German National Bank of Ripon v. Princeton State Bank

WiNsnow, J. It is well settled that a sale of property may be set aside as fraudulent either'(1) because it was induced by false and fraudulent representations which were relied upon by the seller, or (2) because of the existence of an tin64 disclosed intention, not to pay on tlie part of the buyer. These are two separate and distinct wrongs: the first is complete without intent not to pay, the second is complete without false representations. Both may be present in a given case,, but either is complete and actionable without the other. Hart v. Moulton, 104 Wis. 349, 80 N. W. 599. Both grounds seem to have been urged by the plaintiff in the trial court in this case, but that court negatived the existence of actionable false representations in its findings, and its conclusions in this respect are so manifestly correct that no serious argument was made upon that proposition in this court. If it could be said under any theory that there was a false representation made by Leimer as to an existing fact, it conclusively appears that the plaintiff did not rely thereon in making the transfer of the note to Leimer, and hence this supposed ground of liability need not be considered. As to the second ground, the law is settled that mere insolvency is not sufficient to prove intent not to pay; neither is a mere failure to disclose such insolvency when not interrogated. The buyer may hold his peace if he be not asked; otherwise the door of hope would be well-nigh closed to the struggling merchant whose liabilities exceed his,assets. If there be an honest purpose to pay, undisclosed insolvency does not affect the validity of the transaction; there must also be the preconceived purpose not to pay. All this is conceded by the appellant, but it is contended that, if the facts are such that the purchaser could have no reasonable expectation of being able to pay, this is equivalent to a definite purpose not to pay, as matter of law. Following this legal postulate, it is argued with force that the situation of Leimer was so desperate when he took the note in question that he could have had no reasonable anticipation or hope of ever being able to pay, and hence that the court should have found the definite purpose not to pay as a legal conclusion from the facts. There are some authorities which give support to this conten [65] tion, notably Talcott v. Henderson, 31 Ohio St. 162; Maxwell v. Brown S. Co. 114 Ala. 304, 21 South. 1009; McKensie v. Rothschild, 119 Ala. 419, 24 South. 716; Davis v. Stewart, 8 Fed. 803; Jaffrey v. Brown, 29 Fed. 476. This court, however, has not adopted that rule. On the contrary, in the case of David Adler & Sons C. Co. v. Thorp, 102 Wis. 70, 78 N. W. 184, it was said by way of quotation from a New York authority: “An honest, though abortive, purpose to continue business and pay for the goods is consistent with the vendee’s own knowledge of his own insolvency; and the purchase is not fraudulent when made with such intent, though founded in delusion and unreasonable expectations.” There were also cited approvingly in the Adler Case the cases of People ex rel. Ellis v. Healy, 128 Ill. 9, 20 N. E. 692; Burchinell v. Hirsh, 5 Colo. App. 500, 39 Pac. 352; and Ill. L. Co. v. Flynn, 108 Mich. 91, 65 N. W. 519. In the first of these cases it is said that “it is not enough that the defendant knew himself to be insolvent and had no reasonable expectation of paying;” in the second it is said: “Reasonable expectation not to pay is not enough; there must be design' not to pay;” and in the third it is said: “What constitutes-fraud in such a case is the purpose of the buyer not to pay for the goods. This is not determined by what purpose some other less hopeful of success in his ventures might under like circumstances have entertained, but to constitute the purchase fraudulent on this ground there must have been an actual intent on the part of the purchasers to obtain the goods without paying for them.” So, also, in Watson v. Silsby, 166 Mass. 57, 43 N. E. 1117, it is said that, “to constitute a fraud which will avoid the contract, there must be a definite conscious intent not to pay.” Thus it appears that the doctrine is well supported by authority, and we confess that it seems to us entirely reasonable. Were the rule otherwise, the honest hope of the optimist [66] would be condemned as dishonest because a pessimist under tbe same circumstances would not have entertained it. Many a man of optimistic disposition, with youth and energy on his side, has honestly deemed that he could continue business and pay his debts under circumstances which to another of cooler blood would have seemed desperate if not hopeless, and has succeeded. The law permits him to do this without branding him as dishonest. Of course, the circumstances may all be shown, and their desperate character may well justify an inference that there was no honest hope of success, but rather a conscious intent to obtain property without paying for it; but this inference is one of fact, not of law". The trial judge so treated the present case, and held, as a conclusion of fact, that Leimer did not have the purpose not to pay when he obtained the note in question. Had he held the other way, we should have had no difficulty in affirming the holding; but, on the other hand, we cannot say, in view of the deference due to the trial court’s conclusions of fact, that his holding was so clearly against the preponderance of the evidence that it should be set aside. It is said that when one sells the promissory note of a third person, and conceals the fact of the insolvency of the maker, the sale may be avoided (citing Brown v. Montgomery, 20 N. Y. 281), and it is argued that the transaction before us was, in effect, the sale of Leimer’s own note, and that the same principle should apply. We do not, however, regard the present transaction as the sale of a note by Leimer. In substance, he purchased the $2,500 note of the plaintiff, and gave his note for the purchase price, just as a merchant might purchase goods and give his note. The note was simply the evidence of his promise to pay his own debt, which was put in writing instead of being permitted to rest in parol. Costs were taxed as in a tort action, and the appellant claims that the action is upon contract for money had and received, and hence that the taxable attorney’s fees should have [67] •been limiifed to $25. Tbe complaint charges the fraudulent procurement of the note by Leimer, the acquirement thereof by the defendant bank without consideration and with knowledge of the fraud, the collection of the same by the receiver and the conversion of the proceeds by him as receiver, the turning over of the assets to the defendant bank at the close of the receivership, a demand of payment with interest from the date of the conversion, and a statement that, because of the “fraud and conversion” aforesaid, the plaintiff has suffered damage in the sum of $2,500 with interest. We regard the complaint as quite clearly stating a cause of action in tort. There was no original contract relation between the parties to this suit. Of course, the plaintiff could have waived the alleged tort and sued simply upon implied ■contract for money had and received, but when he sets forth fraud and conversion as the gist of his action, and says that by reason of the “fraud and conversion” he has suffered damage in the sum for which he claims judgment, we think it •clearly appears that he sues to recover damages for the tort. 'The cases of Rawson Mfg. Co. v. Richards, 69 Wis. 643, 35 N. W. 40; Van Oss v. Synon, 85 Wis. 661, 56 N. W. 190; and Casgrain v. Hamilton, 92 Wis. 179, 66 N. W. 118, are all cases where there was a contract between the parties, and in all of them it was held that in such case, though conversion be alleged, the action would be deemed upon the original contract where the conversion was not dharged to be unlawful, wrongful, or fraudulent. The distinction between those cases and the present case, where there was no original contract between the parties, is plain. ■ By the Court. — Judgment affirmed. OASsonAY, C. J., took no part.