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THE
MUSIC TRADE
REVIEW
The Law of Future Contracts
r
Let me say a word about the question of delivering future
HE following letter comes from a wholesale dealer doing busi-
goods at the time set by the contract. Suppose a seller makes an
ness at Binghamton, N. Y, Its subject touches, directly or
agreement with a buyer in January for the sale of a quantity of
indirectly, probably every reader of these articles: "I am told
merchandise to be delivered during the last half of August. If
that contracts for future delivery cannot be enforced. I refer to
by reason of late crop or other moving cause the seller is unable
contracts made for goods which are to be grown or manufactured,
to get the goods together until some time during the first half of
and which do not exist at the time the contract for purchasing
September, the courts will usually consider that a good delivery,
them is made. I have heard it said that the law looks on same as
and the buyer must take them or pay for his refusal. It may be
in the way of gambling, and that the buyer who makes such con-
tracts can recover nothing if the contract is broken. If you think hard to understand how a contract for delivery from August 15
to 30 is satisfied by delivery from September i to 15, but never-
the subject worthy of your attention, please elucidate it."
theless the law rules it to be a substantially good delivery. In
In very many—perhaps most—lines of business, the custom
other words, "time is not the essence of the contract," as the legal
has grown up to sell goods for future delivery, and without defi-
phrase goes, which means that anything near the time named is apt
nitely knowing, I hazard a guess that a very large percentage of
to be as good for the buyer as the exact time itself.
the merchandise sold for future delivery at all is sold in that way.
If such contracts are not enforceable, buyers and sellers who make
Time can be made the essence of the contract, however, and if
them are truly living over a volcano. It is not true, however, that
the parties make it so the contract can be made to depend on de-
future agreements are unenforceable; on the contrary, they are
livery at the very time set forth and not a day later.
regarded by modern law as just as good as other agreements, and
In case the seller of merchandise for future delivery fails to
they can be enforced as readily. Time was when the law looked
deliver his goods, the buyer can go into the market and buy them,
on any contract to sell merchandise which was not in existence at
and if they cost any more than he was to pay for the others, he can
the date of the contract as a mere gambling contract, but that idea
sue the seller for the difference.
was abandoned long ago. To-day any man may sell or offer for
So if the seller stands ready to deliver, but the buyer for any
sale, for delivery in the future, goods not in existence, and which
reason refuses to take. Most future contracts give the buyer the
must be grown or made before they can be delivered, and if he right to inspect before acceptance, and if he finds them not what he
defaults, for any reason not set forth in the agreement, he can be bought, he can reject them, and the seller will have to abide by it.
sued for damages. By the same token a man may buy that way,
But if he rejects for an untenable reason, or fails to take the goods,
and if he wrongfully refuses to take the goods when they are ten- the seller can sue him for the profit he would have made on the
dered him, he, too, can be made the subject of an action in damages.
sale. But—and this is important—if the seller can sell the goods to
somebody else for as much money as the first buyer was to pay, he
Future contracts, however, are placed by the law in a different
can recover nothing from the latter, for he hasn't suffered any loss..
class than ordinary contracts of sale. The latter, to use a tech-
These suits often occur when the market has declined between the
nical term, which I will explain, are executed contracts, while
date of the contract and the date of delivery. The buyer, realizing
future contracts are merely executory. The difference between the
two is this: Where a man sells merchandise actually in his pos- he can buy similar goods for less money", sometimes rejects his con-
tract goods, and in that case the seller has to sell them elsewhere
session—not part of a mass, but specific, separate merchandise—
title passes to the buyer at once, and the goods are his. If any- at a reduced price. He has a good action against the buyer for the
difference between the contract price and the price he finally sold
thing happens to them afterward the buyer must stand the loss,
for. Suing for damages is the only thing either the buyer or seller
even though they are still in the seller's possession.
can do in case a future contract is violated. As title has not
A future contract, however, is not a sale at all, but only an
passed, the seller cannot treat the goods as the buyer's and sue him
agreement to sell, and no title passes until the goods come into
existence and the sale is completed. In the one case the buyer for the full price of them; nor can the buyer replevin them or com-
pel the seller to deliver. Each must await the other's default and
sells, in the other he merely promises to sell, but it is a promise,
then sue for damages for breach.
nevertheless, which can be enforced.
There is one form of future contract which is still regarded as
The modern future contract used in many lines contains so
a gambling agreement and will not be enforced. This is where
many conditions that it might almost be said not to be a contract
men deal in futures which are not in existence at the time and which
at all. Many forms provide that the seller shall not be held re-
neither party expects to deliver or receive when they come in exist-
sponsible if the crop fails, or his factory burns, or he has a strike,
ence. These transactions are looked on as mere bets on what
or if anything else occurs which might upset his plans. This
leaves the buyer at the mercy of so many contingencies that he is the price will be on the day of delivery, for when that day comes
the parties simply settle in cash on that basis.—Copyright, January,
lucky if he gets his goods at all, and his purchase under such a
1912, by Elton J. Buckley.
contract amounts to little more than a wager.