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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 section, 'that the obligation of promises is to be measured by the expectation which the promiser anyhow 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, whether 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 marketprice is always a fair price, because it will always be proportionable to the use and scarcity of the article. Hence, there 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, or 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 meantime, 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.1
If I order a pipe of port from a wine-merchant 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 shipboard 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
1 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.
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.
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 horse-race; 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 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 adversaries' 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 of which the other did not suspect when he proposed or accepted the wager.
In speculations in trade, or in the stocks, if I 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; but 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.
CONTRACTS OF LENDING OF 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? 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.