Foerster v. Gallinger — 43 N.Y. St. Rep. 231

Majority

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William Foerster et al., Resp’ts, v. Joseph Gallinger et al., App’lts.

(Supreme Court, General Term, First Department,

Filed December 31, 1891.)

Headnote

Sale—Credit—Fraud.

An existing credit on a sale of goods in futuro cannot be avoided on the ground that when called upon to fulfil the vendees were fraudulently buying goods of others or that they were then insolvent and did not disclose the fact to the vendors. Fraud will not be implied from a subsequent dispostion of property not contemplated when the contract was made.

Appeal from a judgment in favor of the plaintiffs entered upon a verdict had at circuit, and also from an order denying the ■defendants’ motion for a new trial.

Adolph L. Sanger and Louis Marshall, for app’lts; Blumenstiel .& Hirsch, for resp’ts.

This action is for goods sold and delivered at .■agreed prices. The defense is in substance a credit which had not expired when the action was brought. The plaintiffs went to trial conceding; the unexpired credit, but claiming an avoidance ■of the credit on the ground of fraud. The material facts are these: The contract was for future deliveries. It was made on the 21st of February, 1888. It reads as follows:

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“New York, February 21, 1888.

“ Order

“ Given by Gallinger & Co., 86 Barclay street, N. Y., abt. 5 cases Sept. 1st. 5 c. abt. Sept. 15, abt. Oct. 1st 5, Oct. 15th, 5 abt. Nov. 1st and 5 abt. November 15th.

Subject to change of Tariff

• with privilege of calling for ten cases of the above after July 1st, by giving the notice of six weeks thirty cases full cut three inch U Drop of 10,000 each case.

“ Price, One dollar sixty-two one-half cents.

“ Terms, 3 mths. Acceptance,

• “Wm. Foerster & Co.”

This contract resulted from personal solicitation on the part of one of the plaintiffs, and there is no pretence anywhere in the-case that the defendants induced the plaintiffs to enter into the-contract or to part with their goods. There was no evidence that, the defendants were insolvent at this time, nor was there any evidence of fraud in the making of the contract either by way of active misrepresentations, fraudulent concealment, preconceived design to cheat or otherwise. This was explicitly stated by the-learned judge in the opening -of his charge, and the jury were-then requested to determine whether the defendants were subsequently guilty of fraud in receiving the goods under the contract. The jury gave a verdict for the plaintiffs, adding, as the ground, that they believed “ that there was fraud perpetrated on or about November 30, 1888, the date of the assignment by the-defendants, by the fraudulent conversion of a portion of their, assets.”

The goods sued for were all delivered before the 30th of November, 1888, and, consequently, the jury found that the defendants were guilty of fraud in receiving goods (which they were-legally bound to take) because, of the fraudulent conversion, at a subsequent period, of a portion of their assets. Even if this special appendage should be stricken from the record, the utmost that can be claimed in support of the verdict is, that the defendants were buying goods fraudulently from other people at the time they were called upon to fulfill their contract with the plaintiffs; also, that they were then insolvent, and that if they had not. remained silent on that head, the plaintiffs might have exercised the right to hold the goods, in analogy to stoppage in transitu, until the notes given for the purchase price .were paid. ~We do-not think, however, that either of these positions is tenable. The-only contract between the parties was that made in February. Such contract was entire, and it was of binding obligation in its-entirety. The deliveries under it were alone divisible. If the-contract had amounted to a mere option, as in Ames v. Moir, 138 U. S., 306 , we agree that it would' have been a fraud if the defendants, with the preconceived design of securing possession of the goods' without payment, had made a call under such option. ■ Here, however, the defendants were bound by the.

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terms of the contract to take -the goods at certain specified dates, and it appears that they substantially begged the plaintiffs (without success, however), to relieve them from their obligation on that head. It is idle to talk of rescinding the delivery of the goods. The delivery was not the contract, but in execution of it; and the contract cannot be rescinded, because it was not, tainted with fraud. A contract of sale, made innocently and in good faith, cannot be rescinded because the vendee subsequently purchases goods from other people with a design to cheat them. If the contract of sale were made in contemplation of such fraudulent acts, and with the intent before the credit expired to make such fraudulent disposition, that would be a different thing. That would show a preconceived design to cheat and defraud. But where nothing of the kind was contemplated when the contract was made, it is difficult to see how a subsequent change of heart is to relate back and make that fraudulent which was originally innocent. There is an observation in Arnold v. Shapiro, 29 Hun, 478 , upon which the learned judge at circuit felt constrained to submit this question of subsequent fraud to the jury. This case is not fully reported, and it is not quite clear whether all that was there said was necessary to the decision. The rule laid down seems to have been that fraud in contracting the debt may be predicated of a.fraudulent disposition of the debtor’s' property in contemplation of making the contract In other words, that a preconceived design not to pay for goods purchased may be evidenced by a fraudulent disposition of property already made or contemplated, as well as by other facts. It was also held that this principle is equally applicable to avoiding an •existing credit obtained by a concealment of such fraudulent disposition or contemplated disposition. We entirely agree with this view when limited to a fraudulent disposition of property made prior to, or even contemplated at the time of, obtaining the credit. The same result could scarcely have been intended to apply to a subsequent disposition of property not- contemplated at the time of making the contract The observation is, it is true, broad enough to cover this latter proposition; but it may, without a strained interpretation, be limited to a subsequent disposition fraudulently contemplated when the contract was made. The text of, this observation is that “the same effect should also follow such a disposition of the debtor’s property after he has contracted the debt and secured the credit.”

.The reason given for this view is that it is always implied in such transactions that the debtor will make no disposition of his property which will operate as a fraud upon his creditor. This means, we presume, that business is done with the general idea that people will not thereafter cheat their creditors. But that understanding can scarcely be said to be impliedly engrafted upon all contracts so as to alter their legal effect in case one of the parties shall subsequently do something which may militate against due performance. An agreement to do something at a time cannot well be varied into to do it at

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another time, by an implication o‘f a condition subsequent to act honestly. We think the case on this head was erroneously presented to the jury. The plaintiffs did not rescind the contract,, and the action was not for the value of the goods said to have-been fraudulently received by-the defendants. On the contrary, the plaintiffs deliberately affirmed the contract, and it is probable that they did so with knowledge of the defendants’ fraud. They certainly did so with knowledge of the defendants’ insolvency. After the failure, they notified the defendants that they intended to sell the remaining goods on their account On the 8th of December, 1888, the following letter was sent to the defendants l

“New York, Dec. 8, 1888.

“ Mess. Galling er & Go., Pittsburgh:

“ Gent.—Owing to your failure we propose to sell 5 cases prismen for your a/c. by the 15th inst. unless you redeem them by that date or furnish guarantee that they will be paid for, in cash less disct Respectfully,

“Wm. Foerster & Go.”

And one of the plaintiffs testified as follows: “ They did not accept them (these five cases) by the 15th of December, and we-then sold these goods for their account.” This action was brought, the next day, December 16th, which is the date of the summons. It is a further affirmation of the contract For the complaint is upon the contract. It is not for the value of the goods delivered,, but for the prices agreed upon in the contract.

It is plain, therefore, that the only rescission which has been attempted is of the credit ■ It must be conceded that, under the authorities in this state, the plaintiffs had a right to rescind the-credit without rescinding the contract of sale. Wigand v. Sichel, 3 Keyes, 120; Roth v. Palmer, 27 Barb., 652 . As, however, the agreed prices were made with relation to the credit, it is difficult, to perceive how the one can stand and the other fall. Non constat, but the prices would have been lower for cash. The rule laid, down in these cases amounts, at least, to punishing the defendants’" fraud by an arbitrary fine of the interest on the contract price for the unexpired term of credit. There would be no practical difficulty with the more logical rule that the contract of sale should be rescinded in toto. For then, in case the goods were still in the-possession of the vendee, they could be restored to the vendor by replevin, or an action for conversion would lie upon refusal to-restore them on demand. And in case the goods had been sold or otherwise used by the debtor, an action for their value would-lie, for in case of such use the law would imply a promise to pay the value. In the case last cited, Hogeboom, J., made this observation: “Indeed, I think the plaintiffs might properly and preferably have prosecuted simply for goods sold and delivered, and allowed the rest of the transaction to come out as a matter of evidence: If he had done so, the order of proof would have been as follows: The plaintiffs would have proved that they delivered goods of a certain value to the defendant, and that the latter received the same or that they were afterwards shown to be in his

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possession. From this evidence the law would imply a promise to pay the value, and the plaintiffs might properly have rested.” .

The answer to this is said to be, that where there is an express «contract the law will not imply one, and that, consequently, if the whole contract is avoided the vendor must bring trover. Without acceding to the doctrine laid down in the above quotation, we may safely say that the rule against an implication where there is an express contract need cause no practical embarrassment, for where the whole contract is avoided because of the vendee’s fraud, the express contract has ceased to be. It is as though it had never existed, and as though the parties simply stood in such relations and implications as flow from the delivery of goods by the one and their receipt and possession by the other. It may be that from the delivery of the goods by the vendor and their receipt and possession by the vendee standing alone the law would not imply a sale and a promise to pay the value. But from such delivery and possession, followed by the use of the goods by the vendee as his property, a promise to pay the value would certainly be implied.

But without dwelling further upon this branch of the case, we think that the complaint should have been dismissed because of the failure to show that the contract was entered into fraudulently «or in contemplation of any fraudulent purpose.

The judgment should be reversed and a new trial ordered, with posts to the appellants to abide the event. '

Van Brunt, P. J., and Andrews, J., concur.