trine : Matthews v. Baxter. Statement of rule as now settled. was not given till the recent case of Matthews v. Baxter (a). The declaration was for breach of contract in not completing a purchase plea, that at the time of making the alleged contract the defendant was so drunk as to be incapable of transacting business or knowing what he was about, as the plaintiff well knew replication, that after the defendant became sober and able to transact business he ratified and confirmed the contract. As a merely void agreement cannot be ratified this neatly raised the question whether the contract were void or only voidable: the Court held unanimously (one member of it expressly on the authority of Molton v. Camroux) that it was only voidable, and the replication therefore good. The special doctrine of courts of equity with regard to partnership (which is a continuing contract) is quite in accordance with this it has long been established that the insanity of a partner does not of itself operate as a dissolution of the partnership, but is only a ground for dissolution by the Court (b). American authority seems to agree with the recent conclusions of our own courts (c). The law seems then on the whole to be now settled to the following effect: A contract made by a person who is drunk or of unsound mind so as to be incapable of understanding its effect is voidable at that person's option, unless the other contracting party did not believe and had not reasonable cause to believe that he was drunk or of unsound mind. It is unnecessary to express the point actually decided in Molton v. Camroux, for that, as we have said, follows on general principles from the contract being only voidable. The express mention of reasonable cause for believing the party to be incapable may perhaps be in strictness also superfluous, as the existence of reasonable grounds of knowledge is in such a case very strong evidence of actual knowledge. The Indian Contract Act treats these cases somewhat differently, making the agreement void (s. 12): "A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it, and of forming a rational judgment as to its effect upon his interests. (a) L. R. 8 Ex. 132. (c) Hilliard on Contracts, 1. 311. A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind. Illustrations. (a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals. (b) A sane man who is delirious from fever, or who is so drunk that he cannot understand the terms of a contract or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts." This however must be read in connexion with s. 65 : "When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it or to make compensation for it to the person from whom he received it." This is, on the whole, simpler than the English law settled by Molton v. Camroux, and probably not less convenient. But the authorities corresponding to the substance of s. 65 are with us in a state very far removed from its clearness and simplicity, being mostly disguised in the form of exceptions to a technical and now obsolete rule of pleading (a) so that the adoption by our courts of rules corresponding to those of s. 12 might have failed by itself to lead to satisfactory results. : The possibility of hardship to persons who have dealt in good faith with a lunatic who was apparently sane is, it would seem, disregarded by the Indian Act as being in practice exceedingly small : and the liability of a lunatic to pay for necessaries is laid down in the chapter "Of certain Relations resembling those created by Contract," s. 68. PART 2. OF ARTIFICIAL PERSONS. persons: IN a complex state of civilization, such as that of the Roman Artificial Empire, or still more of the modern progressive peoples, it con- their stantly happens that legal transactions have to be undertaken, nature. rights acquired and exercised, and duties incurred (a) By a succession of sole or joint holders of an office of a public nature involving the tenure and administration of property for public purposes: (B) By or on behalf of a number of persons who are for the time being interested in carrying out a common enterprise or object. (a) See notes to Cutter v. Powell in 2 Sm. L. C. Such enterprise or object may or may not further involve purposes and interests of a public nature. The rights and duties thus created as against the world at large are in truth and substance wholly distinct from the rights and duties of the particular persons immediately concerned in the transactions. Those persons deal with interests beyond their own, though in many cases including or involving them, and it is not to their personal responsibility that third parties dealing with them are accustomed to look. This distinction (the substantial character of which it is important to bear in mind) is conveniently expressed in form by the Roman invention, adopted and largely developed in modern systems of law, of constituting the official character of the holders for the time being of the same office, or the common interest of the persons who for the time being are adventurers in the same undertaking, into an artificial person (a) or ideal subject of legal capacities and duties. If it is allowable to illustrate one fiction by another, we may say that the artificial person is a fictitious substance conceived as supporting legal attributes. It would not be very difficult to show, were it not a matter of metaphysical rather than of legal interest, that what we call the artificial identity of a corporation is within its own sphere and for its own purposes just as real as any other identity (b). This creature of the law becomes, within the limits assigned to its existence, "a body distinct from the members composing it, and having rights and obligations distinct from those of its members" (c). Note, however, that this kind of fiction is not confined to legal usage or legal purposes. In the case of an ordinary partnership the firm is treated by mercantile usage as an artificial person, but is not recognized as such by the law (c); and other voluntary and unincorporated associations are constantly treated as artificial transactions of every-day life. (a) Fr. corps or être moral, personne morale (but this does not necessarily import capacity to sue or be sued in a corporate name); Germ. juristische Person. (b) In the United States a corporation duly created by the laws of any state is treated as a person dwelling in, and therefore a citizen of, that state within the meaning of the constitutional provision which persons in the language and An even more remarkable enables the Federal courts to entertain suits between citizens of different states. See Marshall v. Baltimore & Ohio Railr. Co., 16 Howard 314. (c) Lindley, 1. 213. The name of the firm may now be used in pleadings, but the complete recognition of the firm as an artificial person involves much more than this. instance is furnished by the artificial personality which is ascribed to the public journals by literary custom or etiquette, and is so familiar in writing and conversation that its curiosity most commonly escapes attention. But with these artificial persons by private convention, if we may so call them, we are not further concerned. tions sole The only artificial persons which in England have a legal Corporaexistence fall under one of the descriptions we have marked (a) and aggreand (3), and are known as corporations (a). These are either gate: the latter only sole, i.e., of which there is only one member at a time; or aggre- need be gate, i.e., of which there are several members. The principal considered. instances of corporations sole are ecclesiastical persons; of late years the holders of divers public offices have been made corporations sole by statute (b). The Sovereign is also said to be a corporation sole, but sui generis. In the case of a corporation sole the power of administering the corporate property and binding the corporate funds is for the most part not left to him alone, but belongs wholly or in part to a corporation aggregate of which the corporation sole is one member, or to some other body; or is guarded by statutory precautions. And it seems that a corporation sole cannot enter into a contract (except with statutory authority, or as incidental to an interest in land) in his corporate capacity; at any rate the right of action on a contract made with him cannot pass to his successor, but only to his executors, unless by special custom (c); there is such a custom (for a limited (a) The Roman law shows that other kinds of artificial persons are at least conceivable: e.g. the hereditas jacens, to which however Savigny denies that this character really belonged; Syst. § 102 (3. 363-373). And see p. 69 supra, as to our own Separate Estate. Savigny restricts the use of the term corporation so as to exclude charitable foundations: op. cit. 2434. The difficulty set forth in his note arises simply from the absence in Roman law of any term of art co-extensive with our Trust: not having at hand the conception of a corporation as trustee, he supposes the artificial person in such cases to be not the incorporated governing body, but the object of the charitable foundation itself. (b) Such are the Official Trustee of Charity Land, the Secretary of State for India, the Solicitor to the Treasury (39 & 40 Vict. c. 18). 66 (c) Generally bishops, deans, parsons, vicars, and the like cannot take obligation to them and their successors, but it will go to the executors." Arundel's ca. Hob. 64; acc. Howley v. Knight, 14 Q. B. 240; the case in the Year Book referred to by the reporters (at p. 244; P. 20 E. 4, 2, pl. 7) shows the rule and its antiquity very plainly; so Co. Lit. 46b"regularly no chattel can go in succession in a case of a sole corporation;" it was otherwise in the case of the head of a religious house, as he could not make a will, Ro. Ab. 1. 515. And see Grant on Corporations 629, 633, sqq. Capacities by the na- purpose) in the case of the Chamberlain of the City of London (a). But, in short, no principles of general application or interest are to be found in this quarter, and we may practically confine our attention to corporations aggregate. So far as regards these, the classification indicated above by the letters (a) and (B) corresponds in a general way to the division of them into non-trading and trading, which we shall see is of great importance as to the form of corporate contracts: the class (B) is further sub-divided according as the purposes of the corporation are or are not of a public character, and this subdivision is likewise of great importance as touching the matter. and extent of corporate contracts. We have to ascertain (1) what contracts corporate bodies can make and (2) how they are to be made. The second of these questions is reserved for the following chapter on the Form of Contracts. The first cannot be adequately treated except in connexion with a wider view of the capacities, powers, and liabilities of corporations in general: and it will therefore be expedient if not absolutely necessary to introduce considerations, and refer to doctrines, which might at first sight seem irrelevant. The capacities of corporations are limited (i) By natural possibility, i.e., by the fact that they are artificial and not natural persons: (ii) By legal possibility, i.e., by the restrictions which the power creating a corporation may impose on the legal existence and action of its creature. First, of the limits set to the powers and liabilities of corporations by the mere fact that they are not natural persons. The requirement of a common seal (of which elsewhere) is sometimes said to spring from the artificial nature of a corporation. The fact that it is not known in Scotland is however enough to show that it is a mere positive rule of English law. The correct and comprehensive proposition is that a corporation can do no act except by an agent (for even if all the members concur they are but agents); and it follows that it cannot do or be answerable for anything of a strictly personal nature. It cannot commit a (a) Bacon Ab. 2. 582, Customs of London, B; Howley v. Knight, supra. |