Commercial Law

CHAPTER VII
Transfer of Stock

TWO METHODS OF TRANSFERRING STOCK.—Stock may be transferred in two ways: first, by delivery of the certificate with the indorsement upon it of the owner of the stock, indicating that he assigns or authorizes the assignment of the stock, and second, by delivery of the certificate, with a separate document of assignment attached stating that the owner of the certificate assigns or authorizes the transfer of the stock. This second method is not so completely good as the first, where the assignment is on the certificate itself, because if for any reason the separate document should become detached from the certificate, the transferee's right would not be apparent, and therefore the Transfer of Stock Act provides that if a purchaser should get possession of the stock certificate with an indorsement upon it, he would take precedence over even a prior assignee who had a separate paper assigning the certificate to him. Of course, after the transfer is duly registered on the books of the company, then it makes no difference whether that transfer was secured by means of a separate power or assignment or by means of one written on the certificate itself.

EFFECT OF TRANSFER ON THE BOOKS OF THE COMPANY.—What is the effect of transfer on the books of the company? Under the common law, stock was originally transferable just like any intangible right, merely by agreement of the parties, to which requirement was added, as a necessity when stock certificates became common, the delivery of the certificate itself. But it was convenient for the company to know who was owner of its stock. It was inconvenient to have stockholders buy and sell without any notice to the company, and therefore a common by-law was that stock should be transferred only on the books of the company. The Uniform Transfer of Stock Act goes back partially to the old rule, since the transfer of the certificate with the indorsement or separate assignment is what transfers the stock, not the transfer on the books of the company; but in order that the corporation may not be inconvenienced it is provided that the corporation shall have the right to pay dividends to any one registered on the books of the company, such persons being the apparent owners, and that only such persons have the right to vote. An analogous custom that shows the importance of registration of stock transfers on the books of the company is the registry of deeds in the transfer of real estate. It is the deed, not the record of it, which creates a title, but an unrecorded deed may be defeated by creditors or purchasers without notice, so that to protect himself fully the owner of land is obliged to record his deed.

OWNERSHIP OF STOCK, INDIVIDUALLY, IN COMMON, JOINTLY AND BY FIDUCIARIES.—Stock may be owned by a man individually, it may be owned by several persons in common, or it may be owned by several persons jointly, or it may be owned by a person in a fiduciary capacity, as trustee, executor or guardian. What is the difference, may be asked, between the case of ownership of stock by several persons in common and ownership by several persons jointly. The common law drew this distinction between joint right and rights merely held in common; that a joint right survived to the survivors when one of them died, whereas a right held in common passed, on the death of one of the owners, pro rata to the personal representatives of the deceased. Therefore if A, B and C own stock jointly, when C dies A and B are the owners. If A, B and C own the stock in common, A, B and the executors of C would own it on the death of C. Generally where several persons own a right now, they own it in common, but there are two notable exceptions—the case of partnerships and the case of trustees. Stock held in the name of A, B and C, when A, B and C are either partners or trustees, will pass to A and B on the death of C. C's executor will not have to join in the transfer.

DIFFICULTIES IN TRANSFER AFFECT PURCHASER AND ALSO CORPORATION.—The difficulties in the transfer of stock may be looked at (1) from the standpoint of a purchaser of the stock, including within the name of purchaser one who lends money on the stock as well as one who buys it, and (2) from the standpoint of the corporation whose duty it is to transfer the stock on its books. Generally the difficulties which confront the purchaser are the same which confront the corporation when it is asked to transfer. If the purchaser should get a defective right when he bought, then the corporation, if it should transfer, would generally get into trouble also.

LEGAL AND EQUITABLE DIFFICULTIES IN TRANSFERS.—The main difficulties which arise may be divided into legal and equitable difficulties. By legal difficulties are meant cases in which the purchaser will not get a good legal title. By equitable difficulties, cases in which the purchaser will get a good legal title but which will be subject to an equitable right in favor of some other person. The person who has an equitable right cannot reclaim the stock from one who is, or succeeds to the rights of, a bona fide purchaser for value without notice.

LEGAL DIFFICULTIES—FORGED CERTIFICATE.—First, in regard to legal difficulties. The certificate of stock may be forged. The purchaser of a forged certificate of stock, of course, gets nothing in the way of stock. He does get the right, however, to sue the person who sold him the stock on an implied warranty of genuineness. Analogous to the situation of the purchaser is the situation of the corporation if, on receiving a forged certificate with a request for a transfer, it should transfer ownership on the books, completing the transfer by issuing a new certificate; for any person who took the new certificate, even though he was a bona fide purchaser for value, would not get any stock in the corporation, if all authorized stock had previously been issued. The corporation has no power to overissue stock; it cannot emit any more even if it tries, and therefore the purchaser gets no stock. He does, however, get a right against the corporation. The corporation has issued what purports to be new stock to him, or if he is a remote purchaser he has paid for stock in reliance on a certificate which the corporation has issued. The corporation is estopped, as the legal phrase is, to deny the validity of that certificate as against one who has thus relied on its acts. The result is that the corporation is bound to pay to him value equivalent to that of real stock, because the corporation has put out something which seems to be good stock, and owing to the act of the corporation the purchaser has been deceived.

FORGED ASSIGNMENTS.—A second legal difficulty arises where the indorsement or assignment of the certificate is forged. Only the owner of stock can sell it. Consequently, if anybody else attempts by forgery or otherwise to make a transfer, the transfer will be ineffectual. The result will be the same as though the whole certificate were forged. The purchaser under the forged indorsement will get nothing. If the corporation relies on the forged indorsement and issues a new certificate, it will, in the same way as in the case of a new certificate issued for a wholly forged one, be liable to a purchaser for value. It is, of course, of vital importance, therefore, to make sure that indorsements are correct, and generally it is desirable to take indorsed certificates only from reliable persons. If you take such a certificate from a reliable person, even though there is no express guaranty of signatures by a brokerage house or other third person, as there often is, you will be practically safe because of the implied warranty of genuineness by the seller which applies to the indorsement on certificates as well as to cases of wholly forged certificates.

ASSIGNMENTS BY UNAUTHORIZED AGENT.—A third case is where the indorsement is made by an agent, and the agent has no authority to act. A corporation transferring stock should require, and a purchaser should require, the clearest evidence of an agent's authority if the signature of the transferor is made by an agent. It is not only necessary to be sure that the agent's authority originally existed, but it is necessary to be sure that his power has not been revoked, either by the death of the principal or by express revocation during his life. A question that sometimes is troublesome, in regard to the agent's authority to make such an indorsement, arises where the terms of the power given the agent are general; where he is authorized to do a very broad class of acts for the principal, but no specific mention is made of the particular certificate which he seeks to transfer. Such a power, if it certainly includes the transfer of that certificate, is legally good, but a corporation would object to make a transfer under a power which did not specifically mention the particular certificate, unless it was absolutely certain from its terms that this certificate in question was included.

LACK OF CAPACITY TO ASSIGN.—A fourth case is lack of capacity on the part of the owner of the stock to make a transfer. This lack of capacity may arise from a variety of causes, insanity or infancy, for instance. A totally insane person is as incapable of transferring stock as of transferring other property. An infant, that is, a minor, though not wholly without capacity, if not under guardianship, becomes, presumably, wholly without capacity to transfer stock if under guardianship. An elderly person under the charge of a conservator would be incapacitated to transfer his property. An infant who has had no guardian appointed, though he could make a transfer, could also, by virtue of his infant's privilege, revoke that transfer, which, therefore, would be too insecure either for a purchaser to take or for a corporation to allow. If stock is owned by an infant, a purchaser or a corporation should require that a guardian be appointed and that the transfer be made by the guardian.

LACK OF DELIVERY—THEFT OF CERTIFICATE.—A fifth case is where the signature on the back of the certificate of stock is genuine, but where there has been no valid delivery by the owner. This is rather a troublesome case to detect. In the case of full negotiable instruments, like bills and notes, if the signature of an indorser is genuine, a purchaser for value of the instrument will get title even though he purchases from a thief, or though for any reason there was no intention on the part of the owner who wrote his name on the back to make a transfer of the instrument. But by the common law stock certificates were not negotiable to this extent. This case occurred in a law office in Boston: the head of the firm rather carelessly kept "street certificates" for stock (that is, certificates made out in the name of the brokerage firm which was the former owner and indorsed in blank), not having the certificates transferred to his own name. The stock was not at the time dividend-paying, so that a transfer on the books seemed unimportant. He put the certificates into the office safe to which the office boy had access. This boy took the certificates and sold them through a broker, and the loss was not discovered for several years. After it was discovered the loss was traced by the numbers of the certificates, and action was brought against the brokers who were unfortunate enough to have taken the stock from the office clerk. Now, if the certificates had been negotiable paper, the brokers would not have been liable, but under the law then existing it seemed so probable that they were liable that they settled the case by paying more than half the value of the stock. The only thing that could have prevented their being liable was that, under the circumstances, the contention was possible that the owner of the stock had been so negligent in his dealing with the certificates as to preclude him from asserting any right. Now the Transfer of Stock Act changes the law in this respect so far as Massachusetts stock certificates are concerned. The act makes them fully negotiable, but the common law would apparently still apply to certificates of stock of corporations incorporated in other States. And similar principles would be applicable in other States which have passed the same statute.

DEATH OF OWNER OF INDORSED CERTIFICATE.—A somewhat similar case is this: suppose that after the owner of stock has written his name on the back of it, he dies; that is a common enough case. Many men have used their stock certificates to borrow money on, and therefore, after paying the loan they have them in their possession with their signatures on the back. They put those certificates back in their safe deposit boxes. Then suppose the owner dies and an attempt is made to transfer the stock by virtue of that signature written on the certificate. That is not a valid transfer at common law. The certificate was owned only up to the time of his death by the man whose name is on the face; on his death his executor becomes the owner and the executor's signature is necessary to transfer the title, and the signature of the man himself written before his death is not effective for that purpose; and yet a purchaser may not be aware that that signature is invalid; he may not know that the man who signed it is dead, and similarly the corporation may allow the transfer to go through in ignorance that the signer is dead. If the money which is the proceeds of the stock actually reaches the executor of the estate, of course he could not object to the validity of the transfer, and he could not object if he were in any way a party to the transfer of the stock by means of the signature of the dead man; but if the proceeds did not get to the hands of the executor and he was in no way responsible for the transfer, he could assert that the transfer was invalid and that that stock belonged to him. This, again, is changed by the uniform law so far as applies to corporations in the States which have enacted that law. To avoid misapprehension it should be said that if an indorsed certificate has been delivered for value by the owner, during his lifetime, to a purchaser or lender, the death of the indorser does not impair the validity of the signature even at common law. The purchase of the stock or a loan made on the stock gives the purchaser or lender a power which cannot be revoked by death or otherwise.

BANKRUPTCY OF THE OWNER OF STOCK.—One other important case, in which a genuine signature of one who was the owner cannot transfer a good title, is the case of bankruptcy. The Federal bankruptcy law provides absolutely that title to property which a bankrupt has at the time of his bankruptcy shall be vested in his trustee. If, therefore, after A's bankruptcy, A seeks to transfer stock which he had owned, and which was in his own name, he cannot do so, for he is no longer the owner of the stock, and he has no power to transfer it. Therefore, even a bona fide purchaser from a bankrupt will get nothing.

ATTACHMENT OF STOCK.—A sixth difficulty in regard to transfer of stock—attachment of the stock by a creditor of the registered owner—is eliminated in States where the Uniform Transfer Act has been enacted. Such attachments created considerable difficulty before the passage of the act. Suppose this case: A is the owner on the books of the company of 100 shares of Boston & Albany stock. He knows a creditor is about to attach that stock, and in order to get ahead of the creditor he sells the stock on the exchange. If he makes the sale before the attachment, undoubtedly the sale everywhere would prevail over the subsequent attachment; but suppose the attachment preceded by a little while the sale of the stock. A still has the certificate, and brokers and purchasers are accustomed to rely on the certificate as evidence of ownership. They take the certificate and pay A money for it; then when the purchaser goes to transfer the stock he finds that an attachment has been put upon the books of the company. Where the uniform law governs the case the only way to make an attachment of stock effective is to seize the certificate itself. But in other States this difficulty may still arise, of a purchaser being deceived by the certificate itself, and paying money on the faith of it when there has been an attachment levied by a creditor immediately before on the books of the company.

TRANSFERS BETWEEN HUSBAND AND WIFE.—One other matter of transfer deserves attention, and that is a transfer between husband and wife, or wife and husband. A married woman can contract in most States as fully as a married man, but generally, though not universally, neither of them can contract with the other or make a conveyance directly to the other. A promissory note from wife to husband, or husband to wife, or any other conveyance or transfer or contract was at common law and still is in many States invalid. A husband can, however, appoint his wife his agent, and a wife can appoint her husband her agent, and when such an agent acts, his act will be legally that of the principal, just as in any other case of agency. Accordingly, if a husband draws a check payable to his wife, though he does not become liable as drawer to his wife, and could not be sued by her if the check was not paid, the bank runs no risk in paying the check because the husband has authorized the bank to make a payment to the wife. Similarly, if a husband authorizes a corporation to transfer stock to his wife it seems that the corporation is protected, having acted under the authority of the owner, and that the wife would get a good title to the stock. This question has, however, been somewhat disputed by lawyers. Therefore it is very probable that a corporation would, as a matter of precaution, refuse to run any risk by transferring directly from husband to wife or vice versa, but would require that the transfer should be made through a third person in any State where husband and wife cannot contract with one another. So much for difficulties arising out of defects caused by the lack of legal title to the stock.

STOCK HELD IN TRUST.—Now let us consider equitable defects. Such defects chiefly arise where stock is held in trust. It would be the simplest and pleasantest thing for a corporation if it could refuse to register stock in trust at all, but it has been decided that it cannot do this, that it is bound, if requested, to register stock in favor of a trustee and issue stock to trustees. Now trustees hold under an appointment by the court. A trustee may cease to be such at any time by removal of the court as well as by death. Suppose stock in the name of D, trustee. If D has ceased to be trustee because he has been removed from office, a transfer by him will not be valid. Accordingly, it is essential for a corporation and for a purchaser to be certain, not simply that D was trustee, but that D is trustee at the time he attempts to make the transfer. We may suppose the case of a certificate which does not state that there is a trust. Not infrequently trustees, to avoid complications, do not specify in the certificate that they are trustees. If the corporation or if the purchaser of that stock has no notice that D is really holding that stock in trust, the corporation or the purchaser will have the same rights as if there were no trust. But if either the corporation or the purchaser learns, from extrinsic sources, that the stock is really held in trust, they will be bound to make certain that the seller is still empowered to act as trustee, in the same way as if the certificate specifically stated on its face that the stock was owned by D in the capacity of trustee.

ONE HAVING NOTICE THAT STOCK IS HELD IN TRUST MUST ASCERTAIN THE TERMS OF THE TRUST.—Even if the supposed trustee is actually the trustee he may not have power to give a good title to the stock. He has the legal title, undoubtedly, but if the certificate contains notice that he holds the legal title as trustee, every one is bound at his peril when purchasing the stock, and also the corporation is bound at its peril before it allows the transfer of the stock, to make sure that the trustee is authorized by the terms of his trust to transfer the stock.

A TRUSTEE HAS POWERS NECESSARY TO CARRY OUT TERMS OF TRUST.—Generally when a transfer of stock is attempted by a trustee it means that the trustee is selling the stock, though that is not necessarily the case. A trust may be terminated; that is, a trust may be created for twenty years, with directions to the trustee to transfer the trust property at the end of twenty years to certain beneficiaries. A transfer by the trustee at the close of the twenty years to the beneficiaries would not be a sale of the stock; it would be a transfer for the purpose of carrying out the trust, and a trustee always has implied power to make any transfer of stock that is necessary to carry out the purpose of the trust.

A TRUSTEE HAS NO IMPLIED POWER TO SELL.—A trustee has no implied power to sell. The general duty of a trustee is to keep the property which is left to him in trust or conveyed to him in trust in its existing form, and no power is implied to change the form to something else. Accordingly, if no power to sell is in terms given in a trust created by deed or will, a corporation will require, and a purchaser should require, the trustee to obtain the authority of the probate court to make the sale. Carefully drawn trusts generally contain a power for the trustee to sell if the purpose of the trust is to produce an income-bearing fund for a long period of years. For that purpose a change of investment is frequently desirable, and therefore trustees are expressly given that power. But the corporation which has issued a certificate to a trustee and a purchaser from the trustee must find out at their peril whether such a power is given.

A TRUSTEE HAS NO IMPLIED POWER TO PLEDGE.—Another power, and one which is not commonly given, is the power to borrow on stock, to pledge it or use it for collateral security. Such a power is not implied and is not commonly given in trust deeds or wills. Therefore, a bank or other lender should not lend on certificates of stock which are made out to the borrower as trustee, or made out to any one as trustee. Of course, it is improper, even though the trust did give power to borrow, to allow the trustee not only to borrow money on trust securities but to use the money borrowed as part of his own assets; that is, to put it in his own general account. It is his duty to keep trust money separate, and therefore if the trustee has power to borrow he should keep the funds which he borrows earmarked as trust property; but as has been said, he will rarely have power given him expressly to borrow even for trust purposes.

A TRUSTEE CANNOT TRANSFER TO HIMSELF.—Suppose a trustee is by a deed or will given power to sell and he asks the corporation to make a transfer of the stock to himself. The corporation should not do it. He has power to sell to any one else but himself. A fiduciary cannot make a bargain with himself in regard to his trust property, and therefore he should not be allowed to transfer the stock to himself.

A TRUSTEE CANNOT DELEGATE HIS POWER TO SELL.—A trustee cannot delegate his powers, and therefore he cannot give a general power of attorney to another, to sell trust stock or any trust property whenever it may seem wise to the agent to do so. Even though the trustee has himself power to sell, he must exercise his own discretion as to the occasion when it is proper to sell.

PURCHASER FROM A TRUSTEE IS NOT BOUND TO SEE TO APPLICATION OF PURCHASE MONEY.—Though the corporation and though the purchaser from a trustee are bound to see, if they have notice of the trust by the form of the certificate, that the trustee is not making an unauthorized sale, neither the purchaser nor the corporation is bound to see that the trustee does not make an improper application of the money received from sale of trust stock. In the current legal phrase, neither the purchaser nor the corporation is bound to see to the application of the trust money; but if either the purchaser or the corporation had notice of a proposed misapplication of the trust money to be received for the stock, it would be improper to allow the transfer knowing that the proceeds would be misapplied, and the corporation or the purchaser would be liable if the transfer was carried out.

AN EXECUTOR HAS IMPLIED POWER TO SELL.—Stock held by a guardian or by an executor is in many respects treated similarly to stock held by a trustee. There is this difference, however, in the executor's position, that as it is his duty to reduce the estate to cash he has in most, but not all States, an implied power to sell; it does not have to be given to him in the will. The will, however, may restrict an executor's right to sell certain stock, and therefore even in the case of an executor it would be proper for a corporation to make sure that the executor's power had not been restricted by the will before allowing the transfer.

TRANSFER BY AN EXECUTOR TO A LEGATEE.—Generally the executor will seek to reduce the property to cash and therefore seek to transfer the stock in the estate to a purchaser, but he may try to transfer it directly to a legatee. He may himself be a legatee and endeavor to transfer to himself. Unless he is a residuary legatee or a legatee of the specific stock in question it is as improper for him to transfer to himself as for a trustee to transfer to himself. Even though the executor is a pecuniary legatee or is entitled to payment for commissions, he would have no right to take stock in lieu of such pecuniary legacy or commission, for he cannot make such a bargain with himself though he might in regard to the legacy of another. If the executor is a specific or residuary legatee the question of a right to transfer to himself is the same as to transfer to any other legatee, and that right is only subject to one qualification. Creditors of an estate have the first right; legatees do not get their legacies paid unless creditors are taken care of first. Creditors have a fixed period from the time when executors or administrators give bonds within which to assert their claims. If they have not asserted their claims in that period the claims are barred. After that time has expired it is generally known whether the assets of the estate are sufficient to pay legacies, and it is usually then proper to allow a transfer to a legatee. Prior to that you run the risk—which may be in a particular case a very small one or it may be a very large one—that the creditors of the estate may exhaust the assets and the legatees not be entitled to anything.

LOST CERTIFICATES.—Occasionally a question arises in regard to a lost certificate. The Uniform Law provides for this case in substantially the same way as the common law would deal with it if there were no statute, namely, the corporation may demand a bond to indemnify it before it issues a new certificate. This bond is essential because should the old certificate turn up and be transferred to a bona fide purchaser for value, the corporation would be liable on the old certificate, and as it would also be liable to a purchaser for value of the new certificate it is necessary that it should have a bond to protect it.

INTERPLEADER OF SEVERAL CLAIMANTS FOR STOCK.—If there are several claimants for stock, as sometimes happens, the corporation should file a bill of interpleader, as it is called, against the several claimants, asking the court to determine which one is rightfully entitled. An instance of that kind would be where A asks a corporation to transfer stock to him, presenting a certificate indorsed by B, but B notifies the corporation that he has been defrauded out of that stock by A, and that he elects to rescind the transfer to A and demands the certificate back. The corporation cannot undertake to determine which of these parties is in the right; it must ask the court to do so. Not infrequently the same situation arises in a bank where money has been lent on stock, and notice is given to the bank not to return that security to the borrower because he obtained it fraudulently or otherwise has acted in violation of the rights of a third person in pledging it to the bank. The bank, if it is a bona fide lender, is, of course, entitled to hold the stock for its own security so far as it may be necessary to repay the loan; but perhaps the bank can get the loan repaid out of other securities unquestionably belonging to the borrower. In that event the bank should do so and then ask the court who is entitled to the disputed stock.

EFFECT OF DELIVERING UNINDORSED CERTIFICATE.—In order to transfer stock, as previously said, it is necessary that the stock should be either indorsed or that on a separate paper an assignment or power to transfer should be written. What is the effect of giving a certificate without either of these formalities? It virtually protects the person who receives the certificate, for though he has not title to the stock and cannot get title without an indorsement, he has the certificate in his possession which prevents any other person from getting title; and, furthermore, he has the right to require an indorsement from the person whose indorsement is needed, provided, of course, that the holder of the certificate took it from the owner, who impliedly or expressly agreed that he should have title. If somebody not an owner of a certificate delivered it without indorsement to a bank, and borrowed money on it, the bank would not be protected. The true owner could say, "That is mine," and take it away.

CHAPTER VIII
Personal Property

ILLUSTRATION.—An illustration that gives us the idea of property will make our definition clear. A takes his shoes to a cobbler to be repaired. When he calls for them, he does not have the price for the work, and the cobbler refuses to give them up. Both A and the cobbler have a property right in the shoes. The right to absolute ownership is in A, that is his property right. The temporary possession, however, is in the cobbler, and he may hold the shoes under the lien for repairs indefinitely and until he receives his compensation. The lien is his property right. When we use the term property in its lowest form we mean by it the right of possession. In our illustration, the cobbler's lien gives him the right of possession. When we use the term in its highest form, we mean the right of exclusive ownership; in our illustration, A's shoes after he has paid the repair bill and secured the shoes again.

THE RIGHTS OF OWNERSHIP.—Exclusive ownership implies:

1. The right of exclusive possession for an indeterminate time.

2. The right of exclusive enjoyment for an indeterminate time.

3. The right of disposition.

4. The right of recovery if the thing be wrongfully taken or withheld.

But, you say, this is not the idea one ordinarily has of the term "property." One speaks thus of his watch: "I own this watch. It is my property." The answer is, property is a term with a double meaning. In the ordinary sense "property" indicates the thing itself, rather than the rights attached to it. Therefore it is that we have a law of personal property, and a law of real property.

PERSONAL PROPERTY AND REAL PROPERTY DISTINGUISHED.—Real property has been defined to be co-extensive with lands, tenements, and hereditaments; to put it more simply, we may say that it consists of land and anything that is permanently affixed to the land. Personal property embraces all objects which are capable of ownership except land. One fundamental difference between the two is that real property is generally considered to be immovable, while such property as is movable is usually termed personal property. It is important that the distinction between the two forms of property be kept in mind because different results follow where the property is held to be one or the other. For example, on the death of the owner of real property, it passes to his heir or devisee, while in the case of personal property, it goes to the personal representative, the executor or the administrator, and through him to the legatee or distributee. Again, in settling the estate of the deceased person, personal property is always to be used first to pay the decedent's debts. The modes of transferring personal property and real property differ. Real property is transferred by deed. Personal property may be transferred without any writing and even in the case of a transfer of personal property, by a bill of sale, the requirements for recording it are generally quite different from those relating to the recording of deeds. Again, the transfer of real property is governed by the law of the place where the real property is situated, whereas the transfer of personal property is governed by the law of the domicile of the owner. Taxation is another subject where the distinction is most important.

SALES OF PERSONAL PROPERTY.—The most important branch of the law of personal property, in the field of commercial law, is that relating to the sale of personal property. We shall confine the balance of this chapter to a consideration of that subject. As we have a uniform Negotiable Instruments Law, so we also have a Uniform Sales Act which has now been adopted in many of the States. The Sales Act defines a sale and a contract to sell as follows: (1) A contract to sell goods is a contract whereby the seller agrees to transfer the property in goods to the buyer for a consideration called the price. (2) A sale of goods is an agreement whereby the seller transfers the property in goods to the buyer for a consideration called the price. (3) A contract to sell or a sale may be absolute or conditional. (4) There may be a contract to sell or a sale between one part owner and another.

SALES AND CONTRACTS TO SELL.—Sales are to be distinguished from contracts to sell. A sale is an actual transfer of property, whereas a contract to sell is an agreement to make a sale in the future. Sales at a shop, for instance, are made without any contract to sell, but orders for goods at a distance, and agreements to ship them, frequently precede the actual sale of the goods, which is made in pursuance of the prior contract to sell. The sale of personal property is subject to different rules from the sale of real estate. In the transfer of real estate, formalities of deed and seal are necessary, which are not required in personal property, and the subjects must be considered separately.

A SALE DISTINGUISHED FROM SIMILAR TRANSACTIONS.—At the outset, a sale must be distinguished from several other similar transactions. The law of sales is a branch of contract law, hence consideration is necessary in a sale. A gift, on the other hand, which may result in the transfer of personal property in practically the same manner as a sale, does not require any consideration. Hence, an agreement to sell goods is unenforceable if not supported by consideration. A promise to make a gift is always unenforceable because the very idea of a gift negatives any idea of consideration. A sale and a bailment must also be distinguished. A bailment is the rightful holding of an article of personal property by one, for the accomplishment of a certain purpose, with an obligation to return it after the completion of that purpose. Where there is a sale, the entire property right passes to the new buyer, and if the article is destroyed, providing title has passed, the new buyer must pay the purchase price if he has not already done so, although he gets nothing for it. In a bailment, the title does not pass. The case of the cobbler repairing the shoes is an illustration of a bailment. If, while the shoes are in his possession, his shop is burned, through no fault of his, the owner of the shoes would stand the loss. If I borrow a person's automobile, and while using it the car is struck by lightning and totally destroyed, the loss falls on the owner because this also is a bailment. On the other hand, had I bought the car and temporarily kept it in the seller's garage, awaiting the completion of my own garage, and it is burned while in his garage, the loss is mine. By such a transaction, I become the owner when the sale is made, and the former owner becomes the bailee.

FORMALITIES NECESSARY FOR THE COMPLETION OF A SALE.—The Sales Act provides in section 3, subject to a few provisions, that "a contract to sell or a sale may be made in writing (either with or without seal), or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties." The main qualification of the right to make an oral sale or contract to sell is found in the next section (Section 4) which is virtually a copy of a similar provision in the English Statute of Frauds in regard to the sale of personal property. Section 4 reads as follows:

"(1) A contract to sell or a sale of any goods or choses in action of the value of five hundred dollars or upwards shall not be enforceable by action unless the buyer shall accept part of the goods or choses in action so contracted to be sold, and actually receive the same, or give something in earnest to bind the contract, or in part payment, or unless some note or memorandum in writing of the contract or sale be signed by the party to be charged or his agent in that behalf.

"(2) The provisions of this section apply to every such contract or sale, notwithstanding that the goods may be intended to be delivered at some future time or may not at the time of such contract or sale be actually made, procured, or provided, or fit or ready for delivery, or some act may be requisite for the making or completing thereof, or rendering the same fit for delivery; but if the goods are to be manufactured by the seller especially for the buyer and are not suitable for sale to others in the ordinary course of the seller's business, the provisions of this section shall not apply.

"(3) There is an acceptance of goods within the meaning of this section when the buyer, either before or after delivery of the goods, expresses by words or conduct his assent to becoming the owner of those specific goods."

THE CAPACITY OF PARTIES.—The Sales Act provides in section 2 that "capacity to buy and sell is regulated by the general law concerning capacity to contract, and transfer and acquire property. Where necessaries are sold and delivered to an infant, or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price therefor. Necessaries in this section mean goods suitable to the condition in life of such infant or other person, and to his actual requirements at the time of delivery."

IMPORTANCE OF DISTINGUISHING SALE AND CONTRACT TO SELL.—Why is it important to distinguish between a contract to sell and a sale; what difference does it make whether title has passed or not? The primary reason that it makes a difference is because as soon as the title has been transferred from the seller to the buyer the seller is entitled to the price. Prior to the transfer of title, if the buyer refused to take the goods, the seller would be entitled only to damages, which would be the difference between the value of the goods which the seller still retained and the price which was promised. If the goods were worth as much or more than the amount of the price promised, the seller would not be entitled to any substantial damages. But after title has passed the buyer must pay the full price, and the seller may recover it if the buyer refuses to accept delivery. Another consequence flowing from the transfer of title is that the goods are thereafter at the risk of the buyer. If they are destroyed by accident the buyer must nevertheless pay the price, for the right to the price accrued before the goods were destroyed, and when they were destroyed they were at the buyer's risk. Bankruptcy is another circumstance which makes it important to determine who holds title to the goods. If the buyer becomes bankrupt, after title to the goods has passed to him, his trustee in bankruptcy takes the goods for his creditors, but if he becomes bankrupt before title has passed that would not be true. The bankruptcy of the seller would make a similar difference.

WHEN TITLE IS PRESUMED TO PASS.—There are several presumptions in the law as to when title will be presumed to pass if there was no specific agreement between the parties as to when it should pass. If they simply bargain for the goods without saying anything about the time when the buyer is to become the owner, the first presumption is that title passes as soon as the goods are specified and the parties are agreed on the terms of the bargain, even though no part of the price has been paid and though the goods have not been delivered. It is often assumed that delivery is essential to transfer title to goods, but that is not so, though delivery is strong evidence of intent to transfer title. If the parties have made their bargain, and definitely agreed on the terms of the bargain, title passes even though possession of the goods still remains in the hands of the seller. The seller, however, has a lien for the price though he has parted with title. As long as the goods are in his possession he may refuse to surrender until he is paid the price, unless he agreed to sell on credit.

TITLE PASSES WHEN PARTIES AGREE.—It is only a presumption that, where the terms of a bargain are fixed and the goods are specified, title passes at once, for if the parties agree that title shall not pass at once it will pass when and as they agree. Their intention in regard to the transfer of title may not be stated in express terms, and it may be gathered only from the acts or words of the parties. If something remains to be done to the goods by the seller, to put them in a deliverable condition, that indicates an intent that title shall not pass until they are in the condition agreed upon. If the parties provide that the goods shall be stored at the expense of the seller, for a time or at the risk of the seller, that indicates title is not intended to pass, for if they are at the seller's expense and risk, presumably they are still his goods. On the other hand, delivery of the goods indicates an intent to pass title, although it is possible, if the parties so agree, that title does not pass even though the goods are delivered. Again, payment of the price is evidence tending to show an intent to pass title, for buyers do not ordinarily pay the price in advance. It is not uncommon for credit to be given by the seller, but it is uncommon for the buyer to pay first; but even that is not impossible, and therefore, though payment of the price is evidence of an intent to transfer title immediately, it is not conclusive evidence.

TRANSFER OF TITLE BY SUBSEQUENT APPROPRIATION.—Suppose title does not pass immediately, which may be due to the fact that the parties so agreed, or to the fact that the goods were not specified at the time the bargain was made. That is a common case. A and B contract for the sale of 100 cases of shoes to be made by A. At the time the parties make their bargain the shoes have not yet been made, but the parties expect that they will be made later, and appropriated to the bargain, as the legal phrase is. Or title may not pass at the time the bargain is made, although the goods are specified. The parties may have expressly agreed that title should not pass; or though the goods are specified, something may remain to be done to them by the seller to put them in a deliverable condition. Now, if title for any of these reasons does not pass when the bargain is made, it may pass by an express agreement of the parties, made later, that the buyer shall take title and that the seller shall give title; or frequently it may pass by what is called an appropriation of the goods by the seller to the buyer, without any express later assent of the buyer, by virtue of an implied assent of the buyer given in the original agreement that the seller should appropriate the goods. What is meant will be understood by one or two illustrations.

APPROPRIATIONS BY DELIVERY TO A CARRIER.—Suppose A contracts to sell and ship to the buyer 100 cases of shoes, and B contracts to receive and pay for them. That shipment to the buyer is an appropriation of the goods. The very 100 cases with which the seller intends to fulfill the bargain are indicated by the delivery of them to the carrier, and the buyer, since he agreed in the first place that they should be shipped, has assented to the appropriation. Therefore, in such a case, as soon as the goods are delivered to the carrier the presumption is that title passes to the buyer. This is by far the commonest case of appropriation by the seller in accordance with authority given by the buyer in his original agreement, and it is so common that it deserves a little further treatment.

ILLUSTRATION.—This kind of appropriation can be very well illustrated by the case of a supposed sale of tobacco to a minor. A, a minor, lives in an outlying suburb of Boston where the sale of tobacco to a minor is not permitted. He buys goods of S. S. Pierce Company in Boston and wants to buy some cigars from them. He can buy cigars of them in Boston and send them out to his home, but the title must pass to him in Boston. If the title passes in the suburb it is an illegal sale by S. S. Pierce Company, and consequently they do not want to make it. Of course the buyer can go and get the goods and pay for them in Boston and send them himself to his residence. But suppose he sends an order by mail; if S. S. Pierce Company are willing to charge goods to him, giving him credit, they can send the goods by express, because on their shipment of the goods the title will pass and the buyer will become a debtor for the price of the goods in Boston; but they must not send the goods by their own wagon, as their carrying the goods themselves out to the buyer's residence leaves them in their possession until delivery, and the delivery does not take place until the goods are delivered from their wagon at his house. That would not do. Whereas if the goods are delivered to a public carrier in Boston the carrier would be the buyer's agent and title would pass in Boston.

THE SELLER MUST FOLLOW EXACTLY AUTHORITY GIVEN HIM.—Suppose the buyer specified that the goods are to be shipped by a given route, and the seller shipped them by a different route. Title would not pass then because the buyer had not authorized the seller to appropriate them to him, the buyer, in that way. It may be that the seller's way of sending them was better than that originally assented to by the buyer, but the seller, if he wishes to hold the buyer, as owner of the goods from the time of shipment, must get his approval of that better way. Still more important than the method of shipment is the character of the goods themselves. The seller cannot, by putting any goods on the train, transfer title. He must put on the train the very kind of goods which the buyer agreed to receive, and that will mean not simply, in the case supposed, that the goods must be shoes, but they must be merchantable shoes of the character and sizes which the buyer agreed to take. The goods must be properly packed and all usual precautions in regard to them taken. In so far as the original agreement specified what was to be done, those things must be done. In so far as the original agreement does not specify how the goods are to be shipped, or what shall be done in regard to them, the seller has discretion to do anything which is customary and proper for a careful business man.

SHIPMENT OF GOODS C. O. D.—There has been considerable litigation in regard to the effect of shipping goods C. O. D. Suppose goods were ordered and goods of the sort ordered were shipped in accordance with the directions in the order, but were marked C. O. D. Those letters mean, as you know, collect on delivery, and two possible explanations may be given of their effect. One, that the seller retains not only control of, but also title to, the goods until they are delivered and the price paid. According to that view the carrier is made the seller's agent, to hold the title to the goods and transfer it to the buyer when he pays for the goods. But the better view is that the carrier merely retains a hold on the goods, a lien on behalf of the seller, while title to the goods passes on shipment.

EFFECT OF THE FORM OF A BILL OF LADING.—One cannot speak of title passing or being retained on shipment of goods without referring to bills of lading, for the general rules which have been given must be qualified by this statement, that by means of a bill of lading the title may be at will retained or transferred (if the buyer has authorized a transfer). The proper way to indicate a transfer of title when goods are shipped is to have the buyer named as consignee in the bill of lading. A bill of lading is very much like a promissory note; the carrier promises to deliver the goods to somebody who is called the consignee, and who corresponds to the payee of a note. There is this further feature in a bill of lading: the carrier acknowledges receipt of the goods from the consignor, that is, the shipper, and the carrier promises to deliver them.

ILLUSTRATIONS.—Now, when S. S. Pierce Company decide to ship goods to a buyer, it may consign them to the buyer or it may consign them to itself; that is, the same person may be consignor and consignee. That is very common in business, in order that the shipper may retain title to the goods until he receives payment. He takes the bill of lading in his own name and then, generally, attaches a draft on the buyer of the goods, and sends the bill of lading and the draft together through a bank. The bank notifies the drawee of the draft, who is the man who has agreed to buy the goods, that the bill of lading with the draft are at the bank, and that the buyer may have the bill of lading when he pays the draft. The buyer pays the draft and gets the bill of lading, and then for the first time does he become the owner of the goods. On the other hand, if the shipper—S. S. Pierce Company—had consigned the goods directly to the buyer, the buyer would have become the owner of the goods on shipment, provided the buyer had authorized that shipment. The seller cannot, however, by naming a buyer consignee, make the buyer owner of any goods which he has not agreed to receive. So much for appropriation of the goods to the buyer by shipment. In another chapter fuller reference will be made to bills of lading as documents of title and as bank securities. In this connection they are referred to merely as indicating an intention to transfer or retain title as between buyer and seller.

IMPORTANCE OF DELIVERY IN SALES OF GOODS.—Title to chattel property, it has been said, may pass without delivery. This is true as between the parties, but as against creditors and third persons delivery is necessary. Suppose A sells a horse to B and does not deliver the horse, and A afterwards sells the horse to C and does deliver the horse to C. B comes around to C and says, "That is my horse. I paid A the full price." C may say, "I bought him in good faith. I thought it was A's horse. I have got him and I am going to keep him." C may keep him.

PLACE OF DELIVERY.—Certain contractual rights between the buyer and seller are implied from the nature of the bargain of sale. A seller is under an implied obligation not only to transfer title to the buyer, but to deliver possession to him. Where must the seller deliver possession? If the contract states the place, the terms of the contract decide that question. If the contract does not expressly state where the place is to be, the place of the seller's residence is the place where the seller is bound to deliver, unless the goods are too heavy for easy transportation, and in that case the place of delivery is the place where the goods are at the time of the bargain. That may be the seller's place of business, and it may not.

DELIVERY AND PAYMENT ARE CONCURRENT CONDITIONS.—Concurrently with the seller's duty to deliver possession, the buyer is under a duty to pay the price, unless the contract provides for a period of credit. The delivery and the payment of the price are, in the absence of contrary agreement, concurrent conditions. The seller must offer to deliver if he wants to get a right of action for the price, and the buyer must tender payment if he wants a right of action for the goods. The tender of price and delivery must be at the place where payment and delivery is due. It may be asked, how is the seller to tender the goods at the place delivery is due if that is the seller's place of business and the buyer does not appear? The answer is, that it is in effect a tender for the seller to have the goods in the place where they are to be delivered, he being ready and willing to deliver them. If the buyer does not come there the buyer must, nevertheless, pay the seller. By the seller's readiness to perform, at the place where performance is due, and deliver, if the buyer with his money is at the place where payment is due, there is in effect a tender.

RIGHT OF INSPECTION.—The buyer and seller have certain other implied rights and duties. A right which the buyer always has, in the absence of agreement to the contrary, is a right to inspect the goods, to see that he is getting what he bargained for, before he accepts title and pays the price. He may, however, waive this right of inspection; he may agree to pay the price without seeing what he is getting, and in modern business this is not uncommon. One sort of bargain frequently made contains this term: "Cash against bill of lading." That means the buyer is to pay the price of the goods on receiving the bill of lading. The bill of lading will usually reach him before the goods, and, therefore, before he has a chance to inspect; and by the terms of his bargain he has agreed to pay cash against the bill of lading and he must do so. Of course, if the goods when received turn out not to be what he bargained for, he has a right to sue for breach of contract or recovery of the price paid. But in the first place, when the bill of lading comes he has to assume that the goods are going to be right and pay for the bill of lading. Another case where a right of inspection is waived is where goods are sent C. O. D. You order goods to be sent in that way and the expressman brings them. You say you want to open the package and see if the goods are right. You will find the expressman will not let you. He will say, "No, you must pay for the sealed package," and until you do so, you will have no right to the possession of the goods. If the goods are not all right you have redress by suing the seller, but you must pay your money first.

WARRANTIES.—Another and most important right which the buyer has is the enforcement of warranties. Warranties of a chattel may be either express or implied. An express warranty is a promise or an obligation imposed by the law because of a representation which the seller has made in regard to the goods. The simplest form of warranty is where the seller says, "I warrant this horse is sound," or, "I warrant this piano will stay in tune for a year." These warranties are promises and are subject to the same rules as other promises. They are contracts for consideration, the consideration for the promise being in each case the purchase of the goods. But we have warranties which are not based on promises, strictly so called, and yet are express. A tries to sell a horse. He says the horse is perfectly sound, four years old, broken to harness, and has trotted a mile in three minutes. Those are in form representations rather than promises; they are assertions of fact, and when A makes them it is possible he does not understand that he is binding himself for the truth of his statements; and yet if they are made as positive statements of fact, the seller is held to warrant the truth of those statements.

REPRESENTATIONS OF FACT AND OF OPINION.—The great distinction, between warranties by representation and statements in regard to property which do not amount to express warranties, is that between statements of opinion and statements of positive fact. If the buyer said, "I believe the horse can trot a mile in three minutes any day," it is not a warranty; even the statement, "The horse can trot a mile in three minutes" would probably not be a warranty; but the statement, "The horse has trotted a mile in three minutes," is a direct assertion of fact, and the element of opinion does not occur, and therefore that would be a warranty. Statements of value do not amount to warranties. Those are necessarily to some extent matters of opinion. General statements of good quality do not, ordinarily, amount to warranties. The courts, however, are getting stiffer and stiffer in regard to these matters. It used to be the law that a seller could represent nearly anything he chose in regard to his goods, and not be bound, so long as he did not expressly say, "I warrant," or make a promise in terms in regard to them. That was called the rule of "caveat emptor"—"let the buyer beware"—but this rule is almost wiped out so far as representations of fact are concerned. Now, the seller had better beware of what he says, for he may find himself liable as a warrantor.

NO WARRANTIES IMPLIED IN SALES OF REAL ESTATE.—There are certain warranties implied, although the buyer does not bargain for them and although the seller makes no express representations regarding them. In this respect sales of personal property differ entirely from sales of real estate. In the case of real estate you get no warranty but what you bargain for. If you get a deed without words of warranty, and it turns out that the seller had no title, in the absence of fraud you have no redress; you cannot get your money back though you have no title to the land.

WARRANTY OF TITLE IMPLIED IN SALES OF PERSONAL PROPERTY.—In the case of personal property it is otherwise. The first implied warranty that exists in the case of a sale of personalty, unless the contrary is expressly agreed, is the implied warranty of title. The seller impliedly warrants that he has title to the property and will transfer title to the buyer. The only exception to this is where a sale is made by a person in a representative capacity, as by a sheriff or an agent. In that case the person making the sale does not impliedly warrant title. In the case of an agent, however, if the agent was authorized to make the sale, the principal would be liable as an implied warrantor of title; and if the agent was not authorized to make the sale, the agent would be liable as warranting his authority—not as warranting title to the goods, but warranting that he had a right to bind his principal. Even in the case of a sale by an agent, therefore, the purchaser gets substantial redress if the title turns out to be defective. It is possible, of course, by express agreement, for a buyer to buy and a seller to sell merely such title as the seller may have; but there must be an express agreement, or very special circumstances, indicating that such was the intention of the parties, in order to induce a court to give this construction to a bargain.

IMPLIED WARRANTY OF QUALITY IN SALES BY DESCRIPTION.—Not only are there implied warranties of title, but there are also implied warranties in regard to the quality of goods. The fundamental principle at the bottom of implied warranty of quality of goods is this: if the buyer justifiably relies on the seller's skill or judgment to select proper goods, then the seller is liable if he does not deliver proper goods. We may distinguish in regard to implied warranties of quality, sales of specific goods—that is, sales of a particular thing—and sales of goods by description. In the case of sales by description there is always an implied warranty that the buyer shall have not only goods which answer that description, but merchantable goods which answer that description. Suppose a seller contracts to sell so many hogsheads of Manila sugar. The law formerly was that the seller could tender to the buyer, in fulfillment of that contract, the worst article that he could find which bore the name of Manila sugar. The law at present is that the seller must furnish to the buyer merchantable Manila sugar; that is, Manila sugar of average and salable quality. It does not have to be the best, but it must be ordinarily salable as merchantable Manila sugar.

IMPLIED WARRANTY IN SALES OF SPECIFIED GOODS.—Contrast with that case a contract to sell a specific identified lot of Manila sugar before the buyer and seller. Is the buyer bound to take without objection that specific lot, whether or not it turns out to be merchantable? Or suppose you go to a shop where they sell bicycles and buy a bicycle; you pick out a specific bicycle, and it turns out that, owing to defects in manufacture, it is not good for anything. It breaks down the first time you ride it. May the seller say, "You looked at what we had in stock and this is the machine you agreed to buy"? It is in this class of cases that the question of justifiable reliance by the buyer on the seller's skill and judgment becomes important, and in determining whether the buyer justifiably relied on the seller's skill and judgment several things must be considered.

INSPECTION AS AFFECTING IMPLIED WARRANTY.—Was the defect open to inspection and was there opportunity to inspect the goods? If there was, there is less reason to suppose that the buyer was relying on the seller's skill and judgment than if the defect was latent and not open to inspection.

IMPLIED WARRANTY WHERE THE SELLER IS A MANUFACTURER.—What was the nature of the seller's business? Was he a manufacturer of the goods in question? The strictest rules of implied warranty of quality are applied against manufacturers, and this is, you will see, reasonable, because the manufacturer ought to know about the goods and the buyer naturally relies on the manufacturer, as knowing about the character of the goods, to give goods of proper quality. Therefore, unless the buyer pretty clearly assumes the risk himself of picking out what is satisfactory to himself, a seller who is a manufacturer will be held to warrant the merchantable quality of the goods which he makes and sells.

IMPLIED WARRANTY WHERE THE SELLER IS A DEALER.—The next grade below a manufacturer is a dealer in that sort of goods. He cannot have the same knowledge as a manufacturer, but still, a dealer in goods of a particular kind is much more competent to judge of their quality than an ordinary buyer and therefore a dealer also, unless there is special reason to suppose the buyer did not rely on his own judgment, will be held to warrant that the goods are merchantable.

IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.—Sometimes there is a warranty of still greater scope than a warranty of merchantability; that is, a warranty of fitness for a particular purpose. A buyer agrees to buy glue of a manufacturer. The buyer is, as the glue manufacturer knows, a furniture manufacturer. The glue manufacturer sells the buyer glue which is merchantable glue, but it not good furniture glue, as furniture glue must be of unusual tenacity. The seller is liable here under an implied warranty. He knew that furniture glue was wanted. He was a glue manufacturer, and he ought to have understood that the buyer was looking to him to furnish glue of a sort that would not only be salable as glue but would fulfill the purpose which the buyer had in mind when he made the purchase.

KNOWN, DESCRIBED AND DEFINITE ARTICLES.—On the other hand, if the buyer orders what is called a known, described and definite article, he takes upon himself the burden of determining whether the thing which he buys will fulfill his purpose or not. For instance, a buyer in Missouri ordered of a boiler manufacturer two boilers selected from the catalogue of the boiler manufacturer, describing them by number. The boilers were good boilers, under ordinary circumstances, but the amount of mud in the Missouri River, on the banks of which the boilers were to be used, was so great that they could not be successfully used there. The buyer had no redress against the seller in that case. He had taken upon himself to specify the particular kind of boilers he wanted; he got them and they were merchantable boilers. The only trouble was that they were not fit for use in the place where the buyer was intending to use them. If the buyer had simply ordered boilers for a factory on the Missouri River, the result might well have been the other way, for that would have put the duty on the seller to furnish something that was suitable for that purpose.

RELIANCE ON THE SELLER IS THE ESSENTIAL ELEMENT.—The great thing to remember throughout the whole subject is that the implied warranty of quality depends on the justifiable reliance of the buyer on the seller's skill. If the goods are not merchantable under circumstances where the buyer does rely, he can recover from the seller, even though the seller was not guilty of negligence. A warranty is not dependent on negligence of the seller.

REMEDIES FOR BREACH OF WARRANTY.—One of the remedies, allowed in many but not all States, for breach of warranty, is to return the goods and demand the purchase money back; but that is only one remedy. Another remedy, which is universally allowed, is to sue for whatever damage the breach of warranty may have caused, and one or two cases will show how serious these damages may be. A seller sells a pair of sheep to a buyer with a warranty, express or implied, of their soundness. They have an infectious disease, and when put with a large flock of the buyer's sheep they infect the whole flock, and the damage is the loss of the whole flock. Another actual case was based on an implied warranty of the quality of rags sold to a paper manufacturer. The rags came from Turkey and were infected with smallpox. They gave smallpox to the operatives in the buyer's mill, and the mill had to be closed down, which caused great loss to the manufacturer. All that loss can be recovered from the seller of the rags, even though he was not negligent in bringing the result about.

ONLY ORIGINAL BUYER CAN RECOVER ON A WARRANTY.—Nobody, however, can recover on a warranty except the original buyer. For instance, the operatives who caught smallpox could not sue the seller unless the seller was negligent. If he had been careless or negligent in disregarding their safety, they could sue him in an action of tort, though they had no contractual relation with him. And if the buyer resells the goods the purchaser from him cannot sue on a warranty given to the original buyer.

EFFECT OF ACCEPTING DEFECTIVE GOODS.—Another matter that has caused considerable litigation in regard to warranty and the obligation of the seller in regard to the quality of goods, is the effect of acceptance by the buyer of goods which are offered to him. Suppose a certain quantity of Manila sugar is offered to one who has agreed to buy, and he takes from the seller that quantity of sugar, but finds it is not of as good quality as it ought to have been. The buyer subsequently objects, but the seller says, "You should have objected to that at the outset and refused to take it. Your taking it is an assent or acceptance of it as a fulfillment of the contract, and any right you may have had is now gone." It is settled law that if the defect was not observable with reasonable care, the buyer does not lose any right by taking the goods, provided he gave prompt notice of the defect as soon as it was discovered. Further, even though at the time of delivery the buyer observed the defect or might have observed it, it is the law of most but by no means all States, that taking the goods does not necessarily indicate assent to receive them as full satisfaction of the seller's obligation. The buyer may receive the defective goods as full satisfaction, but the mere fact of taking them does not prove it. It is advisable, however, for the buyer as soon as he sees the defect to protest against it. He may in most States safely take the goods if he says in taking them, "These goods are defective and I do not take them in full satisfaction;" or, if he does not discover the defect immediately on taking the goods, he ought to give notice as soon as he does discover that the goods are defective, and state that, though he proposes to keep them, he does so subject to a claim for their defective quality.

SELLER'S RIGHTS WHERE BUYER FAILS TO ACCEPT GOODS.—Now the seller has some rights, also, that should be referred to. In the first place, if the buyer refuses to take title to the goods when they are tendered to him, the seller has a right to recover damages. The amount of damages will be the difference between the value of the goods which the seller still retains, because the buyer will not take them, and the contract price which was promised. If the goods are worth as much as the price promised for them, the seller's damages will be only nominal, for he still has the goods and may sell them to somebody else for as good a price as was stipulated in the original bargain.

SELLER MAY RECOVER PRICE WHERE TITLE HAS PASSED.—If the title to the goods has passed, the seller may sue for the price. This right to the price is secured by a lien on the goods as long as the seller retains possession of them. If the seller has parted with possession and with title, he cannot get the goods back except in one narrow class of cases.

STOPPAGE IN TRANSIT.—If the goods are in the hands of a carrier, or other intermediary between the seller and buyer, even though title passed on delivery to the carrier, the seller may stop the goods in transit if the buyer becomes insolvent before they are actually delivered to the buyer. The right is exercised by notifying the carrier to hold the goods for the shipper since the buyer has become insolvent. The right of lien and of stoppage in transit is given the seller to enable him to secure the price, which is the thing of interest to him in the contract.

LEGAL AND EQUITABLE TITLES.—A legal title is a full right of ownership against everybody. The legal owner can take his goods wherever he finds them. An equitable title is a right to have the benefit of the goods or property, and, also, it frequently involves a right to have the legal title transferred to the equitable owner, making him full legal owner. The peculiar feature of an equitable title, however, is that it is good only against the particular person who, as the phrase goes, is subject to the equity, and also against any person who has acquired the property, either without giving value or with knowledge of the equity. To put the matter conversely, an equitable title is not good against a purchaser for value without notice, or, in the language of the Negotiable Instruments Law, against a holder in due course.

FRAUDULENT SALES.—This principle is important in other branches of the law besides that governing negotiable instruments. The most common case of equitable rights in sales arises in fraudulent sales. Where a sale is induced by fraud of the buyer, he gets the legal title to the goods, but the seller has an equitable title or right to get the goods back. Let us see how this works out. The buyer procures goods by fraud and he sells them to A. Now, the defrauded seller cannot get the goods back from A if A paid value for them in good faith. If A did not pay value in good faith, then the defrauded seller may get the goods from him or anybody who stands in the same position. If the defrauded seller can reach the goods before they have left the hands of the fraudulent person, he may replevy them or he may seize them if that is possible. It is not worth while to go into the various kinds of fraud that may be practiced in the sale of goods, but there is one specific kind that comes up very commonly which is worth mentioning; that is, buying goods with an intention not to pay for them. Generally, in order to create a fraudulent sale, it is necessary that the fraudulent person shall have made some misrepresentation in words, but here is a case where, though it may be said there is a misrepresentation, it is not put in words. It may be said there is a misrepresentation, for it is fair to say that every buyer when he buys goods not only promises to pay but represents that his intention is to pay for the goods, and perhaps that his financial condition is not so hopeless as to make the expectation utterly impossible of fulfillment. If the situation actually was that the buyer either had a positive intention not to pay, or was so hopelessly insolvent that any reasonable person would know he could not pay for the goods, the transaction is fraudulent; the seller still retains an equity, and may reclaim the goods from the buyer who has acquired a legal title or from any other person except a bona fide purchaser. (A draft of a statute to punish the making or use of false statements to obtain property or credit, jointly prepared by the General Counsel of the American Bankers Association and Counsel for the National Association of Credit Men, has been enacted in the form recommended, or with more or less modification, in a majority of the States. This statute provides, in substance, that "any person who shall knowingly make or cause to be made any false statement in writing, with intent that it shall be relied upon, respecting the financial condition, or means or ability to pay, of himself, or any other person, for the purpose of procuring in any form whatsoever, either the delivery of personal property, payment of cash, making of a loan, extension of credit, etc., for the benefit of either himself or of such other person, shall be guilty of a felony, and punishable, etc.") This question often arises in bankruptcy: Suppose the buyer goes bankrupt and the goods come into the hands of the buyer's trustee in bankruptcy. The trustee in bankruptcy is in legal effect, in such a case, the same person as the bankrupt; he is not a bona fide purchaser from him, and thus the seller may reclaim the goods from the trustee in bankruptcy just as he might from the bankrupt. In the case supposed the seller has been fraudulently induced to part with his title and may reclaim it. A case may be supposed, however, where the seller fraudulently retains his title, and here the buyer's creditors may seize the goods as if the title were in the buyer. Thus it is a fraud to make a conditional sale of goods to a person who intends, and who is understood to intend, to sell the goods again. The reason why it is a fraud is because it is inconsistent on the part of the wholesaler to say, "I retain title to the goods until paid for, yet I give them to you, knowing that you are going to put them in your stock of trade."