and were never intended to be repealed, and were protected under subdivision 4 of section 119. In the case at bar at the time of the signing of the original note, the plaintiff knew that the defendant was a surety. He had like knowledge at the time of the signing of each renewal note, including the note sued upon. The relation of the defendant was, at all times, one of surety. * * * The defendant entered into the contract to pay the original obligation or discharge the original instrument with all these considerations in mind, all of which were well known to the plaintiff. The collateral security was held by the plaintiff in trust for the payment of the original obligation, or, if the original obligation were paid by defendant, the collateral was held in trust to be turned over to him, if the defendant were compelled to pay the original obligation. If the plaintiff converts such collateral security to his own use, the instrument is discharged to the extent the collateral security has been decreased in value by failure of the creditor to exercise ordinary diligence in preserving the security, or if, after notice by the surety to proceed against the principal, and the principal fails to do so, the instrument is discharged to the extent of the damages which the defendant may show by reason of the creditor's failure to proceed. In other words, the contract which the defendant entered into is discharged to the extent herein indicated; and, where action is brought on the original instrument, or where an action is brought against the surety by the original holder, it is proper to set up and plead such damages, if any, by way of counterclaim, as a cause of action against the plaintiff. If the creditor extends the time of payment to a time certain, without the knowledge or consent of the surety, such extension operates to discharge the instrument so far as the surety is concerned. It is simply another way in which, under subdivision 4 of section 7004, a simple contract for the payment of money may be discharged, and there is no reason why this should not be so, for to hold that the surety can be held on a note which has been extended to a time certain without his knowledge or consent is to hold that he can be held on a contract which he never made. To illustrate: Supposing A. executes a note to B. for $1,000 which A. owes B. The note is due one year from the date of its execution. C. signs the same as surety. At the time A. executes the note he is worth $20,000. At the maturity of the note, A. and B., without the knowledge or consent of C., extends the time of the payment of the note for five years to a time certain. During such five years B. cannot maintain an action against A. for the recovery of the debt. During the five years A. becomes bankrupt. Should C. be held to pay the debt? It is evident that if the suit had been brought at the end of the year when default was made in the first note B, would have gotten his money and C. would not have suffered, but by the extension of time a new contract between A. and B. was made in which C. was not a party, and C.'s loss is also by reason of the new contract to which he is not a party. What sensible or just reason is there, if any, why C. should not be discharged from his contract on such instrument? There can be none, and there is none, for the circumstances and conditions which compel C.'s loss are not the conditions to which he contracted. The contract has been, in fact, changed without his consent and he is discharged from the instrument and from liability, and we hold that such a condition was contemplated under subdivision 4 of section 119 to discharge one from a simple contract for the payment of money where the circumstances we have above illustrated exist. We hold that all the rights of suretyship, the right of subrogation, are all brought under subdivision 4 of section 7004. This is the only reasonable construction to be placed upon such section. In this connection, it must not be lost sight of that section 6943 of the Compiled Laws of 1913 provides as follows: "In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable." If a negotiable instrument is taken in due course of business in the belief that all the signers of such note are makers, and with no knowledge by the one who takes said note that any of the signers thereon are sureties, the surety could claim no benefit by reason of his relation as a surety instead of maker, until knowledge of the suretyship is brought home to the holder of the note. If, however, a holder in due course has knowledge of the suretyship and has collateral security for the payment of the debt from the time he acquired such knowledge he is in no different position than any other holder of the note, and must have due regard to the rights of the surety and exercise ordinary diligence to preserve the collateral security. He must bear in mind that a surety cannot be held beyond the express terms of this contract. * * * It is clear the defendant did not authorize or consent to the conversion of the collateral by any person, and if the defendant did have knowledge that the plaintiff was turning the stock over to Eric Stafne for the purpose of having it reissued in the form of new stock, this knowledge would, in no manner, relieve the plaintiff from the necessity of accounting to the defendant for the value of said stock if plaintiff should pay the obligation to which such stock was collateral. The defendant did not consent to the conversion of the stock by Eric Stafne or any one else. The defendant admits his liability upon the note sued upon and counterclaims for the value of 20 shares of the Citizens' State Bank of Alexander, which have a par value of $100 per share; there being no evidence to controvert the presumption that the stock is worth par. We are of the opinion that such counterclaim is a proper one, and under the evidence as it now stands, the defendant should have judg ment for the value of the 20 shares of stock of the Citizens' State Bank of Alexander at par, with interest thereon at the legal rate since the date of the conversion of said stock. We are of the opinion that the matters disputed as a counterclaim were available by way of defense. From this view of the case, the only judgment plaintiff is entitled to is the excess of the note and interest over and above par value of the stock, with interest at the legal rate since the conversion. Though the surety is primarily liable, that does not relieve the creditor or the holder of the note from liability if he does not use ordinary diligence in preserving the security which has been hypothecated to secure the payment of the note, nor (in the opinion of the writer) can the creditor and the principal debtor, by agreement between themselves without the knowledge or consent of the surety, extend the time of payment to a time certain, thus, in effect, making a new contract, and. if such is done the liability of the surety, in my opinion, ceases. * Chapter Introduction SALES I. Transfer of Title in Contracts of Sale of Ascertained Goods. II. III. IV. V. VI. Powers of Persons Not Owners of Goods to Transfer Title to Innocent Negotiable Documents of Title. Remedies of the Seller. Warranties. VII. Rights and Remedies of the Buyer. INTRODUCTION The law of sales of personal property, in the main, is a branch of the general law of contracts. To some extent the law of property is involved. Contracts to sell land and transfers, of interests therein by deed are not here taken up. The general law of contracts is, of course, applicable to contracts for the sale of real estate; but the law with reference to the transfer of legal interests in real estate by deed or by will constitutes a branch of law separate from that which governs the transfers of interests in personal property. These topics of the law of real property are not developed in this volume. The following problems of the general law of contracts-offer and acceptance, consideration, rights of third parties in the contract, effect of mistake, fraud, duress, undue influence, illegality, and capacity, and of the statute of frauds-in their application to contracts to sell and of sales of personal property, are not reopened here, for the reason that the treatment of these matters in Part I is deemed adequate. There is no special reason for redeveloping these principles here. The special problems of the law of sales of personal property concern questions (1) of the nature and extent of the obligations of the parties; (2) performance; (3) discharge; and (4) remedies for breach. To put the matter more concretely it is evident that a contract to sell or of a sale is intended, ultimately, to result in the substitution of the buyer in the position occupied by the seller with respect to certain identified. property or property specified by description. All the legal relations which the seller has with respect to his property are to be transferred to the buyer. This substitution is referred to commonly by the phrase "transfer of title," or "transfer of the property in goods." What are the circumstances under which title to personal property will pass to the buyer, is a most important question in the law of sales. It becomes important to ascertain the moment at which title passes, in order to be able to determine the extent of the rights and liabilities of the buyer and seller when certain unexpected events occur. Risk of loss usually follows (951) B.&B.BUS.LAW. title; the right to sue for the purchase price, as distinguished from the right to sue for damages for breach of an executory contract to buy, is dependent upon a showing, as a rule, that title has passed to the buyer. Rights of creditors of the buyer and of the seller with respect to the subject of a sale are affected according as the title is in the buyer or seller. The first four chapters following deal with various manifestations of this broad inquiry. The remaining problems are three: (1) What is the nature and extent of the seller's obligations? (2) What are the remedies of the seller? and (3) What are the remedies of the buyer? The first leads us into the study of express and implied warranties, a topic developed in Chapter VI. The special remedies of the seller, taken up in Chapter V, and the special remedies of the buyer, taken up in Chapter VII, duplicate some aspects of legal remedies which were noted in Chapter X of Contracts; but, in several particulars, new aspects are presented. To some extent matters adverted to in Chapters V and VII define the substantive rights of the parties, rather than prescribe the nature and extent of legal remedies. For convenience these matters have been grouped together. The law of sales, like the law of negotiable instruments, has been codified in many states. In 1906 the final draft of the Sales Act was approved at the National Conference of Commissioners on Uniform State Laws and recommended to the several states. The Sales Act has been adopted in Arizona, Connecticut, Idaho, Illinois, Iowa, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Wisconsin, Wyoming, and Alaska. Section 1. 2. 3. CHAPTER I TRANSFER OF TITLE IN CONTRACTS OF SALE Introduction. Title Passes When the Parties Intend It to Pass. In Contracts to Sell Ascertained Goods in a Deliverable State, Presumptively Title Passes at the Time the Contract is Made. 4. Further Illustrations of the Application of the Presumption. 5. Application of the Presumption Where Acts of Weighing or Measuring Must Alone be Done to Ascertain the Amount of the Purchase Price. 6. Presumption That Title Passes at the Date of the Contract is Applicable Where the Sale is a Sale on Credit. 7. Presumption That Title Passes at the Date of the Contract Overcome by Proof That the Parties Intended a Cash Sale. 8. Contracts on Sale or Return and Contracts to Sell on Approval. Conditional Sales. 9. SECTION 1.-INTRODUCTION As has been noted in the introduction, one of the most important problems, if not the most important, in the law of sales, is the determination of the time when title to the property passes from the seller to the buyer. For the solution of this series of problems it is necessary to classify all contracts to sell into two groups: (1) Contracts to sell ascertained goods; and (2) contracts to sell unascertained goods. Some of the rules of law applicable to contracts in the one group also apply to contracts in the other group, but there are some rules which apply exclusively to contracts in but one of these groups. For these reasons, these two divisions must be considered separately. Each group, of course, must be further subdivided into several smaller groups; the contracts so classified in each having some features not common to the other groups. The importance of determining the precise time at which title passes arises from the fact: (1) That, generally, the risk of loss follows the title. (2) If title has passed to the buyer he is liable for the purchase price, as distinguished from damages for breach of contract to buy, even though he has not received the goods or has refused to accept them. (3) The power to transfer the title to a third party vests in the person who holds the title, and this is true, even though by such resale the party selling breaks his contract with the other party. When the purchase price has not been. paid, and the buyer has the title and is insolvent, the result will be a loss to the seller. Or, if the purchase price has been paid, and the seller, still holding the title, resells to a third party and is insolvent, the buyer will lose. (4) Creditors of the buyer and creditors of the seller, who are forced to sue for debts due them, possess the right to have the property which belongs to their debtors sold to satisfy their judgments. Since the possession of property |