Brown v. Montgomery

It is a fraudulent suppression, avoiding the sale of commercial^.aper, for the vendor to withhold information that the makers’ check, upon the bank in which they kept their account, had been protested, though the vendor’s informant accompanied his statement with the expression of Ms opinion that the makers were perfectly solvent. The non-payment of a check, drawn by a commercial house upon its bankers, is evidence upon the question of insolvency; and, it seems, if unexplained, of itself warrants that inference. Nichols v. Pinner (18 N. Y, 295), considered and distinguished.

Appeal from the Superior Court of Buffalo. The plaintiffs sued to recover the. amount of a note for $297, made April 11, 1856, by the defendants, payable presently. The defence was fraud in the consideration of the note. On the trial, before a jury, the following facts appeared in evidence: At the date of the note, the plaintiffs were the holders of a check drawn by Farnham, Smedley & Kendall, on the Bank of Attica, payable to the order of and indorsed by L. B. Farnham, one of that firm, for $300, post-dated as of April 16, 1856. On that day (April 11), the plaintiffs employed one Cutting, a bill broker, to sell the check, authorizing him to allow not exceeding $4 discount. Cutting, on the same day, sold it to the defendants for $297, for which he received the note sued on. The drawer and indorser of the check failed on the same day, and when it matured the defendants caused it to be presented at the Bank of Attica for payment, which being refused, notice was given to the plaintiffs. The defendants offered to deliver up the check to the plaintiffs, and required their note to be returned, but this the plaintiffs refused; and the defendants again'offered the check to the plaintiffs on the trial. Cutting, who was examined by the defendants, swore that the check was handed to him by the plaintiffs in the afternoon, and that before selling it to the defendants, he offered it to Mr. Chard, who declined to purchase it, and said he had one drawn and indorsed by the same parties, which had that day been protested for non-payment, and he showed the protested check to the witness. The witness and Chard talked about the different members of the firm, and Chard said he considered them perfectly good. The witness then went directly to the defendants, and sold them the check as above mentioned, without saying anything about the protested check or his conversation with Chard. Montgomery, who transacted the business for the defendants, said he considered the check good,' and toóle it readily. It appeared that the drawers of the check kept an account at the Bank of Attica, and were wholesale merchants, in good credit and standing, until that day, when they stopped payment; and their checks to a considerable amount, including the one mentioned by Chard, were refused payment .on that and the succeeding days, and remained unpaid at the time of the trial. Some of them were post-dated like the check in question. The defendants’ business was buying and selling negotiable paper and dealing in uncurrent money. The trans.action took place in Buffalo, where all the parties lived. The court charged the jury, that the non-payment and protest of the check, on the 11th April, was evidence tending to show insolvency in the drawers; that it was the duty of Cutting to communicate to the defendants what he had heard Chard say about the protest of that check, without regard to what he may have thought about the solvency of the drawers; and if he did not do so, and they were really insolvent, the plaintiffs could not recover on the note. The plaintiffs’ counsel excepted to both branches of the charge. There was a verdict and judgment for the defendants, which was affirmed at a general term. The plaintiffs appealed. I. The rule of caveat emptor applies to the sale of mercantile paper, where it is transferred by delivery merely, without indorsement. (Baxter v. Duren, 16 Shep., 434, 440; Ellis v. Wild, 6 Mass., 321; Bank of England v. Newman, 1 Lord Raym., 442; Chitty on Bills, 10 Am. Ed., 245, 246; Story on Notes, § 118, note 4; 15 East, 13, note, Day's Ed.) (1.) Sales of mercantile paper must not be confounded with cases where promissory notes or bills of exchange or checks are delivered in payment of property purchased. Thus, if they prove worthless, or are not paid, no payment is in fact made, and the party who received them may recover the consideration money, or have his remedy in some other form. (12 Wend., 100; 1 Brod. & Bing., 289; 5 Eng. Com. Law, 640, and other cases cited on the other side.) (2.) But where a promissory note or bill of exchange is the subject of sale in the market, it stands on the same footing as a sale of goods, and in the absence of any express representation or warranty, the rule of caveat emptor applies, and the vendee takes it at his own risk. This distinction is fully sustained in 16 Shepley, 440, 441. The question is, what was the nature of the transaction, and the intent of the parties to the transaction. (15 East, 13, Day’s Ed., note.) (3.) It is clear, that such a sale can be avoided only on the ground of fraud; and what constitutes fraud in the sale ór purchase of property, has been recently settled in this court. Of course, it will not be denied, that the legal obligation is the same upon both vendor and purchaser. “The mere omission of a purchaser of goods, to disclose his insolvency to the vendor, is not a fraud for which the sale maybe avoided. Where no inquiries are made of the vendee on the subject, and he makes no false statements, nor resorts to any artifice to mis, lead the vendor, it is not, in general, fraudulent in him to remain silent in respect to his pecuniary condition.” (Nichols v. Pinner, 18 N. Y., 295.) .(4.) The quality of a piece of mercantile paper, depends on the probable ability of the maker to pay it, corresponding to the quality of an article of merchandise. Bach is simply a question of value, as to which the vendee must rely on his own senses, skill, inquiries, knowledge and means of knowledge. The fact that another piece of paper, of the same makers, has been protested, mav or mav not affect the value of the note sold. Although the vendor may know the fact, that a piece of the maker’s paper has been protested, at the time of the sale, and that fact urges him to sell it, the vendee may, at the same time, know of facts which tend to sustain and enhance the responsibility of the maker. (5.) Would it be fraud for a vendee, on such a sale of a protested piece of paper, to conceal from the vendor, of whom he was purchasing it at a sacrifice, the fact that he had that day learned that the maker had inherited, by the death of his father on that day, a large estate ? Or, would it be fraud, on purchasing the mercantile paper of an insolvent merchant, to conceal from the vendor, a fact which the vendee knows makes the paper good? (Kintzing v. McElrath, 8 Barr., 467.) (6.) There is a distinction between the moral law and the common law, as to the duty of the seller to disclose facts which are within his knowledge, and which affect the risk of the buyer. “ The common law is not quite so strict.” (2 Kent's Com., 484, 491, notes.) The common law rule is, that when the means of information, relative to the facts and circumstances, are equally accessible to both parties, neither of them saying or doing anything to the other, the concealment of any superior knowledge which one party may have over the other, does not affect the validity of a contract. (2 Kent’s Com., 484; Laidlaw v. Organ, 2 Wheat., 178; Hough v. Richardson, 3 Story, 659.) (7.) In «this case, the check was actually sold at a discount. It was ¡purchased as questionable paper. It had four days only to run, for which $3 was deducted. That was at the rate of $273 •a year, or over 91 per cent—too large a deduction for the mere use of money. It must have been for the risk and not for the use. Montgomery thought he was getting the best of the bargain. He said, he considered the check good, which shows he placed great reliance on his own judgment or on the means of information he had enjoyed. II. The charge of the judge was’erroneous. ■ (1.) It substantially instructed the. jury, that the non-payment and protest of the check were sufficient evidence on which they might find insolvency. (2.) That the concealment of the fact of protest of another note vitiated the sale of this, provided the makers of the check were then in fact insolvent.