who employs a bank to remit or collect money from a distant point is held to be chargeable with knowledge that the bank will not send an agent, that it will transmit or collect through other banks, and that it probably has regular channels through which it transacts such business." This presumption of knowledge in the public arises, not from the nature of trade usages in general, but from a contract of sale "may be negatived or varied by . . . customs whatever for saying that a custom not to warrant, well known to seed dealers, is therefore well known to the public.

So far as authorities go, the decision here under discussion does not seem to be in accord with the established principles concerning trade usages.18 There are a few cases directly in point which sup

17 Davis v. First Nat. Bank of Fresno (1897) 118 Cal. 600, 50 Pac. 66; Nicoletti v. Bank of Los Banos (1923) 190 Cal. 637, 214 Pac. 51.

18 One can find California cases to support almost any rule on this subject. It has been held, contrary to the instant case and in accord with the general rule, that trade usages are not binding on outsiders who have no actual knowledge thereof: Lynch v. Bekins etc. Co. (1916) 31 Cal. App. 68, 159 Pac. 822. That usage as to the manner of discharging lumber in the harbor of San Francisco was inadmissible to rebut a presumption of negligence: Stockton Lumber Co. v. Cal. Nav. & Imp. Co. (1909) 10 Cal. App. 197, 101 Pac. 541. This is reasonable enough, for the mere fact that most people do a certain thing negligently should not relieve one from liability if, in doing that thing in the usual and negligent manner, he inflicts an injury. But this seems to be thrown in considerable doubt by the language used in a recent case, Webber v. Bank of Tracy (Feb. 28, 1924) 43 Cal. App. Dec. 518, 225 Pac. 41. In holding that if a bank provided safe deposit boxes which were as strong and well guarded as those which other banks usually provided, it was not negligent, the court said: "No man is held by law to a higher degree of care than the fair average of his profession, business, or trade. .. .. no jury can be permitted to say that the usual way and ordinary way is a negligent way, for which liability shall be imposed." 43 Cal. App. Dec. 518, 521. This in effect denies the undeniable possibility of customary negligence among the members of a particular business or trade.

It has been held that a usage as to the manner of delivering grapes, which seemed reasonable, and would certainly have been valid if expressed, could not be proved because to do so would be to vary a written contract by parol: Leonhart v. Cal. Wine Assn. (1907) 5 Cal. App. 19, 59 Pac. 847. In Polhemus v. Heiman (1875) 45 Cal. 573, it was held that the words "in good order" in a contract of sale of wool amounted to an express warranty, which could not be affected by usage not to warrant. Assuming that this is law, the instant case would have gone the other way if the defendant, instead of simply shipping the seed, had accompanied it with a letter saying, "here is your Golden Yellow Celery Seed." By shipping the seed in response to the plaintiff's order, the defendant, by his acts, said precisely that. The warranty is the same "whether the seller makes them [the descriptive statements], or whether the buyer in ordering goods makes them and the seller furnishes goods in response to such order." Williston on Sales, p. 268, and many cases cited. Also Barrios v. Trading Co. (1919) 41 Cal. App. 637, 183 Pac. 236.

The instant case seems to overrule, though it does not mention, Hughes v. Bray (1882) 60 Cal. 284, where it was held that a usage which was in effect a disclaimer of warranty would not remove the warranty implied in a sale by sample.

port the decision,19 but the errors of other jurisdictions are not binding authority. It is hard to see, moreover, why the courts should provide trade associations with so convenient an instrument for avoiding obligations which the law has thought it fair to impose. One is inclined to agree with the cursory, if somewhat hyperbolical, dismissal of the whole question by a Texas court in a case the facts of which were practically identical with those here involved, where the court said, "It would present a singular proposition of law if a dealer in seeds should contract to deliver cabbage seed and should actually deliver radish or turnip seed, and then escape liability on his implied warranty by proof that dealers in seed had adopted a rule or custom not to be bound by an implied warranty." E. H.

1120

SALES: WARRANTIES: IMPLIED WARRANTIES IN SALE of WritTEN INSTRUMENTS-Section 1774 of the California Civil Code provides that: "One who sells or agrees to sell an instrument purporting to bind any one to the performance of an act, thereby warrants that he has no knowledge of any facts which tend to prove it worthless, such as the insolvency of any of the parties thereto, where that is material, the extinction of its obligations, or its invalidity for any cause." What is the effect of this section on sales of instruments within its purview? In the first place, it should be noted that no other warranties than the ones which the section supplies can be implied, because of section 1764, which provides that "Except as prescribed in this article, a mere contract of sale or agreement to sell does not imply a warranty."2

19 See cases cited supra, n. 7.

20 American Warehouse Co. v. Ray (1912) 150 S. W. 763, 765 (Tex.). The illustration quoted is not so extreme as it sounds. When a contract of sale specifies a particular variety, it seems perfectly correct to say that the parties are treating the difference between that and other varieties as a difference of kind, not merely of quality. If a buyer specifies a particular and well known variety of celery seed, for example, he presumably does so because he wants that particular variety and none other, and delivery of seed of a different variety will be just as completely insufficient to satisfy the seller's obligation under the contract as would delivery of cabbage seed.

1 As adopted in 1872, the section read as follows: "One who sells or agrees to sell an instrument purporting to bind any one to the performance of an act, thereby warrants the instrument to be what it purports to be, and to be binding according to its purport upon all the parties thereto; and also warrants that he has no knowledge of any facts which tend to prove it worthless, such as the insolvency of any of the parties thereto, where that is material, the extinction of its obligations, or its invalidity for any cause." It was virtually a copy of a section from Field's Draft which, though originally drawn as a part of the title on negotiable instruments, was moved into the title on warranties in sales generally. In 1874 it was amended to read as quoted in the text. See § 703 and § 1250 in the Draft of a Civil Code for the State of New York published in 1862. The Commissioners' note to the latter section expressed some doubt as to the propriety of so comprehensive a warranty, and may have been the ground for amending the corresponding section in California.

2 Sutro v. Rhodes (1891) 92 Cal. 117, 28 Pac. 98; Browning v. McNear (1904) 145 Cal. 272, 78 Pac. 722.

Moreover, the buyer of an instrument within the meaning of section 1774 cannot invoke the doctrines of mistake or failure of consideration if it turns out that the instrument he bought was invalid, or that his vendor had no title. In Sutro v. Rhodes, the defendant sold overissued bonds to the plaintiff. Upon discovering the fact that the bonds were invalid, the plaintiff brought an action to recover back the purchase price. It was held that section 1774 established the unqualified rule of caveat emptor as to sales of such instruments and that neither mistake nor failure of consideration could be invoked by the buyer as ground for recovery. This leaves

no doubt of the conclusion, as a matter of statutory construction, that in the absence of fraud,5 the buyer of an instrument within the operation of section 1774 has no redress whatever if it turns out that the instrument was invalid, or that his vendor had no title."

3 Supra, n. 2.

4 The court said in part, "That section [1774] not only shuts out any claim of warranty in the present case, but it seems to exclude the authorities marshalled by appellant to the point that upon some principle of lawas, for instance, failure of consideration-he ought to recover in this action. It [section 1774] seems to be an express declaration and warning to purchasers of such instruments that the rule of caveat emptor applies, and that they must examine for themselves, and exercise their own judgment, or take a guaranty." Sutro v. Rhodes (1891) 92 Cal. 117, 124, 28 Pac. 98. This language, together with section 1764 quoted in the text, amounts to the proposition that there can be no failure of consideration unless there is also breach of warranty, which seems to be questionable as an unqualified statement of law. A fact which is the subject of a warranty in a contract of sale may also be so material a part of the contract as to be essential to its existence, Cal. Civ. Code, § 1786, and when it is, rescission will lie for total failure of consideration unless that fact is present: Cal. Civ. Code, § 1689. Of course an express disclaimer of warranty as to such a fact will convert the transaction into a mere contract of quitclaim in that respect: the buyer will then intentionally take the property "as is" so far as that fact is concerned. But the mere absence of a warranty implied by law should not necessarily insert such term into the contract, for the fact in question may still be so material that its non-existence will make it inequitable to allow the bargain to stand, unless the parties actually meant to speculate in that respect; and whether or not they did so speculate should be a question of fact. It is so treated as to sales of real property, even in California. Horne v. Hughes (1912) 19 Cal. App. 6, 124 Pac. 736; Pacific Portland Cement Co. v. Placer Co. Land Co. (1921) 187 Cal. 175, 201 Pac. 126.

a

5 Failure to disclose "knowledge of facts which tend to prove it [the instrument] worthless" will, in practically all cases, be sufficient to establish fraud. 26 C. J. 1071, 1072; 35 Cyc. 69; Cal. Civ. Code, § 1572 (subd. 3); Macdonald v. Roeth (1918) 179 Cal. 194, 176 Pac. 38.

It has never been expressly held that there is no warranty of title in sales of instruments governed by section 1774, but from the language of Sutro v. Rhodes quoted in note 4, supra, it seems pretty clear that the specific provision of that section for warranties in sales of obligations is taken by the court to exclude from application to those instruments the code sections providing for warranties in sales of personalty in general. This conclusion is further supported by Kirkland v. Levin, infra, n. 13. In that case the defendant sold to the plaintiff shares of corporation stock to which he had no title. In answer to the defendant's contention that there was no warranty of title because of section 1774, the court answered that shares of stock were not within the meaning of

This is squarely opposed to the almost universal rule. In practically all jurisdictions it has long been established that the transferor of an obligation impliedly warrants that it is a valid subsisting obligation in his favor to the extent to which it purports to be such.7

The applicability of section 1774 to sales of negotiable bonds— and to sales of negotiable instruments in general-is somewhat modified now by the Negotiable Instruments Law. Before the adoption of that act there was no provision in California for warranties in transfers by delivery of negotiable instruments, so that section 1774 applied both to negotiable and non-negotiable choses in action. Section 65 of the Negotiable Instruments Law now governs such transfers of negotiable instruments executed since its adoption in 1917.9 Section 1774 still controls, it seems, as to implied

that section, implying that where section 1774 applied there was no implied warranty of title.

The actual result of the decision in Sutro v. Rhodes, supra, n. 2, is supported by a considerable line of authorities. A number of cases have held that the buyer of public securities must bear the risk of their being invalid due to conflict with constitutional or statutory provisions. Otis v. Cullum (1875) 92 U. S. 447, 23 L. Ed. 496; First Nat. Bank v. Drew (1901) 191 II. 186, 60 N. E. 856; First Nat. Bank v. Wm. Dee Clay Mfg. Co. (1912) 176 Ill. App. 455; White v. Robinson (1883) 50 Mich. 73, 75, 14 N. W. 704; Bank of Commerce v. Ruffin (1915) 190 Mo. App. 124, 175 S. W. 303; Ruohs v. Third Nat. Bank (1894) 94 Tenn. 57, 28 S. W. 303; Richardson v. Marshall Co. (1898) 100 Tenn. 346, 45 S. W. 440. Many cases, however, qualify this rule by holding that if there are outstanding both valid and invalid securities of the sort sold the vendee is presumed to have contracted for valid ones, and delivery of those which are invalid gives the vendee an action for breach of warranty or failure of consideration. Meyer v. Richards (1895) 163 U. S. 385, 41 L. Ed. 199, 16 Sup. Ct. Rep. 1148; McCay V. Barber (1867) 37 Ga. 423; Milner v. Pelham (1917) 30 Idaho, 594, 166 Pac. 574; Pugh v. Moore (1892) 44 La. Ann. 209, 10 So. 710; Walsh v. Rogers (1884) 15 Neb. 309, 18 N. W. 135; Logan Co. Bank v. Farmers' Nat. Bank (1916) 55 Okla. 592, 155 Pac. 561; Flynn v. Allen (1868) 57 Penn St. 482; Ogden, Negotiable Instruments, § 116; I Daniel Negotiable Instruments (6th ed.) §734a. Sutro v. Rhodes, supra, n. 2, is contra to these cases, and could hardly be overruled in this respect in view of the unqualified language of Cal. Civ. Code, §§ 1764, 1774.

75 C. J. 156, 968; 8 C. J. 578; Young v. Cole (1837) 3 Bing. N. C. 724, 132 Eng. Rep. R. 589; Gompertz v. Bartlett (1853) 2 El. & Bl. 849, 118 Eng. Rep. R. 985; Gurney v. Wormersley (1854) 4 El. & Bl. 133, 119 Eng. Rep. R. 31; Wait v. Williams (1917) 107 S. C. 32, 91 S. E. 969; Miners' Bank v. Burress (1912) 164 Mo. App. 690, 147 S. W. 1110. The English cases allow recovery independently of warranties, simply on the ground of failure of consideration. See McClure v. Central Trust Co. (1900) 165 N. Y. 108, 58 N. E. 777, 53 L. R. A. 153, for discussion and collection of cases. This rule is somewhat modified as to negotiable instruments by the Negotiable Instruments Law. See infra, n. 9.

8 James v. Yaeger (1890) 86 Cal. 184, 24 Pac. 1005; Crocker-Woolworth Nat. Bank v. Nevada Bank (1903) 139 Cal. 564, 585, 73 Pac. 456. 9 This is § 3146 in the California Civil Code. The following cases applied the section to sales of bonds. Citizens' Trust and Guaranty Co. v. Hays (1915) 167 Ky. 560, 180 S. W. 811; Borough of Montvale v. People's Bank (1906) 74 N. J. L. 464, 67 Atl. 67; Limbarger v. Board of Education (1912) 83 N. J. L. 446, 85 Atl. 235; Hibbs v. Brown (1907)

warranties in transfers by delivery of bonds and other choses in action, whether negotiable or not, which were executed prior to the adoption of the Negotiable Instruments Law.10

Although the cases in which this code section has been invoked are few, it may be said to apply to all written obligations not governed by the Negotiable Instruments Law or other particular act

190 N. Y. 167, 82 N. E. 1108; Commissioners v. Citizens' Bank (1911) 157 N. C. 191, 72 S. E. 996.

It should be noted that this section, (Cal. Civ. Code, § 3146, N. I. L. § 65), provides warranties of title and genuineness of negotiable instruments, but as to their validity provides only a warranty that the transferor has no knowledge of facts impairing validity, thus excluding any warranty against real defenses except those of which the transferor had knowledge. See criticism of this section by Prof. Ames in 14 Harvard Law Review, 252. The warranty of capacity of prior parties which this section provides is expressly excluded from application to public and corporation securities, thus codifying the rule of Otis v. Cullum, supra, n. 6, and extending it to include corporate as well as public securities.

It is worthy of note in this connection that the negotiability of mortgage bonds issued between 1917 and 1921 is rather doubtful. Such bonds issued before the amendment of Cal. Civ. Code, § 3088 in 1915 are held non-negotiable. Kohn v. Sacramento Elec. Gas & Ry. Co. (1914) 168 Cal. 1, 141 Pac. 626; Crocker Nat. Bank v. Byrne & McDonnell (1918) 178 Cal. 329, 173 Pac. 752. In 1915, section 3088 was amended to provide that "bonds payable to bearer shall be negotiable notwithstanding any condition contained therein, or in the mortgage, deed of trust or other instrument securing_the same." Cal. Stats. 1915, p. 99. But this section was repealed in 1917, along with the rest of the title on negotiable instruments, by the adoption of the Negotiable Instruments Law, which contains no express provision making such bonds negotiable. Then the provisions of section 3088 quoted above were reenacted in 1921, (Cal. Stats. 1921, p. 471), its repeal having no doubt been unintentional. There was thus no statute in force between 1917 and 1921 expressly making mortgage bonds negotiable, and in view of the cases cited above, it is hard to say what the courts will hold on the subject concerning bonds issued during those four years.

10 The Negotiable Instruments Law itself provides that "The provisions of this title do not apply to negotiable instruments made and delivered prior to the taking effect hereof." N. I. L. § 195. This is held to make the act inapplicable not only to parties who became such before the act, but also to the rights and liabilities of parties to transfers made after the act became law, of instruments executed before its adoption. Gate City Nat. Bank v. Schmidt (1912) 168 Mo. App. 153, 152 S. W. 101; Mackintosh v. Gibbs (1911) 81 N. J. L. 577, 80 Atl. 554. There is a statement in Popp v. Exchange Bank (1922) 189 Cal. 296, 208 Pac. 113, that this rule may apply only to instruments which were non-negotiable by virtue of the law in force at the time of their execution, and that the rights and liabilities of the parties to the transfer of a negotiable instrument might be governed by the provisions of the act adopted between the execution of the instrument and the transfer thereof. The statement is only a dictum, and is, morover, based on a misreading of two sections in Corpus Juris (8 C. J., Bills and Notes, §§ 173, 184), which concern the place rather than the time of transfer, and would probably not be followed. The Popp case expressly leaves in doubt the question as to what law is applicable to transfers in this state of bonds issued elsewhere. The prevailing rule is that the rights of the parties to such transfer will be determined in the same manner as if the bonds had been issued in the state in which the transfer occurred. Mackintosh v. Gibbs, supra, and authorities cited in a note on the Popp case in 11 California Law Review, 114.