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Principles Of Business Law - CHAPTER II
























































Transfer of Title

Sec. 11. Introduction. Many of the legal difficulties of the
average businessman revolve around the sale and purchase of mer-
chandise. In either event, the legal relations involved are con-
trolled by the law of sales. The law ofjsales consists oi^body of
legal j^a]es_ concerned with agreements entered into for the pur^sS"
ofjjjfifeatin^^^ ofjtitle to personal property? TEDs body of

rules forms a speclalrzedbranch of the law of contracts. The con-
tract of sale follows the ordinary rules of contracts, but, because of
the nature of the relation, certain additional rules have been
adopted. Peculiar conditions surrounding sales of property make
it necessary to imply many terms which are usually not expressed.
It is primarily with these implied terms that the law of sales deals.
The Uniform Sales Act, which has attempted to codify most of
these rules, has been adopted in a number of the states, and the
rules set forth in this chapter are those adopted by the Uniform

Sec. 12. Distinction between contracts "to sell" and contracts
"of sale." The legal relations effected by a contract to sell differ
materially from those arising from a contract of sale. An agree-
ment to sell discloses an intention to transfer title to personal prop-
erty at some subsequent date. A contract of sale has for its pur-
pose the present transfer of title to the property in question. Only
property which is in existence and title to which rests with the seller
may be the subject of present sale. In order that a transfer of
ownership may be made, there must exist property capable of being
transferred. On the other hand, a contract to sell may relate to
property not yet in existence or to property to which title is pos-
sessed by some third party. The undertaking in such a case is that
of bringing the property into existence or of obtaining title before
the date set for delivery. Any attempt to transfer present title to
such property is at best an agreement to sell rather than a sale.
Property not yet possessed or not yet in existence is known as
"future goods."

Sec. 13. Risk of loss. Normally, the risk of loss resulting from
the theft or destruction of property rests with the one holding title.
Because of this fact, it becomes quite important to determine
whether a particular agreement is a contract of sale or a contract to



sell; and, if the latter, whether title has passed at the time a par-
ticular loss occurs. Title is the detennining factor in ascertaining
where the loss jshall j2lir~~TKer vendor must bear any loss caused
by the destruction of goods before title passes. 1 Any loss which
takes place after title has passed rests with the vendee. These are
the general rules, but they may be varied by express provisions to
the contrary in the contract. The contract may provide that Jhe
risk shall bej2Qme_byJiiejYe^ delivery, or that it shall re-

sid^fwTtR the vendee, despite the fact that title is not to pass until

Where goods which form the basis of a sale are only partially de-
stroyed before title passes, the vendee has the option of either ac-
cepting the balance or rescinding the agreement. If he elects to
accept the portion of the goods which remain in deliverable condi-
tion, he must pay the full contract price, unless they are sold by
weight or measure. In the latter event he pays only for the goods
received at the unit price established in the agreement. Total de-
struction of specific goods which form the subject matter of the
agreement releases the vendor from any duty to deliver. Destruc-
tion of goods out of which he expects to make delivery, or destruc-
tion of the source from which his supply is normally received, does
not release him from his duty to perform. Inasmuch as it is still
possible for him to deliver, although the performance becomes more
burdensome, he is liable in damages for a failure to deliver the
goods bargained for.

To illustrate: A contracts to sell B a certain horse for $100. The
horse dies before the date set for delivery and the passing of title.
The loss falls upon A, but he is excused for his failure to deliver the
horse. Let us assume that, instead of a horse, A agrees to deliver
to B five hundred bushels of wheat at $1 per bushel. Just before
delivery is to take place, all the wheat owned by A is destroyed.
The loss must be borne by A, and, if B is compelled to pay more than
a dollar a bushel elsewhere for the grain, A must make up the dif-
ference. In either contract, had the agreement been one of sale
instead of an agreement to sell, the loss would have fallen upon B,
although delivery had not as yet taken place.

Sec. 14. Title passes according to intention of parties. Title
to personal property which forms the basis of sale passes at the
time intended by the parties. If the agreement indicates in any
manner when title is to pass, the terms of the agreement govern.
It is seldom, however, that the parties to a sales agreement think of
inserting any provision relative to the passing of title. Because of
this fact, various rules for determining the intention of the parties

1 Miller v. Seaman et al., 1896, 176 Pa. St. 291, 35 All. 134; p. 739.


have been formulated by the courts. In the absence of any stipu-
lation in the agreement to the contrary, or of any conduct which
indicates a contrary intention by the parties, title passes in accord-
ance with the rules set forth in the sections which follow.

Sec. 15. Sale on trial. When goods are delivered to the buyer
on approval, trial, or other similar terms, title remains in the seller
until the buyer evidences in some manner an intention to adopt the
transaction. 2 This intention may be evidenced by express notice to
the seller, or by any conduct which indicates an acceptance of the
goods. Retention of the goods beyond a reasonable time, or be-
yond the time established by the agreement, indicates an intention
to keep the property. If the vendee is under no duty to return the
goods, which situation is seldom true, he should notify the vendor
within a reasonable time that he is not accepting the goods.

A sale on trial must be carefully distinguished from a transaction
in which goods are delivered "on sale and return." Whenever the
agreement indicates an intention to make a present sale, but also
gives the buyer an option to return the goods, title passes with a
right on the part of the buyer to revest title in the seller by return-
ing or tendering the goods. Such return or tender must take place
within a reasonable time, provided no rimit has been prescribed in
the contract. An agreement, therefore, which gives to the buyer a
right to return the goods, if they prove unsatisfactory, has the effect
of transferring title to him, with its corresponding risk of loss. On
the other hand, a sale on trial throws no risk upon the buyer until
he adopts the transaction in some manner and thereby assumes
title. He is a mere bailee of the properly until he elects to become
its owner and, as such, rests under a duty to exercise reasonable care
for its protection.

Contracts for the sale of merchandise which has been bottled or
which is delivered in containers often provide that the buyer may
return the containers and receive credit for them. In these cases
title to the containers passes to the buyer and risk of loss rests with
him until they have been returned to the seller. However, if the
buyer is not charged with the container but agrees to return it, a
bailment takes place. In such a bailment, the bailee is liable for
loss only when he fails or is unable to return the container because
of his wilful or negligent act.

Sec. 16. Ascertained goods. An unconditional contract to sell
specific goods in a deliverable state passes title to the property at
the time of the agreement. In other words, where the specific
articles to be delivered are identified, the goods are said to be ascer-
tained. In such a case, articles of like kind cannot be substituted ;

2 Hunt v. Wyman, 1868, 100 Mass. 198; p. 740.


the particular goods upon which the minds of the parties met are to
be delivered. Under such circumstances, title passes at the time
the contract is formed. The fact that the date of delivery or pay-
ment is postponed beyond the time of the agreement does not delay
the passing of title. Jnasmuch as the buyer is usually free to as-^
sume possession, the risk passes at thej^t^^Jhe^agreement.

Where ascertained goods form theTasis of a sale and the seller
is to do something to them for the purpose of putting them in a
deliverable condition, title does not pass until such thing is done. 3
Thus, if he is to repair, measure, or weigh the property, title passes
only after he has completed his task. Under such circumstances,
it is only fair that the seller assume the risk until delivery can be
made, as it is his failure to act which prevents the buyer from taking

Sec. 17. Fungible goods. As said before, fungible goods are
goods that are not sold by the individual unit, but by weight or
measure goods in which one unit is like any other unit. A sale of
a certain quantity of fungible goods passes title at the time of the
agreement to an undivided interest in the total mass, if the particu-
lar mass out of which it is to be delivered has been agreed upon. 4
However, if the seller is to weigh, sack, or do something to the goods
to place them in a deliverable condition, title passes only after he
has completed his work.

Sec. 18. Unascertained goods. A contract to sell unascer-
tained or future goods by description or sample causes title to pass
only when goods corresponding to the description or sample have
been unconditionally appropriated to the contract by one of the
parties with the assent of the other. Title passes whenever the
seller appropriates specific property with the assent of the buyer,
or when the buyer appropriates it with the assent of the seller.
The assent may be either express or implied and may be given either
before or after the appropriation. Both the appropriation and the
assent must combine, however, to pass title.

To illustrate, let us assume that a buyer has seen the supply, such
as a number of cars, from which the selection is to be made, all of
the articles being of the kind and quality to be purchased. If, after
the contract is made, the seller selects one and marks it with the
buyer's name, title passes at that time. Even though it has not
been paid for, any loss arising from its destruction would fall upon
the buyer. Similarly, a buyer who supplies the seller with con-
tainers in which to pack or ship the merchandise is said to accept
title as of the time the containers are filled. These and similar acts

1 Hamilton et al. v. Gordon, 1892, 22 Or. 557, 30 Pac. 495; p. 740.
^O'Keefe v. Leistikow, 1905, 14 N.D. 355, 105 N.W. 515; p. 741.


on the part of a buyer act as assent in advance of appropriation, and
the seller's act of appropriating the goods causes title to pass.

Sec. 19. Delivery to carrier. One method of appropriation
quite often used by the seller is that of delivering the goods to a
carrier. Delivery ofgoods to a carrier for the purpose of transmis-
siontothe buyer^oZi^^ theT>Uyer constitutes an ap~

propnation of tb ft .-goads by thg^gllP r - If the contract to sell re-
quires the seller to deliver the goods to a certain destination, or to
pay the delivery charges, the title does not pass until the goods have
been delivered. If the buyer is to pay delivery charges, title passes
as soon as the goods are delivered to the carrier. The carrier is said
to act as an agent of the buyer to accept goods appropriated by the
seller, provided the goods delivered correspond to the description or
sample. Thus, any loss or injury suffered by goods in transit falls
upon the vendee if he is to pay transportation charges. Where the
seller is to deliver the goods to the buyer's destination, the risk rests
with the seller until the goods are unloaded and ready to be carried

Title does not pass unless the goods shipped correspond in both
quality and quantity to those ordered. If those delivered to the
carrier are not the kind or the amount ordered, the buyer is not
required to accept them. Therefore, any loss arising during their
carriage must be borne by the vendor. Likewise, failure to follow
shipping instructions given by the buyer or, in the absence of any,
to make the customary contract for the protection of the buyer,
shifts the risk of loss during transit to the seller.

A "c.i.f ." contract is one in which the purchase price of the goods
is presumed to include the cost of the goods, customary insurance,
and freight to destination. Since the shipper procures insurance
in such cases and forwards the policy to the purchaser, it is usually
held that title passes at the point of shipment. 5

Sec. 20. C. O. D. shipments. The mere fact that goods are
shipped C. 0. D., which, taken literally, means cash on delivery,
does not affect passing of title. Such a provision in the bill of lad-
ing merely indicates that the shipper is retaining the right to pos-
session of the goods until payment is made. Title passes to the
buyer, if he is to pay transportation charges, at the time the goods
are received by the carrier; but the seller reserves a lien, evidenced
by his right to possession, until the price is paid by the buyer.

When goods are shipped under a bill of lading denoting that the
goods are to be delivered to the seller or his order, the seller retains
title. But if, except for the form of the bill of lading, title would
have passed to the buyer, it is presumed that title is retained for

5 Smith Co. v. Moscahlades. 1920. 183 N.Y.S. 500: D. 742.


security only and the risk of loss is carried by the buyer from the
moment the goods are delivered to the carrier. Since title is re-
served for security only, it passes to the buyer when he obtains the
order bill of lading properly indorsed. The bill of lading is usually
delivered to thejbuyer by some bank only ^fter ihe buyer ^pavs the
accompanying draft or bill of exchange. When the order bill of
lading, properly indorsed, is sent by the seller directly to the buyer
along with a bill of exchange for his acceptance or payment, he ob-
tains no right or title to the goods until acceptance or payment.
However, a third party who purchases, in good faith, the bill of lad-
ing or goods from the buyer obtains good title, although the latter's
title was defective.

To illustrate these rules, let us assume that A ships B goods on an
order bill of lading which designates A as consignee. A mails the
bill of lading, indorsed in blank, to B's bank, accompanied by a bill
of exchange for $500, payable at sight. The agreement calls for
payment of the freight by B. If the goods are damaged in ship-
ment by some act of God, the loss must be borne by J5, as title is re-
tained as security only.

Sec. 21. Voidable title. Where the seller has a title which may
be voided by some third party, the buyer acquires a good title to the
goods, provided he purchases them in good faith without knowledge
of the right of the third party. Thus, a party who has a right to
rescind an agreement because of fraud has no right to do so after his
vendee has resold the property to an innocent purchaser.

In addition, a vendor who sells property but retains possession
of it, and then resells to, delivers to, and receives payment therefor
from an innocent third party who does not know of the previous
sale, passes good title to the third person. The vendee who obtains
title to property, but leaves it in the possession of the vendor, makes
it possible for the vendor to perpetrate a fraud. In the event of
such misconduct, any loss must be suffered by the original vendee,
unless he can recover from the vendor.


Sec. 22, Express warranty. A warranty is an affirmation of
factor a promise b^jthe seller, relalmgjjojbhe goods, which acts as
anlnHucement forlHe buyer tcTpurchase. Warranties are ot two
kinds: express and implied. SiTe^press warranty is one which
becomes part of the sale agreement because of a direct statement
made by the seller; an implied warranty attaches itself to the con-
tract by reason of the nature of the agreement. A purchaser who
desires a particular kind of warranty relative to the property should
demand an express stipulation to that effect in the agreement.


Two distinct factors combine to bring about an express warranty.
First, the vendor must make a statement of fact or a promise of
future conduct concerning the property sold. Second, the state-
ment or promise must be such as to induce, in some measure, the
buyer to act. Statements of fact should be clearly distinguished
from statements of opinion. 6 Any representation qualified by "I
think" or "I believe" clearly expresses merely an opinion and does
not form any part of a warranty. Furthermore, statements refer-
ring to the value of an article are usually considered matters of
opinion. Ideas concerning the value of property must necessarily
vary with the individual. Any reference to the quality of the arti-
cle, however, is usually considered a statement of fact.
I Any conduct on the part of the vendee which indicates that he
is relying on his own judgment or investigation rather than on the
j statement of the vendor negatives the idea of a warranty. In order
for a warranty to arise, the statement made by the vendor must act
as an inducement to the vendee to enter into the agreement. Fur-
thermore, any general statement made by the seller, where the
property is available and is being inspected by the parties, does not
cover obvious defects. Thus, A sold B a horse, which was present
and subject to inspection at the time of the sale. A made a state-
ment that the horse was sound "in every particular." It was held
that the statement did not operate as a warranty against blindness,
which was apparent to anyone upon casual inspection.

Sec. 23. Implied warranty of title. The vendor of personal
property warrants, as an implied term of his contract, that he has
title and that no one having a paramount title will interfere with
the quiet enjoyment of the property by the vendee. In addition,
he warrants that the property is free from all liens. If the agree-
ment be one to sell rather than one of sale, he warrants that he will
have title to the specified property before the time it is to be trans-

s To illustrate: A sells B a used automobile, honestly believing that
he has title to it. C, having a better title to it, demands possession.
Good faith on A's part does not relieve him; he becomes liable to B
for the purchase price and for any other damages suffered as a result
of the breach of warranty.

Sec. 24. Warranty of fitness for a particular purpose. Al-
though goods are most often sold by description or catalogue num-
ber, occasionally a buyer desires an article toTuffifl a particular pur-
pose. Where the buyer expressly or impliedly indicates to the
seller the particular purpose fcfr which he desires the goods and
relies upon the skill or judgment of the seller, there arises an im-

6 Saunder3 v. Cowl et al., 1938, 201 Minn. 574, 277 N.W. 12; p. 743.


plied warranty that the goods will prove fit for the purpose. In
such instances it is presumed that the vendor is more familiar than
the vendee with the results to be obtained from the use of particular
property. In addition, an implied j^jcaniyjrf .fitness.. may be an-
nexed by th^trsa^es-and Trostoms of trade. Because of the nature
of^the~business, it may be implied in certain cases that the buyer
desires an article for a special purpose. In ordinary cases, how-
ever, it must appear that the purchaser relies upon the skill of the
vendor, and that he does not order the property by description or
by its trade name. 7 Property sold under its trade or patent name
carries with it no implied warranty of fitness for a particular pur-

Sec. 25. Warranty that goods are merchantable. A sale of
goods by sample or description raises an implied warranty that they
shall be merchantable. Goods are merch^taj^
free from hidden defects amLare fit forjthe use to which they_are
ordinarilyjglaced. 8 When goods are inspected by the buyer, there
is no implied warranty against defects which the examination
should have revealed. Where goods are the subject of inspection,
the vendee should be in as good a position as the vendor to know
whether the goods are merchantable. However, a warranty arises
against defects which do not appear upon an examination of the

In some respects a sale at retail, when the article of merchandise
is displayed for the purpose of enabling the buyer to select the
article desired, is not a sale by description. This is particularly
true if the buyer takes the article from an open counter. Several
courts have held that no implied warranty of merchantability ap-
plies in such a case but the better view seems otherwise. The
purchaser who selects a can of beans from a shelf is as effectively
saying, "I want a can of beans," as the person who orders them over
the telephone.

At one time, only the grower, packer, or manufacturer warranted
goods to be merchantable. The Uniform Act has broadened the
rule so that it includes anyone regularly engaged in selling such
goods. Thus, the warranty of merchantability forms an implied
part of all sales, except casual sales made by people not regularly
engaged in selling the articles involved. Implied warranties, as
well as express warranties, may be provided against in the contract
of sale. Waiver of implied warranties must be clearly expressed to
be effective. A statement that only those warranties written into

7 McNabb et al. v. Kentucky Natural Gas Co. et al., 1938, 272 Ky. 112, 113 S.W.(2)
470; p. 744.

8 Ryan v. Progressive Grocery Stores, Inc., 1931, 255 N.Y. 388, 175 NJE. 105; p. 745.


the contract shall attach to a sale does not have the effect of elimi-
nating the implied warranties, more definite language being re-
quired to attain that end.

In addition to being merchantable, goods ordered by sample must
conform to the sample. Where ordered by both sample and de-
scription, the goods must correspond to the description as well as
to the sample. It is not enough for the bulk of them to be like the
sample; the description must also be complied with.

Sec. 26. Extent of implied warranties. Warranties associated
with a contract of sale are applicable only between the vendor and
the vendee. 9 The terms of their agreement do not extend to pur-
chasers from the vendee. Thus, a hidden defect which appears
after the article has reached the hands of the ultimate consumer
gives the consumer no right against the manufacturer or the grower.
The warranty of the manufacturer extends only to the jobber or the
retailer. The only recourse of a consumer in case of defective mer-
chandise is to look to the retailer upon express or implied warran-

To this general rule there is one exception. An article which, if
defective, normally would prove dangerous to human life carries
with it an implied warranty of the manufacturer or the grower to
the ultimate consumer. It is because of this exception that the
packer of canned goods is liable in many states to the ultimate con-
sumer for damages resulting from improper or defective canning.
The real basis for such an extension of the warranty is that the
damages are attributable to the negligence of the canning company,
some courts permitting recovery in tort based upon evidence of
carelessness in packing, and a few extending the doctrine of war-
ranty in such cases to the length necessary for recovery against the
packer. These latter courts in reality partially adopt the theory
that the warranty runs with the goods. Other theories have at
times been resorted to in order that an action may be sustained
against the manufacturer or packer. 10


Sec. 27. Remedies of seller where buyer refuses delivery.
Whenever the seller properly performs by tendering delivery of the
quality and quantity of goods ordered by sample or description, he
is entitled to have the purchaser accept the goods and make pay-
ment. Delivery and payment are presumed to take place contem-
poraneously unless a different time for payment has been provided
in the agreement. A refusal by the buyer to accept the goods and

u Prinsen v. Russos, 1927, 194 Wis. 142, 215 N.W. 905; p. 746.

10 Baxter v. Ford Motor Co. et al., 1932, 168 Wash, 456, 12 Pac.(2d) 409; p. 747.


to pay for them gives the seller a right to recover damages only.
His damages are dependent upon the current market price of the
goods at the time of the buyer's refusal. In case the agreement
relates to goods for which there is no available market, a tender of
delivery gives to the vendor a right to recover the full contract price.
This rule applies particularly to goods manufactured especially for
the buyer.

Where title has passed to the buyer before delivery, as in the case
of ascertained goods, and he refuses to pay, action may be main-
tained for the full purchase price. The same remedy is also avail-
able where the buyer, regardless of delivery or the passing of title,
is to make payment at a certain time.

Sec. 28. Unpaid seller's lien. The unpaid seller of goods, who
is in possession of them, although title may have passed to the
vendee, is entitled to retain possession until payment of the pur-
chase price, where the goods are to be paid for when delivered, where
the period of credit has expired, or where the buyer has become in-
solvent. In other words, the unpaid vendor has a lien upon the
goods until such time as they are delivered or paid for, unless the
period of credit previously agreed upon has not expired. 11 Thus,
goods in the possession of the vendor, unless paid for or purchased
on credit, may not be levied upon by creditors of the vendee, al-
though title has passed. Even though credit was bargained for,
the levy may not be made without payment for the goods, if the
buyer has become insolvent or the credit period has expired.

Insolvency as used in the law of sales means the failure of the
buyer to meet his current demands as they fall due. Failure of the
debtor to satisfy his obligations as they mature makes him insolvent
and gives a seller the right to invoke an unpaid seller's lien or to
stop goods in transit.

Sec. 29. Stoppage in transitu. An unpaid seller who has
parted with possession of the goods to some transportation agency
may, in the event of the insolvency of the buyer, stop the goods in
transit, even though title may have passed to the buyer. The un-
paid seller, for the purpose of maintaining his lien, is considered as
being in possession of the goods until they are delivered by the car-
rier to the buyer. The insolvency of the purchaser gives to the
seller a right to demand a return of the goods so long as they have
not been delivered to the buyer. He must, however, pay the neces-
sary transportation charges to the carrier. The right of stoppage
in transitu is terminated by delivery of the goods to the buyer,
whether the buyer has obtained them during transit or after arrival
at their destination. However, so long as the carrier is still in pos-

u Perrine v. Barnard et al., 1896, 142 Ind. 448, 41 NJE. 820; p. 748.


session, unless it has wrongfully refused delivery, or unless it holds
the goods in storage under a subsequent agreement with the pur-
chaser, this right of the seller to demand a return of the goods con-

Notice must be given to the carrier in ample time so that it may
communicate, by the use of reasonable diligence, with its agent in
charge of the goods. Delivery of the goods to the buyer, before
notice can reach the agent in charge, terminates the lien of the

Sec. 30. Right of resale. The unpaid seller who has a lien
upon the goods is entitled to resell them within a reasonable time
after the buyer has been in default in payment of the purchase
price. If the goods are of a perishable nature, the right to resell
arises immediately upon the default of the buyer. The seller is
under no duty to notify the purchaser of his intention to resell and
may recover from him any deficit arising from the sale.

If the seller desires, he may, instead of reselling the property,
merely rescind and look to the buyer for any damages suffered.
Rescission will not be considered as having taken place unless he
has given notice to the buyer or has in some other way definitely
indicated his intention to rescind.

Once delivery of the goods to the buyer has been made, the only
remedy of the unpaid seller is to bring suit for the purchase price.
He may not rescind and demand the return of the property. Known
insolvency on the part of the buyer does not amount to fraud and
gives to the seller no right to rescind. Rescission may take place
where title has been retained as security, but this situation forms a
conditional sale and is considered in detail elsewhere.

Sec. 31. Remedies of the buyer. Where title to the goods has
passed to the buyer and the seller wrongfully neglects or refuses to
deliver the goods, the buyer may bring suit to recover either the
damages resulting from conversion or possession of the property
by replevin. 12 If the agreement consists of a mere contract to sell
unascertained goods and the seller defaults, the purchaser may
bring suit for damages. In the absence of extenuating circum-
stances showing special damages, he is limited in his recovery to the
difference between the current market price and the price which he
has agreed to pay.

Sec. 32, Remedies for breach of warranty. Any warranty
made by the vendor which proves to be false gives to the buyer a
choice of four remedies. He may accept or keep the goods and set
up the breach of warranty as a partial extinction of the purchase
price, or, if payment has been made, he may keep the goods and re-

13 Abraham v. Karger, 1898, 100 Wis. 387, 76 N.W. 330; p. 749.


cover for the damages sustained. He may refuse to accept the
goods where title has not passed and maintain an action against the
seller for damages arising from the breach of warranty; or he may
rescind the agreement, and, if the goods have been delivered, return
them and recover any part of the purchase price which has been

Sec. 33. Inspection of goods. Upon receipt of goods the buyer
always has the right to inspect them before acceptance. If the
inspection discloses that they do not conform to the description,
sample, or warranties, or that the quantity is greater or less than
ordered, the buyer may reject the property. An acceptance of the
goods by the purchaser, after an inspection has revealed a defect
of some character, constitutes a waiver of the right to rescind and
limits the buyer to his remedy for damages. Thus, if A orders from
B a gross of cut-glass tumblers which are described as having cer-
tain markings, and those received have entirely different markings,
the buyer may either return them or keep them and deduct from
the purchase price the damages occasioned by the breach.

The buyer has no right to inspect goods which are shipped
Q 0. D. until after he has paid the purchase price. If defects are
revealed by a later inspection, however, he may return the goods
and demand his purchase price.

Negotiable Documents of Title

Sec. 34. Duties of bailee. A negotiable document of title is a
written instrument which indicates that certain goods are in the
possession of a given bailee and will be delivered to the order of the
person named therein or to bearer, if so worded. Negotiable
warehouse receipts and bills of lading are the best-known documents
of this character. A public warehouse which issues a negotiable
receipt is not at liberty to surrender the goods to the original bailor
unless he surrenders the receipt for cancellation. The receipt is a
symbol of the goods described therein and must be presented in
order that the goods may be obtained. The warehouse that sur-
renders goods without the return of the receipt may be called upon
for the goods by someone who has purchased the document. The
goods should be delivered only to the person in possession of the
receipt and then only in case it has been properly indorsed, if such
was required. Much the same can be said of a common carrier or
any other organization which issues a negotiable document of title.

If the instrument is originally drawn to bearer, title to it can be
transferred without indorsement. Where it is drawn to a certain
person or order, however, his indorsement must appear on the in-
strument before anyone can obtain title thereto. A forged in-


dorsement is ineffective and does not pass title. An instrument
properly indorsed in blank becomes bearer paper and may there-
after be transferred by delivery, whereas a special indorsement
to a certain person requires that it again be indorsed in order to
effectuate a transfer.

Sec. 35, Rights of purchaser. A bona fide purchaser of a ne-
gotiable document of title takes it free of certain equities of owner-
ship. The Uniform Bills of Lading Act provides that a bona fide
purchaser of a bearer bill of lading, or of one that is indorsed in
blank, takes good title thereto. Thus, a thief or a finder of such an
instrument could sell it to an innocent party and pass good title.
The Uniform Sales Act does not extend such freedom to the circu-
lation of other negotiable documents of title. It provides that the
holder of a bearer document, or of one which has been indorsed to
him, may transfer good title to an innocent third party, although
the holder violates a trust in so doing. Thus, it is only where one
has been entrusted with the document that he can transfer good
title. If he holds it as an agent for a certain purpose and wrong-
fully disposes of it, the purchaser obtains good title to it. 13

One who is persuaded to dispose of a negotiable document of title
by reason of fraud, mistake, or duress cannot recover it from a bona
fide purchaser. To illustrate, let us assume that A, upon delivery
of goods to a public warehouse, receives a negotiable warehouse
receipt. B, by misrepresenting his financial standing, induces A
to sell the goods to him on credit. The warehouse receipt is in-
dorsed to B, who indorses it and sells it to C, an innocent purchaser.
It is clear that C"s claim to the goods is superior to A's A's only
recourse being to recover from B for his fraud.

It should be borne in mind that if the original bailor of the goods
one who delivered them to the carrier or warehouse had no title
to them, a subsequent purchaser of the document of title could get
no title to the goods. A negotiable document of title is valuable
only where its first possessor had title to the goods represented
thereby. A thief cannot pass title to stolen property by delivering
it to a public warehouse and then selling the negotiable warehouse
receipt which he receives therefor.

The Uniform Bills of Lading Act makes a carrier responsible for
bills of lading which are issued when no goods are delivered. Thus,
an agent, who fraudulently issues a negotiable bill of lading with-
out receiving any goods, makes it possible for an innocent purchaser
thereof to recover from the carrier. Before the Uniform Bills of
Lading Act was adopted, the courts were in serious conflict as to the
rights of the parties, but, where the Act has been adopted, responsi-

M Baker Co. v. Brown, 1913, 214 Mass. 196, 100 N.E. 1025; p. 760.


bility for the agent's misconduct clearly rests upon his principal.
Sec. 36. Liability of indorsers. The indorser or transferor of
a negotiable document of title makes three distinct warranties:

1. He warrants that the instrument is genuine. One who pur-
chases a forged document of title may, upon discovery of the for-
gery, recover from the indorser. In case it is bearer paper and un-
indorsed, he recovers from the person who sold it to him.

2. He warrants that he has a legal right to negotiate or transfer it.
This assertion is in effect a warranty that his title to the document
is good.

3. He warrants that he has a right to transfer title to the goods
and that the goods are merchantable or fit for a particular purpose,
if the sales agreement implies such. In this case he makes the
usual implied warranties which accompany any sale of goods:
namely, title, merchantability, and, possibly, fitness for a particular

It should be noted that he does not warrant performance by the
bailee. His warranties are satisfied when the purchaser obtains a
good right against the warehouseman or carrier. If the bailee has
misappropriated the goods or refuses to surrender them, the holder
of the document has, as his only recourse, an action against the
bailee who issued the document.

Review Questions and Problems

1. A owned two piles of wheat in a warehouse, which totaled 6,700
bushels. He sold 6,000 bushels to B, who paid for them and took a bill
of sale and a warehouse receipt. Later A sold the same wheat to C. C
contends that B did not obtain title because the wheat was not set apart.
Assuming that B saw the two piles of wheat, did title pass to him at the
time the agreement was made?

2. A contracted to sell and deliver to B 2,000 cords of wood, at $5.50
a cord, from a certain timber plot. A fire destroyed all the timber ex-
cept 500 cords. B refused to accept the 500 cords and A sued for dam-
ages. Did A have a right to recover?

3. A sells B a certain used automobile. Before the car is delivered,
it is destroyed by fire. Who must bear the loss? Does the fact that it
is not paid for have any bearing on the result?

4. What is the difference between a contract "of sale" and a contract
"to sell"?

5. A advertises a certain kind of bicycle for sale on thirty days' trial.
B orders one of the bicycles and it is sent to him by express. Before the
trial period expires, the bicycle is stolen. Who must bear the loss?

6. When does title pass in a sale on trial? How does it differ from a
sale and return?

7. A sold B a horse and warranted it to be sound. The horse proved


to be unsound and B desires to rescind. A desires to introduce evidence
which indicates that he made the statement in good faith. Is such evi-
dence pertinent?

8. A ordered some No. 1 and No. 2 Poughkeepsie foundry pig iron
from B. He intended to use the iron in the manufacture of stoves.
Some of it proved unfit for such a purpose. May A recover from B for
breach of an implied warranty of fitness for a certain purpose?

9. A ships to B certain goods on credit. Under what conditions may
A demand that the carrier redeliver the goods to him instead of deliver-
ing them to the consignee?

10. A ships goods to B under an order bill of lading. It is agreed that
B is to pay the freight, the bill of lading with draft attached being sent
to B's bank. The goods were destroyed in shipment by an act of God
before B had taken up the draft and obtained possession of the bill of
lading. Upon whom must the loss fall?

11. Normally the purchaser receives no better title than the vendor
possesses. Is this fact true of a title which is voidable by reason of fraud
on the part of the vendee in the first sale?

12. What are the two elements of an -express warranty? What is
meant by an implied warranty of title?

13. When is there an implied warranty of fitness for a particular pur-

14. A contracts to sell certain Kentucky tobacco like the sample. He
ships to the buyer tobacco in every respect like the sample, but grown in
Wisconsin. Is the buyer bound to accept the tobacco?

15. Does a warranty made by the manufacturer to the retailer extend
to the consumer?

16. Name three remedies possessed by the unpaid seller of goods under
varying conditions. If title has passed and the goods have been de-
livered, may the vendor demand a return of the goods sold, in the event
of nonpayment? Is the vendee liable for any deficit if the goods are re-
sold by the vendor at a loss, assuming that the goods are resold under a
vendor's lien?

17. What are the remedies of the purchaser where the seller refuses to
make delivery?

18. A shipped, C. 0. D., $500 worth of groceries to B in accordance
with an order from the latter. The goods arrived at their destination,
but B refused to accept or pay for them without first inspecting them.
The carrier refused to permit the inspection, and before the groceries
could be sold elsewhere some of the fresh vegetables were badly damaged.
Was B entitled to inspect the goods before payment? Who bore the

19. A Company issued to B a negotiable warehouse receipt for 500 bar-
rels of flour. B indorsed the receipt to C, and C to H. It was later dis-
covered that B had stolen the flour, and A Company was compelled to
deliver it to the true owner. Has H a cause of action against A Com-
pany? Has H a cause of action against C, who was innocent of any


20. A Company gave B a negotiable warehouse receipt for the storage
of certain furniture. A short time thereafter B returned for the furni-
ture, insisting that he had lost the receipt. The furniture was delivered
to B; a week later, C, an innocent purchaser of the receipt, presented it
to A Company and demanded the furniture. May C recover from A

21. When does the purchaser of a negotiable warehouse receipt take
better title to it than the transferor had?

22. W's husband bought a can of pork and beans at a neighborhood
grocery. The food had been improperly packed, and W became seriously
ill as a result. Can she sue and recover damages from the packer?
From the grocer?

23. owned two mules which were in the possession of T. He sold
the mules to a bank and gave the bank a bill of sale, but failed to notify
T of the change of title. later sold the mules to P, an innocent pur-
chaser, who paid for them and obtained possession from T. As between
the bank and P, who has the best claim?

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