PLACE OF CONTRACT.

The term "lex loci contractus" (the law of the place of making a contract) has given rise to much confusion because of the double sense in which the term is used by the courts, some of them using it to denote the law of the place where the contract was made, and others to denote the law by which the contract is to be governed. It is the first of these uses which will be treated of in this article, the purpose being to determine where the contract is made in cases where the contract in dispute is made partly in one State or country and partly in another, or where it is made in one State or country to be performed in another. In the following classes of contracts the proper determination of this question is of the first importance to fix the rights and liabilities of the parties to the contract: A. Insurance Contracts. B. Promissory Notes. C. Bills of Exchange. D. Acceptance of Drafts. E. Usurious Contracts. F. Contracts for the Sale of Intoxicating Liquors, when Such Sales are Subject to Statutory Regulations.

A. Insurance Contracts.-1. Life Insurance.-Life insurance has attained such a vast growth during the last fifty years as to possess important public relations. It has become a usual and a favorite means for making provisions for the relatives and creditors of the assured. Life insurance companies Life insurance companies are in the nature of savings banks in which are invested much of the surplus earnings of the people. It is because of the growth and importance of life insurance that many, if not all, of the States have statutes regulating the conditions under which insurance business

may be carried on. As these conditions vary

in the different States it often becomes important to both the insurer and the insured to know just where the contract was made in contemplation of law, as upon this will depend the law which is to govern the contract; for the well-known rule is that a contract is to be governed by the law of the State where the contract is made. As the insurance companies draw up the contract of insurance this matter is practically under their control, as by inserting the clause "not binding until countersigned by the agent at," or "not binding until signed by the secretary of this company at their home office in

etc., they can control the place of contract. The courts almost invariably determine the question as to where the contract was made by the question "when did the transaction first become binding upon the parties as a contract." The place of contract is where this occurred. Now, by the insurance companies inserting these phrases designating when the policies shall become binding upon the company, the courts usually hold that when the policies are signed by the designated person, and not until then, they become binding upon the parties as contracts. The question then, is, what authority did the agent have; was his action final, or did the company reserve the right to accept or reject the insurance contract. This principle is well illustrated by a case decided in 1846,' in the Scotch Court of Sessions, in which a citizen of Scotland made proposals for insurance upon the life of a Scotchman, and thereafter received a policy which was prepared at the head office in London, England, and then transmitted to the Edinburg agents, by whom it was delivered to the insured, and to whom the insured paid the premium. It was held by the whole court, the judges delivering opinions seriatim, that the contract was an English contract because the Edinburg agents were not authorized to complete contracts binding upon the company. Speaking of the agents and the importance they bore in the transaction, the learned justice (Lord Cockburn) said, page 375: "The agent

had no power to complete insurances. He was a mere hand to transmit, very probably with his opinion of them, proposals, and to receive and deliver policies. He did nothing that might not have been done by the post office; yet this was all that was Scotch in the transaction. It is said that delivery completes such a contract, and that here the delivery was in Edinburg. True, but what was delivered? An English contract-a policy granted by a company having its place of business in London, executed according to the forms of the law of England, and bearing no reference to any foreign locus solutionis, either of the premium or of the sum insured. The delivery or the acceptance of such a deed did not make it express a contract according

1 Parken v. Royal Exchange Assurance Co. (1846), 8 Session Cases, 365, 375.

ford giving the opinion. In this case, a policy was issued by a New Jersey insurance company, insuring the life of a citizen of Massachusetts. The question to be decided was whether the non-forfeiture statute of Massachusetts controlled the policy. It was held that the policy was a New Jersey contract, and therefore not governed by the Massachusetts statute. The contract was completed in New Jersey when the company accepted the risk; the premium and loss were payable there; and all that was done in Massachusetts was the delivery of the policy under the instructions of the company by an agent who had no authority to make or alter contracts, waive forfeitures, or grant permits. In May of the same year the same judge held3 that the place or seat of the contract of insurance is the place where the proposals of one party have been accepted by the other, the contract in the case at bar being complete when the proposals of insurance submitted by the decedent were accepted by the company at its home office, and such acceptance made known to the applicant in the accustomed way. The agent in this case not having the power to make, alter, or discharge contracts or waive forfeitures," the, contract was not binding until accepted by the company. Until then no suit could have been brought on the policy. In 18794 the same court, by Judge Lowell, referred to the Desmazes case as deciding the case then at bar, the difference in the facts of the two cases being of slight importance; in the later case the agent was required to countersign and deliver the policies, but the court held that this was only for the purpose of preserving written evidence of the agent's transactions, and not for the purpose of giving him authority to conclude

2 Desmazes v. Mutual Benefit Life Ins. Co. (1878), Fed. Cas. No. 3,821.

8 Shattuck v. Mutual Life Ins. Co. (1878), 4 Cliff. 598, Fed. Cas. No. 12,715.

4 Whitcomb v. Phoenix Mutual Ins. Co. (1879), Fed. Cas. No. 17,530.

the contract; the countersigning and delivery in this case was as much a ministerial act as the delivery alone in the other case. But this is not the construction usually put upon this requirement; the rule is that where the policy expressly provides that it shall not be binding until countersigned and delivered by the agent, the contract is held to be made in the State where this takes place, whether the company's home office is in such State or not. The underlying principle of all these insurance cases is so well stated by Judge Deady in a case decided by him in 1880, that I quote from his opinion: "Where, then, was the contract made, in Wisconsin or Oregon? The answer to this question involves the inquiry, where did the final act take place which made the transaction a contract birding upon the parties. The premium was paid to the agent of the plaintiff at Portland, who then and there countersigned and delivered the policy. This was the consummation and the completion of the contract. But to put this beyond a doubt, the policy itself declares that it shall not be binding on the company until these acts are performed. And, until it was binding on the company, it was not binding on the applicant; in short, it was not yet a contract, but only a proposition." Most of these cases are brought in the federal courts because of diverse citizenship, but the federal cases above cited are supported by the decided weight of authority in the State courts.6

No objection can be made to the logic of these decisions, but there is a danger of following too closely the letter of the contract which, in all of these cases, is drawn up by the insurance company. Under these very

5 N. W. Mut. Life Ins. Co. v. Elliott (1880), 5 Fed. Rep. 225, 228. See also Knights Templar, etc. Co. v. Berry (1892), 50 Fed. Rep. 511; Phinney v. Mut. Life Ins. Co. (1895), 67 Fed. Rep. 493; Penn Mut. Ins. Co. v. Bank Co. (1896), 72 Fed. Rep. 413; Equitable Life etc. v. Nixon (1897), 81 Fed. Rep. 796, 798; Equitable Life, etc. v. Trimble (1897), 83 Fed. Rep. 85; Mutual Life Ins. Co. v. Hill (1899), 97 Fed. Rep. 263, 267.

6 Alabama-Continental Life Insurance Co. v. Webb (1875), 54 Ala. 688. Illinois-Pomeroy v. Manhattan Life Ins. Co. (1866), 40 Ill. 398. Kentucky-St. Louis Mut. Life Ins. Co. v. Kennedy (1869), 6 Bush, 450. Louisiana-Hardy v. St. Louis Mut. Life Ins. Co (1874), 26 La. Ann. 242. Maryland-Fidelity Mut. Life Ins. Assn. v. Ficklin (1891), 74 Md. 172, 179. OhioMoore v. Charter Oak Life Ins. Co. (1879), 8 Ins. Law Journal, 78 (Cincinnati Superior Court). VirginiaManhattan Life Ins. Co. v. Warwick (1871), 20 Gratt. 614, 623. Wisconsin-Estate of Breitung (1890), 78

Wis. 33.

decisions the companies are permitted to, and of course do, insert clauses in the policies withdrawing themselves from the operation of the statutes of States in which they are permitted, by courtesy, to do business, while obtaining all the advantages of its license. It is not the place of a foreign corporation to dictate to a State, that unless its laws please the said corporation it will withdraw itself, by special contract with the insured, from the operation of such distasteful laws. But it is the place, and furthermore the duty, of the State to protect its citizens by declaring on what terms these foreign corporations shall be permitted to do business within its borders. A corporation undertaking to do business beyond the territorial limits of the State creating it does so only by comity. The legislatures of the various States should enact laws declaring that all policies of insurance delivered in the State should be governed by the law of such State. When delivered these policies are local transactions and should be governed by local law. Though the weight of authority, both State and federal, is decidedly the other way, I think this is the more reasonable and the better way to treat this vexed question; and a number of able decisions of the federal courts support this theory.8

2. Fire Insurance.-As in life insurance there are two classes of cases, each decided by reference to the authority given the agent of the insurance company. Where he is authorized to receive applications of insurance, but not to finally bind the company, it is held that the contract is complete when the company accepts the risk and manifests such acceptance by issuing its policy. The place of contract is the State or country where such acts occur, irrespective of where the home office of the company is. But where the

7 Paul v. Virginia (1868), 8 Wall. 168, 181.

8 White v. Connecticut Mut. Life Ins. Co. (1877), 4 Dill. 177, Fed. Cas. No. 15,745; Fletcher v. New York Life Ins. Co. (1882), 13 Fed. Rep. 526, 528 (1885), 117 U. S. 519; Wall v. Equitable Life Assur. Soc. (1887), 32 Fed. Rep. 273 (1890), 140 U. S. 226, 232; Berry v. Knight Templars' & Masons' Life Indem. Co. (1891), 46 Fed. Rep. 439; Mutual Benefit Life Ins. Co. v. Robison (1893), 54 Fed. Rep. 580, 584; Equitable Life Assur. Soc. v. Winning (1893), 58 Fed. Rep. 541; Hicks v. National Life Ins. Co. (1894), 60 Fed. Rep. 690.

9 Hyde v. Goodnow (1850), 3 Comst. (3 N. Y.) 266; Wright v. Sun Mutual Ins. Co. (1858), 23 How. 412; Ford v. Buckeye State Ins. Co. (1869), 6 Bush (Ky.), 133; Eureka Ins. Co. v. Parks (1871), 1 Cinn. Sup. Ct.

agent is given the power to bind the company, or where it is expressly stipulated that the policy shall not be binding until countersigned by the agent, the contract is not complete until such countersigning and delivery by the agent takes place; and where this occurs is the place of contract.10

3. Marine Insurance.-In contracts of marine insurance, the place of contract is the State or country where the premium is paid and the policy delivered, as this is held to be the formal conclusion of the contract.11 A very peculiar case arose in 1861,12 where an insurance policy was made in New York by a New York insurance company in favor of American citizens, in pursuance of an agreement abroad by the company's agent. The policy was countersigned in China by such agent, as was required by its terms to render the policy binding. It was held that the requirement of the agent's counter-signature was merely for the purpose of authenticating the issuance and delivery of the policy, the president and secretary of the insurance company being the proper officers to execute the contract. 13 But I think the true reason for this peculiar decision can be seen by examining the first sentence of the opinion given by Judge Hoffman, which I quote: "If the contract can at all be regarded as a Chinese contract we are without information as to the law which would govern it in China, and must therefore interpret and decide upon it according to our own.

914

B. Promissory Notes.-An interesting and

574; Lamb v. Bowser (1876), 7 Biss. 315, 372, Fed. Cas. Nos. 8,008, 8,009; Northampton Mutual Ins. Co. v. Tuttle (1878), 40 N. J. Law, 476; Clarke v. Union Fire Ins. Co. (1884), 6 Ontario, 223, 227; Western v. Genesee Mut. Ins. Co. (1885), 2 Kern. (12 N. Y.), 258; Marden v. Hotel Owners' Ins. Co. (1892), 85 Iowa, 584.

10 Daniels v. Hudson River Fire Ins. Co. (1853), 12 Cush. (Mass.) 416; Bailey v. Hope Ins. Co. (1869), 56 Me. 474; Todd & Co. v. The State Ins. Co. of Mo. (1876), 3 Week. No. Cas. 330, 11 Phila. 355; Cromwell v. Royal Canad. Ins. Co. (1878), 49 Md. 366; Crunow v. Ins. Co. (1892), 37 S. Car. 406.

11 Meagher v. Etna Ins. Co. (1861), 20 U. C. Q. B. 607, 617; Pattison v. Mills (1828), 2 Bligh. (N. S.) 519, 567, affirming Albion Fire Ins. Co. v. Mills (1828), 3 W. & S. (Sc. App.) 218; St. Patrick Assn. Co. v. Bradner (1829), 8 Shaw & Dun. 51; Heebner v. Eagle Ins. Co. (1857), 10 Gray (Mass.), 131; Thwing v. Gt. West. Ins. Co. (1872), 111 Mass. 93, 109; In re Insurance Co. (1884), 22 Fed. Rep. 109.

12 Huth v. N. Y. Mut. Ins. Co. (1861), 8 Bosw. (N. Y.) 538.

important question often arises as to the place of contract of a promissory note which is written and signed in one State or country and delivered in another. In a much cited English case the following were the facts. The defendant was a British subject, residing in Florence, Italy. He became surety for his brother, who wrote two promissory notes and sent them to the defendant in Florence, who there signed and returned them by post to his brother. The brother in England then signed and delivered them to the Union Bank of London. Suit was brought on the notes. Defendant claimed that the cause of action did not arise within the jurisdiction of the English court, thus fairly and squarely presenting the question which country was the place of contract. The court, per Martin, B., said: "The question is, where was the contract made by the defendants, in London or in Florence? There can be no doubt that the contract was made in London, for there was no contract until the notes were delivered to the plaintiffs by the agent of the defendants in London." English law governed the case. In an early case in the federal supreme court16 an action was brought on promissory notes which had been dated and signed at Baltimore, Maryland, where the maker resided. The notes were then sent by mail to the maker's agent in New York and were delivered there to the payee, in payment of goods purchased in New York. Defendant claimed that the notes were Maryland contracts and that he had been discharged from liability on the notes by a Maryland court, under the insolvent laws of that State. was held that the notes were New York contracts, and therefore beyond the jurisdiction of the Maryland courts; the court basing its decision on the ground that although the notes purported to have been made at Baltimore they were delivered in New York. New York and not Maryland was the place of contract. Chief Justice Bigelow states the rule in this class of cases in the following extract from an opinion given by him in 1862:17 "The defendant put his name on the back of the note in another State, while it was in the

It

15 Chapman v. Cottrell (1865), 3 Hurl. & Colt. (Exch.) 865, 34 L. J. Rep. (N. S.) (Exch.) 186, 187. 16 Cook v. Moffat (1847), 5 How. 295.

17 Lawrence v. Bassett (1862), 5 Allen (Mass), 140, 141.

hands of the original maker and before it was delivered to the payee. It was subsequently passed to the payee in this State for a valuable consideration and then for the first time became a valid promise to pay money. Until such delivery it was not a binding and operative contract, upon which the defendant could have been held as a party to the note. It was therefore the delivery to the plaintiff which consummated and completed the contract. When he lent his money upon it in this commonwealth he entered into a contract with the parties to the note, of which it was the written evidence. It follows that the lex loci contractus regulates and governs its interpretation." This case was cited as deciding the same point in Bell v. Packard,1 and the rule as laid down in it is supported by both State and federal courts.19

18

C. Bills of Exchange.-The general rule is that the place of contract of a bill of exchange is the State in which it first comes into legal existence by being negotiated. The lex loci contractus depends upon the place where the bill is delivered; not where it is made, drawn, or dated.20 There is, however, a recognized exception to the rule, well illustrated by the case of Lennig v. Ralston.21 In that case a purchaser for value in good faith relied upon the appearances given to a bill of exchange, no fact being exhibited to

18 (1879) 69 Me. 105.

19 Hitchcock v. U. S. Bank (1845), 7 Ala. 387, 429; Cook v. Litchfield (1853), 9 N. Y. 279, 290; Young v. Harris (1854), 14 B. Mon. (Ky.) 447; Standford v. Purett (1859), 27 Ga. 243; Lee v. Shelleck (1865), 33 N. Y. 615, 618; Mott v. Wright (1865), 4 Biss. 53, Fed Cas. No. 9,883; Faut v. Miller (1866), 17 Gratt. (Va.) 47; Campbell v. Nicholls (1868), 33 N. J. Law, 81; Sands v. Smith (1871?), 1 Neb. 108; Overton v. Bolton (1872), 9 Heisk. (Tenn.) 762; National Bank v. Smoot (1876), 2 MacArthur (D. C.), 371; Milliken v. Pratt (1878), 125 Mass. 374; Gay v. Rainey (1878), 89 Ill. 221; Hart v. Wills (1879), 52 Iowa, 56, 2 N. W. Rep. 619; Hiatt v. Griswold (1881), 50 Fed. Rep. 573; Johnston v. Gawtry (1884), 83 Mo. 339, 11 Mo. App. 322; Hefflebower v. Detrick (1885), 27 W. Va. 16: Hill v. Chase (1886), 143 (Mass.) 129, 9 N. E. Rep. 30; Briggs v. Latham (1887), 36 Kan. 255, 13 Pac. Rep. 393; Stubb's Exr. v. Colt (1887), 30 Fed. Rep. 417; Buchanan v. Drovers' Nat. Bank (1893), 55 Fed. Rep. 223; Wells, Fargo & Co. v. Vansickle (1894), 64 Fed. Rep. 944; Kuhn v. Morrison (1894), 75 Fed. Rep. 81.

20 Davis, etc. Co. v. Clemson (1855), 6 McLean, 622; Freese v. Brownell (1871), 35 N. J. Law, 285; Gal landet v. Sykes (1874), 1 MacArthur (D. C.), 489; Til. den v. Blair (1874), 21 Wall. 241; Scudder v. Union Bank (1875), 91 U. S. 406; Farmers' Bank v. Sutton Mfg. Co. (1892), 52 Fed. Rep. 191.

21 (1854) 23 Pa. St. 137.

show the contrary. It was held that he was entitled to deal with it upon the assumption that the law of the place was that of Pennsylvania, as indicated by the appearance of the bill, and not that of England where it was in fact negotiated. The question of morals entered to some degree into the opinion of the court, as did also the desire to carry out the manifest intention of the parties to the contract.

D. Acceptance of Drafts.-The contract to accept a draft is governed by the laws of the State where the contract is made, which is the State where the contract first becomes a binding obligation.22

E. Usurious Contracts.-It is an established principle of law that a contract for a loan of money made in one State to be performed in another is governed by the laws of the place of performance, provided that the place of performance was not fixed different from the place of contract for the purpose of evading the usury laws of the State where the contract was in fact made.23 The reason for this is that, as we have already seen, the courts hold that by their stipulations the parties have determined where the place of contract is. The courts will endeavor to ascertain the intent of the parties, and an unlawful intent will not be presumed if it is clear that a lawful one could have been present. In a case in Texas, a resident of Texas being temporarily in New York there executed a number of promissory notes but dated them at his Texas residence, stipulating on the face of the notes to pay twelve per cent. interest, a rate illegal under the laws of New York but legal in Texas. No place of payment was designated. It was held that from the fact of dating the notes as if payable in Texas a strong implication arose that it was the maker's intention that they should be paid according to the laws of Texas, under which the rate of interest to be charged was lawful. But the mere fact of dating the note in another State will not prevent the defense of usury

24

22 Garrettson v. North Atchison Bank (1891), 47 Fed. Rep. 867; Hubbard v. Exchange Bank (1896), 72 Fed. Rep. 234.

23 Miller v. Tiffany (1863), 1 Wall. 298; Building, etc. Assn. v. Logan (1895), 66 Fed. Rep. 827.

24 Bullard v. Thompson (1871), 35 Tex. 313. See also Tillotson v. Tillotson (1867), 34 Conn. 335, 367; National Bank v. Smoot (1876), 2 MacArthur (D. C.), 371, 373.

being raised if the delivery of the note and its payment takes place in a State where the rate of interest charged by it is usurious.25 According to a recent Pennsylvania case26 this intent to evade the usury laws will not be presumed from the naked fact of a loan of money being made at a rate of interest which is usurious by the laws of the State where the borrower resides, if it is stipulated that the money is to be repaid in the State where the lender resides, such rate being there unlawful. This case is criticised in 10 Harvard Law Review, 311, as follows: "There is much confusion among the authorities on this question. On principle, the decision seems wrong. The sovereign power in Pennsylvania has declared usurious contracts to be illegal. Such contracts made in Pennsylvania never acquire a legal existence. are not only void in that State but void in every State, and everywhere.' Akers v. Demond, 103 Mass. 323; Scudder v. Union Bank, 91 U. S. 406, 10 Harvard Law Review, 170." I think that this criticism is a just one, if the contract is made in Pennsylvania. the court decides that by the agreement of the parties to repay the money in New York the contract was in contemplation of law made in New York; and this once admitted it follows that the law of New York controlled the contract. The same objection arises in this class of agreements that I pointed out in discussing the insurance cases that by their own stipulations the parties set at naught the express provisions of the sovereign power, under the protection of which they are making the contract.

They

But

F. Contracts for the Sale of Intoxicating Liquors.-An important practical question presents itself when residents of different States negotiate for the purchase and sale of intoxicating liquors, the statutes of the various States differing so much in their attempts to prohibit or regulate such sales. For example, Michigan may have a statute providing that such contracts shall not be enforcible, while Ohio may permit them to be enforced. The question is thus raised as to the place of contract. The rule is that the place of contract is determined by the ques

25 Hart v. Wills (1879), 52 Iowa, 56, 2 N. W. Rep.

619.

26 Bennett v. Eastern Building & Loan Co. (1896) 177 Pa. St. 233, 239, 35 Atl. Rep. 684.