Real exceptions to come under Rule 4. bers 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 (i). The question may be resolved into two parts: Did the new 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 ()? It would be beyond our scope to enter at large on this subject, for an exposition of which the reader is referred to Lord Justice Lindley's work on Partnership (7). 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 (i) It is doubtful whether some of these were really cases of novation : see Hort's ca. and Grain's ca. 1 Ch. D. 307, 322. (k) See Rolfe v. Flower, L. R. 1 P. C. 27, 44. (7) 1. 435, 463: 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. D. 391. 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 (m). In the case of a policy-holder there is indeed no subsisting debt (m), but he is a creditor in the wider sense above defined (p. 187). 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 Rule 3. No rights exceptions to this rule in any particular cases, there are conferred some extensive classes of contracts and transactions on third analogous to contract which call for attention as offering real or apparent anomalies. persons. tions. A. Contracts made by agents. Here the exception is Exceponly apparent. The principal acquires rights under a Agency: contract which he did not make in person. But the agent apparent only. is only his instrument to make the contract within the limits of the authority 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 Degrees of to full 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. (m) Hort's ca. and Grain's ca. 1 Cocker's ca. 3 Ch. D. 1. Ch. D. 307; Harman's ca. ib. 326; agency. Agent contract ing personally. Ratification. Other relations: principal and surety; terms annexed by law to original contract. 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 (n). The fact that in many cases an agent contracts for himself as well as for his principal, and the modifications which are introduced 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 is no difference for our present purpose between a contract made with authority and one made without authority and subsequently ratified. The consent of the principal is referred back to the date of the original act by a beneficent and necessary fiction. B. There are certain relations created by contract, of which that of creditor, principal debtor, and surety may be taken as the type, in which the rights or duties of one party may be varied by a new contract between others. But when a surety is discharged by dealings between the creditor and the principal debtor, this is the result of a condition annexed by law to the surety's original contract. There is accordingly no real anomaly, though there is an apparent exception to the vague maxim that the legal (n) Cp. Savigny, Obl. 2. 57–60. effects of a contract are confined to the contracting parties: and there is not even any verbal inconsistency with any of the more definite rules we have stated. However it seems proper not to omit the mention of such cases, inasmuch as they have been considered as real exceptions by writers of recognized authority (0). lous ruptcy Insolvency and bankruptcy, again, have various conse- Anomaquences which affect the rights of parties to contracts, but effects of which the general principles of contract are inadequate to bankexplain. We allude to them in this place only to observe and inthat it is best to regard them not as derived from or inci- solvency. dental to contract, but as results of an overriding necessity and beyond the region of contract altogether (p). Even those transactions in bankruptcy and insolvency which have some resemblance to contracts, such as compositions with creditors, are really of a judicial or quasi-judicial character. It is obvious that if these transactions were merely contracts no dissenting creditor could be bound. a real contract trust and So treated C. The case of trusts presents a real and important Trusts: exception, if a trust is regarded as in its origin a contract exception, between the author of the trust and the trustee. It is if trust a quite possible, and may for some purposes be useful so to between regard it. The Scottish institutional writers (who follow author of the Roman arrangement in the learning of Obligations as trustee. elsewhere) consider trust as a species of real contract by Sec coming under the head of depositation (q). Conversely tish and deposits, bailments, and the contract implied by law which writers: is the foundation of the action for money received, are analogy spoken of in English books as analogous to trusts (r). chapter on the duties of trustees forms part of the best known American text-books on contracts, though no by Scot American suggested A in English (9) Sic, though no such abstract books. General analogy to contract. attempt is made, so far as we have ascertained, to explain the logical connexion of this with the rest of the subject. By the creation of a trust duties are imposed on and undertaken by the trustee which persons not parties to the transaction, or even not in existence at its date, may afterwards enforce. And the relation of a trustee to his cestui que trust is closely analogous to that of a debtor to his creditor, in so far as it has the nature of a personal obligation and is governed by the general rules derived from the personal character of obligations. Thus the transfer of equitable rights of any kind is subject, as regards the perfection of the transferee's title, to precisely the same conditions as the transfer of rights under a contract. And the true way to understand the nature and incidents of equitable ownership is to start with the notion not of a real ownership which is protected only in a court of equity, but of a contract with the legal owner which (in the case of trusts properly so called) cannot be enforced at all, or (in the case of constructive trusts, such as that which arises on a contract for the sale of land) cannot be enforced completely, except in a court of equity (s). However, although every trust may be said to include a contract, it includes so much more, and the purposes for which the machinery of trusts is employed are of so different a kind, that trusts are distinct in a marked way not merely from every other species of contract, but from all other contracts as a genus. The complex relations involved in a trust cannot be conveniently reduced to the ordinary elements of contract, and there seems to be sufficient justification (independently of the historical reason supplied by the exclusive jurisdiction of Equity) for the course hitherto adopted by all English writers in dealing with trusts as a separate branch of law. (s) See per Lord Westbury, Knox v. Gye, L. R. 5 H. L. at p. 675; Shaw v. Foster, ib. at p. 338 (Lord Cairns), and at p. 356 (Lord |