Stewart v. Emerson

52 N.H. 301 | N.H. | 1872

Doe, J. I.

The defendant claims that the plaintiff, by this suit upon the contract of sale, affirming the sale, cannot, in this suit, assert the creation of the debt by the fraud of the defendant; that the fraud of the vendee can be set up by the vendor only in an action founded on the fraud. The defendant’s position is, in effect, that when the declaration is on a contract of sale, and the plea is discharge in bankruptcy, the replication of debt created by the defendant’s fraud is bad ; that an issue upon a traverse of such a replication is an immaterial issue, and a trial of such an issue a mistrial; and that, on a verdict for the plaintiff on such an issue, a repleader should be awarded, or judgment be arrested, or judgment be rendered for the defendant non obstante veredicto. Tidd Pr. 828. Is such a replication good? When, in an action brought by a .vendor on a contract of sale to recover the price of the goods sold, the defendant pleads a discharge in bankruptcy, can the plaintiff reply that the debt was created by the fraud of the defendant ?

The plaintiff declares upon a promise of the defendant to pay for goods sold, and, if he maintains his action, he maintains it upon the contract of sale affirmed by him. When a party has an election between two inconsistent rights or remedies, — for instance, when he can rely upon a contract, or renounce the contract and rely upon fraud,— and he has knowledge of all the facts material to be known in making a choice, his selection of one may be a renunciation of another. Butler v. Hildreth, 5 Met. 49. But the plaintiff in this case avers the fraud of the defendant, not as the plaintiff’s cause of action, but as a refutation of the defendant’s alleged defence of discharge. The plaintiff claims to recover damages, not for the defendant’s fraud, but for the breach of his promise to pay for the goods bought; and in the replication he alleges the fraud, not as the ground on which his action rests, but to show that there is no ground on which the defendant’s discharge can be applied to this debt. He asserts, not that the sale was void for fraud, but that, by reason of fraud, the debt was not discharged under the bankrupt act. He asserts the fraud, not for the purpose of rescinding the contract, but to show that the defendant has not been relieved from his obligation to perform his part of the contract.

The replication, “ that the debt sought to be recovered in this suit was created by the fraud of the said defendant,” follows the bankrupt act in recognizing the distinction between a debt annulled by the creditor’s disaffirmance of it at common law, and a debt affirmed by the creditor, and not discharged under the statute by reason of fraud. The bankrupt act provides that no debt created by the fraud of the bankrupt shall be discharged under that act; but the debt may be proved, and the dividend thereon shall be a payment on account of said debt. The statute recognizes a debt, created by the fraud of the bankrupt, as a debt not discharged and not affected by the proceedings in bankruptcy, except so far as it may be paid by a dividend. So far as this case is concerned, the debt, if created by the fraud of the defendant, is excepted out of the operation of the bankrupt act. And when the plaintiff answers the plea 'of discharge by the replication of debt created by fraud, he does not attempt to rescind or invalidate or renounce the contract, but he affirms it, and claims that the debt is a valid, subsisting debt. In the declaration, he asserts a debt. In the replication, he asserts the same debt. He avers the fraud, not to avoid the contract himself, but to show that the defendant cannot avoid it; not to show that, by reason of the fraud, the debt declared upon was never created, but to show that, being created by fraud, it was not discharged under the bankrupt act; not to show that there is no such debt, but to show that there is such a debt notwithstanding the dis charge. In this course there is no inconsistency, and the plaintiff is not estopped ‘to answer the plea of discharge by the replication of debt created by fraud.

II. The judge instructed the jury that the debt was created by the fraud of the defendant, if the defendant, by his acts or words, prior to or at the time of the sales, intentionally induced the plaintiff' to believe that the defendant intended to pay for the goods, and the defendant in fact did not intend to pay, and the defendant induced this belief, intending to deceive the plaintiff', and induce him to sell the goods to the defendant, and the plaintiff was thereby deceived, and was induced by this misrepresentation to make the sales, and would not have made them if the defendant had not made this misrepresentation. Was this a correct statement of the law applicable to this case ?

In Noble v. Adams, 7 Taunt. 59, the vendee, at the time of the sale, delivered worthless bills in payment, knowing them to be worthless. Gibbs, C. J., instructed the jury that if the vendee went to the vendor, having formed a deliberate plan to put off bad bills for valuable merchandises, knowing the goods would never be paid for, and intending then to abscond with the goods, or to throw them into an immediate bankruptcy, or to pass them over to a particularly favored creditor, the vendee was guilty of a fraud, and tlie sale would not change the property ; but if the vendee only meant to give these bills, and himself by these bills, more credit than they deserved, but intended to continue to carry on his business, and to try to pay for the goods at some time or other if he could, that was not such a fraud as would vitiate the sale. This instruction, which was held to be correct, made the intent of the vendee never to pay, the material inquiry for the jury in that particular case, and did not present the criminal offence of obtaining goods by false pretences, as the test of fraud in a civil suit. It might have been taken for granted, at the trial, that the case was one of a criminal false pretence, if the vendee intended never to pay. The jury found the sale fraudulent. But it was held that the evidence did not show such a fraud as would vitiate the sale, because there was no proof of what passed between the vendor and the vendee, or by what practices the latter obtained the goods, without which it could not be known whether or not the means which the vendee used were such as to fix him with the offence of obtaining them by false pretences. The whole case, taken together, seems not to support the doctrine that obtaining goods on credit, by concealing an intent not to pay for them, is a fraud in a legal sense.

In Irving v. Motly, 7 Bing. 543, 552, Park, J., expressed the opinion that obtaining goods by false pretences is not the only ground upon which a vendor can vacate a sale, and that a contrary rule was not announced in Noble v. Adams.

In Bristol v. Wilsmore, 1 B. & C. 514, the bargain was that the price slioúld be paid in ready money; but the vendee prevailed upon the vendor’s servant, who made the bargain, to accept a worthless check for the price, by assuring him it was as good as money. It was held, upon authorities tending to show the case within the criminal law of false pretences, that, if the vendee obtained the property with a preconceived design of not paying for it, the fraud would vitiate the sale, and that whether he obtained it with such a design or not was a question of fact which ought to be left to the jury. Such a design was regarded as material; but it would seem that the court did not mean to declare it to be a fraud to obtain property by the mere omission to disclose such a design, without using any worthless bill, or check, or other thing considered as a false token in the criminal law.

In Hawse v. Crowe, R. & M. 414, the goods were to be paid for on delivery: the vendee gave for them a check drawn by himself on a bank, payable to the vendor; and the check was dishonored. Abbott, C. J., held that the transaction was fraudulent if the vendee had not reasonable ground to expect that the check would be paid.

In Kilby v. Wilson, R. & M. 178, the same judge seems to have held a preconceived design of a vendee not to pay to be fraudulent.

In Ferguson v. Carrington, 9 B. & C. 59, the goods were bought on credit, were to be paid for by bills accepted by the vendee, such acceptances were given, and the vendee, immediately after receiving the goods, sold them at reduced prices. The vendor contended that it was manifest that the vendee purchased the goods with the preconceived design of not paying for them. At the trial, Lord Tenterden expressed the opinion that if the vendee had obtained the goods with a preconceived design of not paying for them, no property passed to him by the contract of sale. But the case turned on another point, and all the evidence of fraud may not be reported.

In Load & a. v. Green & a., 15 M. & W. 216, the jury found that the vendee bought the goods with the fraudulent intention of not paying for them. Parice, B., delivering the opinion of the court, described the action as trover brought against the assignees of a bankrupt to recover goods obtained by him by a fraudulent purchase from the plaintiffs without intent to pay for them, and which, therefore, the plaintiffs had a right to recover from the bankrupt himself, by avoiding the contract on the ground of fraud, on the principle of the case of Noble v. Adams, 7 Taunt. 59, and others. But the point decided has no bearing on the question whether obtaining goods, by concealing an intent not to pay for them, is sufficient to vitiate the sale.

In Chitty on Contracts 856, it is said that if one purchases goods with the preconceived design of not paying for them, such sale does not pass the property therein. If this is the English doctrine, there would seem to be reason to expect that it could be more satisfactorily shown in English reported cases than it is in those cited by Chitty. Generally, no doubt, a vendor who alleges fraud in a purchase has some express misrepresentation of a material fact by the purchaser to rely upon, aside from a purchase on credit obtained by the concealment of an intent not to pay. But as the vendor necessarily understands, when the vendee buys on his own credit, that the vendee intends to pay, and the vendee necessarily intends the vendor shall so understand, — as the vendee, by the very act of buying on credit, intentionally induces the vendor to believe he intends to pay, and obtains the goods by inducing the vendor to entertain that belief, — if this, with an intent not to pay, had been regarded as fraudulent in a legal sense, it would seem that this ground alone would have been frequently taken, and that the English reports would show that it had been taken in many cases, and that it had been sustained by explicit decisions, or was so elementary and well understood that no one brought it in question. It can hardly be said that this is shown by the English cases usually cited in this country on this subject.

The English authorities certainly declare, in general terms, that a fraud may be committed by one person inducing another to enter into a contract, by the intentional and dishonest concealment of a material fact which is peculiarly within his own knowledge, or which the other party cannot, by due vigilance, discover ; that a suppression of a truth may be equivalent to an express false representation. But the same authorities seem not to establish the legal bounds of this kind of fraud with precision, by a comprehensive definition or universal rule. It is said to be extremely difficult to advance any general principle upon this subject, inasmuch as what does or does not amount to fraud depends very much on the facts of every particular case, on the relative situation of the parties, and on their means of information. Chitty on Contracts 588. Professor Parsons says the common law not only gives no definition of fraud, but perhaps asserts as a principle that there shall be no definition of it; and he suggests that a definition of it would inform the crafty by what fraudulent devices they could avoid the grasp of the law. 2 Parsons on Contracts (5th ed.) 769. But the common law claims that it is, or can be, or ought to be, known by all who are subject to its government, and that it is a rational system, and not a collection .of rules, maxims, and definitions constructed upon verbal distinctions, to be applied in an arbitrary or literal sense ; and it is not apparent how a definition of fraud, as accurate as legal definitions generally are, taken in the liberal sense indicated by the spirit, and not by the letter, in which all legal definitions are understood, would promote the safe practice of deceit.

The law enforces certain moral duties, and admits that others are of imperfect obligation. In trade, it prohibits a certain degree of craft, and does not-prohibit a certain other degree. On this subject, as on many others, it may not be easy to fully describe the dividing line, on one side or the other of which all possible cases must fall (a difficulty from which moral philosophy is by no means free). The whole line may not be judicially promulgated at once, with an exactness and minuteness of detail superior to the fraudulent inventive faculty of all future time. The general course of the line is well known ; its precise location at all points is presumed to be ascertainable by the application of settled principles, although, at certain points, it may be marked in the authorities only approximately by the cases on either side, whose positions are determined from time to time as they arise. A proposition concerning an immoral suppression of a material fact being equivalent to an express fraudulent misrepresentation, is everywhere recognized as a statement suggestive of a sound principle; but the proposition, as commonly expressed, does not determine what is a material fact, or when it is peculiarly within the knowledge of one party, or ought to be discovered by the other party, or under what circumstances the law requires it to be disclosed. Like caveat emptor, and many other maxims and rules, it may be designed to convey some idea of a certain general theory of the law, and not to designate the application of the theory to the varying circumstances of particular cases in actual practice.

In some jurisdictions in this country, the effect of a vendee’s concealment of his intent not to pay has been somewhat considered. “ If a man, knowing his own insolvency and utter incapacity to make payment, purchases goods of another, who is ignorant of any change of his circumstances, and sells them under the most implicit belief of the good faith and solvency of the buyer, in what respect does the transaction differ from a direct affirmation by the buyer of his own good faith and solvency ? If the buyer conceals a fact that is vital to the contract, knowing that the other party acts upon the presumption that no such fact exists, is it not as much a fraud as if the existence of such fact were expressly, denied, or the reverse of it expressly stated?” Story, J., in Conyers v. Ennis, 2 Mason 236, 239, 240.

In Cross & a. v. Peters, 1 Greenl. 376, 380, the judge instructed the jury that insolvency, unattended by any misrepresentations or falsehood in obtaining credit, would not render the purchase from the plaintiffs void; and that, unless the vendee obtained credit, with a fraudulent intent and secret understanding with one H that the goods should be attached by him to secure his debt, the verdict should be for the defendant; but that, if the goods were purchased with such intention and understanding, the verdict should be for the plaintiffs. The verdict was for the defendants; and the court refused to set it aside,— first, because there was no proof that the vendee knew he was insolvent ; secondly, because, if lie had known it, he was not bound to disclose it, and no deceptive assurances or false representations were fraudulently made by him. It was said the purchase would be void if made in pursuance of the secret arrangement with H, because there would be an indictable conspiracy.

At the trial of Wiggin v. Day, 9 Gray 97, the buyer’s intent not to pay was regarded as material, as it might sometimes be, even if not sufficient of itself to constitute fraud.

“We can entertain no doubt that when goods are purchased with a preconceived intention not to pay for them, this is a fraud upon the vendor, which will entitle him to repudiate the sale. Such is the doctrine of the English authorities; and, although it has been questioned in some recent cases in Pennsylvania and New York, it rests upon sound principles of morality and law. In such a case, the fraudulent party pretends to be a purchaser when he is not, but is, in fact, attempting to obtain possession of the property of another, dishonestly, with a view to deprive him of it without consideration. As far as the buyer is concerned, the whole sale is a mere fiction, a delusion imposed upon the seller, to induce him to part with the possession. If it be said that a mere intention does not constitute a fraud, the answer is, that the purchase, with such a fraudulent intention, is a fraudulent act. In its moral quality, it is hard to distinguish it from a larceny. There are other cases in which an intention to defraud entitles the party against whom the fraud is meditated to treat a sale as a nullity, such as sales made with intent to defraud creditors. And, however the law might be held elsewhere, in Massachusetts a purchase of goods, with an intent not to pay for them, is expressly recognized by statute as. a fraud which, will deprive the debtor of the benefit of the act for the relief of poor debtors, and may subject him to sentence of imprisonment. Gen. Stats., ch. 124, secs. 5, 34. Rev. Stats., ch. 98, secs. 31, 36.” Dow v. Sanborn, 3 Allen 181, 182.

“We believe that the rule is now settled, that if a person purchases goods with a preconceived design not to pay for them, the vendor has a right to treat the sale as void.” Thompson v. Rose, 16 Conn. 71, 81.

In Powell v. Bradlee, 9 Gill & J. 220, 248, 278, it was held that a purchase is fraudulent, if the vendee at the time of the purchase is insolvent, knows he is insolvent, has no reasonable expectation of paying for the goods purchased, and conceals these facts from the vendor, who by ordinary prudence cannot know of their existence.

Obtaining property with a preconceived design never to pay for it, under color of a formal sale, induced by a sham promise to pay, which the party intends never to comply with, is a fraud. Bidault v. Wales, 19 Mo. 36; S. C. 20 Mo. 546.

In a dictum in Bell v. Ellis, 33 Cal. 620, 630, the rule, that the concealment of an intent not to pay is fraudulent, is doubted.

When dealings between a vendor and vendee, during a period of years, naturally would excite and have excited the confidence of the vendor in the responsibility and integrity of the vendee, and the vendee commits an open and notorious act of insolvency by assigning all his property, and two days afterwards buys goods of the vendor without informing him of the assignment, the purchase is fraudulent. Mitchell v. Worden, 20 Barb. 253. The doctrine, that concealment of intent not to pay is fraudulent, was adopted in Buckley v. Artcher, 21 Barb. 585. “ If a purchaser, who is, insolvent conceals that fact from the vendor, and thus obtains goods without intending to pay for them, it is a fraud.” Durell v. Haley, 1 Paige 492, 493. “ A purchase, with intent not to pay, is such a fraud as will avoid the sale.” Ash v. Putnam, 1 Hill 302, 305. In Nichols & a. v. Pinner & a., 18 N. Y. 295, 297, 302, 303, 305-311, 315, the judge instructed the jury that if the vendee procured the possession of the goods from the vendors fraudulently, with a preconceived design not to pay for them, they would have the right to repudiate the sale. A new trial was granted because the judge refused to charge, as requested, that the mere omission of the vendee to disclose his insolvency was not fraudulent; and the question, whether a preconceived design not to pay renders a purchase fraudulent, was not decided, although three of the judges expressed opinions upon it, — Harris and Roosevelt, JJ., holding the affirmative, and Selden, J., the negative. Judge Harris, upon an examination of authorities, concludes that, in asserting that there must have been actual artifice, intended -and fitted to deceive, before a vendor can reclaim his property on the ground that he has been defrauded, Smith v. Smith & a., 21 Pa. St. 367, stands alone, and is unsupported by principle. Judge Selden said, — “ The law takes no cognizance of a naked design which is demonstrated by no act. If one does only that which is lawful, and violates in action no positive duty, his intentions cannot be reached. An intent to overthrow the government is not treason without an overt act. An intent to commit murder or any lesser crime is never punishable, and an intent to commit a fraud is governed by the same rule. The intention may exist at one moment, and be changed the next. The party is in loco penitentice until he does some act in furtherance of the intent. The purchase of goods is a lawful act, and the validity of the purchase cannot be affected by the mere mental state of the purchaser.” In Hall v. Naylor, 18 N Y. 588, 589 (S. C. 6 Duer 71), Comstock, J., delivering the opinion of the court, said, — “It does not appear that Kerr & Co., on purchasing the goods in question, made any representations of their ability to pay for them. If, however, they concealed the fact of their insolvency, with a design of procuring the goods and not paying for them, it was a fraud which rendered the sale void, if the plaintiff (the vendor) chose so to regard it. On the trial of such an issue, the quo animo of the transaction is the fact to be arrived at.”

In Smith v. Smith & a., 21 Pa. St. 367, it was held, by a majority of the court, that a vendee’s concealment of his insolvency and of his intent not to pay, without any fraudulent overt act or actual artifice, intended and fitted to deceive the vendor, is not fraudulent. Lowrie, J., delivering the opinion of the majority, said, — “ An intention not to pay is dishonest, but it is not fraudulent. '* * * And it is no more fraudulent to have such an intention at the time of the purchase, than at the time when payment ought to be made. * * '* It is no more fraudulent in an insolvent than in a perfectly' solvent man, to have such an intention. * * * Insolvency is a state of one’s affairs; and the consciousness of it, and the intention not to pay, are states of the mind, and if these constitute fraud, then it may be made out without proof of a single overt fraudulent act. And if none of its elements consist of an overt act, then the law requires no evidence of an overt act to establish it. * * * Where must we look for the fraud ? Not in the buyer’s intention merely. It must be a fraud upon the vendor, that is, a fraud acted out. We are seeking to avoid a contract because it was induced by fraud, that is, because there was some fraudulent act leading to it. The very statement of the proposition excludes the act of purchase from being an element in the fraudulent conduct, and makes it a consequence of it. What, then, is left but the dishonest intention and the concealed insolvency ? And, surely, those did not induce the vendor to sell his goods. The error, in the other view, is in making the purchase a part of the fraud, instead of the object and consequence of it. All the books concur in placing the avoidance of the contract on the ground of actual fraud practised in procuring it. And, as between persons standing upon an equal footing, and holding as to each other no relation of influence or trust, all authorities, when they speak clearly on the subject, regard it as essential to actual fraud that the intent to mislead should be acted out by false representations, contrivances, or artifices, or by conduct which reasonably involves a false representation. The rule is proved by the exceptional cases, where special confidence is reposed and influence presumed. Here the law interferes, though there be no actual fraud. * * * There must have been actual artifice, intended and fitted to deceive, before a man can claim that he has been defrauded.”

It is necessary to consider the reasons given by Judge Selden, in Nichols v. Pinner, and by Judge Lowrie, delivering the opinion of the majority of the court in Smith v. Smith & a., for holding that a person who induces another to let him have goods on credit, by concealing an intent not to pay for them, is not guilty of a fraud in a legal sense. The reasons given by Judge Selden are, that, as an intent to overthrow the government is not treason, and an intent to commit'any other crime is not a crime, so a mere intent to commit a fraud is not the commission of a fraud; that the vendee, intending at the time of the purchase never to pay, may change his mind, and pay the price when it becomes due, and is in loco penitentice until he does some act in furtherance of the intent; that the purchase of goods is a lawful act, and the validity of the purchase cannot be affected by the mere mental state of the purchaser. Are these reasons sufficient ? If one does only that which is lawful, the law does not generally take notice of his intention ; but an act, lawful when done in good faith, with an honest purpose, may be unlawful when done in bad faith, with a dishonest purpose. The law, in many cases, takes particular notice of the knowledge, intent, and state of mind with which an act is done. The purchase of goods is, in general, a lawful act; but the purchaser’s knowledge that the goods were stolen by the person of whom he buys them, may be a very material fact. 1 Hale P. C. 620. Upon a question of unlawfulness, and even of criminality, the intent of the owner, of goods to part with the ownership, or only with the possession of them, is often decisive. Mowrey v. Walsh, 8 Cow. 238; State v. Watson, 41 N. H. 533. The purchaser’s knowledge of the seller’s intent to delay, hinder, or defraud his creditors may vitiate the sale, and deprive the purchaser of property for which he has paid the full value. Robinson v. Holt, 39 N. H. 557. The validity of a purchase may be affected by the mere mental state of the purchaser.

The substance of a contract is a mutual understanding, existing in fact or in contemplation of lgw. A contract of sale, from B to A, completely performed, is their mutual understanding, executed by the delivery of the goods and the payment of the price. The understanding is, that A is to acquire the possession and ownership of B’s goods, and to pay for them. Without a mutual understanding that A is to pay for them, there is no sale. If both parties understand there is to be no payment, the transaction is a gift, and not a sale. If B understands there is to be payment, and A understands there is to be no payment, it is neither a sale nor a gift, and the title does not pass, because there is no mutual understanding, unless a case of estoppel can be made out by one party against the other. When A so conducts as to intentionally cause B to understand that A is a purchaser, or, in other words, that the transaction is a sale, he necessarily causes B to understand he intends to pay, because a sale or purchase necessarily implies payment or an intent to pay. If he acts in bad faith, intending never to pay, and therefore the understanding is in fact not mutual, still B could maintain an action on the contract, because A would be estopped to deny that his understanding and intent were what he induced B to understand they were. Having, by his words or conduct, wilfully caused B to believe the existence of a certain state of facts, and induced him to act on that belief so as to alter his previous position by parting with his goods, A is concluded from averring against him a different state of things as existing at the same time. Davis v. Handy, 37 N. H. 65, 75. This estoppel B may set up against A. But he is not obliged to set it up. He may take the ground that, there being in fact no mutual understanding, no meeting or agreement of minds, no harmony of intention, no joint assent to the same thing, there was no contract. And ‘when he takes that ground, it may be said that the validity of the sale is affected by the mere mental state of the parties, or it may be said that there was no sale to be affected by the mental state of the parties. In this analysis, the entire contract falls to pieces and disappears, and the transaction, resolved into its original and real elements, becomes a wrongful and fraudulent conversion of B’s goods by A. And when B may allege that the contract or the debt was created by the fraud of A, he may sustain his allegation by proof of facts which would show that by reason of A’s fraud there would have been no contract and no debt, if B had chosen to take that ground.

The intent to commit a fraud is not the commission of, a fraud ; but when A, in the assumed character of a buyer, animo furandi, obtains goods of B on credit by the concealment of such a material fact as an intent not to pay — a fact peculiarly within his own; knowledge, and impossible to be discovered by B — the fraudulent part of the transaction cannot be reduced to the fact concealed, the intent not to pay. The concealment of that fact is fraudulent. B has lost his goods: that is a serious p'art of the business. They have been taken from him with an agreement on his part to give time for payment: he cannot, in an action on the contract, recover their value till that time has passed: that time was obtained from him by A for the purpose of gaining a position of safety and defiance by so disposing of the goods (and his own property, if he had any exposed to attachment) that B could never recover his goods or their value. This is another practical matter, of no little importance. The fraudulent part of all this cannot be called a mere intention or state of the mind. The condition of both parties is substantially changed by means of the fraudulent concealment. B has lost his goods, and A has obtained them without any valuable consideration! Not only has B lost them, but, if he is held to his agreement to give credit, he has lost them irrevocably ; for it must be presumed that A will avail himself of his'advantage, and use the time of so-called credit for the purpose for which he obtained it. No one in B’s situation would regard A’s fraudulent design as wholly unexecuted; and if the law says it is wholly unexecuted, there is something singular in legal language or in legal ideas. If the law holds B during the period of credit utterly helpless, it not only allows A to rob B, but, gives A time .to make off with his booty after the robbery is discovered. An intent to obtain goods by a pretended purchase and not to pay for them, is a mere operation of the mind, that for inoffensiveness may be classed with an intent to overthrow the government. But actually obtaining goods, under the false pretence of a purchase, with intent not to pay for them, taking them from their owner by an intentional'concealment of the real character of the transaction, animo furandi, is as far from being a mere naked, unexecuted design, as levying war is from being a mere emotion.

An intent to commit a fraud is not a fraud committed; — but the question is, whether obtaining goods and credit under color of a pretended purchase by concealing an intent not to pay for them is a fraud committed, or whether in such an affair there is nothing fraudulent but an unexecuted intent to commit a fraud. If the intent not to pay were the only fraudulent intent, it might be claimed that the only intended fraud would not be committed till the time of payment arrived. But the fraudulent design of which B complains is the intent of A to get goods without payment, and by fraudulent concealment. That intent is executed the moment A gets the goods. No overt act remains to be done by him to complete the artifice practised upon B. The expiration of the time of credit is not .an overt act of A, or an execution of the entire fraudulent intent. By what A does during the time of credit, he does not obtain the goods or the credit, nor induce B to enter into a contract of sale, but merely fortifies himself against B’s legal remedies. The intent not to pay is a material fact, by the concealment of w'hich he induces B.to part with his goods on credit. And it is only by confining the dishonest design to the intent not to pay at a future time, that the fraudulent intent can be said to be unexecuted when the goods are obtained. But the fraudulent design is not merely negative, — not to pay at a future time; it is also affirmative, — to obtain the goods and the credit by the concealment of the material fact of the intention not to pay. This concealment is , not a mere fraudulent intent: it is the execution of a fraudulent intent and the commission of a fraud, if a fraud can be committed by the concealment of a material fact. At common law, a fraud may be committed by the omission to disclose a material fact under some circumstances. Hanson v. Edgerly, 29 N. H. 343; 2 Kent’s Com. 482-492, 513, 514. If the owner of goods desires to get rid of them without payment, he gives them away, or throws them away, or destroys them. Payment is his object in selling them. And, payment being the whole of the contract which he desires the vendee to perform, what fact can be more material than the vendee’s intent not to pay, comprehending not only an intent not to try to pay, but also an intent to try not to pay ? Whether the vendee’s intent not to pay is a material fact, and whether it is so peculiarly within the vendee’s knowledge (Hoitt v. Holcomb, 32 N. H. 202-206; Page v. Parker, 40 N. H. 71), and so peculiarly beyond the vendor’s knowledge and means of information that the vendee’s omission to disclose it is a concealment of it, may be questions of fact which the vendee might ask a jury to pass upon. But tliéy are questions of such a nature that he must be presumed to waive them unless he distinctly raises them. What circumstance, then, is wanting to bring the case within the principle that a fraud may be committed by an omission to disclose a material fact?

During the time of credit, is the vendee in loco penitentice? When one fraudulently obtains goods on credit by a false representation, he is not in loco penitentice. The vendor may get his pay if he will wait; but he is under no obligation to wait, because, the contract of sale and credit being fraudulent on the part of the vendee, the other party is not bound by it. By what legal distinction is the vendee in loco penitentice when his fraud is concealment, and not in loco penitentice when his fraud is misrepresentation ? If the vendor is not bound by his agreement in the latter case, how is he bound in the former ? If, at the time A converts B’s goods to his own use, he discloses to B his intent never to pay for them; if a future time of payment is agreed upon, both parties understanding that payment is never to be made ; if B relies upon A’s changing his mind, paying for goods which by the agreement he is not to pay for, and turning a gift into a sale, — A will have the agreed opportunity for changing his mind. But when he has obtained the goods by fraudulently inducing B to believe he intends to pay for them, and fraudulently concealing his intent not to pay, and then claims a time in which to elect whether he will repent or not, he can maintain his claim only on the ground that, by a contract binding on the other party, he was to have such- a time. The contract, induced by his fraudulent concealment, is in no part binding on the other party. Moreover, by what stipulation was the peculiar privilege loci penitentice secured ? When B alleges the validity of the contract, and claims payment before it is due, A may defend on the ground that the action is premature. But when B alleges that the debt was created by fraud, and A claims, not that the action is premature and the debt not due, but that he is in loco penitentice, he claims that which would be a consequence of the contract being valid. The contract is what the parties mutually understood : B understood that he gave A time. Time for what ? Eor payment, or for avoiding payment, or for repenting of a resolution not to pay ? That is a question of fact which A would not ask a jury to settle. B did not undertake to give A time to live, or time to do nothing, or time to do anything in general. He agreed to give A time, in a certain sense, and for a particular purpose ; and that purpose was an opportunity to carry out the intent to pay, which had no existence. B understood the time was for payment; A understood it was for avoiding payment; neither of them understood it was for repenting. A caused B to understand that the time was for payment, and to act upon such an understanding in the belief that it was mutual, and A is estopped to deny that it was mutual. And the law cannot apply the penitential theory to such a case without altering a fraudulent contract, making it, in an essential and vital part, what neither of the parties understood it to be, and enforcing it upon the defrauded party. Even if the law were to make the contract for the parties, it would make a reasonable one, consistent with the sense of business men, the interests of trade, and the welfare of society. And it would not be reasonable to require B to wait for a possible favorable result of a possible working of A’s conscience, which he did not agree to wait for. In a practical, mercantile view, the chance of A’s improving the opportunity, as he intended, would be entitled to as muph consideration as the prospect of his unintended reformation.

The reasons given by Judge Lowrie, in the opinion of the majority of the court in Smith v. Smith & a., are, in substance, the same as those given in the opinion of Judge Selden, in Nichols v. Pinner. They are all based on the proposition that a mere fraudulent intent is not a fraud — a proposition that does not cover the case of obtaining goods and credit by the fraudulent concealment of a material fact. In the former opinion it is said, that it is no more fraudulent to have an intent not to pay, at the time of the purchase, than at the time when payment ought to be made; that such an intent is no more fraudulent in an insolvent, than in a perfectly solvent man ; that the act of purchase cannot be a part of the preceding fraud necessary to invalidate the purchase; and that the intent to defraud must be acted out by false representations, contrivances, or artifices, or by conduct which reasonably involves a false representation. The mere intent not to pay, separated from everything else, and considered by itself, without reference to any accompanying motive, word, or act of omission or commission, may be no more fraudulent, in a legal or moral sense, at one time than another. But, while such an intent, coming into existence in A after a real purchase, does not induce B to make the contract of sale, the deceitful concealment of the fact of such an intent existing at the time of a pretended purchase,' by which A induces B to part with his goods on credit, possesses every essential, moral, and legal element of fraud. The solvency or insolvency of A may be evidence on the question of his- intent; but his fraudulent intent and his fraudulent concealment of it are equally fraudulent, whether he is solvent or insolvent. No other preceding overt act than a fraudulent concealment of a material fact is necessary to constitute fraud. When the intent not to pay is concealed, the intent to defraud is acted out. The mere omission of A to disclose his insolvency might not be satisfactory proof of a fraudulent intent in all cases. He might expect to become solvent. He might intend to pay all his creditors. He might intend to pay B, though unable to pay others. His 'fixed purpose never to pay B is a very different thing from His present inability to pay all or any of his creditors. A man may buy goods, with time for trying to pay for them, on the strength of his known or inferred disposition to pay his debts, his habits, character, business capacity, and financial prospects, without his present solvency being thought of, and even when his present insolvency is known to the vendor. But who could obtain goods on credit, with an unconcealed determination that they should never be paid for ? The concealment of such a determination is conduct which reasonably involves a false representation of an existing fact, is not less material than a misrepresentation of ability to pay (Bradley v. Obear, 10 N. H. 477), and is an actual artifice, intended and fitted to deceive.

An application for or acceptance of credit, by a purchaser, is a representation of the existence of an intent to pay at a future time, and a representation of the non-existence of an intent not to pay. What principle of law requires a false and fraudulent representation to be express, or forbids it to be fairly inferred from the act of purchase ? A representation of a material fact, implied from the act of purchase, and inducing the owner of goods to sell them, is as effective for the vendee’s purpose as if it had been previously and expressly made. If it is false, and known to the pretended purchaser to be false, and is intended and used by him as the means of converting another’s goods to his own use without compensation, under the false pretence of a purchase, why does it not render such a purchase fraudulent ? When the-intent is to pay, it is necessarily understood by both parties, and need not be expressly represented as existing. When the intent is not to pay, it is of course concealed. Whether the deceit is called a false and fraudulent representation of the existence of an intent to pay, or a fraudulent concealment of the existence of an intent not to pay, the fraud described is, in fact, one and the same fraud. A man obtains goods on credit by fraudulently representing (that is, fraudulently causing their owner to understand) that he intends to pay for them; or, he obtains them by fraudulently concealing his intent not to pay for them ;—if he obtains them in either way, he obtains them in both ways. In the' instructions given to the jury in the present Case, the question was presented as one of fraudulent representation. It seems to be immaterial, in such a case as this, whether the question is left to the jury as one of fraudulent representation, or of fraudulent concealment ; and the instructions, in any view to which our attention has been called, do not appear to us to be erroneous.

Judgment on the verdict.

Case Details

Case Name: Stewart v. Emerson

Court Name: Supreme Court of New Hampshire

Date Published: Jun 15, 1872

Citation: 52 N.H. 301

Court Abbreviation: N.H.