feit money, and the and the payee is not guilty of negligence in receiving it or in waiting an unreasonable time after discovery to return it to the payor, he may treat the payment as null and void.

When a negotiable instrument is given in payment of a debt which is due, it is in effect the substitution of a new agreement for the old one. Whether it constitutes an absolute discharge of the old agreement, or merely a conditional discharge, depends upon the intention of the parties. In the absence of any evidence to the contrary, most courts hold that it constitutes merely a conditional discharge. This rule obtains in England as well as in most of the states. When the instrument amounts only to a conditional discharge, and it is not paid when due, the promisee has the option of suing on the old contract or on the new one.

If the obligation resulting from an agreement consists in the doing of an act other than the payment of money, the parties may agree to substitute the latter for the former. When this is done the performance of the substituted agreement discharges the original contract.

From a breach of contract committed by one party a right of action for damages accrues to the other party. In such case the parties may agree that the one in default shall pay to the other a certain sum of money in discharge of the obligation. Such an agreement and the execution thereof constitute an accord and satisfaction.

An agreement by a creditor to accept a less sum than the amount due in full payment of the whole debt is void. This is owing to the fact that there is no consideration for the promise to release the debtor from payment of the balance. But where the debt is not due, and the creditor agrees to accept a less sum than the

whole debt in full payment the agreement is valid. Here the payment of part of the debt before it is due is a sufficient consideration for the creditor's promise to forego the balance.

133. Composition with creditors.-Creditors may agree with their debtor and with each other to accept, in full satisfaction of their claims, a less sum than the amount due them. Such an agreement is called a composition with creditors. When payment is made of the less sum the creditors are bound to forego the balance. The consideration in each case for foregoing payment of the balance is the forbearance of the others. The forbearance of each is presumed to be a benefit to the rest owing to the fact that it might save them from losing more.

Any secret agreement between the debtor and a creditor whereby the latter is to gain advantage over the other creditors is a fraud on them and renders the composition agreement as to them void.1

134. Application of payments.—When a person who owes another several debts makes a part payment the debtor has the right to say to which debt or debts the amount paid shall be applied. And the intention of the debtor, as regards the application of the amount paid, may be inferred from his conduct or the circumstances.

However, when the debtor's intention is not indicated, the creditor is at liberty to employ the amount paid as he may determine, and in such case he may apply it to a debt which has been barred by the statute of lim

1 The recent amendments to the Bankruptcy Act (adopted June 25, 1910) permit compositions with creditors before adjudication, thus enabling the debtor to escape the stigma of being a "bankrupt," but at the same time placing the composition under the control of the bankruptcy court. (See sec. 12 of the Bankruptcy Act.)

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itations. He may not, however, use it in the settlement of an illegal debt, or of one that is not yet due. He must make his election within a reasonable time, and after making it he may not change it unless the debtor consents.

If neither party elects which debt shall be discharged by the amount paid the law determines it. Upon this point, however, the decisions are not harmonious. According to the civil law rule, which has been followed by many courts both in England and in this country, the amount paid is used where it will be the most beneficial to the debtor. Thus, under this rule the amount paid would be applied to a debt secured by a mortgage in preference to a debt which is not secured.1 Many courts, however, have repudiated this civil law rule, and maintain that an equitable application should be made in the sound discretion of the court. A decision of the Supreme Court of the United States holds: 2

If the application is made by neither party it becomes the duty of the court, and in its exercise a sound discretion is to be exercised. It cannot be conceded that this application is to be made in a manner most advantageous to the debtor. It would seem reasonable that an equitable application should be made; and, it being equitable that the whole debt should be paid, it cannot be inequitable to extinguish first those debts for which the security is most precarious.

135. Tender.-Tender is an offer to carry out a promise, it is an attempt to perform an obligation. It may be an offer to pay something or an offer to do something other than to make a payment. In each case 1 Pattison v. Hull, 9 Cow. (N. Y.) 747.

2 Field v. Holland, 6 Cranch 27. See, also, United States v. Kirkpatrick, 9 Wheat. 737.

the effect of a refusal to accept the offer is quite different.1

Where the offer is to pay money pursuant to the terms of a contract a refusal to accept it does not discharge the debt. Moreover, it is the duty of the offeror to keep his tender good; and if sued on the debt he should pay the money into court. The tender must be unconditional and made at a reasonable time and place. It must be an offer of money and not of a check or note. It is not essential that it be of the exact sum due, but the creditor must not be called upon to give change. It must be made by the proper party to the proper party. That is, it must be made by the promisor or his agent to the promisee or his agent. An offer by a mere stranger is of no effect. While a refusal by the promisee to accept a valid tender does not discharge the debt it puts him at a disadvantage. Should he sue the promisor the latter would be entitled to judgment for his costs, provided the plea of tender be sustained. The promisee, however, would be entitled to judgment for the amount of the debt due, notwithstanding the fact that a valid tender had been

made.

Where the offer is to do something other than pay money, as, for example, to deliver goods pursuant to the terms of a contract, a refusal by the vendee to accept the goods would discharge the vendor. In such case the vendor may sue the vendee for breach of his contract; and if the vendee should sue the vendor for breach of his contract to deliver the goods a plea of tender would be a good defense.

1 Aulger v. Clay, 109 Ill. 487; Bissell v. Heyward, 96 U. S. 580.

CHAPTER VIII

DISCHARGE OF CONTRACT (Continued)

136. Discharge by breach.-When one of the parties to a contract commits a breach of it the other party has a right of action against him for the damages sustained. In addition to this the breach may discharge the injured party from performance of his obligation. Whether it has this effect or not depends upon the circumstances of the particular case.

A contract can be discharged by breach in any of the following ways:

1. By one of the parties failing to perform his promise.

2. By one of the parties renouncing his liabilities under the contract.

3. By one of the parties doing an act which renders performance of the contract impossible.

The first of these can occur only at or during the time for performance. The others can occur before that time.

137. Breach by failure of performance.-A breach by failure of performance may or may not discharge the injured party from performance of his obligation. It may give him merely a right of action for damages. It depends upon the nature of the contract. Some contracts are divisible and some indivisible; and the promises in some are independent while in others they are mutually dependent.

When a contract is divisible and the promises inde