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prevents him from completing the residence. A is liable in damages to B for breach of his contract. The damages in such case include compensation for the labor done and materials furnished, and such further sum in damages as may, upon legal principles, be assessed for the breach of the contract. 1
147. A agrees with B to purchase five hundred chairs, which B agrees to manufacture for A. After three hundred of them have been delivered, A notifies B not to manufacture any more as he has all he needs. A is liable in damages to B for breach of his contract.2
149. Discharge by operation of law.—Contracts are sometimes discharged by operation of law. This mode of discharge is applicable to merger, alteration of written contracts and proceedings in bankruptcy. The discharge in such cases operates ipso facto.
150. Merger.—Where one of the parties to a contract accepts a higher security for the lower one the latter is merged in the former and extinguished. Thus, where the parties to a simple contract enter into a sealed one covering the same transaction, and the sealed contract is not intended as a mere collateral security, the simple contract is merged and extinguished. And where a party to a contract sues and recovers a judgment for its breach the contract is merged in the judgment. Hence, a subsequent action may be brought upon the judgment, but not upon the contract since it has been extinguished.
When an oral contract is reduced to writing there is, in reality, no merger. This is owing to the fact that the oral contract is of as high a nature as the written one not under seal. As a question of evidence, however, the latter is considered of a higher grade than the 1 Black v. Woodrow and Richardson, 39 Md. 194. 2 Cort & Gee v. The Ambergate, etc., Ry. Co., 17 Adol. & Ell., N. S. 127. former, and under what is known as “the best evidence rule” the written contract is given priority. Owing to this fact it is often incorrectly said that when an oral contract is reduced to writing the oral contract is merged in the written one.
151. Alteration of a written instrument.—The term alteration in this connection means some addition or erasure which changes the meaning or language of the contract. When the alteration is made prior to the execution of the instrument it does not affect its validity; and when made subsequently by the mutual consent of the parties it does not invalidate it. But when an addition or erasure is made intentionally by a party to the contract, or by a stranger with his consent, without the consent of the other party, which addition or erasure changes the legal effect of the instrument, it discharges the contract.
When the alteration is made by a stranger, without the knowledge or consent of a party to the contract, it is of no effect, provided the original terms can be established. An alteration made under such circumstances is called a spoliation. Under the old common law spoliation invalidated the instrument, but under the modern rule it does not.
An alteration to be effectual must be material. It is not essential, however, that it be to the prejudice of the party against whom the liability is sought to be enforced. In this connection one writer may be quoted as follows: “The courts will not sit in judgment upon the question whether it be to the prejudice of the party aggrieved or not.” An alteration which changes the operation of the contract in point of law is a material alteration. Thus, adding words of negotiability to a note, or erasing them; changing the rate of interest, or adding or erasing words of interest; changing the date, or the time or place of payment; changing an indorser into a guarantor; procuring a person who was not present at the execution of the instrument to sign it as an attesting witness; adding or erasing the name of a maker or drawer after the execution and delivery of the instrument,—are all material alterations. By the weight of authority in this country adding the signature of a surety or guarantor is not a material alteration. Some courts, however, hold the contrary. Whether adding or erasing a seal constitutes a material alteration depends upon whether or not the seal is essential.
An alteration to be material must be made intentionally, for if made accidentally or by mistake it does not invalidate the instrument. But when made intentionally, though under a mistaken claim of right, it avoids the instrument. In such case, however, an action will lie for the original consideration, provided it was not extinguished or merged by the execution of the instrument.
A material alteration in a deed after its delivery to the grantee does not reconvey the title to the grantor, but it may estop the grantee from suing on the covenants contained therein, or from using the deed as evidence.
The loss of a written instrument does not discharge it. The rights and liabilities of the parties still exist; and while the loss of the instrument may render proof of its contents more difficult, it does not exclude proof. The contents of even a lost will may be established by oral evidence.
152. Insolvency: proceedings in bankruptcy.—Mere insolvency does not discharge a debtor from the obligation to pay his debts. Moreover, at the old common
law he was liable to imprisonment until he paid them. In 1759 an act was passed by the English Parliament which relieved a debtor from imprisonment, provided his debts did not exceed £100 and he made a general assignment for the benefit of his creditors. This act was the origin of our modern insolvency laws. Since this time the scope of these laws, both in England and in this country, has been greatly extended, some of them, in fact, amounting to bankruptcy laws.
A bankruptcy law is one which provides that the debtor upon making a general assignment of his property for the benefit of his creditors is discharged from further liability for his existing debts. Bankruptcy laws existed before insolvency laws. Originally they applied only to traders. They gave the creditors of a trader the right to compel him to turn his property over for their use. Later these laws were extended for the benefit of the trader. They provided that upon turning all his property over for the benefit of his creditors he became discharged from further liability for his existing debts.
153. The National Bankruptcy Law.—The National Bankruptcy Law which is now in force went into effect July 1, 1898, at which time state bankruptcy laws ceased to operate. In other words their operation was suspended, owing to a provision of the United States Constitution which confers upon Congress the power “to establish uniform laws on the subject of bankruptcies throughout the United States.” When no federal bankruptcy law exists the state bankruptcy laws are in force. Congress has passed four general bankruptcy laws. The first was in operation from 1800 to 1803; the second from 1841 to 1843; the third from 1867 to 1878, and the present one has been in operation since July 1, 1898, having been amended February 5, 1903, June 15, 1906, and June 25, 1910.
154. Bankruptcy and insolvency.—The National Bankruptcy Law of 1898 provides that:
Acts of bankruptcy by a person shall consist of his having (1) conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, any part of his property with intent to hinder, delay, or defraud his creditors, or any of them; or (2) transferred, while insolvent, any portion of his property to one or more creditors with intent to prefer such creditors over his other creditors; or (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings
; or (4) made a general assignment for the benefit of his creditors; or (5) admitted in writing his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground.
The same act further provides that:
A person shall be deemed insolvent whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed, or removed, with intent to defraud, hinder, and delay his creditors, shall not at a fair valuation be sufficient in amount to pay his debts.
155. Who entitled to benefits of act.—Section 4 of the Bankruptcy Act as amended in 1910 reads as follows:
“Section 4. Who may become bankrupts.—a. Any person, except a municipal, railroad, insurance, or banking corporation, shall be entitled to the benefits of this act as a voluntary bankrupt.
b. Any natural person, except a wage-earner or a person engaged chiefly in farming or the tillage of the soil, any unincorporated company, and any moneyed,