This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If the party against whom relief is sought on a written contract concedes that the contract was placed in the possession of the adversary party, but claims that it was taken with the understanding that it was not to go into effect until some other or further event should happen, and that such event has not happened, he is not seeking to vary or contradict the contract, but to show that no contract between the parties ever came into effect. Evidence of conditions precedent to the taking effect of a written contract is therefore admissible.1 This is merely the rule that an instrument may be delivered to the adversary party to take effect on the happening of a future event, restated in terms of the parol evidence rule.2 Thus extrinsic evidence may be used to show that a note in the custody of the payee was to take effect only on the happening of some event which never has happened, as between the parties and all but bona fide holders.3 Thus evidence is admissible to show that such note was to take effect only if the horse for whose price it was given should be warranted,4 or if the policy of insurance for which it was given should prove satisfactory to the maker of the note ;5 that the note was to take effect only if negotiated at a specified place;6 that it was to take effect only if the maker did not demand by a certain day that it should be redelivered;7 that a written guaranty was conditioned upon the purchase of a certain amount of leather by the party whose credit was guaranteed;8 that an insurance policy was not to take effect until the insured had canceled another policy on the same property in a different company;9 that a written order for goods was to take effect only if the vendee succeeded in canceling a written order previously given to another person ;10 that a lease of a mining claim was to take effect only if the lessees should be able to obtain a certain amount of money from a third person;11 that a contract to sell mining stock was to take effect only on condi tion that the vendor's agent in another town had not already sold the same stock ;12 that a note should take effect only if the transaction as part of which it was given was approved by the attorney of the maker ;13 that a written contract of sale should take effect only if the purchase were approved by the engineer of the vendee ;14 that a note is not to take effect until the maker has an opportunity to examine the property purchased and accepts such property;15 or that an insurance policy, temporarily placed in the possession of the insured, but afterwards withdrawn by the agent, is not to take effect unless approved by the insurance company.16 Thus evidence is admissible to show that one signed as surety with the understanding that he was to be liable only if others signed with him.17 In some jurisdictions where the maker has voluntarily put the instrument into the possession of the adversary party he cannot show that it was not to take effect until some other party had signed it, on the theory that an escrow cannot be deposited with the adversary party.18 Thus where a deed19 or a mortgage20 has been voluntarily surrendered to the grantee or mortgagee, it cannot be shown that it was to be inoperative until the happening of a specified event. So evidence is admissible to show that a written subscription for stock in a corporation was not to go into effect until a certain number of persons had signed.21 If the payee does not know that the surety does not intend to be bound unless others sign the contract, the surety cannot avoid liability to the payee even if the principal debtor delivered the instrument to the payee in violation of his agreement with his surety. This principle applies equally to negotiable notes22 and to non-negotiable bonds.23 This is not because of the parol evidence rule, however, but because such facts do not constitute a defense. This principle has been carried so far that a written instrument, purporting to be a contract of sale, deposited with a third person, has been ex plained orally as a mere memorandum of the terms on which the vendee could exercise an option to purchase.24
14 Safranski v. Ry., 72 Minn. 185; 75 N. W. 17.
15 Pancake v. Campbell County, 44 W. Va. 82; 28 S. E. 719.
16 Goodwin v. Norton, 92 Me. 532; 43 Atl. 111.
17 Tate v. Torcutt, 100 Mich. 308; 58 N. W. 993.
18Oshey v. Hicks, Cro. Jac. 263; Jayne v. Hughes, 10 Exch. 430; Hall v. Cazenove, 4 East 477; Steele v. Mart, 4 Barn. & C. 272; District of Columbia v. Iron Works, 181 U. S. 453; affirming 15 App. D. C. 198; United States v. Le Baron. 19 How. (U. S.) 73; Merrill v. Sypert, 65 Ark. 51; 44 S. W. 462; Gately v.
Irvine, 51 Cal. 172; Lake Erie, etc., Ry. v. Charman, 161 Ind. 95; 67 N. E. 923; Tribble v. Oldham, 5 J. J. Mar. (Ky.) 137; Shaugnessey v. Lewis, 130 Mass. 355; Hinson v. Forsdick (Miss.), 25 So. 353; Lexington v. Bank, 75 Miss. 1; 22 So. 291; State v. Moore, 46 Neb. 590,' 50 Am. St. Rep. 626; 65 N. W. 193; Fisher v. Butcher, 19 Ohio 406; 53 Am. Dec. 436; Parke v. Neeley, 90 Pa. St. 52; Alexander v. Bland, Cooke (Tenn.) 431.
19 District of Columbia v. Iron Works. 181 U. S. 453; affirming 15 App. D. C. 198.
1Pym v. Campbell, 6 El. & Bl. 370; Wallis v. Littell, 11 C. B. N. S. 369; Burke v. Dulaney, 153 U. S. 228; Ware v. Allen, 128 U. S. 590; Tug River, etc., Co. v. Brigel, 86 Fed. 818; 30 C. C. A. 415; Hurl-burt v. Dusenbery, 26 Colo. 240; 57 Pac. 860; Bourke v. Van Keuren, 20 Colo. 95; 36 Pac. 882; McFar-land v. Sikes, 54 Conn. 250; 1 Am. St. Rep. Ill; 7 Atl. 408; Price v. Hudson, 125 111. 284; 17 N. E. 817; McCormick Harvesting Machine Co. v. Morlan, 121 la. 451; 9G N. W. 976; Riechart v. Wilhelm, 83 la. 510; 50 N. W. 19; Beall v. Poole, 27 Md. 645; Adams v. Morgan, 150 Mass. 143; 22 X. E. 708; Wilson v. Powers, 131 Mass. 539; Fulton v. Priddy, 123 Mich. 298; 81 Am. St. Rep. 201; 82 N. W. 65; Westman v. Krumweide, 30 Minn. 313; 15 X. W. 255; Harnickell v. Ins. Co., Ill N. Y. 390; 2 L. R. A. 150; 18 N. E. 632; Reynolds v. Robinson, 110 X. Y. 654; 18 X. E. 127; Benton v. Martin. 52 X. Y. 570; Sweet v. Stevens, 7 R. I. 375; Bissenger v. Guiteman, 6 Heisk. (Tenn.) 277: Gilman v. Williams. 74 Vt. 327; 52 Atl. 428; Catt v. Olivier. 98 Va. 580; 36 S. E. 980; Reiner v. Crawford, 23 Wash. 669; 83 Am. St. Rep. 848; 63 Pac. 516; Curry v. Col-burn, 99 Wis. 319; 67 Am. St. Rep. 860; 74 X. W. 77S; Nutting v. Ins. Co., 98 Wis. 26; 73 X. W. 432. "The making and delivering of a writing, no matter how complete a contract according to its terms, is not a binding contract if delivered upon a condition precedent to its becoming obligatory. In such case it does not become operative as a contract until the performance on happening of the condition precedent." Cleveland Refining Co. v. Dunning, 115 Mich. 238, 239; 73 X. W. 239; citing Ware v. Allen, 128 U. S. 590; Phelps v. Abbott, 114 Mich. 88.
2 See Sec. 595.
3McFarland v. Sikes, 54 Conn. 250; 1 Am. St. Rep. Ill; 7 Atl. 408; Gilman v. Williams, 74 Vt. 327: 52 Atl. 428; Catt v. Olivier, 98 Va. 580; 36 S. E. 980.
4Trumbull v. O'Hara, 71 Conn. 172: 41 Atl. 546.
5 Parker v. Bond, 121 Ala. 529; 25 So. '898. See also Mehlin v. Life Association, 2 Ind. Ter. 396; 51 S. W. 1063.
6 United States National Bank v. Ewing, 131 N. Y. 506; 27 Am. St. Rep. 615; 30 N. E. 501.
7McFarland v. Sikes, 54 Conn. 250; 1 Am. St. Rep. Ill; 7 Atl. 408. And see to the same effect, in a written contract of subscription for stock, Ada Dairy Association v. Mears, 123 Mich. 470; 82 N. W. 258.
8 Lennox v. Murphy, 171 Mass. 370; 50 N. E. 644.
9 Moore v. Insurance Association, 107 Ga. 199; 33 S. E. 65.
10 Cleveland Refining Co. v. Dunning, 115 Mich. 238; 73 N. W. 239.
11 Hurlburt v. Dusenbery, 26 Colo. 240; 57 Pac. 860.
12 Reiner v. Crawford, 23 Wash. 669; 83 Am. St. Rep. 848; 63 Pac. 516.
13 Ware v. Allen, 128 U. S. 590.
14Pym v. Campbell, 6 El. & B. 370.
15 Burke v. Dulaney, 153 U. S. 228.
16 Nutting v. Ins. Co., 98 Wis. 26; 73 N. W. 432.
17 Dair v. United States, 16 Wall. (U. S.) 1; Guild v. Thomas, 54 Ala. 414; 25 Am. Rep. 703; Hudspeth's Administrator v. Tyler, 108 Ky. 520; 56 S. W. 973; Inhabitants of Readfield v. Shaver, 50 Me. 36; 79 Am. Dec. 592; Hessell v. Johnson, 63 Mich. 623; 6 Am. St. Rep. 334; 30 N. W. 209; Hall v. Parker, 37 Mich. 590; 26 Am. Rep. 540; Cutler v. Roberts, 7 Neb. 4; 29 Am. Rep. 371.
18Findley v. Means, 71 Ark. 289: 73 S. W. 101; Clanin v. Machine Co., 118 Ind. 372; 3 L. R. A. 863; 21 N. E. 35. See Sec. 596.
19 Hubbard v. Greeley, 84 Me. 340; 17 L. R. A. 511.
20 Sargent v. Cooley, - N. D. -; 94 N. W. 576.
21Gilman v. Gross, 97 Wis. 224; 72 N. W. 885.
22 Clark v. Bryce, 64 Ga. 486; Whitcomb v. Miller, 90 Ind. 384; Micklewait v. Noel, 69 la. 344; 28 N. W. 630; Smith v. Moberly, 10 B. Mon. (Ky.) 266; 52 Am. Dec. 543; Wylie v. Bank, 63 S. C. 406; 41 S. E. 504; Lookout Bank v. Aull, 93 Tenn. 645; 42 Am. St. Rep. 934; 27 S. W. 1014; Farmers', etc., Bank v. Humphrey, 36 Vt. 554; 86 Am. Dec. 671.
23 Carroll County v. Ruggles, 69 la. 269; 58 Am. Rep. 223; 28 N. W. 590. "A surety on a bond cannot defeat his liability thereon by showing that it was delivered in violation of agreements between himself and the principal or any other comaker, unknown to the party for whose benefit it was given." Richardson v. Bank, 57 O. S. 299, 314; 48 N. E. 1100.