BUSINESS LAW

BY SAMUEL D. HIRSCHL, S. B., J. D.

[Born Davenport, Ia., 1881; educated in Chicago Public Schools; Bachelor of Science, University of Chicago, 1904; Doctor of Jurisprudence, cum laude, University of Chicago, 1906; Member of Illinois Bar, Chicago; Specializing in Patents, Trade-marks and Copyrights.]

INTRODUCTION

LAW: ITS MEANING, SOURCES, AND CLASSIFICATION.

Section 1. What is Law?

§1. Varying uses of the word "law." What is law? We speak of the laws of God, the moral law, the laws of nature, the laws of logic and esthetics, the laws of political economy, and the like, as well as the laws of Illinois and New York. These examples suggest only a few of the varied meanings of the word "law."

§ 2. Law as a rule of human conduct enforced by the state. When we consider the statement, "A master is liable for the acts of his servants within the scope of the authority given them," we use the word "law" applied to it, in quite a different sense from its use in any of the foregoing examples. A' law, in the true legal sense, is a rule of human conduct that will be enforced by the state through its public tribunals or officers. Its obligations bind human beings only, and its sanction proceeds from politically organized human society.

Section 2. Sources of Law.

§3. Custom. It is generally agreed that the earliest source of law was custom. Long before there was anything corresponding to a political organization that enforced rules of human conduct there were family and group customs, originating in utility or religion or accident, that were normally followed under the sanction of divine command, public opinion, or family authority. Today custom constitutes but a very small part of the law of any of the more progressive nations. As a source of law it has

been almost wholly displaced by adjudication and by legislation, which are described below.

§ 4. Adjudication as a source of law. The early decisions of courts are based upon custom, or, that failing, upon the justice of the particular case. Subsequent similar cases naturally tend to be decided the same way, and a judicial habit of following precedents is likely to become established and finally to become obligatory. This has been the history of the common law for six or seven hundred years. The common law judges have professed to decide cases according to precedents where clear ones properly applicable could be found. Even decisions upon customs, being ordinarily more precise and definite than the custom, come to establish the law for later cases instead of an appeal being made to the original custom. Where no exact precedent exists, analogous ones will be followed; and so precedents are extended, modified, and applied to new situations until a question rarely arises for which there are not at least some strongly analogous precedents. The court thus reflects, conservatively, the social ideas of its time, tempered by those of the immediate past, and really makes law by its decisions, which become precedents for the future.

Law created by custom or adjudication is often called unwritten law, as distinguished from law created by legislation, which is called statutory or written law.

§ 5. Legislation as a source of law. Popular custom and judicial precedent necessarily operate slowly and irregularly in making and changing law. In every organized state there exists some power deliberately to change the law for the future by legislative decree. The method and organ of legislation may vary from the edict of a czar to the vote of a town meeting.

Most of the fundamental private relations between men have not been much affected by legislation. The great subjects of contracts, torts, agency, domestic relations, and the older crimes have in the main developed without legislative interference. The property rights of married women, the law of real property, corporations, procedure, and the relation of master and servant are the principal branches of private law that have been substantially changed by statute; and in all of these the innovating

legislation was compelled by fundamental changes in social ideals and organization. In recent years there has been much legislation designed to secure adequate public control of private acts and business, but not much effecting substantial changes in the law of private rights between individuals.

§ 6. Classification of law. The field of law is ordinarily divided by teachers and writers into forty or fifty subjects, each consisting of a group of closely related topics treated separately from other groups more from practical than from theoretical considerations, though there is usually some fundamental coherence between the topics in each group. Thus, the general subject of contracts will be treated as one subject, and certain specialized kinds of contracts such as sales, negotiable instruments, insurance, and the like will be treated as other separate subjects.

87. The common law. The term "common law" is used in legal writings with a variety of meanings, usually apparent from the context. 1. In its widest sense the term is used to contrast the entire system of English or Anglo-American law with other great systems, usually the Roman or civil law. In this sense it includes not merely all unwritten law, but such statutes as have been generally enacted in jurisdictions where it prevails and are so interwoven with the general principles of the unwritten law as to form a unified whole. 2. In a narrower sense it is used to distinguish the rules of unwritten law applied in England by courts of law (or of common law), from those applied there by courts of equity, courts of admiralty, the ecclesiastical courts, and so forth. In this sense it also ordinarily includes the older statutes that have become deeply imbedded in the system, particularly those affecting property rights. Where, as commonly in America, and now in England, the same courts apply the rules both of law and of equity, this usage of the term refers to those rules that would be applied by courts of law, if the former division still existed. 3. In its narrowest sense it excludes from its meaning even those ancient statutes referred to under 2, above.

In all three of the above senses, the common law is in force in all American states, except Louisiana, which has been under the civil law since the days of its French and Spanish settle

ment. The common law of any one of our states is somewhat different from the common law of England, due to the operation of two causes: (a) Part of the English common law not suited to the conditions of this country was not applied by our courts; (b) local customs and adjudications here, after the settlement of this country, have departed somewhat from those of England since then. For the same reason the common law rules of no two of our states are exactly alike; and, in addition, the states are not agreed upon the date at which the English common law and existing statutes applicable to the colonies are to be accepted as a starting point for American variations from them. The dates most commonly fixed for this purpose are May 13, 1607 (first permanent settlement of Virginia), and July 4, 1776 (Declaration of Independence).

Section 3. Courts of Equity.

§ 8. The term "equity" is used to describe another branch of law distinguished both from the common law and from legislative enactments. The rules of equity were administered in England, where they grew up during the latter part of the Middle Ages, by courts of chancery existing side by side with the common law courts.

§ 9. Function of equity. Equity not only recognized and enforced useful rights unknown to the common law, but it supplemented the remedial deficiencies of the older system in many ways indispensable to the needs of modern society. The common law had almost no preventive power; it could only redress injuries after they had occurred. Equity restrained threatened wrongs by issuing injunctions, and parties were thus enabled to have their rights determined in advance of the infliction of actual injury. In most instances the common law did not give a plaintiff what he had bargained for, but only money damages. It did not order the defendant to discharge any duty he owed the plaintiff, but it merely gave such reparation as could be gained from the seizure of the defendant's property. Equity ordered the defendant to perform his obligation in many cases where paying for the breach of it would not amount to performance. The common law could not deal with more than two sets of parties in a

single litigation. Cases of the inter-related rights of several persons, as in cases of suretyship, partnership, and bankruptcy, could not be adequately handled in a common law court. A critically situated business could not be nursed along by a receivership at common law. No judgment could be given, conditional upon the performance of future acts by other parties. A common law judgment was either absolutely given or denied. In all of these respects equity afforded flexible remedies and a procedure that adapted itself to the demands of business and of justice. When the two systems were finally fused in England, in the latter part of the nineteenth century, the consolidating statute provided that wherever the rules of law and of equity applicable to a case differed, the equity rule should be administered by the court. In most American states the two systems of law and equity are administered by the same courts and judges, but their separate doctrines are preserved in a manner that has an important effect upon both the form and substance of judicial relief.

§ 10. Difference between legal and equitable rights. The foregoing explanation is believed to be necessary in order that subsequent paragraphs in this work, using the terms "legal rights," "equitable rights," and similar expressions, may be properly understood. Although in most of our jurisdictions law and equity are administered in the same courts, it will be found that a person's rights often differ greatly, according to whether he has a so-called legal right or an equitable right. For example, a grantee receiving a valid deed to land from one who has a good title is said to obtain a "legal title," whereas if he had obtained merely a contract of purchase he would have had an "equitable title." Although the latter expression means merely that he has a right to proceed against the owner and compel him to give a deed, for many purposes he is treated as the actual owner of the land. But since he is not actually the owner of the land, his right may be lost by the delivery of a valid deed to a subsequent bona fide purchaser who pays full value for the land and takes without notice of the prior purchaser's rights. In such case there would be two purchasers, each having a claim to the land, but one having a legal title and the other merely an