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A Contract is a mutual promise. The obligation therefore of contracts, the sense in which they are to be interpreted, and the cases where they are not binding, will be the same as of promises.
From the principle established in the last chapter, "that the obligation of promises is to be measured by the expectation which the promiser any how voluntarily and knowingly excites," results a rule, which governs the construction of all contracts, and is capable, from its simplicity, of being applied with great ease and certainty, viz. That
Whatever is expected by one side, and known to be so expected by the other, is to be deemed a part or condition of the contract.
The several kinds of contracts, and the order in which we propose to consider them, may be exhibited at one view, thus:
The rule of justice, which wants with most anxiety to be inculcated in the making of bargains, is, that the seller is bound in conscience to disclose the faults of what he offers to sale. Amongst other methods of proving this, one may be the following :—
I suppose it will be allowed, that to advance a direct falsehood in recommendation of our wares, by ascribing to them some quality which we know that they have not, is dishonest. Now compare with this the designed concealment of some fault, which we know that they have. The motives and the effects of actions are the only points of comparison, in which their moral quality can differ; but the motive in these two cases is the same, viz. to procure a higher price than we expect otherwise to obtain: the effect, that is, the prejudice to the
buyer, is also the same; for he finds himself equally out of pocket by his bargain, w hether the commodity, when he gets home with it, turn out worse than he had supposed, by the want of some quality which he expected, or the discovery of some fault which he did not expect. If therefore actions be the same, as to all moral purposes, which proceed from the same motives, and produce the same effects; it is making a distinction without a difference, to esteem it a cheat to magnify beyond the truth the virtues of what we have to sell, but none to conceal its faults.
It adds to the value of this kind of honesty, that the faults of many things are of a nature not to be known by any, but by the persons who have used them; so that the buyer has no security from imposition, but in the ingenuousness and integrity of the seller.
There is one exception however to this rule; namely, where the silence of the seller implies some fault in the thing to be sold, and where the buyer has a compensation in the price for the risk which he runs: as where a horse, in a London repository, is sold by public auction, without warranty; the want of warranty is notice of some unsoundness, and produces a proportionable abatement in the price.
To this of concealing the faults of what we want to put off, may be referred the practice of passing bad money. This practice we sometimes hear defended by a vulgar excuse, that we have taken the money for good, and must therefore get rid of it. Which excuse is much the same as if one, who had been robbed upon the highway, should allege that he had a right to reimburse himself out of the pocket of the first traveller he met; the justice of which reasoning the traveller possibly may not comprehend.
Where there exists no monopoly or combination, the market-price is always a fair price; because it will always be proportionable to the use and scarcity of the article. Hence, their need be no scruple about demanding or taking the market-price; and all those expressions, "provisions are extravagantly dear." " corn bears an unreasonable price," and the like, import no unfairness or unreasonableness in the seller.
If your tailor or your draper charge, or even ask of you, more for a suit of clothes, than the market-price, you complain that you are imposed upon; you pronounce the tradesman who makes such a charge, dishonest: although, as the man's goods were his own, and he had a right to prescribe the terms upon which he would consent to part with them, it may be questioned what dishonesty there can be in the case, or wherein the imposition consists. Whoever opens a shop, or in any manner exposes goods to public sale, virtually engages to deal with his customers at a market-price; because it is upon the faith and opinion of such an engagement, that any one comes within his shop-doors, or offers to treat with him. This is expected by the buyer; is known to be so expected by the seller; which is enough, according to the rule delivered above, to make it a part of the contract between them, though not a syllable be said about it. The breach of this implied contract constitutes the fraud inquired after.
Hence, if you disclaim any such engagement, you may set what value you please upon your property. If, upon being asked to sell a house, you answer that the house suits your fancy or conveniency, and that you will not turn yourself out of it, under such a price; the price fixed may be double of what the house cost, or would fetch at a public sale, without any imputation of injustice or extortion upon you.
If the thing sold be damaged, 0i perish between the sale and the delivery, ought the buyer to bear the loss, or the seller? This will depend upon the particular construction of the contract. If the seller, either expressly, or by implication, or by custom, engage to deliver the goods; as if I buy a set of china, and the china-man ask me to what place he shall bring or send them, and they be broken in the conveyance, the seller must abide by the loss. If the thing sold remain with the seller, at the instance, or for the conveniency of the buyer, then the buyer undertakes the risk; as if I buy a horse, and mention, that I will send for it on such a day (which is in effect desiring that it may continue with the seller till I do send for it), then, whatever misfortune befalls the horse in the mean time, must be at my cost.
And here, once for all, I would observe, that innumerable questions of this sort are determined solely by custom; not that custom possesses any proper authority to alter or ascertain the nature of right and wrong; but because the contracting parties are presumed to include in their stipulation all the conditions which custom has annexed to contracts of the same sort: and when the usage is notorious, and no exception
made to it, this presumption is generally agreeable to the fact.*
If I order a pipe of port from a winemerchant abroad; at what period the property passes from the merchant to me; whether upon delivery of the wine at the merchant's warehouse; upon its being put on ship-board at Oporto; upon the arrival of the ship in England; at its destined port; or not till the wine be committed to my servants, or deposited in my cellar; are all questions which admit of no decision, but what custom points out. Whence, in justice, as well as law, what is called the custom of merchants, regulates the construction of mercantile concerns.
CONTRACTS OP HAZARD.
By Contracts of Hazard, I mean gaming and insurance.
What some say of this kind of contracts, "that one side ought not to have any advantage over the other," is neither practicable nor true. It is not practicable; for that perfect equality of skill and judgment which this rule requires, is seldom to be met with. I might not have it in my power to play with fairness a game at cards, billiards, or tennis; lay a wager at a horserace; or underwrite a policy of insurance, once in a twelvemonth, if I must wait till I meet with a person, whose art, skill, and judgment in these matters, is neither greater nor less than my own. Nor is this equality requisite to the justice of the contract. One party may give to the other the whole of the stake, if he please, and the other party may justly accept it, if it be given him; much more therefore may one give to the other a part of the stake; or, what is exactly the same thing, an advantage in the chance of winning the whole.
The proper restriction is, that neither side have an advantage, by means of which the other is not aware; for this is an advantage
* It happens here, as in many cases, that what the parties ought to do, and what a judge or arbitrator would award to be done, may be very different. What the parties ought to do by virtue of their contract, depends upon their consciousness at the time of making it: whereas a third person finds it necessary to found his judgment upon presumptions, which presumptions may be false, although the most probable that he could proceed by.
taken, without being given. Although the event be still an uncertainty, your advantage in the chance has a certain value; and so much of the stake as that value amounts to, is taken from your adversary without his knowledge, and therefore without his consent. If I sit down to a game at whist, and have an advantage over the adversary, by means of a better memory, closer attention, or a superior knowledge of the rules and chances of the game, the advantage is fair; because it is obtained by means of which the adversary is aware: for he is aware, when he sits down with me, that I shall exert the skill that I possess to the utmost. But if I gain an advantage by packing the cards, glancing my eye into the adversary's hands, or by concerted signals with my partner, it is a dishonest advantage; because it depends upon means which the adversary never suspects that I make use of.
The same distinction holds of all contracts into which chance enters. If I lay a wager at a horse-race, founded upon the conjecture I form from the appearance, and character, and breed, of the horses, I am justly entitled to any advantage which my judgment gives me: but, if I carry on a clandestine correspondence with the jockeys, and find out from them, that a trial has been actually made, or that it is settled beforehand which horse shall win the race; all such information is so much fraud, because derived from sources which the other did not suspect, when he proposed or accepted the wager.
In speculations in trade, or in the stocks, if 1 exercise my judgment upon the general aspect and prospect of public affairs, and deal with a person who conducts himself by the same sort of judgment, the contract has all the equality in it which is necessary; hut if I have access to secrets of state at home, or private advice of some decisive measure or event abroad, I cannot avail myself of these advantages with justice, because they are excluded by the contract, which proceeded upon the supposition that I had no such advantage.
In insurances, in which the underwriter computes his risk entirely from the account given by the person insured, it is absolutely necessary to the justice and validity of the contract, that this account be exact and complete.
CHAFI ER IX.
CONTRACTS OP LENDING OP INCONSUMABLE PROPERTY.
When the identical loan is to be returned, as a book, a horse, a harpsichord, it is called inconsumable; in opposition to corn, wine, money, and those things which perish, or are parted with, in the use, and can therefore only be restored in kind.
The questions under this head are few and simple. The first is, if the thing lent be lost or damaged, who ought to bear the loss or damage 1 If it be damaged by the use, or by accident in the use, for which it was lent, the lender ought to bear it; as if I hire a job-coach, the wear, tear, and soiling of the coach, must belong to the lender; or a horse, to go a particular journey, and in going the proposed journey, the horse die, or be lamed, the loss must be the lender's: on the contrary, if the damage be occasioned by the fault of the borrower, or by accident in some use for which it was not lent, then the borrower must make it good; as if the coach be overturned or broken to pieces by the carelessness of your coachman; or the horse be hired to take a morning's ride upon, and you go a-hunting with him, or leap him over hedges, or put him into your cart or carriage, and he be strained, or staked, or galled, or accidentally hurt, or drop down dead, whilst you are thus using him; you must make satisfaction to the owner.
The two cases are distinguished by this circumstance: that, in one case, the owner foresees the damage or risk, and therefore consents to undertake it; in the other case he does not.
It is possible that an estate or a house may, during the term of a lease, be so increased or diminished in its value, as to become worth much more, or much less, than the rent agreed to be paid for it. In some of which cases it may be doubted, to whom, of natural right, the advantage or disadvantage belongs. The rule of justice seems to be this: If the alteration might be expected by the parties, the hirer must take the consequence ; if it could not, the owner. An orchard, or a vineyard, or a mine, or a fishery, or a decoy, may this year yield nothing, or next to nothing, yet the tenant shall pay his rent; and if the next year produce tenfold the usual profit, no more shall be demanded; because the produce is in its nature precarious, and this variation might be expected. If an estate in the fens of Lincolnshire, or the isle of Ely, be overflowed with water, so as to be incapable of occupation, the tenant, notwithstanding, is bound by his lease; because he entered into it with a knowledge and foresight of the danger. On the other hand, if, by the irruption of the sea into a country where it was never known to have come before, by the change of the course of a river, the fall of a rock, the breaking out of a volcano, the bursting of a moss, the incursions of an enemy, or by a mortal contagion amongst the cattle; if, by means like these, an estate change or lose its value, the loss shall fall upon the owner; that is, the tenant shall either be discharged from his agreement, or be entitled to an abatement of rent . A house in London, by the building of a bridge, the opening of a new road or street, may become of ten times its former value; and, by contrary causes, may be as much reduced in value: here also, as before, the owner, not the hirer, shall be affected by the alteration. The reason upon which our determination proceeds is this; that changes such as these, being neither foreseen, nor provided for, by the contracting parties, form no part or condition of the contract; and therefore ovgnt to have the same effect as if no contract at all had been made (for none was made with respect to them), that is, ought to fall upon the owner.
CONTRACTS CONCERNING THE LENDING OF MONEY.
There exists no reason in the lav/ of nature, why a man should not be paid for the lending of his money, as well as of any other property into which the money might be converted.
The scruples that have been entertained upon this head, and upon the foundation of which the receiving of interest or usury (for they formerly meant the same thing) was once prohibited in almost all Christian countries, * arose from a passage in the
* By a statute of James the First, interest above eight pounds per cent, was prohibited (and consequently under that rate allowed), with this sage provision, That this statute shall not be construed or expounded to allow the practice of usury in point of religion or conscience.
law of Moses, Deuteronomy xxiii. 19, 20: "Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury; unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury."
This prohibition is now generally under stood to have been intended for the Jews alone, as part of the civil or political law of that nation, and calculated to preserve amongst themselves that distribution of property, to which many of their institutions were subservient; as the marriage of an heiress within her own tribe; of a widow who was left childless, to her husband's brother; the year of jubilee, when alienated estates reverted to the family of the original proprietor:—regulations which were never thought to be binding upon any but the commonwealth of Israel.
This interpretation is confirmed, I think, beyond all controversy, by the distinction made in the law, between a Jew and a foreigner;—"unto a stranger thou mayest lend upon usury, but unto thy brother thou mayest not lend upon usury;" a distinction which could hardly have been admitted into a law, which the Divine Author intended to be of moral and of universal obligation.
The rate of interest has in most countries been regulated by law. The Roman law allowed of twelve pounds per cent., which Justinian reduced at one stroke to four pounds. A statute of the thirteenth year of Queen Elizabeth, which was the first that tolerated the receiving of interest in England at all, restrained it to ten pounds per cent.; a statute of James the First, to eight pounds; of Charles the Second, to six pounds; of Queen Anne, to five pounds, on pain of forfeiture of treble the value of the money lent: at which rate and penalty the matter now stands. The policy of these regulations is, to check the power of accumulating wealth without industry; to give encouragement to trade, by enabling adventurers in it to borrow money at a moderate price; and of late years, to enable the state to borrow the subject's money itself.
Compound interest, though forbidden by the law of England, is agreeable enough to natural equity; for interest detained after it is due, becomes, to all intents and purposes, part of the sum lent.
It is a question which sometimes occurs, how money borrowed in one country ought to bo. paid in another, where the relative value of the precious metals is not the fame. For example, suppose I borrow a hundred guineas in London, where each guinea is worth one-and-twenty shillings, and meet my creditor in the East Indies, where a guinea is worth no more perhaps than nineteen; is it a satisfaction of the debt to retum a hundred guineas, or must I make up so many times one-and-twenty shillings? I should think the latter; for it must be presumed, that my creditor, had he not lent me his guineas, would have disposed of them in such a manner, as to have now had, in the place of them, so many one-and-twenty shillings; and the question supposes that he neither intended, nor ought to be a sufferer, by parting with the possession of his money to me.
When the relative value of coin is altered by an act of the state, if the alteration would have extended to the identical pieces which were lent, it is enough to return an equal number of pieces of the same denomination, or their present value in any other. As, if guineas were reduced by act of parliament to twenty shillings, so many twenty shillings, as I borrowed guineas, would be a just repayment. It would be otherwise, if the reduction was owing to a debasement of the coin; for then respect ought to be had to the comparative value of the old guinea and the new.
Whoever borrows money is bound in conscience to repay it. This, every man can see; but every man cannot see, or does not however reflect, that he is, in consequence, also bound to use the means necessary to enable himself to repay it. "If he pay the money when he has it, or has it to spare, he does all that an honest man can do." and all, he imagines, that is required of him; whilst the previous measures, which are necessary to furnish him with that money, he makes no part of his care, nor observes to be as much his duty as the other; such as selling a family seat or a family estate, contracting his plan of expense, laying down his equipage, reducing the number of his servants, or any of those humiliating sacrifices, which justice requires of a man in debt, the moment he perceives that he has no reasonable prospect of paying his debts without them. An expectation which depends upon the continuance of his own life, will not satisfy an honest man, if a better provision be in his power; for it is a breach of faith to subject a creditor, when we can help it, to the risk of our life, be the event what it will; that not being the security to which credit was given.
I know few subjects which have been more misunderstood, than the law which authorizes the imprisonment of insolvent debtors. It has been represented as a gratuitous cruelty, which contributed nothing to the reparation of the creditor's loss, or to the advantage of the community. This prejudice arises principally from considering the sending of a debtor to gaol, as an act of private satisfaction to the creditor, instead of a public punishment. As an act of satisfaction or revenge, it is always wrong in the motive, and often intemperate and undistinguishing in the exercise. Consider it as a public punishment; founded upon the same reason, and subject to the same rules, as other punishments; and the justice of it, together with the degree to which it should be extended, and the objects upon whom it may be inflicted, will be apparent. There are frauds relating to insolvency, against which it is as necessary to provide punishment, as for any public crimes whatever: as where a man gets your money into his possession, and forthwith runs away with it: or, what is little better, squanders it in vicious expenses; or stakes it at the gaming-table; in the Alley; or upon wild adventurers in trade; or is conscious, at the time he borrows it, that he can never repay it; or wilfully puts it out of his power, by profuse living; or conceals his effects, or transfers them by collusion to another: not to mention the obstinancy of some debtors, who had rather rot in a gaol, than deliver up their estates; for, to say the truth, the first absurdity is in the law itself, which leaves it in a debtor's power to withhold any part of his property from the claim of his creditors. The only question is, whether the punishment be properly placed in the hands of an exasperated creditor; for which it may be said, that these frauds are so subtile and versatile, that nothing but a discretionary power can overtake them; and that no discretion is likely to be so well-informed, so vigilant or so active, as that of the creditor.
It must be remembered, however, that the confinement of a debtor in gaol is a punishment; and that every punishment supposes a crime. To pursue, therefore, with the extremity of legal rigour, a sufferer, whom the fraud or failure of others, his own want of capacity, or the disappointments and miscarriages to which all human affairs are subject, have reduced to ruin, merely because we are provoked by our