Hotchkin v. Third National Bank

27 N.E. 1050, 127 N.Y. 329, 38 N.Y. St. Rep. 754, 82 Sickels 329, 1891 N.Y. LEXIS 1785

• Court: New York Court of Appeals
• Decided: June 9, 1891
• Status: Published

Opinions

Bkown, J.

This action was brought to recover the possession of a lot of top buggies alleged to have been fraudulently obtained from the plaintiff by one Lyman J. Folsom in the months of October and November, 1886, and by said Folsom transferred to the defendant as security for the payment of a precedent debt. The plaintiff had judgment upon the referee’s report for the possession of thirty-nine of the buggies. The order of the General Term which reversed the judgment and from which this appeal is taken was upon questions of fact and law, hence both are open to our consideration.

The complaint alleged that Folsom obtained the property in question in the months of October, November and December, 1886, and with intent to defraud the plaintiff and induce her lo deliver said property to him on credit, falsely and fraudulently represented himself to be financially good and solvent and worth the sum of fifteen thousand dollars, and that the plaintiff, believing and relying upon such representations and believing said Folsom to be solvent, was induced to deliver said property to him upon credit, and that said Folsom obtained the same with a preconceived design and intent not to pay therefor.

It further alleged that Folsom was insolvent at the time aforesaid and knew himself to be so. That he had transferred and delivered the property to the defendant as security for the payment of a precedent debt and that defendant was not a iona ■fide purchaser thereof.

It further alleged a demand for the possession of the property and an unlawful refusal and detention thereof by defendant.

The answer denied any fraud upon the part of Folsom .and alleged that defendant was a purchaser in good faith of the property in question. To substantiate the allegations of her complaint the plaintiff proved by Alfred J. Hotchkin, her husband, who was her agent and general business manager, that on April 13, 1886, Folsom came to his office in Syracuse and said he had come to buy some carriages if they could agree on price. There had been sales to Folsom prior to this date, but generally for cash. The witness asked him if he wished to buy for cash and he said no, he wished to buy on time. The witness then continued as follows: “ I said we have sold you before for cash and not on time; how is your financial condidition?” Fie said: “lam good for what I wish to buy. I , .am solvent and am worth $15,000.” I then asked him if he would wish to buy more than the number he had named and he said “Hot to day, but will want more later on, that it was ■early for him to buy buggies at that time. ” I then asked him •“if three or four months draft or note would be satisfactory .and he replied that it would, and I filled out an order and he signed it.”

This is the only evidence contained in the case of a representation made by Folsom as to his financial condition which plaintiff claims influenced her in making the sale in question. There was evidence that in February, 1886, Folsom made some-statements as to his condition to one Wilder, a traveling salesman for the plaintiff, but it does not appear that these statements were communicated to plaintiff or her husband, and the referee specifically found that they were not relied upon in selling the property which is the subject of this action. The wagons that were purchased in April were paid for, and between that-date and the month of October other sales were made by plaintiff to Folsom, some for cash and one on a credit of three-months, which was also paid.

The buggies which were cran sferred to the defendant were sold to Folsom in the months of October and November, and. it is conceded that no representations were made by Folsom at, that time; and if those sales were induced by any statements, as to his financial condition, they were those of April thirteenth which I have quoted; but the referee did not find that the sales of October and November were induced by the representations made in April, nor did he find that plaintiff relied upon that representation in making those sales.

The finding is: “ That upon the 13th day of April, 1886, said Folsom, for the purpose of obtaining carriages from the plaintiff at that time upon credit, and for the purpose of obtaining further credit, falsely represented himself as solvent, and worth fifteen thousand dollars.” As has already been stated carriages bought on April thirteenth were paid for, as were most of those purchased during the summer of 1886.'

The title of the defendant could not be impeached on the ground that the property was obtained from the plaintiff by the false representations of Folsom without showing that in parting with the property the plaintiff was influenced by those representations, and to show this it must appear that she relied upon them in giving the credit upon the sale.

Fraud without damage or damage without fraud will not sustain an action for deceit, and a false and fraudulent representation made by one party to induce a contract entered into by another, is not actionable," unless the party to whom it was. made believed the representation to be true and acted upon the faith of it to his damage. (Allen v. Addington, 7 Wend. 9; Oberlander v. Spiess, 45 N. Y. 175; Lefler v. Field, 52 N. Y. 621; Taylor v. Guest, 58 id. 266.)

The essential elements of an action for false pretenses are representations, falsity, scienter, deception and injury. (Arthur v. Griswold, 55 N. Y. 400.)

In a legal sense a person is not damaged by a false representation by which he is not influenced. (Taylor v. Guest, supra)

And in Brackett v. Griswold (112 N. Y. 454), it is said “there must have been false representations, known to be such, calculated and intended to influence the plaintiff, and in reliance upon which he in good faith parted with property.”

All these circumstances must be found to exist, and the absence of any one of them is fatal to a recovery.

The judgment of the trial court cannot be upheld therefor upon the findings in reference to the false representations of April thirteenth. There is not alone an absence of any finding that such representations were relied upon by plaintiff or influenced her in making the October and November sales, but there is a total absence of any fact found by the referee connecting those sales in any way with the representations made in April, and there is nothing in the opinion of the referee from which it can be inferred that he intended to decide that the October and November sales were induced by the representations made in April. It becomes unnecessary, therefore, for us to examine the evidence to determine whether the facts that those representations were made and were false were supported by the weight of testimony, for we need not' consider further a branch of the case which was rejected by the referee.

The referee found, however, “ that at the time Folsom purchased and received said carriages, he was insolvent, knew himself to be insolvent, fraudulently concealed his insolvency from the plaintiff, and must necessarily have known that he could not continue in business and pay for said property, That the said goods were purchased and received of the plaintiff by said Folsom fraudulently with the preconceived design and intent not to pay for the same.”

If a purchaser who is insolvent conceals that fact from the vendor for the purpose of defrauding him, and thus obtains goods without intending to pay for them, the title of the property is not changed, and it may be reclaimed by the vendor. (D urell v. Haley, 1 Paige, 492; Ash v. Putnam, 1 Hill, 302; Ferguson v. Carrington, 9 B. & C. 59; Devoe v. Brandt, 53 N. Y. 462; Wright v. Brown, 67 id. 1.) Therefore, if the findings I have quoted are sustained by the weight of testimony, they will uphold the judgment of the trial court.

I shall assume that Folsom was insolvent in October, 1886, and must have known that fact, but I think the evidence does not support the conclusion that he knew he could not continue in business and pay for the carriages, and that he acquired the property with a preconceived design not to pay for the same.

The reasons given for the conclusion of the learned referee are: First, Folsom’s insolvency and large indebtedness. Second, that he had mortgaged all his property to his numerous creditors, which mortgages were not filed until after his death, and that he had been sued and a small judgment recovered against him; and third, that all the carriages obtained from the plaintiff were almost immediately transferred to the defendant.

I am unable to perceive how the fact that the chattel mortgages and bills of sale were not filed indicated a fraudulent intent on Folsom’s part in procuring the property in question.

The chattel mortgage to Adams for $6,000, was executed in January, 1886, and the bill of sale to Shields & Shane, conveying personal property, notes and accounts to an amount in excess of $26,000, was executed in February of the same year. Fleither were filed until after his death. If the securities and the fact that they were not filed are indications of a fraudulent intent in the purchase of property by Folsom, that inference would be as strong as to purchasers prior to October as after, and yet we find that purchases made of the plaintiff in April and throughout the summer were paid for and during the same period Folsom was actively engaged in business buying from other manufacturers and not a single fraudulent act on his part prior to the sales of plaintiff in October is proven or suggested.

The inference of fraud from the giving and failing to file the various chattel mortgages is greatly weakened if not totally destroyed when we find that Folsom to the day of his death, was conducting his business in the usual way, dealing with many persons with no charge of fraud against him, except the single one involved in this action. Moreover, I do not see how the failure to file the chattel mortgages and bills of sale or to take possession of the property is to be regarded as Folsom’s act. It is true in some instances he requested it, but the various mortgagees could at any time have filed their securities and their failure to do so indicates a leniency on their part towards their debtor, born of their confidence in him and of his honesty in dealing.

It is true that Folsom’s indebtedness was large and especially so to the three banks at Malone, but none of his creditors were pressing him and no suits were pending against him and no judgment was recovered against him until after the sales in question, and then only for the small sum of $190. That he had the confidence of his creditors is indicated by their leniency towards him, and their apparent confidence in his business ability. But it appears that his indebtedness was decreasing, not growing.

Mr. French, the cashier of the People’s Bank, testified that from October 1, 1886,. to January 1, 1887, Folsom’s indebtedness to that bank was reduced twenty-five hundred dollars, and Mr. Pease, the cashier of the defendant bank, testified that shortly before his death, Folsom reduced his indebtedness in that bank. FTothwithstanding some losses, his financial condition in January, 1887, was better and stronger than in October when the first lot of wagons in question were sold to him by the plaintiff.

It is also true that the buggies soon after their receipt by Folsom were by bill of sale transferred to the defendant bank, but this transfer was not made with any intent to cheat the plaintiff or to dispose of the property for any fraudulent purpose, but in aid and assistance of his business.

As has already appeared, the bills of sale were not filed .and the wagons remained in Folsom’s possession to be sold in the usual course of business in the spring when there was a market for them.

The same may be said of the chattel mortgage to Adams & Martin who were indorsers on an over-due promissory note of $2,000, held by the People’s Bank.

There is nothing in the general appearance of Folsom’s business in the fall of 1886, as disclosed by the record, that indicates impending failure. Mo creditors were pressing him, but all were lenient and apparently satisfied with the situation.

There was no market for his stock of' wagons until spring, and apparently there was a reasonable hope and expectation of a profitable business at that time and with the sale of his stock a reduction of indebtedness and an improved financial condition. He possessed the confidence of the community in which he lived, conducted a large business, kept a livery stable and operated a stage line and was in possession of a large amount of property. He was the sheriff of the county, holding that office for a second term, and in the enjoyment of an annual income therefrom of at least thirty-five hundred dollars.

It is important in looking at his business prospects and endeavoring to determine the probability of his paying for property bought in the fall of 1886, to bear in mind that he died suddenly on the 1st of March, 1887.

It is not just, therefore, to look at the situation as it existed after his death. The abrupt'termination of his personal conduct of the business caused results not only unexpected, but which probably would not have occurred if he had lived.

The indebtedness to plaintiff did not mature until June and July following. Before that time elapsed the buggies would, in all probability have been sold, and the proceeds of the sales been available in his business. With his death there was nothing to do but settle his estate with the usual result .of forced sales and liquidation and rapid depreciation of the value of his property.

Many a business man, if compelled to go into liquidation on a given day, would find himself insolvent; whereas, if allowed to close up his business in his own way would realize more than sufficient to pay his debts, and many men have bridged over a worse situation than confronted Folsom in the fall of 1886. Every failure has its accumulation of embarrassments, but it cannot be said in this case that had Folsom lived he might not have extricated himself from his difficulties.

Thus far I have attempted to examine the general appearance of Folsom’s business as disclosed by the record. To my mind it does not show him to be a dishonest man, and in this connection it is a fact of great weight that, notwithstanding his business life was open to the scrutiny of the plaintiff, no witness testified to a single act indicating fraud in another transaction.

Let us now look briefly at the immediate transaction involved in this suit.

The usual concomitant of fraud is a desire and effort on the ■ part of the fraudulent purchaser to get possession of the property. Terms and conditions and length of credit are of no importance. So long as the possession of property is obtained, the fraudulent purpose is accomplished and all conditions of saleare but unimportant incidents of the transaction.

The negotiations leading to the delivery of the wagons are all in writing and speak for themselves. The first was instituted by the plaintiff in a letter to Folsom written by her husband from Syracuse under date of September 28, 1886, in which he said : “ If you want to make some money I will give you a chance now.” Then followed an offer to sell 50 buggies on eight months credit and a description of the wagons following which he says, “ This is a splendid chance for you.”

Two days after, not having a reply to his letter, Hotchkin wrote him again, saying: “ I wrote you several days ago making you special low offer on 50 buggies and on favorable terms. Please let me hear from you by next mail.”

But Folsom did not reply until October sixth, when he telegraphed : “ Send me one sample carriage. Will buy more if suits.” The sample carriage was sent and on the ninth of October Hotchkin writes again, saying Folsom had better send his order by next mail “ as they are selling very fast.”

On October eleventh the order was sent and the wagons were shipped and the first sale was completed.

On November 6, 1886, Hotchkin began negotiations for another sale, by letter of that date, in which he said: “ If you Want another bargain and will keep prices to yourself I will Sell you 50 Brewster buggies at $65 each, same terms as before, if order is sent by return mail. The lowest price will be after December first $15. * * * If you want this chance you had better gobble it at once. You can advise by telegram at my expense or they may be sold.”

Folsom, notwithstanding the chance that the buggies would all be sold, did not advise by telegram or order by return mail, but waited until November fifteenth when he wrote that he Would take 35 side-spring buggies of the same kind as the October order and at the same price and 15 Brewsters on eight months credit from December 1st.

On the following day Hotchkin replied that he had only twenty-five side-spring and that he would have no more of either kind at the price named, and then says: “ This is the last chance. I have made this offer to a party in Elmira for net cash and expect his order to-morrow, so if you want them you had better telegraph me to-morrow morning. First come, first served.”

But notwithstanding this seductive offer and the probability that Hotchkin would sell to his Elmira customer for net cash instead of on eight months’ time Folsom did not reply, and two days later Hotchkin telegraphed: “ Do you want the buggies?” Evidently the “ Elmira party ” did not want them and apparently neither did Folsom, for he replied: “ Will take twenty-five side-springs. Don’t want any Brewsters.”

But the next day the price for Brewsters fell and Hotchkin telegraphed: “ Will make price sixty dollars on twenty-five Brewsters; answer.” And Folsom answered: “ Will take side-springs. Don’t want any Brewsters.”

But Hotchkin’s auction had not yet closed and he immediately telegraphed, “ Will sell twenty-five Brewsters at fifty-five dollars. Last chance. Answer.” And Folsom took them at the last offer on a credit of four months’ note and an agreement by Hotchkin to renew for an additional four months, and the second sale was concluded.

Now, it is impossible for anyone to read this correspondence and say that it indicates fraud on Folsom’s part. Indeed, one is amused at the persistency of Hotchkin in his efforts to sell „ his property, and his statements that the wagons are “ selling fast,” and that “ another party will take them for cash to-marrow ; ” “ that the price will go up after December first,” and unless Folsom “ telegraphs his order, the opportunity will be gone,” his rapid reduction in the price when Folsom hesitates and his advice to “ gobble them at once.”

What the transaction does indicate is, on the one hand a manufacturer with a large stock of wagons in the fall of the year, who desires to sell them at low figures and who is willing to take commercial paper on long time, upon which he can realize the money. On the other hand, a cautious dealer induced to become a purchaser by the exceptionally low price and long-credit offered and who expects to realize on sales of the wagons before his paper matures. In this connection the evidence of Charles Fury is very significant. lie was in the employ of Folsom until December, 1886, and he testifies that he saw the letters from Hotchkin and that Folsom consulted with him as to whether it would be safe to rely on the promise to renew his paper at the end of four months in the event of Hotchkin failing in the meantime. Also as to the probability of his being able within the further period of four months to make sales and meet the renewed paper, and that the result of that consultation was the order for the carriages.

This evidence shows Folsom’s mind on the subject and absolutely destroys all inference of fraud. He had reason to be apprehensive as to the plaintiff’s responsibility on account of the husband’s former failure in the same business, and it shows that he was calculating the chances of his business enabling him to sell the wagons during the term of credit and meet his obligations when they matured.

Our conclusion is that the weight of evidence is against the finding that Folsom, when he bought the wagons, knew that he could not pay for them, and that he purchased them with a preconceived intent not to pay for them.

There is nothing, therefore, left to uphold the referee’s judgment except that Folsom knew that he was insolvent when he made the purchases and did not disclose that fact to the plaintiff. But this is not sufficient. The law is well settled in this state that the mere omission of a purchaser of goods on credit to disclose his insolvency to the vendor, in the absence of any attempt to defraud, is not such a concealment as will avoid the sale, although the fact, if known to the seller, would affect his credit. (Nichols v. Pinner, 18 N. Y. 295 : People's Bank v. Bogart, 81 id. 101-108; Morris v. Talcott, 96 id. 107; Macullar v. McKinley, 99 id. 353; Coffin v. Hollister, 27 N. Y. S. R. 637.)

The intent not to pay must exist when the property is purchased, and without proof of such an intent a judgment for the plaintiff cannot be sustained. (Brackett v. Griswold, supra.)

Mere insolvency undisclosed is not enough. We are of the opinion that the General Term was right in reversing the judgment.

The order appealed from should be affirmed and judgment absolute rendered against the appellant, with costs.