I. Introductory.

It is not the purpose to confine this annotation to notes which contain merely a clause reserving title to property. What are commonly designated "title-retaining notes" sometimes merely reserve title to the article sold; sometimes possession is reserved or the right to retake possession is conferred.

II. Clause reserving title.

The mere fact that a note, otherwise negotiable, given to evidence the whole or a part of the purchase price of property, contains a provision reserving legal title to the property until the note is paid, does not, according to the majority of cases, destroy its negotiability. Chicago R. Equipment Co. v. Merchants' Nat. Bank (1890) 136 U. S. 268, 34 L. ed. 349, 10 Sup. Ct. Rep. 999; First Nat. Bank v. Slaughter (1892) 98 Ala. 602, 39 Am. St. Rep. 88, 14 So. 545; First Nat. Bank v. Alexander (1909) 161 Ala. 580, 50 So. 45; Citizens Nat. Bank v. Buckheit (1916) 14 Ala. App. 511, 71 So. 82, certiorari denied in (1916) 196 Ala. 700, 72 S. E. 1019; Exchange Nat. Bank v. Steele (1913) 109 Ark. 107,

III. c-continued.

2. View that negotiability is not destroyed, 707.

d. Under Negotiable Instruments Law, 708.

IV. Negotiable Instruments Law generally, 711.

158 S. W. 969; People's Bank v. Porter (1922) Cal. App., 208 Pac. 200; Mott v. Havana Nat. Bank (1880) 22 Hun (N. Y.) 354; Third Nat. Bank v. Bowman-Spring (1900) 50 App. Div. 66, 63 N. Y. Supp. 410; National Bank v. Davis, 6 Mortg. Co. L. Rep. 99; W. W. Kimball Co. v. Mellon (1891) 80 Wis. 133, 48 N. W. 1100.

The note involved in People's Bank v. Porter (1922) Cal. App. —, 208 Pac. 200, did not actually have the title-retention clause written into it, but the court treats the situation the same as though, such a clause had been written into the note there involved. This case was decided under the Negotiable Instruments Law.

A reference in a note to a conditional-sales contract was held not to render it non-negotiable in Continental Guaranty Corp. v. People's Bus Line (1922) Del., 117 Atl. 275. This, however, raises a question which is annotated in 14 A.L.R., page 1126.

A note otherwise negotiable was held in Robert Bell Engine & Threshing Co. v. Topolo (1916) 9 Sask. L. R. 384, 34 West. L. R. 824, [1917] 1 West. Week. Rep. 608, 32 D. L. R. 77, not to

be rendered non-negotiable by reason of an indefinite reservation of title.

In some of the foregoing cases it was provided not merely that the title to the article sold should remain in the vendor, but that the article should remain "the property" of the vendor. Mott v. Havana Nat. Bank (1880) 22 Hun (N. Y.) 354; Third Nat. Bank v. Bowman-Spring (1900) 50 App. Div. 66, 63 N. Y. Supp. 410. And in W. W. Kimball Co. v. Mellon (Wis.) supra, it was provided that all the right and title to the article should remain in the vendor, who should have the option of taking possession. But the note in the Kimball Case was held to be rendered non-negotiable by a provision authorizing the vendor to take possession of the instrument for which the note was given, sell the same at private sale, and apply the proceeds to the payment of the note, and binding the maker to pay any deficiency on demand.

The United States Supreme Court in Chicago R. & Equipment Co. V. Merchants Nat. Bank (U. S. ) supra, in holding that an instrument by which the maker promised to pay to the order of the payee a sum certain at a fixed time, with interest, and which stated that the note was one of a series of notes given for cars sold by the payee to the maker, and should become due on the failure to pay any one of the series, and that it was agreed that the title to the cars should remain in the payee until all the notes were paid and that they were secured ratably on the cars, is a promissory note to be protected in the hands of a bona fide holder for value according to the rule of mercantile law applicable to negotiable instruments, bases its decision upon the theory that the contract in question was not merely a conditional sale of the cars, -that is, an agreement to sell upon condition that the purchaser should pay the notes at maturity,-but was an absolute sale of the cars, the payee having no interest remaining in them, except by way of security for the payment of the notes given for the price. The distinction between a conditional sale and a reservation of title by

way of security only is observed in Michigan also, in determining upon the negotiability of notes. An absolute reservation of title destroys the negotiability in that state. Worden Grocer Co. v. Blandin (1910) 161 Mich. 254, 126 N. W. 212, 20 Ann. Cas. 1332.

In addition to the foregoing cases there are others which lend support to the view that a reservation of title does not destroy the negotiability of the note. A note given to evidence the purchase price of a colt, which contains a provision that "said promise made for a colt this day taken, said colt holden for the payment of said amount," was held to be negotiable in Collins Bradbury

(1874) 64 Me. 37. The court says that the essentials of a promissory note are that it is payable to order or bearer in money at all events, and not upon any contingency or out of any particular fund, and continues: "The note in suit has all these elements. That it states the consideration for which it was given, and that, if recorded, it might operate as a mortgage, does not render it any the less a promissory note." In Beaudrias v. Walck (1892) 17 N. Y. Supp. 716, 45 N. Y. S. R. 7, an action on notes containing a reservation of title and authority in the vendor, in case of nonpayment at maturity, to retake the property, it was urged that such instruments were conditional contracts for the purchase of property, and that performance should be pleaded in addition to setting out the instruments. In denying this contention the court says there is no provision in the instruments to abridge the rights of the payee of the notes, or to limit their operation. On the contrary, their payment is contemplated, and that event is to determine the time when the title to the property becomes absolute in the purchaser. The court in Mansfield Sav. Bank v. Miller (1887) 1 Ohio C. D. 383, 2 Ohio C. C. 96, expresses an opinion that an agreement contained in a note that the ownership and title to the property for which the note was given were to remain in the vendor until the note was fully

paid would, of itself, render the note non-negotiable, but it is held in this. case that another stipulation contained in the note, viz., "Payable and negotiable without offset at the office of the First National Bank," relieves an indorsee of the note in good faith for value before maturity of any defenses available as against the original payee. A note in the same form was before the court in Mansfield Sav. Bank v. Flowers (1881) 9 Ohio Dec. Reprint, 169, 11 Ohio L. J. 141, and the court there, considering both the reservation of ownership and title and the provision as to its being payable and negotiable without offset, holds the note to be negotiable.

See Pyron v. Ruohs (1904) 120 Ga. 1060, 48 S. E. 434, infra, III. c, 2.

The negotiability of a note given to evidence the purchase price of property is not destroyed by a provision. reserving title to the property in the payee and a further provision to pay the note notwithstanding the destruction of the property by fire or otherwise. Ex parte Bledsoe (1913) 180 Ala. 586, 61 So. 813. The note involved in this case contained a provision that if default was made in the payment of the note, the payee might at his option take possession of the property for the purchase price of which the note was given, and sell the same, the maker agreeing to pay any balance remaining unpaid after the net proceeds were applied. The note in question was apparently one of a series of notes given in payment of the purchase price of an automobile, title to which was reserved until the purchase price was paid in full.

See First Nat. Bank v. Alton (1891) 60 Conn. 402, 22 Atl. 1010, infra, III. a. It is impossible to determine satisfactorily the weight that is given in. some of the cases discussed in III., infra, to the provision contained in the notes there involved that in default of payment the property was to be returned or the vendor was to have the right to take possession. Seemingly, however, little weight was given. this provision in Killam v. Schoeps (1881) 26 Kan. 310, 40 Am. Rep. 313, and Bannister v. Rouse (1880) 44

Mich. 428, 6 N. W. 870 (see subsequent Michigan cases, infra), and therefore these cases may be regarded as contrary to the foregoing. That notes given for the purchase price of an article and containing a reservation of title thereto are not negotiable is the general theory of the Minnesota cases discussed infra, where there was a provision authorizing the vendor to take possession at any time he deemed himself insecure, in addition to the reservation of title, and some of the notes contained an additional provision accelerating the maturity.

III. Stipulation as to possession.

a. In general.

A provision giving the maker of a note the option of returning the property, and agreeing that all payments made should thereupon be retained by the payee for its use, was held to destroy the negotiability of the note in First Nat. Bank v. Alton (1891) 60 Conn. 402, 22 Atl. 1010. The instrument involved in this case acknowledged receipt from the vendor of a horse and wagon, for which the signer agreed to pay the vendor or order a stated sum within a stipulated time; it contained the provision that the property was to be and remain the entire and absolute property of the vendor, until paid for in full; the purchaser agreed not to sell or dispose of the property and to keep it in good order and condition, and agreed to pay for the same in case the horse should die before the sum was fully paid, and also contained the provision, "Should such property be returned to, or taken back by said Walker, I agree that all payments made thereon may be retained by said Walker for the use of said property." The court says: "The transaction evidenced by the instrument is clearly of the nature of what has so often been the subject of discussion and consideration in this court-a conditional sale, or, in other words, an executory contract for sale. To hold it otherwise would be inconsistent with a score of cases in this jurisdiction. But it is

not only a conditional sale, the condition being expressed in the same.

instrument with the promise to pay, and not apart from it, as in most of the cases cited above; but the option to determine as to whether the sale shall become absolute is not, as in the case of Appleton v. Norwalk Library Corp. (1885) 53 Conn. 4, 22 Atl. 681, and the very recent case of Beach's Appeal (1890) 58 Conn. 464, 20 Atl. 475, exclusively in the vendor, but, as in Hine v. Roberts (1880) 48 Conn. 267, 40 Am. Rep. 170, and Loomis v. Bragg (1882) 50 Conn. 228, 47 Am. Rep. 638, at the option of both."

As to a provision authorizing sale of the property, see Smith v. Marland (1882) 59 Iowa, 645, 13 N. W. 852, infra, III. c, 1.

b. Reserving possession.

A provision in a note reserving title, that possession also is reserved or shall remain in the vendor, has by some courts been regarded as destroying the negotiability of the note, even though the possession is delivered to the vendee. A note given for a separator, which contained a provision. that the title, ownership, or possession does not pass until the note is paid and satisfied, was held not negotiable in Gazlay v. Riegel (1901) 16 Pa. Super. Ct. 501. The court says that the transfer of title, ownership, and possession, and the payment of the stipulated price, were to be contemporaneous. That, if the seller was unable or refused to perform his implied obligation, the transfer of the title, ownership, and possession, the maker of the note would be relieved from his promise to pay. That, this being true, the obligation is subject to a contingency or condition which renders it non-negotiable. The fact that the note involved provided that possession should remain with the vendor was an important factor in that decision, although it appears that possession was actually delivered to the vendee, who, upon failure of the machinery to work, returned it to the vendor. It was urged that, upon this state of facts, the seller of the machinery had no interest therein except by way of security, but the court says that, as the parties deliberately intro

duced into a paper otherwise negotiable that which destroyed its negotiability, it is to be presumed that they did it intentionally and with that end in view, and it is held that the negotiability must be determined from what appears on the face of the paper, unaided by parol proof.

In E. M. Birdsall & Co. v. Guill (1898) 3 Va. L. Reg. 895, a provision in a note, given upon the sale of threshing machinery, that the "title, ownership, or right of possession" did not pass from the vendor until the note was paid, was held to destroy the negotiability thereof. The general theory of the court is the same as that in Gazlay v. Riegel (Pa.) supra, to the effect that the passing of title was a condition of the payment of the note, and that if the vendor was unable to pass this title to the vendee, the note was not an absolute obligation.

In Dominion Bank V. Wiggins (1894) 21 Ont. App. Rep. 275, a note containing a provision that the title and right to the possession of the property for which the note was given should remain in the vendor until the note was paid was held to destroy the negotiability. The court says: "It [the stipulation above] purports that the money which is to be paid is the consideration for the sale of property, and that neither the title nor the right to possession was to pass until payment. If that is so, it follows that the purchaser is not compellable to pay when the day of payment arrives, unless at the same time he gets the property with a good title, and the payment to be made is therefore not an absolute, unconditional payment at all events, such as is required to constitute a good promissory note. It is in effect a conditional payment. It is evident that, even if, when the note was signed, possession was given, the payees could resume it at any time, for any reason, or for no reason could do so next day out of mere whim, or caprice and for anything contained in the writing in the way of agreement by the vendors, they could sell the property to someone else while the note was current, even against the will

of the purchaser. . . . It is obvious that the payment of the money and the delivery of the property were to be contemporaneous acts, and neither of the parties was bound to perform his part unless the other was ready to perform his. If that is the effect of the instrument, as we find it, the payment is a conditional payment, and the instrument is not a negotiable promissory note, nor, indeed, promissory note at all."

The reasoning in Dominion Bank v. Wiggins was held applicable to render non-negotiable a note given for the purchase price of machinery, which contained a provision that the "title, ownership, and property" in the machinery should not pass to the vendors, until the note, with any others given on account thereof, was paid in full with interest, although there was no provision as to the possession. Bank of Hamilton v. Gillies (1899) 12 Manitoba L. R. 495. Bain, J., states that although there was no provision as to the possession, and the inference would be that the possession was given to the purchaser, the reasoning in Dominion Bank v. Wiggins would still be applicable, "for the liability. of the defendant to pay the money on the day fixed would depend on whether the other parties could then transfer a good title to him, and it might be that they could not."

It is stated in Imperial Bank v. Bromish (1895) 16 Can. L. T. Occ. N. 21, that a provision in a note that "the title, ownership, and right of possession" of cattle for which the note was given, and any increase therefrom, shall be and remain in the vendors, until the note, or any renewal or renewals thereof, was fully paid, makes the note non-negotiable, for otherwise it would entitle the vendor to negotiate the note for the full amount, and then resume possession of the cattle sold under the contract.

It is said in the subsequent case of Molsons Bank v. Howard (1912) 3 Ont. Week. N. 661, 21 Ont. Week. Rep. 278, 5 D. L. R. 875, that although the court in Dominion Bank v. Wiggins (Ont.) supra, lays considerable stress upon the fact that the purchaser in

that case did not get even title or possession, and that much of the reasoning proceeds upon that basis, the court in the Howard Case is of the opinion "that the right to possession of the machine for which the note was given remaining in the vendor was not necessary to the decision in Dominion Bank v. Wiggins, and holds that a note given for the purchase price of an implement, which contained a provision that the title was not to pass to the purchaser until full payment of the price, and a further provision that if the purchaser failed to furnish additional security as demanded, or should make default in payment, or should dispose of his land, the vendor might declare the whole price due and payable and retake possession of the implement without process of law, and sell it to pay the unpaid balance of the price, whether due or not, was not negotiable.

o. Empowering vendor to take posses" sion.

1. View that note is non-negotiable. It is held in some cases that a stipulation that title shall remain in the vendor, and that in case of default at maturity the property is to be returned to him, or he is to have the right to take possession thereof at maturity, or at any time he may deem himself insecure, destroys the negotiability of the note. MOYER V. HYDE (reported herewith) ante, 695; Killam v. Schoeps (1881) 26 Kan. 310, 40 Am. Rep. 313; Bannister v. Rouse (1880) 44 Mich. 428, 6 N. W. 870; Third Nat. Bank v. Armstrong (1879) 25 Minn. 530.

Upon the authority of Third Nat. Bank v. Armstrong (Minn.) supra, and without any further discussion, a note was held non-negotiable in Stevens v. Johnson (1881) 28 Minn. 172, 9 N. W. 677, which was given for the purchase price of a feeder, and contained a reservation of title and authorized the vendors to declare the note due, and take possession of the feeder at any time they might deem themselves insecure, even before maturity of the note. And in Deering v. Thom (1882) 29 Minn. 120, 12 N. W.