Where a person, clearly insolvent, purchases goods from another on credit, and conceals the fact of Ms insolvency from the vendor, he is guilty of such fraud as vitiates the sale.
A party wishing to avoid such sale, on the ground of fraud, has no right to sue upon the contract at the same time. The latter suit may be pleaded in bar to the former.
Burnett, J., delivered the opinion of the Court—Terry, J., concurring. The defendants Kalkman and Meyer were merchants doing business in San Francisco and Sacramento City, under the firm name of P. Kalkman & Co. They had been previously in the habit of purchasing goods on credit from the plaintiffs. Between the first of January and the twelfth of March, 1856, defendants [213]purchased several parcels of goods, on time, amounting in all to about the sum of eleven thousand dollars. On the fourteenth of April, 1856, the defendant Meyer commenced a suit against Kalkman for a dissolution of the partnership, upon the ground of gross misconduct on the part of Kalkman; and the defendant Bell was appointed by the Court, with the consent of the parties, as receiver. On the same day, plaintiff sued out an attachment against Kalkman & Co. Afterwards, certain facts coming to the knowledge of plaintiffs, which induced them to believe that defendants Kalkman & Co., had procured the goods under such circumstances of fraud as to avoid the contract, they brought this suit on the twenty-fifth of April, 1856, to recover the possession of the goods. At the trial of this action, the attachment suit had not been discontinued. A judgment was had in the Court below for the defendants in the replevin suit, and the plaintiffs appealed.
It is fully established by most of the cases, and conceded by the counsel of defendants, that where a purchase of goods is made with the preconceived design of not paying for them, it is such a fraud as will vitiate the sale. 8 Eng. C. L., 146; 17 Id., 59; 4 Mason’s R., 289; 1 Hill, 302, 317; 2 Paige R., 169; 20 Barbour S. C. R., 253.
If the design exists to defraud the vendor at the time the purchase is made, no title passes to the purchaser. The only difficulty in reference to cases of this kind, is to lay down some rule-as to what facts shall constitute conclusive evidence of such intention. The intention of a party, which is the internal and invisible resolution of the mind, can only be known to others by external acts. It requires evidence to establish the existence of this intention. In estimating the force and effect of certain facts as evidence of intention, a man must be presumed to intend that which is the natural and ordinary result of his own deliberate act. 1 Starkie, 30; Eng. C. L. R., 290; Hall v. Curzon.
In the case of Cross and others v. Peters, 1 G-reenleaf's R., 343, it was held, that to render a sale of goods void, on account of the fraud of the purchaser, it must be shown that description and false representations, were fraudulently made by him to induce the vendor to part with the goods. In the opinion, nothing is expressly said about the effect of an intention not to pay for the goods, in a case where no deception and false representations are made. Rut, from the report of the case, the opinion seems to be too broad, and to be in conflict with the general current of English and American authorities. When the fraudulent intention exists at the time the purchase is made, there would seem to be no doubt as to the contract being void, as against the vendor, whether there was any misrepresentation or not
In one of the head notes to this case, it is stated, that “ the mere insolvency of the vendee, and the of the to [214]immediate attachment by his creditors, though well known to himself, and not revealed to the vendor, will not be sufficient to avoid the sale." It is true, this doctrine is found in the opinion of the Court, but it is also true, that it is obiter dictum. The question really before the Court, as stated in the opinion of the Chief Justice, was, whether, “ if a man doing business as a trader, and in good credit, (though insolvent at the time, but not aware of the fact,) obtains goods on credit in the town where he lives and is known, without practicing any artifice, or making any false representations or pretences, or, in fact, any representations or pretences at all,” he is guilty of fraud. The Court held, that he was not.
In the case of Mitchell et al. v. Worden, 20 Barbour S. C., 253, J. B. Strong, J., expressed the opinion that “though the purchaser was insolvent at the time of the purchase, and well knew ■his insolvency, and intentionally concealed it from the vendor, by simply withholding his knowledge on the subject, without otherwise saying or doing anything to mislead, yet retained the possession of property, and was pursuing his business as theretofore, he was not thereby guilty of fraud, entitling the vendor to avoid the sale.” But it appears that this was mere obiter; for the learned Judge says himself, “ that it does not appear that the purchaser 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.”
It was expressly decided in reference to the purchase of another portion of the property in dispute, that if the purchaser was not only insolvent, and knew the fact, but had performed an open and notorious act of insolvency, it was his duty, arising out of his previous dealing with the vendors, to disclose the fact before the sale, and that a violation of that duty amounted to a fraud.
The case of Fitzsimmons v. Jazlin, 21 Vir. R., 130, was very fully considered. The able opinion of the Court, delivered by Mr. Justice Redfield, is admirable for its high and elevated moral tone. In that opinion, the learned Judge says : “ If one is wholly and notoriously desperate in regard to pecuniary responsibility, it would not be said that he would be legally justified in suffering himself to pass for a man of substance, although he himself had been in no way instrumental in bringing about the delusion, if such a case could be supposed, or likely soon, to occur.”
In that case, the purchaser was not only silent as to his insolvency, but others had represented him as doing a thriving business, and as worthy of credit; and the opinion of the Court, as I understand it, was predicated upon both grounds. The purchaser was held responsible for the concealment, on his part, and the positive misrepresentation, on the part of others.
[215]In the case of Bruce v. Ruler, 17 Eng. C. L. R., 700, it was held that where A, at the request of B, his yearly tenant, ac cepted C as tenant instead, who proved to be insolvent, and it appeared that B, when he proposed C to A, knew that C had compounded with his creditors, but did not communicate that fact to A, the suppression of such fact was a fraud in B, which rendered him still liable to A for the rent.” .
The distinction attempted to be taken between the case of a purchaser who had previously committed an open and notorious act of insolvency, and who had not performed such an act, but was in truth and in fact as insolvent as the former, does not seem to be well founded. These cases differ more in mere appearance, than in .point of reality. In the first case the insolvency of the purchaser is known to others, as well as to himself, while in the latter case it is known only to himself. But the vendor is in no better condition in one case than in the other, and the purchaser should be held to be as honest in the first case as in the second. The question with the vendor is, whether the purchaser is then actually solvent or insolvent. The facts being within the personal knowledge of the purchaser, in the one as in the other case, he ought to be held to make them known in both. The vendor has the right to know the real state of the case, and not the mere deceptive appearances.
It may be difficult to arrive at any conclusion reconcilable with all the authorities; but, from the nature of the case, this rule would seem to be the most just and reasonable, namely: that where a person, clearly insolvent, purchases goods from another, on credit, and conceals the fact of insolvency from the vendor, he is guilty of such fraud as vitiates the sale.
The insolvency ought to be clear, and not subject to any reasonable doubt. And the purchaser must be held to know the true state of his own business; and, if he does not, the consequences should not be visited upon the party who had not the means of knowing. Alvarez v. Brannan, Jan. T., 1857; Taaffe & McCahill v. Josephson et al., April T., 1857.
In the second instruction given by the Court to the jury, they were told, substantially, that fraud is not to be presumed; that the presumption of innocence- must be overcome by proof; that this proof maybe circumstantial, if “the circumstances, when taken together, resist any other conclusion, and point with moral certainty to a fraud.”
This instruction is objected to by the learned counsel for plain tiffs, as laying down too severe a rule, as to the effect of testi mony required in a civil Suit. This objection would seem to be well founded. The correct rule is laid down by Greenleaf on Evidence, § 13 d. “ In civil cases, it is sufficient if the evidence, on the whole, agrees with and supports the hypothesis which it [216]is adduced, to prove; but, in criminal cases, it must exclude every other hypothesis but that of the guilt of the party.”
The third instruction is erroneous, if the rule we have laid down be correct.
The fourth instruction is objected to, upon the ground that it charges the jury as to the weight they should give certain circumstances proved., The substance of the charge is that these circumstances should be received and considered with great caution,” and that the Court was in doubt as to whether the testimony was admissible at all.
The seventeenth section of the sixth article of the Constitution provides, that “ Judges shall not charge juries with respect to matters of fact, but may state the testimony and declare the law.” The right to “ state the testimony” would hardly authorize a Judge to express his opinion as to its effect. He might well state that it was admitted for a specified term only, and not as competent evidence with respect to other issues. “ Questions respecting the competency and admissibility of evidence, are entirely distinct from those which respects its sufficiency or effect, the former being exclusively within the province of the Court—the latter belonging exclusively to the jury.” 1 Green-leaf Ev., § 2. We think the objection to this instruction well taken.
The fifth instruction was that “ this controversy, in its effects, is not between plaintiffs and Kalkman & Co., but between these plaintiffs and all other creditors of the defendants, affecting as it does the dividends to all the creditors.”
This instruction, it would seem, was not required, but we are not prepared to say that the plaintiffs were injured by it. The charge contained nothing but the truth, and this was evident from the testimony that the jury would have known it without being informed by the Court. The charge might well have been omitted; but we think could produce no injury to plaintiffs.
In the seventh instruction, the Court charged the jury, among other things, that “ if they believe, ■ from the evidence, that since the plaintiffs became acquainted with the facts they still adhere to the suit upon the contract, and intend to prosecute it to judgment for the same goods, then they have no right to this suit, and you will find for the defendants.”
It is a very just general rule, that a defendant shall not be harassed with several suits for the same matter, at the same time. In such case, the pendency of one suit may be plead in abatement of the other.
In this case, the facts constituting evidence of the alleged fraud were unknown to the plaintiff's at the time the attachment suit was commenced, and when they afterwards became known, by information obtained from third persons, they brought this suit.
[217]But when they discovered the fraud, the plaintiffs should have promptly made election and relied only upon one remedy. It often happens that a party has his election to pursue one of two or more remedies ; but he should not pursue several at one and the same time. To allow the plaintiffs to do so in this case, would have given them a great advantage over other creditors. By keeping both suits pending at the same time, and for the same matter substantially, and by prosecuting this one to judgment first, and failing in it, then to fall back upon the attachment suit, the plaintiffs would have had two chances to one over other creditors. We think the instruction correct.
Under the view we have taken, it is not necessary to decide the question whether the Court below erred in rejecting testimony in regard to the commercial sense of the word “ inventory.” '
For the foregoing reasons, the judgment of the Court below is reversed, a new trial ordered, and the case remanded for further proceedings.
AI Brief
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Holding. A sale of goods is vitiated by fraud if a clearly insolvent purchaser conceals their insolvency from the vendor. However, a vendor must elect between pursuing a rescission of the contract based on fraud and an attachment suit based on the contract, as they cannot maintain both simultaneously.
Issues
Whether a purchaser's concealment of insolvency constitutes fraud sufficient to void a sale.
Whether a trial court's instruction requiring proof of fraud to point with 'moral certainty' to a conclusion is correct in a civil case.
Whether a judge may express an opinion on the weight of evidence to a jury under the state Constitution.
Whether a vendor may simultaneously maintain an attachment suit and a replevin suit for the same goods.
Disposition. reversed
Quotations verified verbatim against the opinion
“where a person, clearly insolvent, purchases goods from another, on credit, and conceals the fact of insolvency from the vendor, he is guilty of such fraud as vitiates the sale.”