is now and long has been, though it was not always, elementary (a). No lia third The negative part of it states that the creditor cannot demand, Rule 2. nor can the debtor require him to accept, performance from any bility imthird person. This is subject to the explanation that the debtor posed on or his representatives may perform the duty by an agent, which persons. again is modified by the exception of strictly personal contracts as mentioned at the end of the rules. On this we need not dwell at present. It is obvious on principle that it is not competent to contract- Its founing parties to impose liabilities on other persons without their dation in principle. consent. Every person not subject to any legal incapacity may dispose freely of his actions and property within the limits allowed by the general law. Liability on a contract consists in a further limitation of this disposing power by a voluntary act of the party which places some definite portion of that power at the command of the other party to the contract. So much of the debtor's individual freedom is taken from him and made over to the creditor (b). When there is an obligation independent of contract, a similar result is produced without regard to the will of the party: the liability is annexed by law to the party's own wrongful act in the case of tort, and in the case of quasi-contracts to another class of events which may be roughly described as involving the accession of benefit through the involuntary loss (a) As to the liability of personal representatives on the contracts of the testator or intestate see 1 Wms. Saund. 241-2. The old rule that an action of debt on simple contract would not lie against executors where the testator could have waged his law (though it is said the objection could be taken only by demurrer) seems to have been in truth an innovation. See the form of writ for or against executors, Fleta 1. 2, c. 62, § 9, and cp. F. N. B. 119 M, 121 O (the latter passage is curious if a man has entered into religion his executors shall be sued for his debt, not the abbot who accepted him into religion : see p. 61, n. (a), supra), and Y. B. 30 Ed. 1 (Rolls ed.) p. 238. It is said however that "Quia executores non (b) Cp. Savigny Obl. § 2. Agency: of another person: but when an obligation is founded upon a true contract, the assent of the person to be bound is at the root of the matter and is indispensable (a). The ordinary doctrines of agency form no real exception to the excep- this. tion only For a contract made by an agent can bind the principal apparent. only by force of a previous authority or subsequent ratification; and that authority or ratification is nothing else than the assent of the principal to be bound, and the contract which binds him is his own contract. Under certain conditions there may be a contract binding on the agent also, but with that we are not here concerned. We shall return to the subject of agency under Rule 3, and the rights and liabilities of principals and agents respectively on contracts made by agents will then be more fully considered. When held in Another less simple apparent exception occurs in the cases in companies which companies have been held liable to fulfil the agreements equity to made by their promoters before the companies had any legal promoters' existence. These cases however proceed partly on the ground ments; not of a distinct obligation having either been imposed on the agree ex con tractu. Stranger held bound by award company in its original constitution, or assumed by it after its formation (b), partly on a ground independent of contract and analogous to estoppel, namely that when any person has on certain terms assisted or abstained from hindering the promoters of a company in obtaining the constitution and the powers sought by them, the company when constituted must not exercise its powers to the prejudice of that person and in violation of those terms. The doctrine as now established probably goes as far as this, but certainly no farther (c). In one case of a suit in equity for specific performance of an award a third person interested in the subject-matter was made in equity: a party: and Sir L. Shadwell held that he was bound by the award, though he had not been a party to the reference and had sed qu. (a) Lumley v. Gye, 2 E. & B. 216, 22 L. J. Q. B. 463, shows that a stranger may be liable in tort for maliciously procuring the breach of a contract. But this is not an obligation under the contract, any more than when A. sells his land o B. the duty of all men to respect the rights (b) Lindley 1. 403, 411. NOVATION. in no way assented to it, but simply knew of it and remained passive (a). This decision does not appear to have been much considered, and does appear quite contrary to principle. Moreover it cannot stand with Lord Cottenham's decision in Tasker v. Small (b) that in a suit for the specific performance of a contract third persons claiming an interest in the subject-matter are not even proper parties: and even without this it is surely obvious (unless and until a court of final appeal shall think otherwise) that A. and B. have no business to submit C.'s rights to the arbitration of D. It is apprehended accordingly that this exception may be treated as non-existent. 189 Another branch of the same general doctrine, which on prin- Novation. ciple is scarcely less obvious, is that the debtor cannot be allowed to substitute another person's liability for his own without the creditor's assent. Some authorities which illustrate this are referred to in a subsequent chapter where we consider from another point of view the rule that a contract cannot be made except with the person with whom one intends to contract (c). When a creditor assents at the debtor's request to accept another person as his debtor in the place of the first, this is called a novation. Whether there has been a novation in any particular case is a question of fact, but assent to a novation is not to be inferred from conduct unless there has been a distinct and unambiguous request (d). Such questions are especially important in ascertaining who is liable for the partnership debts of a firm when there has been a change in the members of the firm, or on contracts made in a business which has been handed over by one firm (whether carried on by a single person, a partnership, or a company) to another. A series of cases which were, or were supposed to be, of this kind has arisen in late years out of successive amalgamations of life insurance companies (e). The question may be resolved into two parts: Did the new (a) Govett v. Richmond, 7 Sim. 1. The case of Taylor v. Parry, 1 Man. & Gr. 604. seems at first sight to make the same way; but there the Court relied on positive acts of the parties as showing that they adopted the reference and were substantially parties to it. (b) 3 My. & Cr. 63, followed in De Hoghton v. Money, 2 Ch. 164. (c) Robson v. Drummond, 2 B. & Ad. 303; infra, Ch. VIII. (d) Conquest's ca. 1 Ch. D. 334, 341. (e) It is doubtful whether some of these were really cases of novation : see Hort's ca. & Grain's ca. 1 Ch. D. 307, 322. Real exceptions to come under Rule 4. Rule 3. No rights conferred firm assume the debts and liabilities of the old and did the creditor, knowing this, consent to accept the liability of the new firm and discharge the original debtor (a)? It would be beyond our scope to enter at large on this subject, for an exposition of which the reader is referred to Mr. Justice Lindley's work on Partnership (b). There exist however exceptions to the general rule. In certain cases a new liability may without novation be created in substitution for or in addition to an existing liability, but where the possibility exists of such an exceptional transfer of liabilities it is bound up with the correlated possibility of an exceptional transfer of rights, and cannot be considered alone. For this reason the exceptions in question will come naturally to our notice under Rule 4, when we deal with the peculiar modes in which rights arising out of certain classes of contracts are transferred. Apart from novation in the proper sense, the creditor may bind himself once for all by the original contract to accept a substituted liability at the debtor's option. Such an arrangement is in the nature of things unlikely to occur in the ordinary dealings of private persons among themselves. But it has been decided in the winding-up of the European Assurance Society that where the deed of settlement of an insurance company contains a power to transfer the business and liabilities to another company, a transfer made under this power is binding on the policy-holders and they have no claim against the original company (c). In the case of a policy-holder there is indeed no subsisting debt (c), but he is a creditor in the wider sense above defined (p. 171). Rule 3. No third person can become entitled by the contract itself to demand the performance of any duty under the contract. Before we consider the possibility of creating arbitrary exceptions to this rule in any particular cases, there are some extensive (a) See Rolfe v. Flower, L. R. 1 P. C. 27, 44. (b) 1. 450-465, 479-481: and as to the general principle of novation see Wilson v. Lloyd, 16 Eq. 60, 74; for a later instance of true novation, Miller's ca. 3 Ch. 391. (c) Hort's ca. and Grain's ca. 1 Ch. D. 307 Harman's ca. ib. 326; Cocker's ca. 3 Ch. D. 1. classes of contracts and transactions analogous to contract which on third call for attention as offering real or apparent anomalies. persons. A. Contracts made by agents. Here the exception is only Excepapparent. The principal acquires rights under a contract which tions. Agency: he did not make in person. But the agent is only his instru- apparent ment to make the contract within the limits of the authority only. given to him, however extensive that authority may be and from the beginning to the end of the transaction the real contracting party is the principal. Consider the following series of steps from mere service to full Degrees of discretionary powers: 1. A messenger is charged to convey a proposal, or the acceptance or refusal of one, to a specified person. 2. He is authorized to vary the terms of the proposal, or to endeavour to obtain a variation of the other party's proposal (i.e. to make the best bargain he can with the particular person), within certain limits. 3. He is not confined to one person, but is authorized to conclude the contract with any one of several specified persons, or generally with any one from whom he can get the best terms. 4. He is not confined to one particular contract, but is authorized generally to make such contracts in a specified line of business or for specified purposes as he may judge best for the principal's interest (a). agency. personally. The fact that in many cases an agent contracts for himself as Agent conwell as for his principal, and the modifications which are intro- tracting duced into the relations between the principal and the other party according as the agent is or is not known to be an agent at the time when the contract is made, do not prevent the acts of the agent within his authority from being for the purposes of the contract the acts of the principal, or the principal from being the real contracting party. Again, when the agent is also a contracting party there are two alternative contracts with the agent and with the principal respectively. As for the subsequent ratification of unauthorized acts, there Ratificais no difference for our present purpose between a contract made (a) Cp. Savigny Obl. 2. 57-60. tion. |