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."
DESTRUCTION OF GOODS SOLD.—The question sometimes arises as to the effect of the destruction of the goods sold or contracted to be sold. The Sales Act in Sections 7 and 8 governs this: