laid down "that whenever a corporation is acting within the scope of the legitimate purposes of its institution, all parol contracts made by its authorized agents are express promises of the corporation, and all duties imposed on them by law and all benefits conferred at their request raise implied promises, for the enforcement of which an action may well lie.' 174 99173 The prevailing rule in the United States is that, unless the charter require it, the acts of a corporation need not be evidenced by its corporate seal, except where a seal would be required in the case of individuals.' Contracts made on its behalf by authorized agents, though by parol, are express contracts, and, as in the case of individuals, the law will on ordinary grounds imply promises against it." When, how ever, in its transactions a sealed instrument is, under the law, the requisite mode of contracting, its seal is necessary; and, if provided by the charter or statutes that certain acts of the corporation shall be executed under seal, this formality is necessary, since the corporations can only act in the manner prescribed by its act of incorporation. But mandatory provisions of this kind must be carefully distinguished from those that are merely directory or enabling." IMPLIED CONTRACTS 59. Since the modern doctrine is that a corporation acting through its authorized agents, in the absence of a charter restriction, is subject to the same contractual liabilities and implications as an individual, it follows that a common-law action of assumpsit will lie against the corporation upon an implied contract for goods received or services rendered;" but, as in the case of a natural person, the law will not imply a contract where the corporation had no power to make an express contract to the same effect. 178 1737 Cr. (U. S.) 299 (1813), by Justice Story. 174 Thomp. Corp., Sec. 5,045; 5 Pa. 339 (1847). 1759 Paige (N. Y.) 496 (1842); 43 N. J. Law 325 (1881). 176 109 N. C. 401 (1891); 2 Cr. (U. S.) 127 (1804); 19 N. Y. 152 (1859); 94 U. S. 574 (1876). 177 28 N. Y. 379 (1863); 10 Mass. 397 (1813); 137 U. S. 98 (1890). 178 130 Mass. 391 (1881); 1 Hilt. (N. Y.) 562 (1858). MUNICIPAL CORPORATIONS 60. A municipal corporation, strictly, is the incorporation of the inhabitants of a particular place or district by the government, thereby authorizing them, in their corporate capacity, to exercise certain specific powers of legislation and regulation with respect to their internal affairs." In a broader sense, the term municipal corporation means any public corporation exercising local governmental powers.10 Generally, the power of a municipal corporation to make. contracts is expressly conferred by the charter itself, or by general legislation of the state creating the same, subject to definite restrictions as to the manner in which such power shall be exercised. Unless specifically restricted, municipal corporations have power, similar to private corporations, to enter into such contracts as are incidental or essential to the purposes and objects of its corporate existence.11 The power to make contracts is not to be construed as authorizing the making of contracts of all descriptions, but only such as are necessary, usual, fit and proper to enable the municipal corporation to effect the purposes for which it was created; and only to the extent necessary to execute the special power and functions with which it is endowed by law is there an implied authority to contract obligations.*** AGENTS 61. The authority or power of agents to contract on behalf of their principals, and the binding effect of such contracts on the parties, comprise the subject of principal and agent, which is treated in another part of this Course. It may, however, be stated here, as a general rule, that where an agent is known as such and contracts on behalf of his principal, and within the limits of his authority, with a third party, the agent's acts are the acts of his principal, and the contract being that of the principal, he alone is entitled to the benefits thereof and is alone liable to the third party. 179 Dill. Mun. Corp., Sec. 20. 180 Bouv. Law Dict. 181 14 N. Y. 356 (1856). PERSONS NOT PARTIES TO CONTRACTS PRIVITY OF CONTRACT 62. The legal relation subsisting between the immediate parties to a contract is called privity. It is probably more clearly defined as the mutual relationship between the actual contracting parties in a contract, and either of them and a third person claiming under the contract, which results from the existence of the contract.' 183 184 No contract, express or implied, can come into existence unless the parties sustain contract relations. A contract being an agreement between two or more persons by which they are bound by the obligation thereby created, the general rule is, that a person who is not a party to a contract, cannot be included in rights and liabilities which the contract creates, so as to enable him to sue or to be sued upon it. If, therefore, an obligation take the form of a promise from one particular person to another particular person, to confer a benefit on a third person, the legal relations of the third person are unaffected by the obligation; he is not a party to the contract and is not bound by the legal bond which is created by it, nor can his rights be affected by a breach of that legal bond. 185 THE RULE IN ENGLAND 63. The rule stated above is the inflexible doctrine in England. A person not a party to a contract cannot acquire rights or incur liabilities therefrom; no one who is not one of the actual contracting parties can maintain an action upon a contract.1oo No exception, even as to parties nearly related to each other, is admitted in law; but in 183 Cent. Dict. 184 39 Mich. 345 (1878). 185 Ans. Cont. (8th Ed.), p. 275. 1864 B. & Ad. (Eng.) 433 (1833); 1 Stra. (Eng.) 592 (1721). equity, if a contract in form be with one person (A), though intended to secure a benefit to another person (B), the latter, it is held, is entitled to say that he has a beneficial right as cestui que trust under that contract, and, in a court of equity, he (B) could insist upon an enforcement of the contract.18 9188 So, in England, the principle was first established, and repeatedly sanctioned, that "if one person makes a promise to another for the benefit of a third, that third may maintain an action upon it.' This has been regarded as a modification of the rule in England, but it is claimed it is enforceable only when the benefit to be conferred on the third person amounts to a declaration of trust, and not otherwise.'"* THE RULE IN THE UNITED STATES 64. This forceful doctrine, as it obtains in England, is recognized and affirmed in some of the United States;"" but, in Massachusetts, an exception is held to exist where one person receives from another money or property as a fund from which certain creditors of the depositor are to be paid, and, either expressly or by implication from his acceptance of the money, has promised to pay such creditor." And, in Pennsylvania, there are cases in which the third person, although not a party to the contract, may be said to be a party to the consideration on which it rests.' 192 Following the trend of the English decisions in their adoption of the doctrine that "if one person makes a promise to another for the benefit of a third, that third may maintain an action upon it" (which, as before stated, is restricted in England to a declaration of trust), the courts in the United States accepted and adopted the English doctrine as it existed in its broad sense.193 It has been called the American doctrine, and it rules in most of the states, with some variations as to the essentials of the third party, or stranger, who is to be 187 30 Ch. Div. (Eng.) 57 (1885); 21 Ont. (Can.) 248 (1891). 1882 Lev. (Eng.) 210 (1689); 1 B. & P. (Eng.) 101 (note c.) (1797). 189 Ans. Cont. (8th Ed.), p. 284. 1911 Gray (Mass.) 317 (1854); 150 Mass. 45 (1889). 1926 Watts (Pa.) 182 (1837); 85 Pa. 235 (1877). 193 20 N. Y. 268 (1859). 190 90 Mich. 178 (1893); 47 Vt. 528 (1875); 55 N. H. 249 (1875). deemed entitled to maintain an action only if the contract have been made for his benefit, and if he be the party intended to be benefited. The mere fact that he is incidentally benefited does not entitle him to maintain an action.' 195 194 In regard to contracts under seal, the law has always been that only those who were parties to them could sue upon them.' But in some states, where the tendency is to disregard the distinction between specialties and simple contracts, the earlier technical distinction has been abandoned and it is held that the same rule prevails whether the agreement be under seal or not.' 196 NOVATION 65. Novation is the substitution by mutual consent of a new obligation for an old one, usually by the substitution of a new debtor or of a new creditor; the old obligation is thereby extinguished."" The term is sometimes used for the substitution of a new obligation between the original parties, as the substitution of a bill of exchange for a right of action arising out of a contract of sale, though this is more commonly called merger or extinguishment. It is possible by one novation to extinguish several obligations. ILLUSTRATION. - If A owe a debt to B, B to C, and C to D, and it is agreed that A shall pay D in satisfaction of all; this promise, if consented to by all parties, extinguishes all the other claims, even though not performed. Novation is actually the case of a new contract formed and a former contract dissolved, the general principles of consideration applying to the whole transaction.1oo 66. SUBROGATION The doctrine of subrogation is that when a person has been compelled to pay a debt which ought to have been paid by another, who was primarily liable, he is entitled to 194 122 N. Y. 498 (1890); 135 N. Y. 280 (1892); 69 N. Y. 280 (1877). 1956 B. & C. (Eng.) 718 (1827); 154 Mass. 337 (1891): 27 N. J. Eq. 650 (1876); 53 Minn. 446 (1893). 196 107 Ill. 540 (1883); 43 N. Y. 399 (1871). 197 Cent. Dict. 1981 Pars. Cont. 219. |