Donaldson v. Farwell

DBUMMOND, Circuit Judge, charged the jury as follows: This is a ease of a sale to an insolvent person, wIiq was supposed by the vendor to be solvent, with the expectation and belief by the purchaser that the goods would never be paid for. There were also some facts connected with the transaction which it is proper for the jury to consider, as perhaps adding evidence to what is claimed to be a fraud on the part of the vendee at the time of the sale, namely, that the bankrupt, residing at a little village some few miles from Milwaukee, where he had transacted business for several years, and where under ordinary circumstances, the goods would be sent, requested the goods to be shipped to Milwaukee, for the reason, as the witness (his son) stated, that they could [885] be hauled from Milwaukee to the bankrupt’s place of business. NOTE. For an elaborate discussion of the rights of the creditor, where the purchaser, at the time of the purchase, had no intention of paying for them, consult Stewart v. Emerson [52 N. H. 301], and numerous authorities there cited. The supreme court of Illinois has just decided that where goods have been obtained by fraudulent representations, they can be reclaimed at 1hc option of the vendor, unless they have passed into the hands of an innocent purchaser, without notice, and that an attaching creditor is not such a purchaser, but takes them subject to all equities. Schweizer v. Tracy [70 Ill. 345]. [NOTE. On plaintiff’s appeal the judgment entered in this case was affirmed by the supreme court. Donaldson v. Farwell. 03 U. S. 631. Mr. Justice Davis, delivering the opinion of thc-court, said: “The doctrine is now established by a preponderance of authority, that a party not intending to pay, who, as in this instance, induces the owner to sell him goods on credit • by fraudulently concealing his insolvency and his intent not to pay for them, is guilty of a fraud which entitles the vendor, if no innocent third party has acquired an interest in them, to disaffirm the contract and recover the goods. Byrd v. Hall, *41 N. Y. 647; Johnson v. Monell, Id. G55; Noble v. Adams. 7 Taunt. 5!): Kilby v. Wilson, Ryan & M. 17S; Earl of Bristol v. Wilsmorc. 1 Barn. <£: Ci. 51-!-. Stewart v. Emerson, 52 N. H. 301; Benj. Sales, § 440, note of the American editor. Here the defrauded vendors exercised the right of rescission shortly after the sale, and as soon as they obtained knowledge of the fraud. If, therefore, this controversy were between Mann and them, it is dear that he would not be entitled to recover. The assignee has no right of action. It is true that the assignment relates back to the commencement of the proceedings in bankruptcy, and vests, by operation of law, in him with certain specified exceptions, the property of the bankrupt, although the same is then attached and dissolves any attachment made within four months next preceding the commencement of the bankruptcy proceedings. But, if there be no such liens, and the property has not been conveyed in fraud of creditors, the assignee has no higher interest in or better title to it than the bankrupt. Only the defeasible title of the latter to the goods in controversy vested in the as-signee, and we think that the exception to the charge of the court is not well taken.”] [885] This, under the conceded facts of the case, may perhaps be assumed to be a false representation made by the witness. The goods were shipped by the defendants ns directed. They came into the, possession of the bankrupt. Nothing had occurred to create any suspicion on the part of the defendants until the last of May or the first of June following, when, on the 5th of June, measures were taken to reclaim the goods, on the ground that the sale was fraudulent, and that the right existed on the part of the vendors, to make a reclamation. The goods, with the exception of about $100 worth, were Accordingly reclaimed by the defendants and taken possession of by them. Now, under the facts of the case, the question is whether the action is maintainable by the assignee. The main ground upon which it is said the action could not be maintained, is that by the filing of the petition in bankruptcy and the appointment of an assignee, he became the representative of the creditors, and that it was not competent for the vendors, notwithstanding the fraud that had been committed, to reclaim the goods, because it would be interfering with the rights of the general creditors; that other parties might have sold goods to the bankrupt; that these goods might have been disposed of or the proceeds of them have been distributed in various ways to the creditors of the bankrupt or otherwise, and that therefore to allow a per-non to come in under such circumstances and to reclaim the goods because he could identify them, would be giving him an unjust advantage over other creditors who had sold goods under similar circumstances, who would not have the power, owing to what might have occurred after the sale, to reclaim the goods or their proceeds. That is substantially the ground upon which the case is placed on the part of the plaintiff, and as constituting the reason why the rights •of the defendants are not the same as they would have been if no petition in bankruptcy had been filed.' The assignee in bankruptcy undoubtedly takes and holds the property in many respects differently from the bankrupt. The assignee has a right, as to the property, to •do many acts which the bankrupt himself would not have the right to do. - And it is not therefore true, absolutely and without qualification, that an assignee takes property precisely as the bankrupt held it at the time the petition was filed. He takes it with stronger right, and as representing all the creditors of the bankrupt. And the question is whether, under the circumstances of this case, he takes it so as to divest the right which the vendors would undoubtedly have had. as against the vendee, to reclaim the property. The sale made by the defendants passed the title in the property to the bankrupt, but it passed only *a defeasible title. That is to say, it could be rendered inoperative at the instance of the vendors, J. Y. Farwell & Co. It was competent for the vendors to allow the bankrupt to retain possession of the property, and if before reclamation the bankrupt had parted with the property to a person who purchased it in good faith for value, that destroyed the right of reclamation by the vendors. So that it was a transfer of the title which might become absolute only at the option of the vendors. If the bankrupt retained the property at the time of the filing of the petition in bankruptcy, the title passed to the assignee in bankruptcy, and as we think the weight of authority is, it passéd not as an absolute, but as a defeasible title, with the right still on the part of the vendors to reclaim the property, provided that it was done within a reasonable time after the sale and after knowledge of the fraud which had been perpetrated. Therefore, if you believe the facts stated by the witnesses, and if you believe that within a reasonable time after knowledge of the facts, the vendors reclaimed the goods, or took effectual measures for their reclamation, then we think that the action can not be maintained against the defendants. It is, as I have said, substantially a question of law. We know there are many considerations which lead to an opposite conclusion. But looking at the case in all its aspects, and in view of the great weight of authority upon the subject, we feel inclined to give you this instruction, knowing that it is competent for the plaintiff,' if he shall think that the view of the court is erroneous, to have it reviewed by the supreme court of the United States. The jury found a verdict for defendants.