Claster Bros. v. Katz

Opinion by Rice, P. J., This was a sheriff’s interpleader to try the title to certain goods levied upon as the property of J. Blankfield. The plaintiffs were in the wholesale clothing and notion business in the city of Harrisburg, and Blankfield was in the same business as a retailer in Ephrata in the county of Lancaster. On or about September 13, 1896, Blankfield ordered goods of the plaintiffs to the amount of about $300. Later in the same day he ordered goods of E. Katz, also doing business in Harrisburg, to the amount of $292.73, and on September 15th, (pursuant to an agreement made on the 13th), gave her a judgj ment note dated September 14th, and payable one day after date for $619.13. It is alleged that this note was given for the goods ordered on September 13th, and money that he owed her. On September 15th Blankfield telegraphed the plaintiffs to ship only one half the goods. Accordingly, on September 16th or 17th, the plaintiff shipped one half the goods ordered without any knowledge that, in the mean time, Blankfield had given to Mrs. Katz the judgment note above referred to. On September 23d, Mrs. Katz entered judgment on the note and also on another note bearing date May 1, 1896, for $300, the consideration for which does not distinctly appear, and issued executions. On the following day a levy was made on the goods in Blankfield’s store, including those ordered from the plaintiffs that had not been disposed of. These goods (some of which were still in the original packages) were claimed by the plaintiffs and appraised at $80.00. The remaining goods were sold at sheriff’s sale for $895. Blankfield owned no real estate, and, as far as appears, no other property except that in his store. He was indebted to other parties, but in what amount does not directly appear. Insolvency has been defined as the state of a person who, [492] from any canse, is unable to pay bis debts in tbe ordinary or usual course of trade: Levan’s Appeal, 112 Pa. 294. But it is well settled in Pennsylvania that the insolvency of the vendee of goods at the time of the sale, although known to him and not disclosed to the vendor, is not alone such fraud as will enable the latter to rescind the sale and reclaim the goods after they had come fully into the possession of the vendee. Many of the late cases in which this rule has been recognized and ap-plied are cited in the opinion of our Brother Oklady in Ralph v. FonDersmith, 3 Pa. Superior Ct. 618, and need not be cited here. In Smith v. Smith, 21 Pa. 367, it was held that the added fact that the vendee intended not to pay would not change the rule which was thus stated in the syllabus: “ The intention of the buyer of goods, at the time of purchasing them, not to pay, together with his insolvency at the time and his knowledge of it not communicated to the seller, will not avoid the sale after the delivery of the property sold.” It was said in Bughman v. Central Bank, 159 Pa. 94 that the law as thus declared in Smith v. Smith, was not in harmony with that of a majority of other states, nor with sound policy or the principles of business honesty, and, moreover, was a departure from the previous decision in Mackinley v. McGregor, 3 Wh. 369. “ But,” said Mr. Justice Mitchell, “ it has been expressly followed in several cases, and has remained in the books without being overruled, for forty years, and recognizing that the subject is one on which legal minds have always been apt to differ, we do not think it wise now, notwithstanding our own clear convictions on the principle, to unsettle the law by another change. We will therefore stand on the authority of Smith v. Smith and its kindred cases, but we will not go a step beyond what they require. Any additional circumstance which tends to show trick, artifice, false representation, or, in the language of Smith v. Smith itself, ‘ conduct which reasonably involves a false, representation ’ will be sufficient to take the case out of the rule of those authorities.” It needs -no argument to show that the instruction complained of in the first assignment goes very far beyond what the rule declared in Smith v. Smith required. Conceding that a seller must take the risk of the insolvency of the buyer and of his secret intention not to pay, must he also take the chance, that, [493] the buyer has committed, or between the sale and the delivery of the goods, will commit, an act of fraudulent insolvency, whereby the seller will be effectually prevented from collecting the price of his goods ? Clearly not. To obtain goods in that way is to obtain them by a trick, — a “ fraud acted out ” — which only needs the sanction of the law to make it a most successful method of cheating. From the very nature of a transaction a fact not disclosed may be such that it is impliedly represented not to exist, and whilst under our decisions a buyer is not held to an implied representation of solvency, he may be fairly presumed to represent that he has not deliberately set a trap for the unwary seller. We need not discuss this assignment further; nor, since the case must be sent back for a retrial upon other grounds, need we consider whether the error into which the learned judge inadvertently fell in stating the rule, was rendered harmless by other portions of the charge. The question raised by the second and third assignments of error relates to the effect of acts of the buyer, between the purchase and the delivery of goods, upon the right of the seller to rescind the sale, after the goods have come into the possession of the buyer. The legal principle, which, in their first point, the plaintiffs asked to have applied to the case was that, if the buyer about the time of the delivery of the goods confesses judgment and disables himself from continuing business, he commits an act of legal, if not actual, fraud, and acquires no title to the goods. The court affirmed the point as an abstract proposition of law, but accompanied the affirmance with instructions to the effect, that to entitle the seller to rescind the sale he must show that it was induced by some trick, artifice or deception practiced by the buyer on the day the contract was made. The practical effect of thus qualifying the point was to nullify it, and to leave the impression on the jurors’ minds, that, unless such deception was practiced, the subsequent acts of the buyer were immaterial. Whereas, if the principle invoked by the plaintiffs was sound, and the facts of the case warranted its application, the plaintiffs had a right to rescind the sale, whether active misrepresentations were made by Blankfield on the day the goods were ordered or not. The confession of judgment by a buyer of goods between the purchase and delivery of the same is not, per se, such a fraud [494] upon the seller as entitles the latter to rescind the sale. Other facts must be present in the case in order to warrant the application of the principle contended for; and if the evidence concerning them is conflicting, or leaves them as subjects of inference purely, the question must be submitted to the jury under proper instructions. Hence, we are unable to say, that the plaintiffs were entitled to an unqualified affirmance of their second point. The defendant’s assets and liabilities at the time of the confession might have to be considered. But where, in addition to insolvency known to the buyer and undisclosed to the seller, the buyer, before the delivery of the goods, confesses a judgment which is enforceable at once, and he knows that the effect of its enforcement will be to disable him from continuing his business and to bring it to an end, and it is so used, these additional circumstances are sufficient, in our opinion, to take the case out of the strict rule of Smith v. Smith, and kindred cases. The decision in Bughman v. Central Bank, 159 Pa. 94, is directly in point. It appeared there that Fawcett and Sons sent two barges to the plaintiff’s works to be loaded with coal in accordance with their previous course of dealing on credit by notes running for four months. On the same day Fawcett and Sons confessed judgment to the defendant, and on November 21, executed and delivered to the defendant a bill of sale covering practically all their coal boats, and including the two barges with the coal contained therein purchased from the plaintiff. The evidence tended to show that the bill of sale was signed and delivered in the forenoon of the 21st, at which time only one of the barges was loaded, and that the other was not loaded until the afternoon of that day. The question was as to the right of the plaintiff to rescind the sale. It was contended there, as it is here, that, in the absence of active misrepresentations, the rule laid down in Smith v. Smith, applied, but the Supreme Court emphasized their declaration that they would not go a step beyond what that case requires, in the following ruling: “ In the present case, Fawcett & Sons at about the time if not before the delivery of the coal not only committed an act of insolvency by the confession of judgment and bill of sale to the bank, but in fact disabled themselves from continuing their business, and practically brought it to an end. Tlris was a most material fact in the transaction. It [495] was such a change in circumstances as the vendor was entitled to know, and it does not admit of doubt that if he had known it, he would not have delivered the coal. In the New York cases this fact makes the purchase a fraud in law, and is conclusive: Mitchell v. Worden, 20 Barb. 258. This we think is the sound and true rule. It is in accord with what we know would be the practical result in business life, and it follows the close analogy of a concealed defect in an article sold, which entitles the purchaser to rescind the sale. We hold therefore that as between the appellant and Fawcett & Sons the transaction was a legal, if not an actual fraud, and passed no title to the coal.” We do not hold that it was the duty of the court to declare that the facts of the present case required the application of this legal principle, but we are clearly of opinion that there was ample evidence to warrant the jury in finding the facts to which it would be applicable. Hence, while the plaintiff’s first point required explanation, and the second qualification, the principle involved arose fairly out of the evidence, and was not subject to the qualification which was put upon it in the answers. If the facts were as stated in the plaintiff’s third point, then a gross fraud was practiced to induce the plaintiffs to part with their goods, and they had a right to rescind the sale and to recover in the issue being tried, without being compelled, in addition, to prove that the purchaser was insolvent. The point was in exact accord with instructions, given in the general charge, and should have been distinctly and unequivocally affirmed. The qualification, “ provided Blankfield was insolvent at the time ” was inappropriate in answer to that point, and tended to mislead. The judgment is reversed and a venire facias de novo awarded.