at bar does not depend upon fraud, but upon the fact that one of the supposed parties is wanting, it does not matter how. Fraud only becomes important, as such, when a sale or contract is complete in its formal elements, and therefore valid unless repudiated, but the right is claimed to rescind it. It goes to the motives for making the contract, not to its existence; as when a vendee expressly or impliedly represents that he is solvent and intends to pay for goods, when in fact he is insolvent and has no reasonable expectation of paying for them; or being identified by the senses and dealt with as the person so identified, says that he is A when in fact he is B. But when one of the formal constituents of a legal transaction is wanting, there is no question of rescission; the transaction is void ab initio, and fraud does not impart to it, against the will of the defrauded party, a validity that it would not have if the want were due to innocent mistake." 291. The Second Purchaser must buy in Good Faith and part with Value. In order that the second purchaser may hold the goods as against the defrauded vendor, he must be an innocent purchaser for value.2 If he buys them with notice of his vendor's defective title, or "with knowledge of circumstances to put him to an inquiry as to the source of that title," 1 Edmunds v. Merch. T. Co., 135 Mass. 283 (1883); cf. Lord Hatherley's opinion in Cundy v. Lindsay, supra, 468, 469: "We have been pressed very much with an ingenious mode of putting the case on the part of the counsel who have argued with eminent ability for the appellants in this case, namely, suppose this fraudulent person had gone himself to the firm from whom he wished to obtain the goods, and had represented that he was a member of one of the largest firms in London. Suppose on his making that representation the goods had been delivered to him. Now I am very far, at all events on the present occasion, from seeing my way to this, that the goods being sold to him as representing that firm he could be treated in any other way than as an agent of that firm, or suppose he had said, 'I am as rich as that firm. I have transactions as large as those of that firm. I have a large balance at my bankers;' then the sale would have been a sale to a fraudulent purchaser on fraudulent representations, and a sale which would have been capable of being set aside, but still a sale would have been made to the person who made those false representations; and the parting with the goods in that case might possibly --I say no more - have passed the property." 2 Kirkpatrick's Ex'r. v. Rehkoph Sadlery Co., 144 Ky. 129; 137 S. W. 862 (1911). 3 Barnard v. Campbell, 58 N. Y. 73, 76 (1874); Burdick's Cases on his own title is no better than his vendor's. Again, though he acquires the chattels in good faith,' his title will be defective unless he pays a valuable consideration for them. In the case last cited, Allen, J., said: "There is no good reason or equity in placing the burden of a fraudulent sale upon a bona fide vendor rather than upon a bona fide purchaser from the fraudulent vendee, unless the purchaser has parted with his money, or some value, upon the credit of possession or some evidence of title in the vendee, received from the original owner, and by means of which he has induced the purchaser to treat with him as owner." In a later case, the same court held that if the purchaser paid value for goods which were represented to be and were in his vendor's possession, the payment was made upon the credit of that possession, and he could hold the goods.2 What consti 292. Meaning of Valuable Consideration. tutes a valuable consideration in this class of cases is a question upon which the courts are at variance.3 293. A Creditor receiving Goods in Payment of a Debt is not a Purchaser for Value. According to one class of decisions, "a valuable consideration means the parting with some value that cannot be actually restored by operation of law, leaving the purchaser in a changed condition, so that he may lose something beside his bargain," if compelled to surrender the goods to the defrauded vendor. Where this doctrine prevails, one who takes property in payment of a pre-existing Sales, 500; Martin v. Marshall, 54 Kan. 147; 37 Pac. 977 (1894); Burdick's Cases on Sales, 499. 1 According to the weight of authority, the burden is on him to show his bona fides; Ditton v. Purcell, 21 N. D. 648; 132 N. W. 347; 36 L. R. A. N. 8. 149 (1911), and cases cited in the opinion. 2 Parker v. Baxter, 86 N. Y. 586 (1881). The Commercial Acts, approved by the Commissioners on Uniform State Laws, contain the following definition: "'Value' is any consideration sufficient to support a simple contract. An antecedent or pre-existing claim, whether for money or not, constitutes value where goods or documents of title are taken either in satisfaction thereof or as security therefor." It was omitted from the Bill of Lading and Uniform Sales Acts by the New York legislature. Hurd v. Bickford, 85 Me. 217, 220; 27 At. 107 (1892); Wails v. Farrington, 27 Okla. 754; 116 Pac. 428 (1911). 1 debt or even in "satisfaction and discharge of such debt," 2 is not a purchaser for a valuable consideration. In such cases it is said, "the purchaser will be restored to what he may have yielded up, if the original owner, who has been defrauded, reclaims and recovers the property. The consideration having failed, it will be the right of the purchaser to be placed in statu quo, and the courts, in the exercise of their remedial power, will be adequate to furnish him the needed relief, even though, as in the present case, there may have been a surrender of a promissory note. The purchaser will not, therefore, be materially affected in his legal rights by the retaking of the goods by the original owner." "It is also said that taking goods in payment of a precedent debt is not a purchase in the usual course of trade.1 294. The Opposite View. - According to another class of decisions, one who takes property in payment of a precedent debt is a purchaser for a valuable consideration. Bowen, L. J., did not hesitate to declare 5 that such was always the common 1 Mayer v. Heidelbach, 123 N. Y. 332, 339; 25 N. E. 416 (1890). The New York cases treat the transferee of negotiable paper, who takes it in extinguishment of an old debt, as a holder for value; but in Button v. Rathbone, 126 N. Y. 187, 192 (1891), the goods having been credited on an old debt, it was thought "unnecessary to inquire whether the principle so frequently applied to transactions with banks in regard to negotiable paper has any application to transfers of personal property." Under the Negotiable Instruments Law (ch. 612, L. of N. Y. 1897, §§ 51, 91), a person taking a negotiable instrument for a pre-existing debt is a holder for value. 2 Schloss v. Feltus, 103 Mich. 525; 61 N. W. 797 (1895); Burdick's Cases on Sales, 504, rejecting the New York distinction, supra. Eaton v. Davidson, 46 Ohio St. 355, 369; 21 N. E. 442 (1889). On p. 362 it is said the purchaser "must buy for an adequate, valuable consideration." In Ohio, one who takes negotiable paper in payment of an antecedent debt, is deemed a purchaser for value, because of the policy of the law to facilitate the circulation of such paper. Ibid. pp. 365, 366; Adam, etc. Co. v. Stewart, 157 Ind. 678, 680; 61 N. E. 1003 (1901), citing the text. Root v. French, 13 Wend. (N. Y.) 570 (1835). In New Jersey, one who takes property in payment of a pre-existing debt is a purchaser in good faith, Knowles v. Vacher, 57 N. J. L. 490 (1895); but not for a valuable consideration, DeWitt v. Van Sickle, 29 N. J. Eq. 209 (1878). These New Jersey decisions must now be read in the light of the Uniform Sales Act definition, given in note to ¶ 292. Taylor v. Blakelock, 32 Ch. D. 560, 570 (1886). law rule "before the reign of Queen Elizabeth as well as since. Commercial transactions are based upon that very idea. It is one of the elementary legal principles, as it seems to me, which belong to every civilized country. . . . The man who has a debt due him, when he is paid the debt has converted the right to be paid into actual possession of the money; he cannot have both the right to be paid and the possession of the money. In taking payment, he relinquishes the right for the fruition of the right. In such a case, the transaction is completed; and to invalidate that transaction would be to lull creditors into a false security, and to unsettle business." 1 295. Is a Pledgee a Purchaser for Value? - The courts also disagree upon the question whether a creditor who takes property, not in payment of an existing debt, but as collateral security for it, can hold it as against the defrauded vendor. In England, and in a few of our States,2 he is deemed a holder of the property for a valuable consideration, to the extent of his demand. It is said that such security induces the creditor "to give time and forbearance or some other advantage" to the debtor, "and that is a valuable consideration," 3 or it imposes upon the creditor "burdens or duties not resting on him before, the failing to bear or perform which will result in loss or in diminution of his debt," and such "indefinite detriment clearly makes him a holder for value."4 The prevailing view in this country is, however, that a pledge of chattels as security for a 1 In Butters v. Haughwout, 42 Ill. 18, 32 (1866), the court said: “A creditor who takes goods in payment, in whole or in part, of a precedent debt, in good faith, . . . is lulled into security. He rests in the belief that his debt is paid, and foregoes all effort to seek other payment or security. . . . It is a matter of uncertainty that a party so receiving goods in payment of a precedent debt is in no worse condition if they are taken from him that he was before he received them. If he loses a security he might have obtained, . . or if his vendor becomes insolvent, he is in a worse condition." Shufeldt v. Pease, 16 Wis. 659 (1863); Pelham v. Chattahooche Grocery Co., 146 Ala. 216; 41 So. 12; 8 L. R. A. N. S. 448, and case note (1906). 2 Frey v. Clifford, 44 Cal. 335 (1872); Brem v. Lockhart, 93 N. C. 191 (1885). See Uniform Sales Act definition of value. 3 In re Barker's Estate, 44 L. J. Ch. 487, 490 (1875); cf. 2 Bigelow on Fraud, 460. Bigelow on Bills and Notes (2d ed.), 246. pre-existing debt, when there is no contract for the extension of time or other advantage to the debtor, "does not constitute the pledgee a holder for value within the meaning of the rule we are considering." 1 296. An Attaching Creditor or Assignee as a Purchaser for Value. In most jurisdictions an attaching creditor 2 or an assignee 3 in insolvency or bankruptcy is deemed not a purchaser for value of the chattels attached or assigned. 3 297. A Second Purchaser who has promised to Pay. — It is to be borne in mind that the buyer of goods is not entitled to the rights of an innocent purchaser for value simply because he has bound himself to pay for them. He must have paid for them, or parted with a valuable consideration, before receiving notice of his vendor's defective title, or he cannot hold them against the defrauded vendor. Accordingly, if A sells and delivers to B personal property in consideration of B's promise to satisfy a debt and surrender securities, and before such satisfaction and surrender B receives notice of A's defective title, B can acquire no greater rights in the property than A had. If the second purchaser has given notes or other engagements to pay for the goods, and has disposed of the property to bona fide purchasers, the defrauded vendor may, by appropriate proceedings, obtain such notes or engagements. 298. Rescission by Defrauded Party. It is not every misrepresentation by a party to a sale which entitles the other party to rescind the contract, as the learned reader is aware from his study of fraud and misrepresentation in pure con 1 Goodwin v. Mass. Loan Co., 152 Mass. 189, 199; 25 N. E. 100 (1890); Harris v. Lombard, 60 Miss. 29, 33 (1882). Although a creditor receiving property of his debtor as collateral security is entitled to hold it as against other creditors. Surget v. Boyd, 57 Miss. 485, 489 (1879). Accord, C. P. Kellogg & Co. v. Horkey, 61 Neb. 751; 86 N. W. 497 (1901). 2 Oswego Starch Factory v. Lendrum, 57 Ia. 573 (1881), and cases in preceding note; Julian v. Oil Co., 83 Kan. 440; 111 Pac. 445 (1910); contra, Van Duzor v. Allen, 90 Ill. 499 (1878). Benesch v. Weil, 69 Md. 276; 14 At. 666 (1888); contra, Oberdorfer v. Meyer, 88 Va. 384; 13 S. E. 756 (1891). 4 Lytle v. Lansing, 147 U. S. 59; 13 Sup. Ct. 254 (1892). |