Court Opinion

ID: 6987770
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:19:29.24888+00
Date Added: 2024-06-11T16:09:31.097654
License: Public Domain

Ballet, J. The only questions we need consider in this case are those which arise upon the instructions given to the jury at the instance of the defendants. The language of the third instruction is not altogether free from ambiguity, but, as we understand it, and as the jury probably understood it, it holds that, even if the evidence shows that the defendants, by false representations, obtained credit for the merchandise in question, and thus incurred the debt for which the suit is brought, yet, if it further appears that the plaintiffs afterwards became apprised and knew of such fraud, and with such knowledge accepted part payment of the debt so incurred, and continued to do business with the defendants, and instituted this suit to recover the unpaid balance, then in law the fraud is waived and confirmed, and the verdict must be for the defendants. If the question were, whether the plaintiffs could rescind the contract of sale on the ground of fraud and reclaim the goods sold, the rules of law sought to be invoked by this instruction might possibly have some application. Where a party claims the right of rescission, he undoubtedly must exercise that right promptly after the discovery of the fraud, and he cannot at the same time occupy the inconsistent positions of availing himself of the fruits of the contract and attempting to rescind it. If, after discovering the fraud, he elects to affirm the contract, the right of rescission is gone. No such question, however, arises here. Section 5,117 of the Revised Statutes of the United States, provides that no debt created by fraud of the bankrupt shall be discharged by proceeding in bankruptcy, and the question here is, whether the debt in this case was in fact create(L by the fraud of the defendants. If it was, then, by the express terms of the statute, it was excepted from the operation of the discharge in bankruptcy. It seems too clear for argument, that acceptance of part payment, an attempt to enforce collection of the residue, and continuing to deal with the fraudulent debtor, can have no possible bearing upon this question. These acts, it is true, so far as they have any significance at all, are in affirmance of the sale, and manifest an election to hold the vendee for the purchase-money; but all this is entirely in harmony with the statute. The provision that the bankruptcy proceedings shall not discharge the debt, necessarily implies and presupposes the continued subsistence of the debt as a liability capable of enforcement against the bankrupt. A rescission would cancel it, so as to leave no debt to survive the discharge. The proposition laid down in the first part of the fifth instruction is clearly erroneous. It is “ that before a discharge in bankruptcy can be avoided upon the ground that the debt was created by the fraud of the bankrupt, it must be shown, by a preponderance of the evidence, that the debt as a whole was created by fraud.” It may be remarked that it is not the theory of the law that fraud in the creation of the debt avoids a discharge in bankruptcy, but merely that as to such indebtedness, the discharge has no application. Where, then, the debt is an account made up "of various items, it is clear that some items may have been created by fraud while the others may be honest and bona fide. In such a case, the discharge would be inoperative as to the fraudulent items, and valid as to the residue. By the language of the instruction, however, the jury were warranted in supposing that they were to treat the indebtedness in suit as an indivisible whole, and that if they found any part of it honestly contracted, the whole would be barred by the discharge. The residue of the instruction, we think, fails to obviate the error. It holds that if the jury find said debt made up in part of an honest debt, and in part of a fraudulent debt, and are unable to distinguish, or say how much of it was created by fraud, their verdict must be for the defendant. It is difficult to reconcile this with the former part of the instruction. That, as we have seen, holds that the debt as a whole, or in other words, the whole debt, must be shown to have been created by fraud, to take any part of it out of the operation of the discharge. Here, by implication at least, the jury are told that if they can say precisely how much of the debt was fraudulent, they may find for the plaintiffs as to that. Such apparent inconsistency could only have a tendency to confuse the jury. But the latter part of the instruction fails to state the law correctly. It was by no means necessary for the jury to be able to say how much of the debt was fraudulent and how much honest, before finding a verdict for the plaintiffs for some amount. If the evidence showed that any part or item was created by fraud, then as to that, the plaintiffs were entitled to a verdict, although as to other items, the evidence may have left them in doubt and uncertainty. The sixth instruction is erroneous, in holding that in order to take the debt in question out of the operation of the discharge in bankruptcy, it must appear that the plaintiffs parted with their property entirely upon the strength of the defendants’ false statement. The rule, as laid down by the leading authorities is> that in order to constitute fraud, “ the misrepresentation must be of something material, constituting an inducement or motive for the act or omission of the other party, and by which he is actually misled to his injury.” 1 Story’s Eq. Juris. § 195; Slaughter’s Administrator v. Gersen, 13 Wal. 379 ; Halls v. Thompson, 1 Smed. & Marsh. 443, 485. Kerr in his treatise on Fraud and Mistake, page 73, states the rule, perhaps a little more strongly, as follows: “ In order that a misrepresentation may support an action at law, or be of any avail whatever' as a ground for relief in equity, it is essential that it should be material in its nature, and should be a determining ground of the transaction.” By none of the authorities, however, is it held, that the misrepresentation must present the sole and exclusive motive by which the party defrauded is induced to act. The motives of human action are complex, and often spring from a great variety of considerations; and it perhaps can never be said with strict accuracy, that a given action is entirely and exclusively the result of a particular motive or inducement. It is sufficient if it appears that the misrepresentation is the determining ground of the action, although it may not be its sole and exclusive ground. The seventh instruction holds that if the defendants, at the time of malting the different purchases, out of which the debt in question arose, made such purchases in good faith, intending to pay for the same, and did not make any false statements respecting their financial standing or ability, to induce the plaintiffs to sell them the goods, the verdict should be for the defendants. The misrepresentations relied upon by the plaintiffs were contained in the written statement made by one of the defendants at a date prior to any of these purchases. It is not clear that any goods were purchased at the time that writing was signed, but afterwards, from time to time, covering a period of several months. The defendants bought goods of the plaintiffs on credit, thereby creating the indebtedness sued for. . The purpose of the statement, as appears by its own terms, was to obtain credit with the plaintiffs for goods the de. fendants might then or thereafter purchase of them. It is clear that the plaintiffs had a right to rely upon representations thus made in giving credit, not only for purchases made simultaneously with the statement itself, but for those subsequently made. The instruction, however, as it would naturally be understood, confined the attention of the jury, in the matter of each particular purchase, to such misrepresentations as may liave been made at the time of such purchase. In this it was manifestly erroneous. The question of fraud in this case does not depend upon whether the defendants, at the time of making the different purchases, made them in good faith, without any false statements respecting their financial standing or ability, and intending to pay for the same, but upon whether, in the writing set out in the plaintiffs’ replication, they knowingly made material misrepresentations on those subjects, and the plaintiffs, believing such representations, and relying upon their truth, were thereby induced to sell the goods to the defendants on credit. For the errors in the foregoing instructions to the jury, the judgment will be reversed and the cause remanded. Judgment reversed.