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injurious to its interest or conflict with the operation of the public laws of that country."

§ 97. Agreements Legal at One Time, Illegal at Another. Subsequent legislation cannot make valid and enforcible a contract which was void and illegal when made, nor, in general, can subsequent legislation render illegal a prior lawful contract. Thus, a change in the public policy of a State will not render void a prior legal agreement.64

§ 98. Securities Given for Money Due or to Be Due on Illegal Transactions. Securities given for moneys due or to fall due on illegal transactions are generally void except in the case of negotiable instruments which have passed into the hands of bona fide purchasers. Courts will always receive oral evidence to show that the transaction was illegal. In the case of negotiable instruments, the burden is upon the holder to show that he is a purchaser for value, before maturity, and without notice of the illegality of its consideration as soon as the illegality has been proved. If a statute expressly provides that any such note is absolutely void, it is such even in the hands of a bona fide holder.65

64 Stephens v. Southern Pac. Co., 109 Cal. 86, 41 Pac. 783, 29 L. R. A. 751, 50 Am. St. Rep. 17.

65 Town of Eagle v. Kohn, 84 Ill, 292,

CHAPTER VII

OPERATION OF CONTRACT

We have heretofore considered what elements are necessary to make a valid contract and now pass to the consideration of the effects of the contract when formed. The two leading questions involved in treating the effects of a contract are: (1) Who have rights and liabilities under the contract? (2) Can these rights and liabilities be assigned or pass to others than the original parties?

RIGHTS AND LIABILITIES UNDER CONTRACT

§ 99. Who Entitled To. It is a general rule that no one but the parties to a contract can be bound by it or acquire rights under it. This necessarily follows from the legal conception of a contract as an obligation arising from the voluntary acts of two or more persons. The legal relations of third persons cannot be affected by contracts arising from the acts of others.

Thus it is held that A by voluntarily paying X's debt to Y cannot make X liable to A. So also where shippers had employed a firm of brokers to transport a quantity of cocoa for them, it was held that third persons whom the brokers got to do the work, could not recover from the shippers for expenses and commissions because the brokers "had a right to look to the defendants for payment, and no one else had that right."2 "A man cannot be made debtor to any indefinite number, with whom he never contracted, by their making arrangements with one with whom he has contracted to deliver property on his contract."'

1 Crumlish v. Central Improvement Company, 38 W. Va. 390, 18 S. E. 456, 45 Am. St. Rep. 872.

2 Schmaling v. Thomlinson, 6 Taunt. 147.

3 Rossman v. Townsend, 17 Wis. 95, 84 Am. Dec. 733.

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§ 100. Duty on Third Persons Not to Interfere with Contract. Although a contract cannot impose any of its obligations upon third persons, yet it does impose a duty on them, at least in the case of master and servant contracts, not to interfere with their performance. In a leading case, the defendant, a rival theatre manager of the plaintiff, was sued for having induced a singer to break her contract to perform in the plaintiff's theatre. The court held that the action would lie and in later English cases and in some American decisions, the law is stated as allowing recovery for maliciously inducing one to break any kind of contract. In some States recovery is only allowed for inducing breach of a contract of service.

§ 101. Rights Conferred by Contract on Third Persons. It is a general rule that one cannot acquire rights under a contract to which he is not a party. The only exceptions to this rule are where: (1) in the case of contracts for the bene fit of third persons: (2) the contract is assignable and has been assigned. The question of the assignment of contracts is considered in a subsequent section.

§ 102. Contracts for Benefit of Third Persons. Whether one for whose special benefit a contract has been made, may himself sue thereon is a vexed question upon which the authorities are not in accord. The view of the English courts and of at least the Massachusetts and Michigan Supreme courts is that the beneficiary cannot maintain such an action. Thus, where A, in consideration of B's working for him, promised B to pay C a sum of money, it was held that C could not recover on the promise, because he was not a party to the contract and, therefore, no privity existed between him and the defendant. The rule as stated by the Supreme Judicial Court of Massachusetts is as follows:

"That a person who is not a party to a simple contract, and from whom no consideration moves, cannot sue on the 4 Lumley v. Gye, 2 E. & B. 216.

5 Jones v. Stanly, 76 N. C. 355.

6 Price v. Easton, 4 B. & Ad. 433, 110 Eng. Rep. Re. 518.

contract, and consequently that a promise made by one person to another, for the benefit of a third person, who is a stranger to the consideration, will not support an action by the latter.""

An exception to the rule that one who is not a party to a contract may not recover thereon exists in the case of trusts created for the benefit of a third person. These are enforced in equity. Thus if A should transfer certain property to B under an agreement by B to hold the same for the benefit of C, equity would enforce C's right at his suit even though he were not a party to the trust agreement. Another exception comes in cases where under a contract for the benefit of a third person, the promisor receives "money which in equity and good conscience belongs to the plaintiff, as where one person receives from another money or property as a fund from which certain creditors of the depositor are to be paid, and promises, either expressly, or by implication from his acceptance of the money or property without objection to the terms on which it is delivered to him, to pay such creditors. ''s

In these excepted cases the third person may sue the promisor in his own name.

Enforcement of Such Contracts by Third Person. As opposed to the technically correct view of the English and Massachusetts courts that a third person may not recover on a contract for his special benefit, is the so-called New York doctrine which permits such recovery. Although called the New York doctrine, because the leading case supporting this view is a New York case, it is the law in all but two or three of the United States. Thus, where A, being indebted to B, promised B to pay the debt to C, to whom B was already indebted, it was held that C might enforce A's promise to B though he were not a party to the contract. It should be noted that here there was an existing indebtedness between the promisee, B, and the

7 Exchange Bank v. Rice, 107 Mass. 37, 9 Am. Rep. 1.

8 Idem, footnote 7.

9 Lawrence v. Fox, 20 N. Y. 268.

third person, C, so that A's performance of his promise operated as a satisfaction of that debt. The so-called New York doctrine is generally so limited in that jurisdiction and elsewhere. "It is not sufficient that the performance of the promise may benefit a third person. It must have been entered into for his benefit, or, at least, such benefit must be the direct result of performance, and so within the contemplation of the parties, and in addition the grantor must have a legal interest that the covenant be performed in favor of the party claiming performance." 10

Thus, where one who purchases mortgaged property, expressly assumes payment of the mortgage, this may be enforced by the mortgagee provided the vendor of the property was himself personally liable to pay the mortgage.11 Under the common provision in Code States that every action must be prosecuted in the name of the real party in interest, it follows that the person for whose benefit a contract is made, may sue thereon. If the benefit is only incidental the third party is not permitted to sue.12

§ 103. Assignment of Contracts. The common-law rule that no one but the parties to a contract can be under any liabilities or acquire any rights thereby is further affected by the rules as to the assignment of contracts. Assignments may take place either by act of the parties or by operation of law.

§ 104. No Assignment of Liabilities. General Rule. Liability under a contract cannot be assigned and the promisee compelled to accept performance by the assignee, because one who enters into a contract has a right to the benefit which he contemplates from the character, credit, and substance of the person with whom he contracts.18 Thus, if A owes B $100 he cannot assign his liability to C so as to release himself and compel B to collect from C. Where

10 Durnherr v. Rau, 135 N. Y. 219, 32 N. E. 49. 11 Bay v. Williams, 112 Ill. 91, 54 Am. Rep. 209. 12 Crandall v. Payne, 154 Ill. 627, 39 N. E. 601.

13 Humble v. Hunter, 12 Q. B. 310, 317, 116 Eng. Rep. Re. 885.

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