THE general method to be pursued in the analysis of contract is the same as that already explained with regard to possession. Wherever the law gives special rights to one, or imposes special burdens on another, it does so on the ground that certain special facts are true of those individuals. In all such cases, therefore, there is a twofold task. First, to determine what are the facts to which the special consequences are attached; second, to ascertain the consequences. The first is the main field of legal argument. With regard to contracts the facts are not always the same. They may be that a certain person has signed, sealed, and delivered a writing of a certain purport. They may be that he has made an oral promise, and that the promisee has furnished him a consideration.
The common element of all contracts might be said to be a promise, although even a promise was not necessary to a liability in debt as formerly understood. But as it will not be possible to discuss covenants further, and as consideration formed the main topic of the last Lecture, I will take up that first. Furthermore, as there is an historical difference between consideration in debt and in assumpsit, I shall confine myself to the latter, which is the later and more philosophical form.
It is said that any benefit conferred by the promisee on the promisor, or any detriment incurred by the promisee,[290]may be a consideration. It is also thought that every consideration may be reduced to a case of the latter sort, using the word "detriment" in a somewhat broad sense.
To illustrate the general doctrine, suppose that a man is desirous of having a cask of brandy carried from Boston to Cambridge, and that a truckman, either out of kindness or from some other motive, says that he will carry it, and it is delivered to him accordingly. If he carelessly staves in the cask, there would perhaps be no need to allege that he undertook to carry it, and on principle, and according to the older cases, if an undertaking was alleged, no consideration for the assumpsit need be stated. /1/ The ground of complaint in that case would be a wrong, irrespective of contract. But if the complaint was that he did not carry it as agreed, the plaintiff's difficulty would be that the truckman was not bound to do so unless there was a consideration for his promise. Suppose, therefore, that it was alleged that he promised to do so in consideration of the delivery to him. Would this be a sufficient consideration? The oldest cases, going on the notion of benefit to the promisor, said that it could not be, for it was a trouble, not a benefit. /2/ Then take it from the side of detriment. The delivery is a necessary condition to the promisor's doing the kindness, and if he does it, the delivery, so far from being a detriment to the promisee, is a clear benefit to him.
But this argument is a fallacy. Clearly the delivery would be sufficient consideration to enable the owner to declare in assumpsit for the breach of those duties which[291]arose, irrespective of contract, from the defendant's having undertaken to deal with the thing. /1/ It would be a sufficient consideration for any promise not involving a dealing with the thing for its performance, for instance, to pay a thousand dollars. /2/ And the law has not pronounced the consideration good or bad according to the nature of the promise founded upon it. The delivery is a sufficient consideration for any promise. /3/
The argument on the other side leaves out of sight the point of time at which the sufficiency of the consideration is to be determined. This is the moment when the consideration is furnished. At that moment the delivery of the cask is a detriment in the strictest sense. The owner of the cask has given up a present control over it, which he has a right to keep, and he has got in return, not a performance for which a delivery was necessary, but a mere promise of performance. The performance is still future. /4/
But it will be seen that, although the delivery may be a consideration, it will not necessarily be one. A promise to carry might be made and accepted on the understanding that it was mere matter of favor, without consideration, and not legally binding. In that case the detriment of delivery would be incurred by the promisee as before, but obviously it would be incurred for the sole purpose of enabling the promisor to carry as agreed.
[292]It appears to me that it has not always been sufficiently borne in mind that the same thing may be a consideration or not, as it is dealt with by the parties. The popular explanation of Coggs v. Bernard is, that the delivery was a consideration for a promise to carry the casks safely. I have given what I believe to be the true explanation, and that which I think Lord Holt had in view, in the fifth Lecture. /1/ But whether that which I have offered be true or not, a serious objection to the one which is commonly accepted is that the declaration does not allege that the delivery was the consideration.
The same caution should be observed in construing the terms of an agreement. It is hard to see the propriety of erecting any detriment which an instrument may disclose or provide for, into a consideration, unless the parties have dealt with it on that footing. In many cases a promisee may incur a detriment without thereby furnishing a consideration. The detriment may be nothing but a condition precedent to performance of the promise, as where a man promises another to pay him five hundred dollars if he breaks his leg. /2/
The courts, however, have gone far towards obliterating this distinction. Acts which by a fair interpretation of language would seem to have been contemplated as only the compliance with a condition, have been treated as the consideration of the promise. /3/ And so have counter promises in an agreement which expressly stated other matters as the consideration. /4/ So it should be mentioned, subject[293]to the question whether there may not be a special explanation for the doctrine, that it is said that an assignment of a leasehold cannot be voluntary under the statute of 27 Elizabeth, c. 4, because the assignee comes into the obligations of the tenant. /1/ Yet the assignee's incurring this detriment may not be contemplated as the inducement of the assignment, and in many cases only amounts to a deduction from the benefit conferred, as a right of way would be, especially if the only obligation is to pay rent, which issues out of the land in theory of law.
But although the courts may have sometimes gone a little far in their anxiety to sustain agreements, there can be no doubt of the Principle which I have laid down, that the same thing may be a consideration or not, as it is dealt with by the parties. This raises the question how a thing must be dealt with, in order to make it a consideration.
It is said that consideration must not be confounded with motive. It is true that it must not be confounded with what may be the prevailing or chief motive in actual fact. A man may promise to paint a picture for five hundred dollars, while his chief motive may be a desire for fame. A consideration may be given and accepted, in fact, solely for the purpose of making a promise binding. But, nevertheless, it is the essence of a consideration, that, by the terms of the agreement, it is given and accepted as the motive or inducement of the promise. Conversely, the promise must be made and accepted as the conventional motive or inducement for furnishing the consideration. The root of the whole matter is the relation of reciprocal[294]conventional inducement, each for the other, between consideration and promise.
A good example of the former branch of the proposition is to be found in a Massachusetts case. The plaintiff refused to let certain wood be removed from his land by one who had made an oral bargain and given his note for it, unless he received additional security. The purchaser and the plaintiff accordingly went to the defendant, and the defendant put his name upon the note. The plaintiff thereupon let the purchaser carry off the wood. But, according to the testimony, the defendant signed without knowing that the plaintiff was to alter his position in any way on the faith of the signature, and it was held that, if that story was believed, there was no consideration. /1/
An illustration of the other half of the rule is to be found in those cases where a reward is offered for doing something, which is afterwards done by a person acting in ignorance of the offer. In such a case the reward cannot be claimed, because the alleged consideration has not been furnished on the faith of the offer. The tendered promise has not induced the furnishing of the consideration. The promise cannot be set up as a conventional motive when it was not known until after the alleged consideration was performed. /2/
Both sides of the relation between consideration and promise, and the conventional nature of that relation, may be illustrated by the case of the cask. Suppose that the [295] truckman is willing to carry the cask, and the owner to let him carry it, without any bargain, and that each knows the other's state of mind; but that the truckman, seeing his own advantage in the matter, says to the owner, "In consideration of your delivering me the cask, and letting me carry it, I promise to carry it," and that the owner thereupon delivers it. I suppose that the promise would be binding. The promise is offered in terms as the inducement for the delivery, and the delivery is made in terms as the inducement for the promise. It may be very probable that the delivery would have been made without a promise, and that the promise would have been made in gratuitous form if it had not been accepted upon consideration; but this is only a guess after all. The delivery need not have been made unless the owner chose, and having been made as the term of a bargain, the promisor cannot set up what might have happened to destroy the effect of what did happen. It would seem therefore that the same transaction in substance and spirit might be voluntary or obligatory, according to the form of words which the parties chose to employ for the purpose of affecting the legal consequences.
If the foregoing principles be accepted, they will be seen to explain a doctrine which has given the courts some trouble to establish. I mean the doctrine that an executed consideration will not sustain a subsequent promise. It has been said, to be sure, that such a consideration was sufficient if preceded by a request. But the objections to the view are plain. If the request was of such a nature, and so put, as reasonably to imply that the other person was to have a reward, there was an express promise, although not put in words, and that promise was made at[296]the same time the consideration was given, and not afterwards. If, on the other hand, the words did not warrant the understanding that the service was to be paid for, the service was a gift, and a past gift can no more be a consideration than any other act of the promisee not induced by the promise.
The source of the error can be traced partially, at least, in history. Some suggestions touching the matter were made in the last Lecture. A few words should be added here. In the old cases of debt, where there was some question whether the plaintiff had showed enough to maintain his action, a "contract precedent" was spoken of several times as raising the duty. Thus, where a man had granted that he would be bound in one hundred shillings to pay his servant on a certain day for his services, and for payments made by the servant on his account, it was argued that there was no contract precedent, and that by parol the party is not obliged; and, further, that, so far as appeared, the payments were made by the servant out of his own head and at no request, from which no duty could commence. /1/
So when debt was brought on a deed to pay the plaintiff ten marks, if he would take the defendant's daughter to wife, and it was objected that the action should have been covenant, it was answered that the plaintiff had a contract precedent which gave him debt. /2/
The first case in assumpsit /3/ only meant to adopt this long familiar thought. A man went bail for his friend's servant, who had been arrested. Afterwards the master[297]promised to indemnify the bail, and on his failure to do so was sued by him in assumpsit. It was held that there was no consideration wherefore the defendant should be charged unless the master had first promised to indemnify the plaintiff before the servant was bailed; "for the master did never make request to the plaintiff for his servant to do so much, but he did it of his own head." This is perfectly plain sailing, and means no more than the case in the Year Books. The report, however, also states a case in which it was held that a subsequent promise, in consideration that the plaintiff at the special instance of the defendant had married the defendant's cousin, was binding, and that the marriage was "good cause... because [it] ensued the request of the defendant." Whether this was intended to establish a general principle, or was decided with reference to the peculiar consideration of marriage, /1/ it was soon interpreted in the broader sense, as was shown in the last Lecture. It was several times adjudged that a past and executed matter was a sufficient consideration for a promise at a later day, if only the matter relied on had been done or furnished at the request of the promisor. /2/
It is now time to analyze the nature of a promise, which is thesecond and most conspicuous element in a simple contract. TheIndian Contract Act, 1872, Section 2,8 says:—"(a.) When one person signifies to another his willingness[298]to do or to abstain from doing anything, with a view to obtainingthe assent of that other to such act or abstinence, he is said tomake a proposal:"(b.) When the person to whom the proposal is made signifies hisassent thereto, the proposal is said to be accepted. A proposalwhen accepted becomes a promise."
According to this definition the scope of promises is confined to conduct on the part of the promisor. If this only meant that the promisor alone must bear the legal burden which his promise may create, it would be true. But this is not the meaning. For the definition is of a promise, not of a legally binding promise. We are not seeking for the legal effects of a contract, but for the possible contents of a promise which the law may or may not enforce. We must therefore only consider the question what can possibly be promised in a legal sense, not what will be the secondary consequence of a promise binding, but not performed.
An assurance that it shall rain to-morrow, /1/ or that a third person shall paint a picture, may as well be a promise as one that the promisee shall receive from some source one hundred bales of cotton, or that the promisor will pay the promisee one hundred dollars. What is the difference in the cases? It is only in the degree of power possessed by the promisor over the event. He has none in the first case. He has equally little legal authority to make a man paint a picture, although he may have larger means of persuasion. He probably will be able to make sure that the promisee has the cotton. Being a rich man, he is certain [299] to be able to pay the one hundred dollars, except in the event of some most improbable accident.
But the law does not inquire, as a general thing, how far the accomplishment of an assurance touching the future is within the power of the promisor. In the moral world it may be that the obligation of a promise is confined to what lies within reach of the will of the promisor (except so far as the limit is unknown on one side, and misrepresented on the other). But unless some consideration of public policy intervenes, I take it that a man may bind himself at law that any future event shall happen. He can therefore promise it in a legal sense. It may be said that when a man covenants that it shall rain to-morrow, or that A shall paint a picture, he only says, in a short form, I will pay if it does not rain, or if A does not paint a picture. But that is not necessarily so. A promise could easily be framed which would be broken by the happening of fair weather, or by A not painting. A promise, then, is simply an accepted assurance that a certain event or state of things shall come to pass.
But if this be true, it has more important bearings than simply to enlarge the definition of the word promise. It concerns the theory of contract. The consequences of a binding promise at common law are not affected by the degree of power which the promisor possesses over the promised event. If the promised event does not come to pass, the plaintiff's property is sold to satisfy the damages, within certain limits, which the promisee has suffered by the failure. The consequences are the same in kind whether the promise is that it shall rain, or that another man shall paint a picture, or that the promisor will deliver a bale of cotton.
[300] If the legal consequence is the same in all cases, it seems proper that all contracts should be considered from the same legal point of view. In the case of a binding promise that it shall rain to-morrow, the immediate legal effect of what the promisor does is, that he takes the risk of the event, within certain defined limits, as between himself and the promisee. He does no more when he promises to deliver a bale of cotton.
If it be proper to state the common-law meaning of promise and contract in this way, it has the advantage of freeing the subject from the superfluous theory that contract is a qualified subjection of one will to another, a kind of limited slavery. It might be so regarded if the law compelled men to perform their contracts, or if it allowed promisees to exercise such compulsion. If, when a man promised to labor for another, the law made him do it, his relation to his promisee might be called a servitude ad hoc with some truth. But that is what the law never does. It never interferes until a promise has been broken, and therefore cannot possibly be performed according to its tenor. It is true that in some instances equity does what is called compelling specific performance. But, in the first place, I am speaking of the common law, and, in the next, this only means that equity compels the performance of certain elements of the total promise which are still capable of performance. For instance, take a promise to convey land within a certain time, a court of equity is not in the habit of interfering until the time has gone by, so that the promise cannot be performed as made. But if the conveyance is more important than the time, and the promisee prefers to have it late rather than never, the law may compel the performance of[301]that. Not literally compel even in that case, however, but put the promisor in prison unless he will convey. This remedy is an exceptional one. The only universal consequence of a legally binding promise is, that the law makes the promisor pay damages if the promised event does not come to pass. In every case it leaves him free from interference until the time for fulfilment has gone by, and therefore free to break his contract if he chooses.
A more practical advantage in looking at a contract as the taking of a risk is to be found in the light which it throws upon the measure of damages. If a breach of contract were regarded in the same light as a tort, it would seem that if, in the course of performance of the contract the promisor should be notified of any particular consequence which would result from its not being performed, he should be held liable for that consequence in the event of non-performance. Such a suggestion has been made. /1/ But it has not been accepted as the law. On the contrary, according to the opinion of a very able judge, which seems to be generally followed, notice, even at the time of making the contract, of special circumstances out of which special damages would arise in case of breach, is not sufficient unless the assumption of that risk is to be taken as having fairly entered into the contract. /2/ If a carrier should undertake to carry the machinery of a saw-mill from Liverpool to Vancouver's Island, and should fail[302]to do so, he probably would not be held liable for the rate of hire of such machinery during the necessary delay, although he might know that it could not be replaced without sending to England, unless he was fairly understood to accept "the contract with the special condition attached to it." /1/
It is true that, when people make contracts, they usually contemplate the performance rather than the breach. The express language used does not generally go further than to define what will happen if the contract is fulfilled. A statutory requirement of a memorandum in writing would be satisfied by a written statement of the promise as made, because to require more would be to run counter to the ordinary habits of mankind, as well as because the statement that the effect of a contract is the assumption of the risk of a future event does not mean that there is a second subsidiary promise to assume that risk, but that the assumption follows as a consequence directly enforced by the law, without the promisor's co-operation. So parol evidence would be admissible, no doubt, to enlarge or diminish the extent of the liability assumed for nonperformance, where it would be inadmissible to affect the scope of the promise.
But these concessions do not affect the view here taken. As the relation of contractor and contractee is voluntary, the consequences attaching to the relation must be voluntary. What the event contemplated by the promise is, or in other words what will amount to a breach of contract, is a matter of interpretation and construction. What consequences of the breach are assumed is more remotely, in like manner, a matter of construction, having regard [303] to the circumstances under which the contract is made. Knowledge of what is dependent upon performance is one of those circumstances. It is not necessarily conclusive, but it may have the effect of enlarging the risk assumed.
The very office of construction is to work out, from what is expressly said and done, what would have been said with regard to events not definitely before the minds of the parties, if those events had been considered. The price paid in mercantile contracts generally excludes the construction that exceptional risks were intended to be assumed. The foregoing analysis is believed to show that the result which has been reached by the courts on grounds of practical good sense, falls in with the true theory of contract under the common law.
The discussion of the nature of a promise has led me to analyze contract and the consequences of contract somewhat in advance of their place. I must say a word more concerning the facts which constitute a promise. It is laid down, with theoretical truth, that, besides the assurance or offer on the one side, there must be an acceptance on the other. But I find it hard to think of a case where a simple contract fails to be made, which could not be accounted for on other grounds, generally by the want of relation between assurance or offer and consideration as reciprocal inducements each of the other. Acceptance of an offer usually follows by mere implication from the furnishing of the consideration; and inasmuch as by our law an accepted offer, or promise, until the consideration is furnished, stands on no different footing from an offer not yet accepted, each being subject to revocation until that time, and each continuing[304]until then unless it has expired or has been revoked, the question of acceptance is rarely of practical importance.
Assuming that the general nature of consideration and promise is understood, some questions peculiar to bilateral contracts remain to be considered. These concern the sufficiency of the consideration and the moment when the contract is made.
A promise may be a consideration for a promise, although not every promise for every other. It may be doubted whether a promise to make a gift of one hundred dollars would be supported by a promise to accept it. But in a case of mutual promises respectively to transfer and to accept unpaid shares in a railway company, it has been held that a binding contract was made. Here one party agrees to part with something which may prove valuable, and the other to assume a liability which may prove onerous. /1/
But now suppose that there is no element of uncertainty except in the minds of the parties. Take, for instance, a wager on a past horse-race. It has been thought that this would amount to an absolute promise on one side, and no promise at all on the other. /2/ But this does not seem to me sound. Contracts are dealings between men, by which they make arrangements for the future. In making such arrangements the important thing is, not what is objectively true, but what the parties know. Any present fact which is unknown to the parties is just as uncertain for the purposes of making an arrangement at this moment, as any future fact. It is therefore a detriment to undertake to be ready to pay if the event turns out not[305]to have been as expected. This seems to be the true explanation why forbearance to sue upon a claim believed the plaintiff to be good is a sufficient consideration, although the claim was bad in fact, and known by the defendant to be bad. /1/ Were this view unsound, it is hard to see how wagers on any future event, except a miracle, could be sustained. For if the happening or not happening of the event is subject to the law of causation, the only uncertainty about it is in our foresight, not in its happening.
The question when a contract is made arises for the most part with regard to bilateral contracts by letter, the doubt being whether the contract is complete at the moment when the return promise is put into the post, or at the moment when it is received. If convenience preponderates in favor of either view, that is a sufficient reason for its adoption. So far as merely logical grounds go, the most ingenious argument in favor of the later moment is Professor Langdell's. According to him the conclusion follows from the fact that the consideration which makes the offer binding is itself a promise. Every promise, he says, is an offer before it is a promise, and the essence of an offer is that it should be communicated. /2/ But this reasoning seems unsound. When, as in the case supposed, the consideration for the return promise has been put into the power of the offeree and the return promise has been accepted in advance, there is not an instant, either in time or logic, when the return promise is an offer. It is a promise and a term of a binding contract as soon as it is anything. An offer is a revocable and unaccepted communication of willingness to promise.[306]When an offer of a certain bilateral contract has been made, the same contract cannot be offered by the other side. The so-called offer would neither be revocable nor unaccepted. It would complete the contract as soon as made.
If it be said that it is of the essence of a promise to be communicated, whether it goes through the stage of offer or not, meaning by communicated brought to the actual knowledge of the promisee, the law is believed to be otherwise. A covenant is binding when it is delivered and accepted, whether it is read or not. On the same principle, it is believed that, whenever the obligation is to be entered into by a tangible sign, as, in the case supposed, by letter containing the return promise, and the consideration for and assent to the promise are already given, the only question is when the tangible sign is sufficiently put into the power of the promisee. I cannot believe that, if the letter had been delivered to the promisee and was then snatched from his hands before he had read it, there would be no contract. /1/ If I am right, it appears of little importance whether the post-office be regarded as agent or bailee for the offerer, or as a mere box to which he has access. The offeree, when he drops the letter containing the counter-promise into the letter-box, does an overt act, which by general understanding renounces control over the letter, and puts it into a third hand for the benefit of the offerer, with liberty to the latter at any moment thereafter to take it.
The principles governing revocation are wholly different. One to whom an offer is made has a right to assume that it remains open according to its terms until he has actual [307] notice to the contrary. The effect of the communication must be destroyed by a counter communication. But the making of a contract does not depend on the state of the parties' minds, it depends on their overt acts. When the sign of the counter promise is a tangible object, the contract is completed when the dominion over that object changes.
[308]
THE elements of fact necessary to call a contract into existence, and the legal consequences of a contract when formed, have been discussed. It remains to consider successively the cases in which a contract is said to be void, and those in which it is said to be voidable,—in which, that is, a contract fails to be made when it seems to have been, or, having been made, can be rescinded by one side or the other, and treated as if it had never been. I take up the former class of cases first.
When a contract fails to be made, although the usual forms have been gone through with, the ground of failure is commonly said to be mistake, misrepresentation, or fraud. But I shall try to show that these are merely dramatic circumstances, and that the true ground is the absence of one or more of the primary elements, which have been shown, or are seen at once, to be necessary to the existence of a contract.
If a man goes through the form of making a contract with A through B as A's agent, and B is not in fact the agent of A, there is no contract, because there is only one party. The promise offered to A has not been accepted by him, and no consideration has moved from him. In such a case, although there is generally mistake on one side and fraud on the other, it is very clear that no special[309]doctrine need be resorted to, because the primary elements of a contract explained in the last Lecture are not yet present.
Take next a different case. The defendant agreed to buy, and the plaintiff agreed to sell, a cargo of cotton, "to arrive ex Peerless from Bombay." There were two such vessels sailing from Bombay, one in October, the other in December. The plaintiff meant the latter, the defendant the former. It was held that the defendant was not bound to accept the cotton. /1/ It is commonly said that such a contract is void, because of mutual mistake as to the subject-matter, and because therefore the parties did not consent to the same thing. But this way of putting it seems to me misleading. The law has nothing to do with the actual state of the parties' minds. In contract, as elsewhere, it must go by externals, and judge parties by their conduct. If there had been but one "Peerless," and the defendant had said "Peerless" by mistake, meaning "Peri," he would have been bound. The true ground of the decision was not that each party meant a different thing from the other, as is implied by the explanation which has been mentioned, but that each said a different thing. The plaintiff offered one thing, the defendant expressed his assent to another.
A proper name, when used in business or in pleading, /2/ means one individual thing, and no other, as every one knows, and therefore one to whom such a name is used must find out at his peril what the object designated is. If there are no circumstances which make the use deceptive on either side, each is entitled to insist on the[310]meaning favorable to him for the word as used by him, and neither is entitled to insist on that meaning for the word as used by the other. So far from mistake having been the ground of decision, as mistake, its only bearing, as it seems to me, was to establish that neither party knew that he was understood by the other to use the word "Peerless "in the sense which the latter gave to it. In that event there would perhaps have been a binding contract, because, if a man uses a word to which he knows the other party attaches, and understands him to attach, a certain meaning, he may be held to that meaning, and not be allowed to give it any other. /1/
Next, suppose a case in which the offer and acceptance do not differ, and in which both parties have used the same words in the same sense. Suppose that A agreed to buy, and B agreed to sell, "these barrels of mackerel," and that the barrels in question turn out to contain salt. There is mutual mistake as to the contents of the barrels, and no fraud on either side. I suppose the contract would be void. /2/
It is commonly said that the failure of the contract in such a case is due to the fact of a difference in kind between the actual subject-matter and that to which the intention of the parties was directed. It is perhaps more instructive to say that the terms of the supposed contract, although seemingly consistent, were contradictory, in matters that went to the root of the bargain. For, by one of the essential terms, the subject-matter of the agreement was the contents of certain barrels, and nothing else, and, by another equally important, it was mackerel, and nothing else;[311]while, as a matter of fact, it could not be both, because the contents of the barrels were salt. As neither term could be left out without forcing on the parties a contract which they did not make, it follows that A cannot be required to accept, nor B to deliver either these barrels of salt, or other barrels of mackerel; and without omitting one term, the promise is meaningless.
If there had been fraud on the seller's part, or if he had known what the barrels really contained, the buyer might have had a right to insist on delivery of the inferior article. Fraud would perhaps have made the contract valid at his option. Because, when a man qualifies sensible words with others which he knows, on secret grounds, are insensible when so applied, he may fairly be taken to authorize his promisee to insist on the possible part of his promise being performed, if the promisee is willing to forego the rest.
Take one more illustration like the last case. A policy of insurance is issued on a certain building described in the policy as a machine-shop. In fact the building is not a machine-shop, but an organ factory, which is a greater risk. The contract is void, not because of any misrepresentation, but, as before, because two of its essential terms are repugnant, and their union is insensible. /1/
Of course the principle of repugnancy last explained might be stretched to apply to any inconsistency between the different terms of a contract. It might be said, for instance, that if a piece of gold is sold as eighteen-carat gold, and it is in fact not so pure, or if a cow is sold as yielding an average of twelve quarts of milk a day, and in fact she yields only six quarts, there is no logical difference, [312] according to the explanation which has just been offered, between those cases and that of the barrel of salt sold for mackerel. Yet those bargains would not be void. At the most, they would only be voidable, if the buyer chose to throw them up.
The distinctions of the law are founded on experience, not on logic. It therefore does not make the dealings of men dependent on a mathematical accuracy. Whatever is promised, a man has a right to be paid for, if it is not given; but it does not follow that the absence of some insignificant detail will authorize him to throw up the contract, still less that it will prevent the formation of a contract, which is the matter now under consideration. The repugnant terms must both be very important,—so important that the court thinks that, if either is omitted, the contract would be different in substance from that which the words of the parties seemed to express.
A term which refers directly to an identification by the senses has always this degree of importance. If a promise is made to sell this cow, or this mackerel, to this man, whatever else may be stricken from the contract, it can never be enforced except touching this object and by this man. If this barrel of salt is fraudulently sold for a barrel of mackerel, the buyer may perhaps elect to take this barrel of salt if he chooses, but he cannot elect to take another barrel of mackerel. If the seller is introduced by the name B, and the buyer supposes him to be another person of the same name, and under that impression delivers his written promise to buy of B, the B to whom the writing is delivered is the contractee, if any one is, and, notwithstanding what has been said of the use of proper names, I should suppose[313]a contract would be made. /1/ For it is further to be said that, so far as by one of the terms of a contract the thing promised or the promisee is identified by sight and hearing, that term so far preponderates over all others that it is very rare for the failure of any other element of description to prevent the making of a contract. /2/ The most obvious of seeming exceptions is where the object not in fact so identified, but only its covering or wrapper.
Of course the performance of a promise may be made conditional on all the terms stipulated from the other side being complied with, but conditions attaching to performance can never come into consideration until a contract has been made, and so far the question has been touching the existence of a contract in the first instance.
A different case may be suggested from any yet considered. Instead of a repugnancy between offer and assent which prevents an agreement, or between the terms of an agreement which makes it insensible on its fact, there may be a like repugnancy between a term of the contract and a previous representation of fact which is not expressly made a part of the contract. The representation may have been the chief inducement and very foundation of the bargain. It may be more important than any of the expressed terms, and yet the contract may have [314] been reduced to writing in words which cannot fairly be construed to include it. A vendor may have stated that barrels filled with salt contain mackerel, but the contract may be only for the barrels and their contents. An applicant for insurance may have misstated facts essential to the risk, yet the policy may simply insure a certain building or a certain life. It may be asked whether these contracts are not void also.
There might conceivably be cases in which, taking into account the nature of the contract, the words used could be said to embody the representation as a term by construction. For instance, it might be said that the true and well-understood purport of a contract of insurance is not, as the words seem to say, to take the risk of any loss by fire or perils of the sea, however great the risk may be, but to take a risk of a certain magnitude, and no other, which risk has been calculated mathematically from the statements of the party insured. The extent of the risk taken is not specified in the policy, because the old forms and established usage are otherwise, but the meaning is perfectly understood.
If this reasoning were adopted, there would be an equal repugnancy in the terms of the contract, whether the nature of the risk were written in the policy or fixed by previous description. But, subject to possible exceptions of this kind, it would seem that a contract would be made, and that the most that could be claimed would be a right to rescind. Where parties having power to bind themselves do acts and use words which are fit to create an obligation, I take it that an obligation arises. If there is a mistake as to a fact not mentioned in the contract, it goes only to the motives for making the contract. But a [315] contract is not prevented from being made by the mere fact that one party would not have made it if he had known the truth. In what cases a mistake affecting motives is a ground for avoidance, does not concern this discussion, because the subject now under consideration is when a contract is made, and the question of avoiding or rescinding it presupposes that it has been made.
I think that it may now be assumed that, when fraud, misrepresentation, or mistake is said to make a contract void, there is no new principle which comes in to set aside an otherwise perfect obligation, but that in every such case there is wanting one or more of the first elements which were explained in the foregoing Lecture. Either there is no second party, or the two parties say different things, or essential terms seemingly consistent are really inconsistent as used.
When a contract is said to be voidable, it is assumed that a contract has been made, but that it is subject to being unmade at the election of one party. This must be because of the breach of some condition attached to its existence either expressly or by implication.
If a condition is attached to the contract's coming into being, there is as yet no contract. Either party may withdraw, at will, until the condition is determined. There is no obligation, although there may be an offer or a promise, and hence there is no relation between the parties which requires discussion here. But some conditions seemingly arising out of a contract already made are conditions of this sort. Such is always the case if the condition of a promise lies within the control of the promisor's own will. For instance, a promise to pay for clothes if made to the customer's satisfaction, has been held in Massachusetts to[316]make the promisor his own final judge. /1/ So interpreted, it appears to me to be no contract at all, until the promisor's satisfaction is expressed. His promise is only to pay if he sees fit, and such a promise cannot be made a contract because it cannot impose any obligation. /2/ If the promise were construed to mean that the clothes should be paid for provided they were such as ought to satisfy the promisor, /3/ and thus to make the jury the arbiter, there would be a contract, because the promisor gives up control over the event, but it would be subject to a condition in the sense of the present analysis.
The conditions which a contract may contain have been divided by theorists into conditions precedent and conditions subsequent. The distinction has even been pronounced of great importance. It must be admitted that, if the course of pleading be taken as a test, it is so. In some cases, the plaintiff has to state that a condition has been performed in order to put the defendant to his answer; in others, it is left to the defendant to set up that a condition has been broken.
In one sense, all conditions are subsequent; in another, all are precedent. All are subsequent to the first stage of the obligation. /4/ Take, for instance, the case of a promise to pay for work if done to the satisfaction of an architect. The condition is a clear case of what is called a condition precedent. There can be no duty to pay until the architect is satisfied. But there can be a [317] contract before that moment, because the determination whether the promisor shall pay or not is no longer within his control. Hence the condition is subsequent to the existence of the obligation.
On the other hand, every condition subsequent is precedent to the incidence of the burden of the law. If we look at the law as it would be regarded by one who had no scruples against doing anything which he could do without incurring legal consequences, it is obvious that the main consequence attached by the law to a contract is a greater or less possibility of having to pay money. The only question from the purely legal point of view is whether the promisor will be compelled to pay. And the important moment is that at which that point is settled. All conditions are precedent to that.
But all conditions are precedent, not only in this extreme sense, but also to the existence of the plaintiff's cause of action. As strong a case as can be put is that of a policy of insurance conditioned to be void if not sued upon within one year from a failure to pay as agreed. The condition does not come into play until a loss has occurred, the duty to pay has been neglected, and a cause of action has arisen. Nevertheless, it is precedent to the plaintiff's cause of action. When a man sues, the question is not whether he has had a cause of action in the past, but whether he has one then. He has not one then, unless the year is still running. If it were left for the defendant to set up the lapse of the year, that would be due to the circumstance that the order of pleading does not require a plaintiff to meet all possible defences, and to set out a case unanswerable except by denial. The point at which the law calls on the defendant for an answer varies[318]in different cases. Sometimes it would seem to be governed simply by convenience of proof, requiring the party who has the affirmative to plead and prove it. Sometimes there seems to be a reference to the usual course of events, and matters belong to the defence because they are only exceptionally true.
The most logical distinction would be between conditions which must be satisfied before a promise can be broken, and those which, like the last, discharge the liability after a breach has occurred. /1/ But this is of the slightest possible importance, and it may be doubted whether another case like the last could be found.
It is much more important to mark the distinction between a stipulation which only has the effect of confining a promise to certain cases, and a condition properly so called. Every condition, it is true, has this effect upon the promise to which it is attached, so that, whatever the rule of pleading may be, /2/ a promise is as truly kept and performed by doing nothing where the condition of the stipulated act has been broken, as it would have been by doing the act if the condition had been fulfilled. But if this were all, every clause in a contract which showed what the promisor did not promise would be a condition, and the word would be worse than useless. The characteristic feature is quite different.
A condition properly so called is an event, the happening of which authorizes the person in whose favor the condition is reserved to treat the contract as if it had not been made,—to avoid it, as is commonly said,—that is, to insist on both parties being restored to the position in[319]which they stood before the contract was made. When a condition operates as such, it lets in an outside force to destroy the existing state of things. For although its existence is due to consent of parties, its operation depends on the choice of one of them. When a condition is broken, the person entitled to insist on it may do so if he chooses; but he may, if he prefers, elect to keep the contract on foot. He gets his right to avoid it from the agreement, but the avoidance comes from him.
Hence it is important to distinguish those stipulations which have this extreme effect from those which only interpret the extent of a promise, or define the events to which it applies. And as it has just been shown that a condition need not be insisted on as such, we must further distinguish between its operation by way of avoidance, which is peculiar to it, and its incidental working by way of interpretation and definition, in common with other clauses not conditions.
This is best illustrated by taking a bilateral contract between A and B, where A's undertaking is conditional on B's doing what he promises to do, and where, after A has got a certain distance in his task, B breaks his half of the bargain. For instance, A is employed as a clerk by B, and is wrongfully dismissed in the middle of a quarter. In favor of A, the contract is conditional on B's keeping his agreement to employ him. Whether A insists on the condition or not, he is not bound to do any more. /1/ So far, the condition works simply by way of definition. It establishes that A has not promised to act in the case which has happened. But besides this, for which a condition[320]was not necessary, A may take his choice between two courses. In the first place, he may elect to avoid the contract. In that case the parties stand as if no contract had been made, and A, having done work for B which was understood not to be gratuitous, and for which no rate of compensation has been fixed, can recover what the jury think his services were reasonably worth. The contract no longer determines the quid pro quo. But as an alternative course A may stand by the contract if he prefers to do so, and sue B for breaking it. In that case he can recover as part of his damages pay at the contract rate for what he had done, as well as compensation for his loss of opportunity to finish it. But the points which are material for the present discussion are, that these two remedies are mutually exclusive, /1/ one supposing the contract to be relied on, the other that it is set aside, but that A's stopping work and doing no more after B's breach is equally consistent with either choice, and has in fact nothing to do with the matter.
One word should be added to avoid misapprehension. When it is said that A has done all that he promised to do in the case which has happened, it is not meant that he is necessarily entitled to the same compensation as if he had done the larger amount of work. B's promise in the case supposed was to pay so much a quarter for services; and although the consideration of the promise was the promise by A to perform them, the scope of it was limited to the case of their being performed in fact. Hence A could not simply wait till the end of his term, and then recover the full amount which he would have had if the employment had continued. Nor is he any more entitled to do so from [321] the fact that it was B's fault that the services were not rendered. B's answer to any such claim is perfect. He is only liable upon a promise, and he in his turn only promised to pay in a case which has not happened. He did promise to employ, however, and for not doing that he is liable in damages.
One or two more illustrations will be useful. A promises to deliver, and B promises to accept and pay for, certain goods at a certain time and place. When the time comes, neither party is on hand. Neither would be liable to an action, and, according to what has been said, each has done all that he promised to do in the event which has happened, to wit, nothing. It might be objected that, if A has done all that he is bound to do, he ought to be able to sue B, since performance or readiness to perform was all that was necessary to give him that right, and conversely the same might be said of B. On the other hand, considering either B or A as defendant, the same facts would be a complete defence. The puzzle is largely one of words.
A and B have, it is true, each performed all that they promised to do at the present stage, because they each only promised to act in the event of the other being ready and willing to act at the same time. But the readiness and willingness, although not necessary to the performance of either promise, and therefore not a duty, was necessary in order to present a case to which the promise of action on the other side would apply. Hence, although A and B have each performed their own promise, they have not performed the condition to their right of demanding more from the other side. The performance of that condition is purely optional until one side has brought it within the [322] scope of the other's undertaking by performing it himself. But it is performance in the latter sense, that is, the satisfying of all conditions, as well as the keeping of his own promises, which is necessary to give A or B a right of action.
Conditions may be created by the very words of a contract. Of such cases there is nothing to be said, for parties may agree to what they choose. But they may also be held to arise by construction, where no provision is made in terms for rescinding or avoiding the contract in any case. The nature of the conditions which the law thus reads in needs explanation. It may be said, in a general way, that they are directed to the existence of the manifest grounds for making the bargain on the side of the rescinding party, or the accomplishment of its manifest objects. But that is not enough. Generally speaking, the disappointment must be caused by the wrong-doing of the person on the other side; and the most obvious cases of such wrong-doing are fraud and misrepresentation, or failure to perform his own part of the contract.
Fraud and misrepresentation thus need to be considered once more in this connection. I take the latter first. In dealing with it the first question which arises is whether the representation is, or is not, part of the contract. If the contract is in writing and the representation is set out on the face of the paper, it may be material or immaterial, but the effect of its untruth will be determined on much the same principles as govern the failure to perform a promise on the same side. If the contract is made by word of mouth, there may be a large latitude in connecting words of representation with later words of promise; but when they are determined to be a part of the contract, [323] the same principles apply as if the whole were in writing.
The question now before us is the effect of a misrepresentation which leads to, but is not a part of, the contract. Suppose that the contract is in writing, but does not contain it, does such a previous misrepresentation authorize rescission in any case? and if so, does it in any case except where it goes to the height of fraud? The promisor might say, It does not matter to me whether you knew that your representation was false or not; the only thing I am concerned with is its truth. If it is untrue, I suffer equally whether you knew it to be so or not. But it has been shown, in an earlier Lecture, that the law does not go on the principle that a man is answerable for all the consequences of all his acts. An act is indifferent in itself. It receives its character from the concomitant facts known to the actor at the time. If a man states a thing reasonably believing that he is speaking from knowledge, it is contrary to the analogies of the law to throw the peril of the truth upon him unless he agrees to assume that peril, and he did not do so in the case supposed, as the representation was not made part of the contract.
It is very different when there is fraud. Fraud may as well lead to the making of a contract by a statement outside the contract as by one contained in it. But the law would hold the contract not less conditional on good faith in one case than in the other.
To illustrate, we may take a somewhat extreme case. A says to B, I have not opened these barrels myself, but they contain No. 1 mackerel: I paid so much for them to so and so, naming a well-known dealer. Afterwards A writes B, I will sell the barrels which you saw, and their [324] contents, for so much; and B accepts. The barrels turn out to contain salt. I suppose the contract would be binding if the statements touching the contents were honest, and voidable if they were fraudulent.
Fraudulent representations outside a contract can never, it would seem, go to anything except the motives for making it. If outside the contract, they cannot often affect its interpretation. A promise in certain words has a definite meaning, which the promisor is presumed to understand. If A says to B, I promise you to buy this barrel and its contents, his words designate a person and thing identified by the senses, and they signify nothing more. There is no repugnancy, and if that person is ready to deliver that thing, the purchaser cannot say that any term in the contract itself is not complied with. He may have been fraudulently induced to believe that B was another B, and that the barrel contained mackerel; but however much his belief on those points may have affected his willingness to make the promise, it would be somewhat extravagant to give his words a different meaning on that account. "You" means the person before the speaker, whatever his name, and "contents" applies to salt, as well as to mackerel.
It is no doubt only by reason of a condition construed into the contract that fraud is a ground of rescission. Parties could agree, if they chose, that a contract should be binding without regard to truth or falsehood outside of it on either part.
But, as has been said before in these Lectures, although the law starts from the distinctions and uses the language of morality, it necessarily ends in external standards not dependent on the actual consciousness of the individual.[325]So it has happened with fraud. If a man makes a representation, knowing facts which by the average standard of the community are sufficient to give him warning that it is probably untrue, and it is untrue, he is guilty of fraud in theory of law whether he believes his statement or not. The courts of Massachusetts, at least, go much further. They seem to hold that any material statement made by a man as of his own knowledge, or in such a way as fairly to be understood as made of his own knowledge, is fraudulent if untrue, irrespective of the reasons he may have had for believing it and for believing that he knew it. /1/ It is clear, therefore, that a representation may be morally innocent, and yet fraudulent in theory of law. Indeed, the Massachusetts rule seems to stop little short of the principle laid down by the English courts of equity, which has been criticised in an earlier Lecture, /2/ since most positive affirmations of facts would at least warrant a jury in finding that they were reasonably understood to be made as of the party's own knowledge, and might therefore warrant a rescission if they turned out to be untrue. The moral phraseology has ceased to be apposite, and an external standard of responsibility has been reached. But the starting-point is nevertheless fraud, and except on the ground of fraud, as defined by law, I do not think that misrepresentations before the contract affect its validity, although they lead directly to its making. But neither the contract nor the implied condition calls for the existence of the facts as to which the false representations were made. They call only for the absence of certain false representations. The condition is not that the promisee shall be a certain other B, or that the contents of the barrel shall be mackerel, [326] but that the promisee has not lied to him about material facts.
Then the question arises, How do you determine what facts are material? As the facts are not required by the contract, the only way in which they can be material is that a belief in their being true is likely to have led to the making of the contract.
It is not then true, as it is sometimes said, that the law does not concern itself with the motives for making contracts. On the contrary, the whole scope of fraud outside the contract is the creation of false motives and the removal of true ones. And this consideration will afford a reasonable test of the cases in which fraud will warrant rescission. It is said that a fraudulent representation must be material to have that effect. But how are we to decide whether it is material or not? If the above argument is correct, it must be by an appeal to ordinary experience to decide whether a belief that the fact was as represented would naturally have led to, or a contrary belief would naturally have prevented, the making of the contract.
If the belief would not naturally have had such an effect, either in general or under the known circumstances of the particular case, the fraud is immaterial. If a man is induced to contract with another by a fraudulent representation of the latter that he is a great-grandson of Thomas Jefferson, I do not suppose that the contract would be voidable unless the contractee knew that, for special reasons, his lie would tend to bring the contract about.
The conditions or grounds for avoiding a contract which have been dealt with thus far are conditions concerning the conduct of the parties outside of the itself.[327]Still confining myself to conditions arising by construction of law,—that is to say, not directly and in terms attached to a promise by the literal meaning of the words in which it is expressed,—I now come to those which concern facts to which the contract does in some way refer.
Such conditions may be found in contracts where the promise is only on one side. It has been said that where the contract is unilateral, and its language therefore is all that of the promisor, clauses in his favor will be construed as conditions more readily than the same words in a bilateral contract; indeed, that they must be so construed, because, if they do not create a condition, they do him no good, since ex hypothesi they are not promises by the other party. /1/ How far this ingenious suggestion has had a practical effect on doctrine may perhaps be doubted.
But it will be enough for the purposes of this general survey to deal with bilateral contracts, where there are undertakings on both sides, and where the condition implied in favor of one party is that the other shall make good what he on his part has undertaken.
The undertakings of a contract may be for the existence of a fact in the present or in the future. They can be promises only in the latter case; but in the former, they be equally essential terms in the bargain.
Here again we come on the law of representations, but in a new phase. Being a part of the contract, it is always possible that their truth should make a condition of the contract wholly irrespective of any question of fraud. And it often is so in fact. It is not, however, every representation embodied in the words used on one side which will[328]make a condition in favor of the other party. Suppose A agrees to sell, and B agrees to buy, "A's seven-year-old sorrel horse Eclipse, now in the possession of B on trial," and in fact the horse is chestnut-colored, not sorrel. I do not suppose that B could refuse to pay for the horse on that ground. If the law were so foolish as to aim at merely formal consistency, it might indeed be said that there was as absolute a repugnancy between the different terms of this contract as in the ease of an agreement to sell certain barrels of mackerel, where the barrels turned out to contain salt. If this view were adopted, there would not be a contract subject to a condition, there would be no contract at all. But in truth there is a contract, and there is not even a condition. As has been said already, it is not every repugnancy that makes a contract void, and it is not every failure in the terms of the counter undertaking that makes it voidable. Here it plainly appears that the buyer knows exactly what he is going to get, and therefore that the mistake of color has no bearing on the bargain. /1/
If, on the other hand, a contract contained a representation which was fraudulent, and which misled the party to whom it was made, the contract would be voidable on the same principles as if the representation had been made beforehand. But words of description in a contract are very frequently held to amount to what is sometimes called a warranty, irrespective of fraud. Whether they do so or not is a question to be determined by the court on grounds of common sense, looking to the meaning of the words, the importance in the transaction of the facts[329]which the words convey, and so forth. But when words of description are determined to be a warranty, the meaning of the decision is not merely that the party using them binds himself to answer for their truth, but that their truth is a condition of the contract.
For instance, in a leading case /1/ the agreement was that the plaintiff's ship, then in the port of Amsterdam, should, with all possible despatch, proceed direct to Newport, England, and there load a cargo of coals for Hong Kong. At the date of the charter-party the vessel was not in Amsterdam, but she arrived there four days later. The plaintiff had notice that the defendant considered time important. It was held that the presence of the vessel in the port of Amsterdam at the date of the contract was a condition, the breach of which entitled the defendant to refuse to load, and to rescind the contract. If the view were adopted that a condition must be a future event, and that a promise purporting to be conditional on a past or present event is either absolute or no promise at all, it would follow that in this case the defendant had never made a promise. /2/ He had only promised if circumstances existed which did not exist. I have already stated my objections to this way of looking at such cases, /2/ and will only add that the courts, so far as I am aware, do not sanction it, and certainly did not in this instance.
There is another ground for holding the charter-party void and no contract, instead of regarding it as only voidable, which is equally against authority, which nevertheless I have never been able to answer wholly to my satisfaction. In the case put, the representation of the lessor of the vessel[330]concerned the vessel itself, and therefore entered into the description of the thing the lessee agreed to take. I do not quite see why there is not as fatal a repugnancy between the different terms of this contract as was found in that for the sale of the barrels of salt described as containing mackerel. Why is the repugnancy between the two terms,—first, that the thing sold is the contents of these barrels, and, second, that it is mackerel—fatal to the existence of a contract? It is because each of those terms goes to the very root and essence of the contract, /1/—because to compel the buyer to take something answering to one, but not to the other requirement, would be holding him to do a substantially different thing from what he promised, and because a promise to take one and the same thing answering to both requirements is therefore contradictory in a substantial matter. It has been seen that the law does not go on any merely logical ground, and does not hold that every slight repugnancy will make a contract even voidable. But, on the other hand, when the repugnancy is between terms which are both essential, it is fatal to the very existence of the contract. How then do we decide whether a given term is essential? Surely the best way of finding out is by seeing how the parties have dealt with it. For want of any expression on their part we may refer to the speech and dealings of every day, /2/ and say that, if its absence would make the subject-matter a different thing, its presence is essential to the existence of the agreement. But the parties may agree that anything, however trifling, shall be essential, as well[331]as that anything, however important, shall not be; and if that essential is part of the contract description of a specific thing which is also identified by reference to the senses, how can there be a contract in its absence any more than if the thing is in popular speech different in kind from its description? The qualities that make sameness or difference of kind for the purposes of a contract are not determined by Agassiz or Darwin, or by the public at large, but by the will of the parties, which decides that for their purposes the characteristics insisted on are such and such. /1/1 Now, if this be true, what evidence can there be that a certain requirement is essential, that without it the subject-matter will be different in kind from the description, better than that one party has required and the other given a warranty of its presence? Yet the contract description of the specific vessel as now in the port of Amsterdam, although held to be an implied warranty, does not seem to have been regarded as making the contract repugnant and void, but only as giving the defendant the option of avoiding it. /2/ Even an express warranty of quality in sales does not have this effect, and in England, indeed, it does not allow the purchaser to rescind in case of breach. On this last point the law of Massachusetts is different.