers as outlined in the provided text. It is grounded strictly in the source material and avoids extrapolation beyond the stated principles.

refusing to accept it. Of course such a refusal is a breach of his contract, and the seller is entitled to recover damages for that breach. But that is his only right. The title to the property is still in him, and he must take care of the property and dispose of it as best he can. In some of our States the seller may, in certain cases, force title upon the buyer by tendering the agreed article at the proper time and place.

To take possession.—Not only is the buyer bound by his contract to take title, but it is his duty to take possession of what he has bought. If no time is stipulated in the contract, it is his duty to take possession within a reasonable time after title has passed to him. In case he does not he becomes liable to the seller for a reasonable charge for its care and custody, and also for any damage occasioned to the seller by his neglect to take the property away.
To pay for the property.—The third duty of the buyer is to pay for what he buys. When the price is agreed upon he is bound to pay that sum. If no price is named the law declares that he must pay a fair and reasonable price. If the goods are salable in the general market, such as grain, or fruit, or other articles of ordinary merchandise, he must pay their market price. When the goods have not a market price, or when the market price has been unfairly raised or lowered by a “trust” combination, or by speculators who have “cornered” the market, the buyer discharges his duty by paying what the goods were fairly worth.

§5. REMEDIES OF THE SELLER

416: The seller’s remedy by action for the price or for damages.—After the title has passed to the buyer, if he fails to pay for the goods when he ought to pay, the seller is entitled to sue him for the price. If the buyer improperly refuses to accept the goods when they are tendered, and thus

Summary of Per Diem Charge Developments and Related Committee Actions

This summary outlines the key events, findings, and decisions related to the adjustments of per diem charges for railroad car usage between 1947 and 1953. It focuses on the work of the General Committee, its expert Per Diem Studies Subcommittee, and the impact of these charges on member railroads.

Background and Committee Structure

The General Committee oversees per diem charges and relies on an expert Per Diem Studies Subcommittee, composed of specialists in accounting, engineering, and other relevant fields.
The Subcommittee performs foundational analysis (“under-lying spade work”) to inform the General Committee’s decisions regarding per diem rates.

Timeline of Key Events and Decisions

Date/Period	Event/Decision	Outcome/Result
January 21, 1947	Initial indication and discussion of a $2.00 per diem rate goal	Statistical support for this rate was not yet established
July 1951	Per Diem Studies Subcommittee met in Washington for about 10 days, dedicating 57 hours	Applied 1950 data to the existing formula supporting $1.75 charge; calculated $1.89 per diem charge
October 17, 1951	Subcommittee submitted a unanimous report criticizing the $1.89 figure and recommended changes	Suggested reduction of per diem rate to $1.537; made six specific formula revisions for accuracy and fairness
October 1951	General Committee rejected the Subcommittee’s recommendations and voted to increase the rate	Increased rate to $2.00 by altering the divisor period from 15 to 20 years, including idle car-days from 1931-1935
September 19, 1956	The Barre & Chelsea Railroad ceased operations, significantly affected by the $2.00 per diem	Executive per diem burden from the $2.00 rate (and earlier rates) contributed to its failure
August 1, 1953	Per diem charge increased further to $2.40	Supported by a formula change substituting “Reproduction Value New” for “Ledger Value Undepreciated”; ratified by overwhelming vote

Subcommittee’s 1951 Report and Recommendations

The July 1951 Subcommittee report:
Applied the existing formula to 1950 data, indicating a $1.89 per diem charge.
Criticized the formula’s output for overestimating costs.
Made six specific recommendations to revise the formula. These addressed objections considered valid by most members.
Recommended reducing the per diem rate from $1.89 (formula result) to $1.537, pending more accurate data on ownership costs per active car day.
The report was submitted to the General Committee in October 1951 but:
The General Committee ignored the report’s recommendations, including the suggested rate reduction.
The Committee refused to discuss the report despite repeated attempts by member Sughrue.

General Committee Actions and Formula Changes

The General Committee’s increase from $1.75 to $2.00 was justified by extending the divisor period in calculations from 15 years to 20 years, thus including data from depression years (1931-1935) with many idle car-days.
This single methodological change increased the statistical support for the rate from $1.89 to over $2.00.
Later, to justify the increase to $2.40 per diem, the General Committee:
Substituted “Reproduction Value New” for “Ledger Value Undepreciated” in the formula.
This substitution was based on 1,781,648 cars in service as of December 31, 1952.
This added approximately $4.17 billion to the depreciation base.
Resulted in an additional annual depreciation charge of over $130 million.
This increase was approved by a large margin in voting (over 1.5 million cars for, about 423,000 against, with 17,269 abstentions).

Impact on Railroads and Industry Response

The higher per diem rates imposed significant financial burdens on some railroads.
For example, the Barre & Chelsea Railroad was heavily impacted by the $2.00 rate and earlier excessive rates, contributing to its cessation of operations in 1956.
At the $2.40 rate increase:
Several railroads, including Boston & Maine, Long Island, New Haven, New Jersey & New York, and Rutland, refused to pay the increased rate.
These railroads either withdrew from the agreement or took independent action in response.

Quantitative Data Summary

Parameter	Value/Description
Original per diem charge	$1.75
Subcommittee’s 1951 recalculation	$1.89
Subcommittee’s recommended rate	$1.537
General Committee’s 1951 decision	$2.00 (increased by expanding divisor period)
Cars in service (Dec 31, 1952)	1,781,648
Increase in depreciation base	$4,170,742,649
Additional annual depreciation	$130,127,170
Final per diem charge (1953)	$2.40
Voting results for $2.40 increase	1,521,342 cars for; 423,333 against; 17,269 abstained

Key Insights and Conclusions

The Per Diem Studies Subcommittee, despite its expert analysis and conservative recommendations, was overruled by the General Committee, which pursued higher per diem rates.
The General Committee’s use of formula manipulations (extending divisor periods and substituting value bases) was critical in statistically justifying significant rate increases.
The per diem rate increases had real economic consequences for smaller railroads, exemplified by the collapse of the Barre & Chelsea Railroad.
The widespread industry resistance to the $2.40 rate reflected concerns over fairness and financial strain.
These developments highlight the tension between statistical methodology and practical impacts in regulatory or committee pricing decisions.
The per diem rate increases were partially enabled by large-scale voting by car owners, indicating industry-wide support despite opposition from some members.

Not Specified/Uncertain

Detailed motivations behind the General Committee’s rejection of the Subcommittee’s recommendations beyond procedural notes.
The exact content of the six specific recommendations made by the Subcommittee.
The precise financial impacts on railroads other than Barre & Chelsea.
Long-term implications for the railroad industry beyond the immediate period discussed.

This summary captures the evolution of per diem charges from 1947 through 1953, emphasizing the roles of expert analysis, committee decision-making, formula adjustments, and resulting industry effects. The General Committee’s decisions to increase per diem charges despite expert caution reflect complex balancing of statistical data, economic goals, and stakeholder interests.