of the con

of its business. But as was pointed out by a judge who was character certainly not disposed to take a narrow view of corporate powers, tract of a negotiable instrument is not merely evidence of a contract, but exchange. creates a new contract and a distinct cause of action, and "it would be altogether contrary to the principles of the law which regulates such instruments that they should be valid or not according as the consideration between the original parties was good or bad;" and it would be most inconvenient if one had in the case of a corporation to inquire "whether the consideration in respect of which the acceptance is given is sufficiently connected with the purposes for which the acceptors are incorporated" (a).

The result seems to be that a corporation cannot be bound by negotiable instruments except in one of the following

cases:

1. When the negotiation of bills and notes is itself one of the purposes for which the corporation exists" within the very scope and object of their incorporation" (b)-as with the Bank of England and the East India Company, and (it is presumed) financial companies generally, and perhaps even all companies whose business wholly or chiefly consists in buying and selling (b).

2. When the instrument is accepted or made by an agent for the corporation whom its constitution empowers to accept bills, &c., on its behalf either by express words or by necessary implication.

The extent of these exceptions cannot be said to be very precisely defined, and in framing articles of association, &c., it is therefore desirable to insert express and clear provisions on this head.

decisions.

In America the Supreme Court has lately decided that local American authorities having the usual powers of administration and local taxation have not any implied power to issue negotiable securities which will be indisputable in the hands of a bona fide holder for value (c), and also (but not without dissent) that municipal corporations have no such power; "they are not trading cor

(a) Per Erle, C. J., Bateman v. Mid Wales Ry. Co., L. R. 1 C. P. 499, 509.

(b) Per Montague Smith, J., L.

R. 1 C. P. 512; Ex parte City
Bank, 3 Ch. 758.

(c) Police Jury v. Britton, 15
Wallace 566, 572.

Estoppel

and part

porations and ought not to become such" (a). It seems however that in American courts a power to borrow money is held to carry with it as an incident the power of issuing negotiable securities (b).

The common law doctrine of estoppel (c), and the kindred perform- equitable doctrine of part performance (d), apply to corporations ance apply as well as to natural persons. Even when the corporate seal has to corpora- been improperly affixed to a document by a person who has the

tions.

custody of the seal for other purposes, the corporation may be bound by conduct on the part of its governing body which amounts to an estoppel or ratification, but it will not be bound by anything less (e). The principles applied in such cases are in truth independent of contract, and therefore no difficulty arises from the want of a contract under the corporate seal, or non-compliance with statutory forms. But it is conceived that no sort of estoppel, part performance, or ratification, can bind a corporation to a transaction which the legislature has in substance forbidden it to undertake, or made it incapable of undertaking.

(a) The Mayor v. Ray, 19 Wallace 466.

(b) Police Jury v. Britton, 15 Wallace 566.

(c) Webb v. Herne Bay Commissioners, L. R. 5 Q. B. 642.

(d) Wilson v. West Hartlepool Ry. Co., 2 D. J. S. 475, 493, per Turner, L. J.; Crook v. Corporation of Seaford, 6 Ch. 551.

(e) Bank of Ireland v. Evans' Charities, 5 H. L. C. 389.

119

CHAPTER III.

FORM OF CONTRACT.

of ancient

ACCORDING to the modern conception of contract, all agreements Contrast which satisfy certain conditions of a general kind are valid conand tracts and may be sued upon, in the absence of any special modern legislation forbidding particular contracts to be made or denying concep validity to them unless made with particular forms. This theory contracts finds a concise and complete expression in s. 10 of the Indian as giving Contract Act:

"All agreements are contracts [i.e., enforceable by law, s. 2, sub.-s. h.] if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void" (then follows a clause saving all formalities required in particular cases by the law of British India). So thoroughly has this conception established itself in recent times that, having made the presence of a consideration one of the general conditions of a valid contract, we are now accustomed to bring contracts under seal within the terms of the condition by saying that where a contract is under seal the consideration is presumed. Historically speaking, this is a transparent fiction. The doctrine of Consideration in its present general form is of comparatively modern origin even if we look to the history of English law alone. If we roughly put it halfway between ourselves and Bracton we shall probably be allowing it as much antiquity as it can fairly claim. The ancient reason why a deed could be sued upon lay not in a consideration in our present sense of the word being presumed from the solemnity of the transaction, but in the solemnity itself. The forms of sealing and delivery come down to us from a time

tions of

rights of action.

Ancient law regards only formal contracts.

:

when the general theory of the law started from a different or even opposite point to our own. The fundamental assumption of ancient law (when it has got so far as to recognize contract at all) is that the validity of a contract depends not upon the substance of the transaction but upon its form. The rule is that formal contracts only can be sued upon the want of any part of the formalities is fatal, the fulfilment of them is conclusive (a). Not that we find this as an existing state of things at any traceable period of Roman or English law: considerable classes of informal contracts are excepted on various grounds which are practically reducible to "convenience amounting almost to necessity" a phrase which we here introduce by anticipation from the modern learning as to the informal contracts of corporations. When we come to that subject in a later part of this chapter, the reader will find that the law relating to the form of corporate contracts is still going through a process of struggling development not altogether unlike that which took place in earlier times with regard to the contracts of natural persons. Informal Both in the Roman law as presented to us in the Digest and contracts Institutes, and in the English law of the thirteenth, and even down to the latter part of the fifteenth century, the primitive exceptions doctrine that formal contracts alone give rise to actions is at the base of the whole learning of contracts. It is overlaid no doubt with a series of exceptions-which in the English system, so far as one can now judge, are decidedly narrower in statement and less important in practice than in the Roman-but the exceptions are not as yet connected by any recognized general principle.

.actionable

only as

in Roman and old English

law.

In England we find this theory expressed by Bracton in almost purely Roman language (b) which is substantially repeated in Fleta. How far the theory was directly borrowed, or how far it already existed as a genuine parallel development of English legal ideas with which the authorities of the civil law were found in great measure to coincide, may perhaps be doubtful (c). At any rate the correspondence is so close that some statement of

(a) Maine, Ancient Law, 313 sqq. (4th ed.)

(b) In Britton the substantial correspondence remains, but the details are much more modified to suit the real facts of English practice,

e.g. the verbal Stipulation all but disappears (Cap. De Dette, 1. 156, ed. Nicholls.)

(c) See Güterbock, Henr. de Bracton, § 18, p. 107-8, where the parallel is accurately stated.

the Roman doctrine in its general effect is almost necessary to make its English counterpart intelligible (a).

Roman

Formal contracts (legitimae conventiones) gave a right of The action irrespective of their subject-matter. In Justinian's time doctrine. the only kind of formal contract in use was the Stipulation (1), or verbal contract by question and answer, the question being put by the creditor and answered by the debtor (as Dari spondes? spondeo: Promittis? promitto: Facies? faciam). Originally the question and answer had been accompanied by the symbolic transaction of Nexum, and there is reason to think that the Stipulation was at first confined to loans of money (c). But the Nexum was abolished, and the Stipulation (possibly after going through a stage in which there was a fictitious loan) remained as a formal contract capable of being applied to any kind of subject-matter at the pleasure of the parties (d). Its application was in course of time extended by the following steps. 1. The question and answer were not required to be in Latin (e). 2. An exact verbal correspondence between them was not necessary (f). 3. (which for our present purpose is the most important) an instrument in writing purporting to be the record of a Stipulation was treated as strong evidence of the Stipulation having actually taken place (g). (The notion sometimes met with that if a contract by verbal question and answer was good, a contract in writing must be good a fortiori, is of course a mere modern invention.)

(a) What follows is mostly abridged from Savigny, Obl. 2. 196 sqq. Sir H. Maine's account in his chapter on the Early History of Contract is in close agreement with Savigny's. Since the first edition of this book was published the derivation of the Stipulation from the Nexum has been contested with great ingenuity by Prof. Hunter (Roman Law, 364.)

(b) The literarum obligatio (Gai. 3. 128) was obsolete. What appears under that title in the Institutes (3. 21) is a general rule of evidence unconnected with the ancient usage. (c) Sav. Syst. 5. 532-40.

(d) In a modern English book