Case ID: ohio-st_31/html/0162-01.html
Source: Caselaw Access Project
Author: {"author": "McIlvaine, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

James Talcott v. John M. Henderson, Assignee, etc.
    1. A contract for the purchase of goods on credit, made with intent on the part of the purchaser not to pay for them, is fraudulent; and if the purchaser has no reasonable expectation of being able to pay, it is equivalent to an intention not to pay.
    2. But where the purchaser intends to pay and has reasonable expectations of being able to do so, the contract is not fraudulent, although the purchaser knows himself to be insolvent and does not disclose it to the vendor, who is ignorant of the fact.
    Motion for leave to file a petition in error to .the District ■Court of Cuyahoga county.
    The original action was brought in the Court of Common Pleas of Cuyahoga county, by plaintiff in error, .against defendant in error, to recover the possession of certain goods. The solé issue in the case was in relation to the ownership of the goods. Upon the trial, a jury being waived, the court found the ownership to be in the defend.ant. To this finding the plaintiff excepted, and by bill of ■exceptions placed all the testimony on the record. On petition in error the district court affirmed the finding and .judgment of the common pleas.
    It is now assigned for error that the district court erred 'in affirming the judgment of the common pleas, and that the finding and judgment of the common pleas were .against the evidence and the law.
    The real question in the case is, whether there was fraud in the purchase of the goods in controversy from the plaintiff by the defendant’s assignors, De Forrest & Son.
    The whole testimony can not be set out here, but it can be said, that the following facts were proved : About the middle of June, 1873, an agent of the plaintiff (who was a merchant in the city,of New York), solicited an order for goods suitable for the fall trade from De Forrest & Son, at their retail store, in the city of Cleveland. An order was given for the goods in dispute to be shipped on or before the 1st of September following, to be paid for at four months from that date. The goods were shipped on June 23, and July 11, 1873. At the date of this order the indebtedness of De Eorrest & Son was about $450,000, and the value of their assets about $150,000. De Eorrest & Son had knowledge of their insolvency, but the plaintiff was ignorant of it. No information was sought or given as to the responsibility of the purchasers. On the 23d of July, shortly after the goods had been received, De Forrest & Son assigned to the defendant, for the benefit of their creditors, all their property, and the goods in question, with other goods, were delivered to the assignee. The stock of goods in the store delivered to the assignee were appraised at $88,000.
    In addition to these facts, the only further testimony in the case was the deposition of De Forrest, taken and offered by the plaintiff. From this testimony it was shown that the condition of De Foirest & Son had not materially changed for a period of eighteen months previous to the assignment. Probably it had slightly improved within the preceding year. Their principal creditors were H. B. Claflin & Co., of New York, who had extended to them during that period a line of credit to the amount of $200,000. This line of credit was given under an arrangement that it would be continued as long as Claflin & Co. could use the paper of De Forrest & Son.
    Mr. De Forrest further testified that at the time of purchasing the goods in controversy, “ my purpose was to comply with the terms of the purchase we made to pay for them.” “ I had no reason at that time to think that we would not be able to do so.” “ I knew and had known for the last year, if Claflin & Co. did not continue the arrangement, we could not continue to buy,” “ Felt we were carried by a strong party, and I was in hopes to see the trade improve.” “ I should think we were selling at the rate Of half a million a year—$45,000 per month.”
    "Without previous notice, Claflin & Co., on the 21st of July, 1873, refused to extend the arrangement with DeForrest & Son any longer. And, on the 23d of the month the general assignment was executed as above stated.
    
      Hutchins § Campbell, for the motion, cited:
    
      Stephenson v. Hart, 4 Bing. 476; Irving v. Motley, 7 Bing. 543 ; Bristol v. Wilsmore, 1 B. & C. 5(4 ;- Load v. Green, 15 Meeson & Wélsby, 216; Ferguson v. Carrington, 9 B. & C. 59 Kilby v. Wilson, R. & M. 178; Hawse v. Crowe, lb. 414; Ford v. Atwater, 1 Root, 58; Stewart v. Emerson, 52 N. H„ 301; 2 Mason, 239 ; Powell v. Bradley § Co., 9 G-. & J. (Md.) 220; Johnson v. Morrell, 2 Abbott, 470; Burrell v. Haley, 1 Paige, 492; Seligman v. Kalkman, 8 Cal. 207; Bell v. Ellis, 33 Cal. 620; Bonaldson v. Farwell, 3 Otto, 631; Byrd v. Hall, 2 Keys, 647; Noble v. Adams, 7 Taunt. 59; Kilby v. Wilson, Ryan & Moody, 178; Bristol v. Wilsmore, 1 Barn. & Cress. 513.
    
      Henderson $ Klein, contra cited :
    
      Smith v. Smith, 21 Penn. St, 370; Backentoss v. Spircher, 31 Perm. St. 324; Biggs v. Barry, 2 Curtis, 259’; 22Wis. 384; 24 N. Y. 139; 2 Mason, 236; 33 Cal, 620; Benjamin on Sales, 374 (1st ed.) ; Stoi’y on Sales, 165 (4th ed.); Kerr on Fratids, 108, 109; 20 Mo. 546; 4 Abbott, 479; Powell v. Bradley $• Co., 9 G-. & J. 220 ;-Bell v. Ellis, 33 Cal. 630;.Hall v. Nalor,. 18 N. Y. 588; Nichols v. Penner, 18 N. Y. 295; Ilennequin v. Naylor, 24 N. Y. 139; Van Keek v. Leroy, 4 Abbott, 481.
   McIlvaine, J.

The contention of the plaintiff in error is, that the failure of De Forrest & Son, at the time of making the purchase, to disclose the fact that their liabilities were largely in excess of the value of their assets, was, in law, such a fraud upon the plaintiff’ as warranted him in avoiding the contract, and reclaiming the goods.

An intention on the part of the purchaser of goods not to pay for them, existing at the time of purchase, and concealed from the vendor, is, unquestionably, such a fraud as will vitiate the contract. But it is as certainly true, on the other hand, that, where no such fraudulent intent exists, the mere fact that the purchaser has knowledge that his debts exceed his assets, though the fact be unknown and undisch sed to the vendor, will not vitiate the purchase.

"Whether, therefore, a contract of purchase, where the purchaser fails to disclose his known insolvency, is fraudulent or not, depends on the intention of the purchaser; and whether that intention was to pay or not to pay, is a ■question of fact, and not a question of law.

In the solution of this question, though it be one of fact, it is true, however, that certain presumptions arise, which are entitled to consideration and force. Thus, while it may be said that fraud must he proved, and will not be presumed, there is a presumption that every reasonable person anticipates and intends the ordinary and probable consequences of known causes and conditions. Hence, if a purchaser of goods has knowledge of his own insolvency, and of his inability to pay for them, his intention not to pay ■should be presumed. I would go a step farther, and hold that an insolvent purchaser, without reasonable expectations of ability to pay, should be presumed to intend not to pay. Indeed, I would not deny that an intention not to pay might be inferred from the mere fact that the purchaser had mi disclosed knowledge of his gross insolvency; hut, in such case, the inference may be rebutted by other facts and circumstances.

It is claimed that, in good morals, a purchaser, knowing himself to be insolvent, should not accept credit from one Ignorant of the fact. , Whether this proposition be true or not, it is enough to say that the law, in its practical morality, does not afford a remedy for the violation of every-moral duty. While, therefore, a purchase of goods by an insolvent vendee, who conceals his insolvency, with intent to injure the vendor, is fraudulent and voidable, yet a purchase under like circumstances, save only that such intent is absent, is not, in law, fraudulent.

If the rule of law be not as stated, and the intent to injure be not of the essence of the fraud in such case, then it would be wholly immaterial whether the insolvency of the purchaser was known to himself 5 and the rule would be that all sales to an insolvent purchaser, where the insolvency is unknown to the vendor, are fraudulent and voidable. For such a rule, no one would contend. All would admit that knowledge by the purchaser of his own-insolvency is necessary to establish the fraud. But such knowledge, of itself, is entirely innocent. It is only where connected with the concealment of the fact, that fraud is-shown. The simple failure to disclose a fact, however, is not equivalent to its concealment. The latter implies a purpose—a design; the former does not. If, then, such knowledge on the part of the purchaser be necessary to make out a fraud, it is because it becomes the predicate of an intent—and intent to injure.

True, the decisions of different courts upon this question-are not uniform. The discrepencies, however, are not so much on the point whether a fraudulent intent on the part of the purchaser is necessary to avoid the purchase, as to-the question of conclusiveness, under the circumstances of each case, of the inference of fraudulent intent, from the-facts that the purchaser had knowledge of his insolvency, and failed to disclose it to the vendor. There is no well-considered case, so far as I have examined the authorities, which holds that fraud is conclusively presumed from these facts alone. Where, in addition, it is shown that the appearance and circumstances of the purchaser indicate solvency and wealth, there are cases which hold the inference-of fraudulent intent to be conclusive. Of course, we admit that if the appearance of solvency be assumed for the purpose of deceiving, as in 1 Root, 58, the existence of fraud, is actually shown; but, we think that where such appearance is entirely innocent, the question of the existence of fraud is still open to further inquiry.

From these views, how stands the ease before us ? At the date of the contract, De Forrest & Son were largely insolvent. They had knowledge of the fact, and did not disclose it to the plaintiff, who was ignorant.of it. They were also in possession of a large stock of merchandise, and were doing an extensive business. Erom these facts, it might well be inferred that they intended to obtain the plaintiff’s goods without paying for them; at least, that they had no reasonable expectation of being able to pay for them at the maturity of their promise. If the court below had so found, we would not disturb the finding; and, for aught that appears, the court would have so found, if no other fact had appeared in the case.

But there was other testimony, tending to prove that De Forrest & Son did, in fact, intend to pay for the goods, according to the terms of their agreement, and that, under all the circumstances, they might reasonably have expected to be able to do so. It is quite sure that they could not reasonably have expected to be able, at that time, to pay all their indebtedness; but, in our opinion, it was not essential to the good faith of the transaction, that there should have been reasonable grounds for the latter expectation; it was enough, if they reasonably expected to he able to pay for the goods in question at maturity.

It is quite clear, from the evidence, that the appearances of wealth which surrounded the purchasers were entirely innocent. It maybe that the plaintiff'was misled by these appearances; hut, upon this ground, hé can not complain of fraud. "Where an insolvent merchant is engaged in an honest effort to retrieve his fortunes, the appearance of wealth indicated by his stock in trade is not equivalent to a representation of solvency; and one who gives him credit, without inquiry, has no fight to complain of fraud.

It was the duty of the court of common pleas, discharging the functions of a jury, to weigh all the testimony; ancl .having done so, and found that there was no intent to defraud in the transaction, we, as a reviewing court, can not say that the district court erred in not finding that the judgment of the common pleas was manifestly against the evidence.

Motion overruled.