If C instead of A had given the securities and F had released them to C, F could still recover from A and B, but not from D or E.

329. Real defenses,-Real defenses attach to the instrument itself and are good against all persons. Where a real defense exists there never was a contract. The principal real defenses are incapacity to contract (such as infancy, lunacy and coverture), illegality declared by statute to make the contract absolutely void, alteration and payment at or after maturity. The incapacity of the defendant has been discussed under the subject of contracts.

It was held in Wisconsin under the U. N. I. A. that even a holder in due course of negotiable paper cannot enforce it against a maker who signed it when so drunk as not to know what he was doing.1 In a recent case a New York court held that a negotiable note was absolutely void for usury.2

330. Statutes declaring the contract void.-In a few jurisdictions contracts tainted with gambling or usury are void. The negotiable instruments law as construed by some courts has changed these statutes so that they operate as personal defenses, but the law is not uniform even amongst those states that have adopted the negotiable instruments law.

331. Alteration or cancellation.-The common law made the material alteration of an instrument an absolute defense, but the negotiable instruments law provides that a materially altered instrument in the hands of a holder in due course may be enforced according to its original tenor. A note or signature may be cancelled by a holder who thereby destroys the contract

1 Green v. Gunsten, 153 Wis. 413, 142 N. W. 261.

2 Crusins v. Siegman, 142 N. Y. Supp.

unless he or a person seeking to recover on it can prove that the cancellation was unintentional.

EXAMPLE

318. A's note to B was changed from $10 to $100 by B who then negotiated to C, who took the instrument for value and without notice of the alteration. C may recover $10. If C had crossed out the signature of A, and then had sought to recover on the instrument he would have to prove the mistake or lack of intention to cancel.

332. Forgery.-Parties who take subsequent to a forgery have no recourse to parties prior to the forgery though they may sue parties prior to themselves, but subsequent to the forgery on their implied warranties. If the maker's name is forged the instrument is altogether void, but if an indorser's name is forged the true owner, i. e., the person whose name is forged, may recover the instrument and collect on it.

333. Payment at or after maturity.—An instrument is discharged absolutely if paid at or after maturity to the holder in good faith and without notice that his title is defective. A person making such payment with the purpose of discharging the instrument ought to insist on its surrender.

1

In a recent case 1 decided by the New York Court of Appeals it was decided that the drawer of a draft who has paid the same to a bona fide holder for value, relying in part upon the purported bills of lading attached by the drawer to the draft but not mentioned therein, on discovering that the bills of lading are forgeries, cannot recover the money that was paid, from the payee or endorsee who has neither guaranteed the genuineness of said instruments nor has been aware of their fraudulent character.

1 Springs v. Hanover Nat. Bank, 209 N. Y. 224, 102 N. E. 50.

PART IV: CONDUCT OF BUSINESS THROUGH REPRESENTATION

CHAPTER XXII

PRINCIPAL AND AGENT

334. Definitions and distinctions.-An agent is one who is authorized to act for another, called a principal, in dealings with third persons, and who does so act. The legal relation thus created between the principal and agent is called agency. Where no contractual relations are created by the subordinate between his superior and the third persons, the relation of master and servant, not of principal and agent, is created. A servant is one who does mechanical or operative work for his master and who does not create obligations to third persons on behalf of his master except in the commission of some tortious act. By tortious act is meant one that injures third persons or their property. The subject of master and servant should be studied separately, therefore, from that of principal and agent.

Agents are usually divided into two classes,-general agents who represent the principal in all his business, and special agents whose authority extends to the performance of certain acts only. The important question in agency is to find out how far an agent is authorized to act. This authority may arise because actually conferred, because it is incidental and necessary to certain other powers expressly conferred or because the prin

cipal has held the agent out to the world as possessing that authority. It is only when acting within this authority, however created, that an agent can bind his principal.

335. Who may be principal.-The competency of parties to make contracts has already been considered and many of the rules formulated may be applied here to the question of the competency of one person to appoint another his agent. Agency, it must be remembered, arises from a contract, express or implied; in general a person who is competent to make a contract is competent to appoint an agent to make the contract for him.

In some jurisdictions an infant's appointment of an agent is void, but the more general rule is that the contract of appointment is voidable only, unless made by a formal sealed document. Thus, if an infant appoint another his agent to sell chattels the sale may be disaffirmed or affirmed when the infant reaches his majority, but if he gives another a power of attorney to sell his real estate, the deed of the agent will be absolutely void.

The appointment of an agent by an insane person will be binding as between himself and the agent if he has not been adjudged insane and the agent did not know of his condition. The appointment will be binding as between the principal and third parties under similar circumstances and also as to any acts of the agent committed on behalf of an insane principal who was sane when the appointment was made, but who subsequently became insane to the knowledge of the agent, but not to the knowledge of the third person. The appointment will be voidable if the principal has been judicially declared incompetent or if the agent knows

of his insanity. Contracts entered into between an agent of an incompetent person and persons who know actually or constructively of the principal's incompetency are voidable. An insane person's appointment of an agent by power of attorney in some jurisdictions is held to be absolutely void.

At common law a married woman could make no contracts in person nor could she appoint an agent. Under modern statutes, however, a married woman may contract as freely as an unmarried woman and she may, therefore, appoint agents. A husband may be the agent of his wife by virtue of an express or an implied con

tract.

EXAMPLE

319. In a jurisdiction in which all restraints on the freedom of contract by married women have been removed by statute, A, the husband of B, with the knowledge of B, for several years makes various contracts with X in relation to B's property. Unless X is thereafter notified of the revocation of A's authority to act for his wife, X would be protected in making further contracts, for the reason that B would be estopped from denying A's authority.

336. When a business may be a principal.—Corporations act only through agents. The directors, who are the chief agents, may appoint other agents to carry out the purposes for which the corporation has been formed.

Partnerships are managed on the basis of agency, for each member of the partnership may act as agent for the firm. Either partner may appoint an agent to do what he could do himself unless the appointment is required to be under seal, in which event all the partners must consent.

Unincorporated associations do not act as a unit.