Mitchell v. Worden

By the Court, T. R. Strong, J. The basis of this action is, that the sales of the property in question by the plaintiffs to McCabe, were obtained by the latter by a fraudulent concealment from the plaintiffs of important facts in regard to his pecuniary circumstances, which it was his duty to disclose to them, wherefore the sales were void; that the defendant is not a bona fide purchaser from McCabe ; and that he wrongfully withholds and has converted the property. [259] In relation to the brandy, a portion of the property, I am satisfied the evidence falls entirely short of sustaining the action. The order for the brandy was forwarded to the plaintiffs some days before McCabe made an assignment; he did not then, as he testified, contemplate making an assignment; it does not appear that he was then insolvent, or that he understood he was so, except as it may be inferred from the mere fact that he soon after made a general assignment for the benefit of his creditors, without any proof of the extent of his inability to pay his debts ; there is no evidence of an intention on his part not to pay for the property, or of any fraudulent intent, in making the purchase; and for aught that appears, his circumstances were as good at that time as they had been at any time while he had been a customer of the plaintiffs. But assuming that McCabe was, at the time of the purchase of the brandy, insolvent; that his circumstances had become reduced during the period he was buying of the plaintiffs from time to time on credit, and meeting his engagements as to payments ; and that he well knew his insolvency, and intentionally concealed it from the plaintiffs, by simply withholding his knowledge on the subject, without otherwise saying or doing any thing to mislead; yet retained the possession of property and was pursuing his business as theretofore—he was not, in my opinion, thereby guilty of a fraud, entitling the plaintiffs to avoid the sale. The law does not, in ordinary cases, impose upon a purchaser of property the duty to disclose to the seller, at or before the sale, the state of his pecuniary circumstances, however desperate they may be, and be known by him to be. Although the knowledge may be of the highest importance to the seller, for the protection of his interests, the duty of communicating it is only a moral duty, belonging to a large class of similar duties denominated by Chancellor Kent, “ imperfect obligations which are binding in conscience, but which human laws do not and cannot undertake directly to enforce.” (2 Kent's Com. 4th ed. 490.) Parties to contracts must themselves exercise reasonable care to guard against loss, and, in general, that degree of care requires the party giving credit to make [260] inquiries of the party to whom it is given, at least, in regard to his ability to pay. For a fraudulent misrepresentation by the purchaser, of important facts in respect to' his circumstances, accompanied with damage, the law affords a remedy; the sale may be avoided; and an' action for the fraud, to recover the damages, will lie. The general principle above stated, that the purchaser is under no obligation to disclose to the seller his insolvency, although known to him, is, I think, equally applicable notwithstanding there has been a long course of dealing between the parties, in the course of which credit has been given to the purchaser and he has punctually performed his engagements—his insolvency having occurred during those dealings. Ho relation of trust or confidence is thereby created, which should entitle the seller to expect of the purchaser, or require of the purchaser, as a legal duty, to communicate to the seller information of his inability to pay all his debts, while he continues his business and the management of his affairs. ' If there is an obligation to disclose in such a case, where does it commence ? at insolvency, or on the way to insolvency, and at what point, and what proof of knowledge is required ? An attempt to extend the protection of the" law to purchasers, so far as to impose such an obligation, would work much more injustice than it would remedy. In relation to the sale of the win.e, the other portion of the property in question, there is an additional fact to those which exist and are . assumed to exist, in respect to the sale of the brandy, which, upon the question of fraud in the sale, is entitled to much consideration. The order for the sale of the wine was not made until two days after the assignment by McCabe, and when of course he was entirely divested of property. Hot only was he insolvent, and known by him to be so, but he had then performed an open and notorious act of insolvency. Was it not his duty, arising out of his previous dealings with the plaintiffs, to communicate that fact to them before the sale. The plaintiffs carried on business at Philadelphia, remote from McCabe, whose place of business was the city of Auburn; they had from time to time for the period of five years, made sales [261] to him, and he had paid" them a great deal of money; their dealings would naturally excite the confidence of the plaintiffs in him, and lead them to expect, at least, that in case of his breaking up his business and assigning his property for the benefit of his creditors, he would on applying to them to make a further purchase, inform them of those facts. I am not prepared to say that to this extent the plaintiffs had not a right to repose confidence in him, and to be protected in so doing by law. I think they had; and that thus far McCabe was under a legal duty, the violation of which was fraud. Here is a plain, well defined limit for the commencement of a legal obligation— a course of dealing calculated to produce confidence, followed by closing business and giving up the property for creditors. Thus far, legal protection can in practice be afforded to sellers without injustice to purchasers. (Story's Eq. Jur. §§ 204, 207. Bench v. Sheldon, 14 Barb. 66, and cases cited.) [Cayuga General Term, June 4, 1855. It cannot be claimed, upon the evidence, that the defendant was a bona fide purchaser. He had notice of facts which render him legally chargeable with knowledge of the fraud; and besides it does not appear that he paid any thing on account of the property, or that his situation has been in any way changed. I do not perceive that the doctrine of stoppage in transitu has any relation to this case. If the right existed while the property was at the depot in Auburn, it was certainly at an end after the property came into the possession of the defendant. A new trial must be granted, with .costs to abide the event. Selden, Johnson and T. R. Strong, Justices.]