Central Law Journal.

ST. LOUIS, MO., MARCH 5, 1897.

The extent to which the law makers have gone in enacting laws in the interest of laborers and material-men who have contributed to the erection or repairs of buildings has been frequently a subject of criticism by the conservative portion of the community. While in the main such enactments are just and proper, as furnishing the only security which the laborer may have for his remuneration, there has been a tendency on the part of some legislatures to apply the remedy too severely and in derogation of the rights of those who are owners of property. The recent decision of Palmer v. Trigle, by the Supreme Court of Ohio well illustrates this tendency. The case involved the constitutionality of a recent mechanic's lien statute of that State. The former statute, like most of those in force in other States, on the subject, provided that a lien might be taken by a person who should perform labor, or furnish machinery or material, by virtue of a contract with the owner or his authorized agent, while the later statute and the one in controversy provides that such lien may be taken by any person who performs labor, or furnishes machinery or material, or tile for drainage, by virtue of a contract with, or at the instance of, the owner, or his agent, trustee, contractor, or subcontractor. It was claimed by those opposing the statute that in so far as it undertakes to give a lien on the owner's property for labor, machinery, materials, or tile not supplied under any contract with him or with his agent, and not at the instance of either, it is unconstitutional. On the part of those who are upholding the statute, it was claimed that the statute is constitutional, and that, by operation of law, its terms become woven into the contract between the owner and the contractor, and that the owner, having thereby agreed to pay the debts made by the contractor in completing the building, has no cause for complaint. The court held that the statute was unconstitutional and based its decision upon the doctrine that a man cannot be made a party to a contract without his consent. The court

stated that there could be no doubt that such a statute was a restriction upon the freedom of contract, which was guaranteed by the constitution, and unless it could be plainly shown to be for the public welfare, the restriction could not be upheld. "It must be so clear that a court of justice, in the calm deliberation of its judgment, may be able to see that such restraint is for the common welfare and equal protection and benefit of the people."

It

As to statutes of usury and exemption laws, courts can see that the slight restraint is for the general welfare. "But," said the court "no court can see that it is for the common, public welfare that the liberty of contract should be taken away from the owner of a building, to enable the seller of materials to collect their value from a man who never purchased them, and has already fully paid. the one with whom he contracted for all that he has received. There can be no public necessity for making the contractor the agent of the owner, to enable the seller of materials to collect his pay from one who does not owe him, and with whom he has no contract. An agent can have no interest adverse to his master, but this statute attempts to create an agent for the owner out of the contractor, who is opposed to him in every interest. is an attempt to make the contractor serve two masters-himself and the owner. This cannot be done. For this we have the highest authority. The owner has the right to acquire his building upon the best terms possible, and if he can, by making a contract to pay, in advance, or by exchange of securities or other property, acquire his building cheaper than by contracting to pay after four months from its completion, he has the inalienable right to so acquire it, and to be protected in its enjoyment; and it is not within the power of the general assembly to compel him to pay a higher price for his building, for the protection of laborers and furnishers with whom he has no contractual relation. To enable the contractor, by force of this statute, to enlarge the price to be paid, by allowing liens to be taken on the property for labor and materials, would be as unjust as to authorize the owner, by statute, to enlarge the building without a corresponding increase in payment."

It was urged that the bond provided for

was adequate protection to the owner, and that in view of that fact the act should be upheld, but the court said that it was not adequate to compensate for the loss of his freedom in making contracts.

It was also ingeniously argued that the statute was beneficial because it drove small and insolvent contractors out of business, and left it in the hands of those who were

able to guarantee their contracts. This argument was completely demolished by the court, which said: "It is not for the general welfare that small and financially weak contractors should be driven out of business. As well might laborers and small furnishers be driven out of business, and thus leave the whole business of building and furnishing to the rich and give them a monopoly of the whole trade, and drive the weak and poor into starvation. And it is a narrow, unworthy and unpatriotic policy to attempt to drive the poor and weak out of business for the benefit of the rich and influential. This result instead of being commended is to be deplored."

NOTES OF RECENT DECISIONS.

INSURANCE CONTRACT CONFLICT OF LAWS.-In Gibson v. Connecticut Fire Ins. Co., decided by the United States Circuit Court, Eastern District of Missouri, it appeared that a St. Louis, Mo., broker requested a St. Paul, Minn., agent to insure property located in Minnesota, for a Missouri owner, a customer of said broker. The St. Paul agent applied to one of his companies located in Hartford, Conn. The company accepted the risk, and the president signed a policy ("not valid until countersigned by the agent of the company at St. Paul"), and sent it to his St. Paul agent who countersigned it and sent it to the St. Louis broker, who delivered it to his customer, the Missouri owner of the Minnesota property. The policy was the regular "Minnesota Standard Policy" and was so stamped on the folded document in large plain type. It was held for over two years without objection when the loss occurred. Preliminary discussion over an adjustment being unsuccessful, an arbitration was agreed to, contrary to the laws of Missouri, but after the arbitrators had entered upon the discharge of their duties,

the plaintiff, fearing that their finding would be less than he claimed, protested that he made claim under the Missouri statute, and contended that the policy was a Missouri contract, and subject to the operation of the valued policy laws of that State because he lived there, and the completion of the transaction was only reached when the policy was delivered to him. This was the contention before the court. A verdict for plaintiff was entered, and the case considered on its merits on a motion for new trial. It was held that when this policy was issued by the defendant, countersigned by its only recog nized agent at St. Paul, insuring a house situated in Minnesota, and when it was accepted by the plaintiff there was no fact or circumstance to give color to a supposition that the company was making a contract subject to the local insurance laws of the State of Missouri; nor did the plaintiff believe so for two years thereafter, and until after the time elected to submit the matter to arbitra tion, and therefore to hold the defendant amenable to the greater liability imposed by the Missouri statute would be little less than a fraud on the defendant. Motion for new trial was therefore sustained.

WILLS-VALIDITY.-In Pocker v. Pocker. 36 Atl. Rep. 344, decided by the Supreme Court of Pennsylvania, it was held that a paper in the handwriting of a married woman, purporting to be her will, but invalid at the time of its execution for want of witnesses. was not validated by act June 3, 1887, thereafter passed before her death, dispensing with the requirement of witnesses. It was held in Taylor v. Mitchell, 57 Pa. St. 209. that a charitable bequest in a will, executed with a single witness, prior to the act of April 26, 1855, was good at the death of the testator after that date, although that act required two subscribing witnesses. Speaking for the court in that case, Mr. Justice Sharswood said: "When a testator makes a will, formally executed according to the require ments of the law existing at the time of its execution, it would unjustly disappoint his right of disposition to apply to it a rule subsequently enacted though before his death. While it is true that every one is supposed to know the law, the maxim in fact is inapplicable to such case; for he would have an equal right to presume that no law would af

true that every will is ambulatory until the death of the testator, and the disposition made by it does not actually take effect until then. General words apply to the property of which the testator dies possessed, and he retains the power of revocation as long as he lives. The act of bequeathing or devising, however, takes place when the will is executed, though to go into effect at a future time." It was held in Mullock v. Souder, 5 Watts & S. 198, that section 10 of the act of April 8, 1833, which provides that real estate acquired by a testator after the date of his will shall pass by a general devise, does not apply to a will made prior to its passage. In Kurtz v. Saylor, 20 Pa. St. 205, it was decided that the will of a married woman, invalid for want of authority from her husband under the Wills act of 1833, was not validated by the act of 1848, passed during her life-time. That case is followed in Gable's Exrs. v. Daub, 40 Pa. St. 217. In Camp v. Stark, 81 Pa. St. 235, the principle of these cases was applied to the competency of witnesses to a will, and it was there held that a witness incompetent at the execution of a will was not made competent by the Enabling act of 1869. This is now the well settled rule as to the competency of attesting witnesses, in this country as well as in England, 29 Am. & Eng. Enc. Law, 238.

CONTRACTS

CONFLICT OF LAWS-COMITY BETWEEN STATES CREDITS ON BUILDING AND LOAN NOTES. The Court of Appeals of Kentucky in Rogers v. Raines, 38 S. w. Rep. 483, says that the rule of comity giving effect to contracts made beyond the limits of the State does not extend to an agreement in a note to pay attorney's fee if suit is instituted thereon, as such agreement is for a penalty, and tends to the oppression of the debtor and to encourage litigation, and that in an action by a receiver of a building and loan association on a note, the maker should be charged with money actually received by him, and credited thereon with payments of interest, and with premiums, when made, but not with sums paid as dues on his stock. The following is from the opinion:

The appeal, therefore, presents but two questions for decision: First, whether the contract for attor

ney's fee, which was valid according to the laws of the State where the contract was by its terms to be performed, is enforceable in this State. This question has been recently decided by this court in the negative. It was held in the case of Clark v. Tanner (decided December 9, 1896), 38 S. W. Rep. 11, that the general rule of comity giving effect to contracts beyond the limits of the State where made does not embrace contracts like the one in question. Such contracts come within recognized exceptions to the general doctrine. Those exceptions, as said by Justice Martin in Whiston v. Stodder, 8 Mart. (La.) 95, apply to cases in which the contract is immoral, or unjust, or in which the enforcing of it in a State would be injurious to the rights, the interest, or convenience of such State or its citizens. And as said by this court in Witherspoon v. Musselman, 14 Bush, 214, of such contracts for the payment of attorney's fees: "They are agreements to pay penalties, tend to-oppression of the debtor, and to encourage litigation." There was, therefore, no error by the lower court upon this point.

The second question is whether the sums paid as dues on stock subscriptions are proper credits upon the mortgage debt, or whether those payments should stand to his credit until time for final settlement, when all shareholders-borrowers as well as non-borrowers will be paid pro rata from the fund for distribution, it being conceded that the payments of interest and premium were properly credited upon the debt. Mr. Endlich, in his work on Building Associations, in the latter part of section 523 (2d Ed.), thus states the doctrine contended for by appellee: "In one class of decisions it has been declared that the borrower is to be charged only with the amount he has actually received, with legal interest, and credited with all his payments upon stock, and interest, upon the principle of partial payments." Quite a number of authorities sustain this view. But on this question we concur with the courts of Pennsylvania and Tennessee, and Mr. Endlich in summing up the effect of the authorities, in section 531, concurs in the reasoning of those courts, while he contends for a qualified application of it. He says (page 630): "It must be true, therefore, that the basis of the bor rower's indebtedness is to be taken to be the amount of money actually passing into his hands, with legal interest thereon. But it cannot be true that he is to be allowed as deductions therefrom all that he has paid into the society. That would be overlooking his duty as a member to contribute to the losses and expenses of the common enterprise. What he has paid as interest is to be allowed him as paid upon interest. If he has paid interest upon the premium bid by him he has overpaid his in terest, and the excess ought to go in reduction of his debt. And upon it he is entitled (by reason of his right to apply, if he chooses, his stock payments to the reduction of his debt) to a further credit for whatever his shares are worth, i. e., for his proportion of the assets of the association at the same rate per shares as the shares of unadvanced members. The balance remaining upon his indebtedness he is bound to discharge in cash." Mr. Endlich then goes on to argue that the value of the stock of such an association, when in the hands of a receiver, under the supervision and control of a court of equity, can be readily ascertained, or at least approximated, and the advanced shareholder given the benefit immediately, by way of credit on his debt, of a part, at least, of the value of his stock, an estimated proportion thereof being reserved to cover losses and expense of liquida

tion, and the surplus, if any remaining, to be paid him on final distribution, which doctrine does not appear to have been approved by the courts, and would prove dangerous in actual practice. Oversanguine receivers would put too high an estimate upon the value of the association's assets, and too low an estimate on the probable losses and expenses, with the result of a loss to the unadvanced members, and a proportionate gain to the advanced members. More over, it would be extremely difficult of application in a case like the one at bar, where the member's debt is collected through the forums of a different sovereignty from that under which the receiver was appointed. We are of opinion that the true rule is laid down in the case of Rogers v. Hargo, decided by the Supreme Court of Tennessee, in considering a question arising out of the same receivership involved in this case. The court in that case (92 Tenn. 38, 20 S. W. Rep. 430), quoted as follows from Strohen v. Association (decided by the Supreme Court of Pennsylvania in 1887), 8 Atl. Rep. 843: "The insolvency of the company, as before observed, puts an end to its operations as a building association. To a certain extent it also ends the contract between it and its members respectively, and nothing remains but to wind it up in such a manner as to do equity to creditors and between the members themselves. As regards the latter, care should be taken to adjust the burdens equally, and not to throw upon either borrower or non-borrower more than their respective share. That result may be reached by requiring the borrower to repay what he actually received, with interest. He would then be entitled, after the debts of the corporation are paid, to a pro rata dividend with the non-borrower for what he had paid on his stock. He will thus be obliged to bear his proper share of the losses. To allow him to credit upon his mortgage his payments on his stock would enable him to escape responsibility for his share of the losses, and throw them wholly upon the non-borrower. In other words, the borrower would escape without loss. It will not do to administer the affairs of an insolvent corporation in this manner." The Tennessee court, in commenting upon the opinion quoted, said: "The reasoning of the court, as there given, fully indicated the conclusion reached. To our minds it seems unanswerable. Without further discussion or elaboration, we are content to adopt and follow the decision of the Pennsylvania court. Charge defendant with money actu ally received by him, treating same as due and drawing interest from time received; and credit him thereby payment of interest and premium, when made. Ascertain balance due, making calculation upon the principle of partial payments, and give recovery for such balance. Let amount paid by defendant as dues on stock stand to his credit on the books of the corporation until time for final adjustment, when he and all other stockholders-borrowers and non-borrowers will be paid pro rata from the fund for ultimate distribution. Thus the loss will be apportioned equally."

City Mills Co., 45 N. E. Rep. 856, holding that where the seller of an article to be de livered is the manufacturer, and knows the use to be made of it by the purchaser, there is an implied warranty that it will be free from latent defects arising in the process of manufacture, and that it will be merchantable, and reasonably fit for the purpose for which it is bought, and that when a defect in the article is not discoverable on inspection, or by ordinary tests, such warranty continues. after delivery and acceptance by the buyer. The court says in part:

The rule is well settled that ratification must be with full knowledge of the agent's acts. Even if Nichols had been employed to sell the goods, unless he was given express power to warrant, he could not give a warranty which would bind his principal, unless the sale was one which was usually accompanied with warranty. Smith v. Tracy, 36 N. Y. 78. In Wait v. Borne, 123 N. Y. 592, 25 N. E. Rep. 1053, we held that "the idea upon which is founded the right to warrant, on the part of an agent to sell a particular article, is that he has been clothed with power to make all the common and usual contracts necessary or appropriate to accomplish the sale of the article intrusted to him. And if, in the sale of that kind or class of goods thus confided to him, it is usual in the market to give a warranty, the agent may give that warranty in order to effect a sale, and the law presumes that he has such authority. If the agent, with express authority to sell, has no actual author. ity to warrant, no authority can be implied where the property is of a description not usually sold with warranty." The question here, however, is one of a sale, where the seller was the manufacturer of the article sold, and, the contract being executory in its nature, and for the delivery of something of a par ticular kind, there was the implied warranty, or promise, that the article to be delivered should be merchantable, and free from any remarkable defect. Mellor, J., in Jones v. Just, L. R. 3 Q. B. 197, after reviewing decisions illustrative of when the rule of caveat emptor does or does not apply in sales, stated, as one of the results, as follows: "Where a man ufacturer undertakes to supply goods, manufactured by himself or in which he deals, but which the vendee has not had the opportunity of inspecting, it is an im plied term in the contract that he shall supply a mer chantable article." The same principle was laid down in Howard v. Hoey, 23 Wend. 350, and in Hoe v. Sanborn, 21 N. Y. 552, with respect to the obligation of a seller, under an executory contract to deliver an indeterminate thing of a particular kind, that it shall be free from any remarkable defect. In Bridge Co. v. Hamilton, 110 U. S. 108, 3 Sup. Ct. Rep. 537, after a review of the leading cases bearing upon the point, it was held that, "when the seller is the maker or manufacturer of the thing sold, the fair presumption is that he understood the process of its manufacture, and was cognizant of any latent defects caused by such process, and against which reasonable diligence might have guarded. ・ ・ When, therefore, the buyer has no opportunity to inspect the article, or when, from the situation, inspection is impracticable or useless, it is unreasonabe to suppose that he bought on his own judgment, or that he did not rely on the

judgment of the seller as to latent defects of which the latter, if he used due care, must have been informed during the process of manufacture. If the buyer relied, and, under the circumstances, had reason to rely, on the judgment of the seller, who was the manufacturer or maker of the article, the law implies a warranty that it is reasonably fit for the use for which it was designed, the seller at the time being informed of the purpose to devote it to that use." Quite recently, in the case of Carleton v. Lombard, Ayers & Co., 149 N. Y. 137, 43 N. E. Rep. 422, which was an action to recover damages for the breach of an executory contract for the sale of petroleum, produced by the defendant through certain manufacturing processes, we had occasion to consider the question of the liability of the seller for any latent defect arising in the process of the manufacture, and the principle of the decisions in Hoe v. Sanborn, supra, and in Bridge Co. v. Hamilton, supra, was affirmed. We held there that the maxim caveat emptor does not apply to the case of a manufacturer who sells goods of his own manufacture, and that, in such a case, he is liable for any latent defects arising from the process of manufacture, or in the use of defective materials, upon the ground of an implied warranty. In Hoe v. Sanborn, supra, Selden, J., commented upon this exception to the general rule, and held it to be a just one, using this language: "Wherever the vendor, therefore, has himself manufactured the article sold, or procured it to be done by others, if honesty and fair dealing are ever to be enforced by law, a warranty should be implied." The principles of adjudged cases apply to the one before us. The defendant was the manufacturer of the article which it sold to the plaintiffs, and the circumstances of the case were such as to imply a promise on its part that the article which it manufactured and delivered to the plaintiffs should be free from any latent defect. It was under the obligation to furnish an article, not of the higher quality, necessarily, but one that was merchantable, and free from any remarkable defect arising from the process of manufacture. Although there is no evidence that Nichols was expressly empowered to represent the defendant in the transaction, the adoption of his assumed agency to sell its product charged it with knowledge of the use to which that product was to be put, and imposed the duty of delivering goods which should be merchantable and reasonable fit for that use, and a consequent liability for a failure attributable to defects in the processes of manufacture or in the materials employed.

LIABILITY OF COMMON CARRIERS TO PASSENGERS CARRIED GRATUITOUSLY.

The question of the liability of common carriers of passenger for injuries to persons riding on free passes presents a body of law of comparatively recent growth. Upon some points there is practically unanimity among the courts, while upon others the courts are hopelessly divided, and the decisions totally irreconcilable. The subject can be considered most advantageously under two heads: First, liability in the absence of any qualify

ing agreement; and, second, liability where there is an agreement between carrier and passenger limiting the former's liability.

I. Liability in the Absence of Qualifying Agreement. The liability of common carriers of passengers is founded upon two grounds, contract and duty. Although usually treated as arising from contract, it does not depend upon contract alone.2 From the nature of their employment, common carriers of passengers owe a duty to the public apart from their duty to the individual, and from this duty springs a liability. The duty is imposed from considerations of public policy, and for a breach of the duty resulting in damage to the individual a recovery can be had, even in the absence of any contract between the parties, or of any consideration for the carriage. That this duty and liability should attach, it is only requisite that the party be lawfully on the train so that the relation of carrier and passenger is established. The liability results from the relation. That such a duty exists, even in the absence of contract or of consideration for the carriage, cannot be questioned; but the degree of care required in such cases is not so apparent. It has been doubted whether the carrier owes the same degree of care and diligence under such circumstances as it owes to a paid passenger. Formerly, the courts manifested some hesitancy in going this far, because, it was thought, that, in analogy to the law of bailment, the carrier who undertook a service gratuitously ought to be held only to the exercise of slight care and responsible only for gross negligence. But from the first there were dicta to the effect that the subject of the bailment a human life-being so sacred, one who undertook the service, even gratuitously, should be held to the same strict accountability as a carrier for hire. Thus, in Philadelphia v. Reading R. Co. v. Derby, it is said that whether the consideration for such transportation be pecuniary or otherwise, the personal safety of the passengers should not be left to the sport of chance or

1 Collett v. Lonson & N. W. R. Co., 15 Jur. 1053. 2 Nolton v. Western R. Co., 15 N. Y. 444; Carroll v. Staten I. R. Co., 58 N. Y. 126; McElroy v. Nashua & L. R. Co., 4 Cush. 400; Eaton v. Boston, etc. L. R. Co., 11 Allen, 500; Baltimore, C. P. R. Co. v. Kemp, 61 Md. 619; Railroad Co. v. Trautwein, 52 N. J. L. 169; Union Pacific Co. v. Nichols, 8 Kan. 505.

3 Great Northern R. Co. v. Harrison, 10 Exch. 376. 4 14 How. 468; New World v. King, 16 How. 469.