Kelly, James F.

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St. John's University School of Law

St. John's Law Review Volume 4 Number 1 Volume 4, December 1929, Number 1 Article 8 June 2014 Passage of Title in Cash Sales as Affected By Worthless Checks James F. Kelly Follow this and additional works at: https://scholarship.law.stjohns.edu/lawreview Recommended Citation Kelly, James F. (1929) "Passage of Title in Cash Sales as Affected By Worthless Checks," St. John's Law Review: Vol. 4 : No. 1 , Article 8. Available at: https://scholarship.law.stjohns.edu/lawreview/vol4/iss1/8 This Note is brought to you for free and open access by the Journals at St. John's Law Scholarship Repository. It has been accepted for inclusion in St. John's Law Review by an authorized editor of St. John's Law Scholarship Repository. For more information, please contact selbyc@stjohns.edu. NOTES AND COMMENTPASSAGE OF TITLE IN CASH SALES AS AFFECTEDBy WORTHLESS CHECKS.The term cash sale is used to define a kind of sale where thepayment of the price is a condition of the transfer of title to thebuyer.' But it is usually confined to a sale where the vendor declinesto transfer either title or possession until he is paid.2 Payment bycheck, instead of the transfer of currency has, of course, become afirmly established practice in the business world, and, to the businessman, the term cash payment in almost every instance, where the suminvolved is more than a few dollars, suggests payment by check in-stead of transfer of money. Transfer of title is not, as a general rule,necessarily dependent upon time of payment,3 though in a cash salethe two are considered concurrent acts.4 It follows, therefore, that ina cash sale where a check given in payment proves to be worthless,and the seller disputes the right of the buyer to claim title to thegoods, determination of th question necessarily rests on the primaryquestion of whether or not mere giving of a check is payment, or if itis first necessary that the actual funds which the check represents betransferred by the drawee bank from the account of the maker to thepayment of the check. In a leading California case 5 where the effectof giving a check in payment was considered by the Court, the fol-lowing language was used:"A check is not payment in itself, but merely a method incash transactions of any magnitude, and it is employed as amatter of convenience and to obviate the necessity of handlingand transporting large sums of money." 6In Johnson, etc. v. Central Bank 7 it was held that a check given forthe purchase price does not constitute payment until funds are actuallyreceived by the seller, unless it is otherwise expressly agreed, and inNational Bank of Commerce v. Chicago, etc. Ry. 8 it is pointed outby the Court that where goods are sold for cash on delivery, andpayment is made by check, such check is in fact payment only whenthe cash is received on it, and that there is no presumption that acreditor takes a check in payment from the mere fact that he accepts1 Williston, Sales (2nd ed. 1922) Sec. 341.'Ibid. p. 805.'Although rules for determining the intentions of the parties are set forthin Uniform Sales Act, Secs. 19 and 20, N. Y. Personal Property Law (1911),Secs. 100 and 101, they are not absolutely controlling on the obligations of thevendor and vendee, and are subordinate to any express intentions of the parties.'Supra Note 2.5 South San Francisco Packing & Provision Co. v. Jacobsen, 183 Cal. 131,190 Pac. 628 (1928).'See Hodgson v. Barrett, 33 Ohio St. 63, 31 A. M. Rep. 527 (1877)."116 Mo. 558, 22 S. W. 813 (1893).844 Minn. 224, 46 N. W. 342 (1890).ST. JOHN'S LAW REVIEWit from the debtor. 9 Though the result which the courts have reachedin these decisions is in -complete harmony with the view that thevendor would take of the transaction, whether it can really be con-sidered as the actual intention of the parties may be questioned. It isquite apparent that the question which arises admits of considerableargument. Following the view that it is no payment until the cashbecomes the funds of the vendor, it has been declared that title to thegoods in such a case has not passed from the vendor.' 0 The courtshave been called upon to decide this question in cases which naturallyarise from the fact that the check given in the transaction proves tobe worthless. It may well be that the reason for this rule is groundedin a desire on the part of the courts to protect the unfortunate vendorrather than in strictly legal theory. It is not without criticism.'In a recent case considered by the Court of Appeals of Georgia 12the plaintiff had sold a diamond ring to the vendee, who gave inexchange his check on a bank. The vendee then sold the ring to thedefendant. The vendee's check proved to be worthless and the plain-tiff brought trover to recover the ring from the defendant, on thetheory that title had not passed in the sale from the plaintiff to thevendee. The Court accepted this view of the transaction and, inawarding judgment for the plaintiff against the third party purchaser,followed a rule, which finds support in the authorities.' 3 In sustainingthe view that title does not pass from the vendor in such a case, thecourts have considered the sale to be conditional, in that actual pay-ment is a condition upon which transfer of the title is necessarilydependent. An insight into this reasoning may be gathered from thefollowing excerpt from the opinion in Johnson v. Iankowitz,' 4 whichwas an action in replevin, where the plaintiff had sold two guns to aperson who was a stranger to him and took the purchaser's check inpayment; the purchaser immediately sold the guns to the defendant.Following this, the check given by the original vendee was dishonored,and it was held that there was no waiver of immediate payment forthe guns and that the delivery was only conditional, the defendantacquiring no title to them. The Court said:"There is a distinction between a sale, induced by fraud,in which the vendor, in ignorance of the fraud, transfers theNational Bank of Commerce v. Chicago, etc. Ry., supra Note 8 at 229,46 N. W. at 344: "Nothing is better settled than that a check is not payment,but is only so when the cash is received on it. There is no presumption that acreditor takes a check in payment arising from the mere fact that he accepts itfrom his debtor. The presumption is just the contrary. Where payment ismade by a check drawn by a debtor on his banker this is merely a mode ofmaking cash payment and not giving or accepting a security.""o Supra Notes 8 and 9.x' Williston, Sales (2nd ed. 1922) Sec. 346A.Chafin v. Cox, 39 Ga. App. 301, 147 S. E. 154 (1929)." Supra Note 11, Sec. 346 A, footnote 4." 57 Ore. 24, 102 Pac. 799 (1910).NOTES AND COMMENTtitle and possession, in which the sale is voidable, but not void,and an innocent purchaser from the vendee may acquire agood title and a case in which the vendor does not intend topart with the title until the price is paid, the delivery and pay-ment being concurrent acts, and, although the goods are deliv-ered to the vendee, yet without payment, no title will pass. Inthe one case it is intended that title shall pass, in the other thatit shall not." '1Professor Williston has criticized with considerable force theview that transfer of title is conditional on some other act in the cashsale transaction. He submits that the real question is: Did the sellerassent to transfer the ownership in the goods ?-and the learnedauthor states that it can hardly be doubted that he did.' 6 Further com-plications which arise are pointed out. If it is to be insisted that notitle passes until the condition spoken of has been satisfied, it mightas well be said that the same result follows where a time draft isgiven. Yet such a method of payment admittedly passes title.17 As amatter of legal theory it would follow that title remaining in theseller, there might well be restrictions on the buyer in connection withthe use of the goods as his own, and, finally, his liability as a tortfeasor, should he use the goods as he saw fit until the check was paid,even though ample funds to take care of it were at the bank. It mustbe admitted that, technically, these results should follow the rule thattitle remains in the seller until the check is paid.' 8 Where the checkgiven in such a transaction proves to be worthless, as a practicalmatter those results which follow the rule that title remains in thevendor until payment, are less difficult to harmonize with the view thatbusiness-men might take of it, for as far as the justice of the matteris concerned it is not hard to agree that where the check is a worthlessone, the vendee should have no right to use the goods as his own ordispose of them to a third party. It is more difficult, however, toagree where the check is a good one and it is honored at presentation.Yet the same result must follow in either case, if title remains in thevendor. This result approaches absurdity and is not consistent withwhat we regard as the intention of the parties. Omitting for a moment'Cited with approval in Barksdale v. Banks, 206 Ala. 569, 90 So.913 (1921).6 Supra Note 11.' In Haven v. Leedham, 153 Minn. 95, 189 N. W. 601 (1922), where atime bill was given under circumstances which clearly indicated that the buyerhad no expectation that it would be paid, he was held to have gained a titleenabling him to give good title to a bona fide purchaser for value.'If the theory were to be adopted that the vendor retains a security titleuntil the check is paid, it would allow the vendee to exercise ownership andcontrol, subject to being divested on non-payment of the check. It is incon-sistent, however, with that which is submitted to be the real intention of theparties, i.e., that title should pass at the time of the sale. The decisions in noneof the cases cited, mtpra Notes 5, 6, 7, and 8, approach the view of a divided title.ST. JOHN'S LAW REVIEWthe question of whether or not the check is a good one, it cannot bedisputed with much reason, that in the ordinary cash sale transactionwhen the seller accepts the check from the buyer, he accepts it aspayment and intends to pass the property in the goods to the buyer.19Then, the fact that the check later proves to be of no value can hardlychange the status of the parties which is established at the time ofthe sale. 20 Suppose the vendor accepts the check of the vendee andtransfers the goods to him. Later and before the check reaches thebank he seek to rescind the sale and obtain the goods on the theorythat title has remained in him. It is very doubtful if the courts wouldagree with such an argument and it is more probable that the transferof the title and the right to possession from the vendor to the vendeewould be stressed with considerable emphasis.In concluding this consideration of the correctness of the rulewhich allows the vendor to reclaim the goods where the check receivedin exchange for them proves worthless, it may be stated that it is arule which fails to represent the true intentions of the parties. It isconceded that in all cases the vendor expectt to be paid, but it is alsotrue that he has the opportunity to protect himself by stipulating 21that passage of title shall be dependent upon payment of the check.The result reached by the courts has arisen from a desire on their partto aid the vendor in a situation wherein he has been placed by theunfortunate result of a risk which he has assumed. Complete regardfor those principles in the law of sales which should govern thedetermination of the question would lead to a different result. It issuggested that the courts should adopt the view that title passes whenthe check is accepted by the seller in exchange for the goods, andthat the determination of the rights of the parties brought into dis-pute by later developments in the transaction should proceed on thatbasis rather than on the one which has heretofore found favor withthe courts.JAMES F. KELLY.,' Supra Note 11.o Any attempt to reach the correct rule, based on considerations of fraudor bad faith on the part of the vendee fails to bring a satisfactory resultbecause it is not infrequent that the cause of the failure of the check is mereforgetfulness on the part of its maker or his inadvertence. In such a situationthere is no fraud. Yet the rules for determining the right to title should applyto any situation which the facts present, regardless of the presence or absenceof a fraudulent color in the transaction. It may be noted with interest thatthe Penal Law of New York, Sec. 1292-A, L. 1918, ch. 314, amended by L.1923, ch. 505, L. 1927, ch. 378, provides that any person who draws, utters, ordelivers a check on a bank, knowing at the time that sufficient funds or credit arenot at the bank for the payment of the check, although no express representa-tion is made in reference thereto, is guilty of a misdemeanor, and if money orproperty is obtained from another thereby, is guilty of larceny, and that themaking of such check, payment of which is refused, shall be deemed not onlyprina fade evidence of intent to defraud, but also of knowledge of insufficientfunds.' In this connection see editorial, N. Y. L. J., May 7, 1929.

Passage of Title in Cash Sales as Affected By Worthless Checks

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Passage of Title in Cash Sales as Affected By Worthless Checks

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