a bill of lading making the goods deliverable to the buyer and

86

thus deals with it to secure the price. Under these circumstances the banker acquires a special property in the goods to secure his advances.87 In some cases it has been held that a banker who purchases a draft, with the bill of lading attached making the goods deliverable to the order of the consignor, assumes the obligation of the seller to deliver according to the contract the goods represented by the bill of lading to the drawee of the draft; " but it is believed that this doctrine is erroneous. On principle the assignee of the bill of lading and of the draft takes the title of the seller only as security, and acquires substantially the right of a mortgagee, his interest being discharged by payment of the debt, and he becomes subject

8 See cases cited rote 79, supra.

87 Whether one to whom a bill of lading is indorsed as security is a pledgee or a mortgagee depends upon the intention of the parties. Sewell v. Burdick, 10 App. Cas. 74. It seems that a banker who makes advances and takes the bill of lading to his own order, with authority to take possession and dispose of the goods for his security or reimbursement, is a mortgagee. See Moors v. Kidder, 106 N. Y. 32, 12 N. E. 818; Mershon v. Wheeler, 76 Wis. 502, 45 N. W. 95.

In Moors v. Wyman, 146 Mass. 60, 15 N. E. 104, it was said that the banker "had a title, whether absolute or qualified does not matter." But in Moors v. Drury, 186 Mass. 424, 71 N. E. 810, the view was taken that the banker was owner, and not a mortgagee or pledgee. And see In re New Haven Wire Co., 57 Conn. 352, 18 Atl. 266, 5 L. R. A. 300.

Where a shipper drew against his consignment for sale upon the consignees, with whom his account was already overdrawn, and assigned the duplicate bill of lading to a bank which discounted the draft, the consignees had no right to apply the goods or their proceeds in discharge of the shipper's liability to themselves arising from other transactions; the bank having acquired title to the consignment to the extent of the draft discounted on security thereof. First Nat. Bank v. Ege, 109 N. Y. 120, 16 N. E. 317, 4 Am. St. Rep. 431; See, also, Drexel v. Pease, 133 N. Y. 129, 30 N. E. 732. 88 Finch v. Gregg, 126 N. C. 176, 35 S. E. 251, 49 L. R. A. 679 (cf. Sloan v. Railroad Co., 126 N. C. 487, 36 S. E. 21; Perry v. Bank. 131 N. C. 117, 42 S. E. 551); Searles Bros. v. Grain Co., 80 Miss 688, 32 So. 287; Haas v. Bank, 144 Ala. 562, 39 South. 129, 1 L. R. A. (N. S.) 242.

to no liability to the buyer which he does not expressly assume; and this view is sustained by the weight of authority.89

89 Tolerton & Stetson Co. v. Bank, 112 Iowa, 706, 84 N. W. 930, 50 L. R. A. 777; S. Blaisdell, Jr., Co. v. Bank, 96 Tex. 626, 75 S. W. 292, 62 L. R. A. 968, 97 Am. St. Rep. 944 (overruling Landa v. Lattin Bros., 19 Tex. Civ. App. 246, 46 S. W. 48); Blaisdell & Co. v. White & Co. (Tex. Civ. App.) 76 S. W. 70; Hall v. Keller, 64 Kan. 211, 67 Pac. 518, 62 L. R. A. 758, 91 Am. St. Rep. 209. And see 49 L. R. A. 679, note; 1 L R. A. (N. S.) 242, note; 14 Harv. Law Rev. 159.

54-55.

56-57.

58-59.

60.

CHAPTER V.

FRAUD AND RETENTION OF POSSESSION.

Contract or Sale Induced by Fraud.

Remedies of Defrauded Party.

Fraud on Creditors-Retention of Possession.

How Far Delivery is Essential to Transfer of Property against Creditors and Purchasers.

CONTRACT OR SALE INDUCED BY FRAUD.

54. When a party to a contract to sell or a sale has been induced to enter into it by the fraud of the other party. the contract or sale is voidable at his option.

55. CHARACTERISTICS OF FRAUD.

Fraud is a false representation of fact, made with a knowledge of its falsehood, or in reckless disregard whether it be true or false, with the intention that it shall be acted upon by the complaining party, and actually inducing him to act upon it.

Fraud renders all contracts voidable both at law and in equity. A man is not bound by a contract to which his consent has been obtained by fraud, because but for the fraud he would not have consented.1

2

Fraud is commonly said to be so subtle in its nature and manifold in its forms as to be impossible of definition. Nevertheless the statement of its essential characteristics which has been given above, substantially in the language of Sir William R. Anson sufficiently indicates the nature of such fraud as will render voidable a contract of sale. The same state of facts which is ground for avoidance also gives rise to an action at common law for deceit, in which the defrauded party may recover such damages as he has suffered by reason of the false representation. And a practical test of fraud, as opposed to misrepresentation which is not fraudulent, is that the first

1 Benj. Sales, § 428 et seq.; post, p. 188.

2 Anson, Cont. 145. His discussion of fraud has been closely followed. And see Clark, Cont. (2d Ed.) 220.

does, and the second does not, give rise to an action ex delicto.

Fraud is a False Representation.

A mistaken belief in the facts may be created by active means, as by fraudulent concealment or misrepresentation, or passively, by mere nondisclosure. But it is only when a man is under some obligation to disclose facts that mere silence will be considered as a means of deception. In contracts of sale, disclosure is not ordinarily incumbent on the seller. The rule is caveat emptor. It has even been held that the seller is under no obligation to communicate the existence of latent defects, such as a hidden disease in an animal, unless by act or implication he represents such defects not to exist; but it is generally held in this country that the intentional nondisclosure of such a defect by the seller, when he knows or has reason to know that it is unknown to the buyer, is fraudulent. On the other hand, the buyer is not bound to disclose to the seller facts as to which information is equally open to both; for example, facts which would enhance the price. Nor does

Clark, Cont. (2d Ed.) 209.

Smith v. Hughes, L. R. 6 Q. B. 597; Laidlaw v. Organ, 2 Wheat (U. S.) 178, 4 L. Ed. 214; People's Bank v. Bogart, 81 N. Y. 101, 37 Am. Rep. 481; Kintzing v. McElrath, 5 Pa. 467; Cogel v. Kniseley, 89 III. 598.

Ward v. Hobbs, 3 Q. B. Div. 150, 4 App. Cas. 13; Beninger v. Corwin, 24 N. J. Law, 257; Paul v. Hadley, 23 Barb. (N. Y.) 521; Morris v. Thompson, 85 Ill. 16.

6 Paddock v. Strobridge, 29 Vt. 471; Maynard v. Maynard, 49 Vt. 297; Jeffrey v. Bigelow, 13 Wend. (N. Y.) 518, 28 Am. Dec. 476; Hanson v. Edgerly, 29 N. H. 343; Barron v. Alexander, 27 Mo. 530; Grigsby v. Stapleton, 94 Mo. 423, 7 S. W. 421; Cardwell v. McClelland, 3 Sneed (Tenn.) 150; Armstrong v. Huffstutler, 19 Ala. 51; Marsh v. Webber, 13 Minn. 109 (Gil. 99); Turner v. Huggins, 14 Ark. 21; Dowling v. Lawrence, 58 Wis. 282, 16 N. W. 552; Stewart v. Ranche Co., 128 U. S. 383, 388, 9 Sup. Ct. 101, 32 L. Ed. 439; Downing v. Dearborn, 77 Me. 457, 1 Atl. 407; Joplin Water Co. v. Bathe, 41 Mo. App. 285.

7 Fox v. Mackreth, 2 Brown, C. C. 400; Turner v. Harvey, Jac. 170, per Lord Eldon; Laidlaw v. Organ, 2 Wheat. (U. S.) 178, 4 L. Ed. 214; Blydenburgh v. Welsh, Baldw. (U. S.) 331, Fed. Cas. No. 1,583; Kintzing v. McElrath, 5 Pa. 467.

A duty to disclose arises where the buyer stands in a confidential relation to the seller. Smith v. Sweeney, 69 Ala. 524; Oliver v Oli

his failure to disclose that he is insolvent amount to fraud, if he does not buy intending not to pay. As a rule, to charge the seller with fraud, there must be some active attempt to deceive either by statement which is false, or, at least, by representation which, though true as far as it goes, is accompanied by such a suppression of the facts as to convey a misleading impression. If the buyer wishes to protect himself further, he must require of the seller a warranty of any matter the risk of which he is unwilling to assume.10 Any device, however, used by the seller to induce the buyer to omit inquiry or examination into defects, is as much a fraud as active concealment.11

The Representation must be of Fact.

Fact is here used in distinction from opinion, intention, and law.

Same-Not Matter of Opinion.

A mere representation of opinion which turns out to be unfounded will not invalidate a contract.12 Thus statements of

ver, 118 Ga. 362, 45 S. E. 232. Cf. Fletcher v. Bartlett, 157 Mass. 113, 31 N. E. 760.

8 Post, p. 179.

Peek v. Gurney, L. R. 6 H. L. 377, 403, per Lord Cairns; Chamberlin v. Fuller, 59 Vt. 247, 9 Atl. 832; Bench v. Sheldon, 14 Barb. (N. Y.) 66.

A partial statement by the buyer as to his financial condition, if misleading, is fraudulent. Newell v. Randall, 32 Minn. 171, 19 N. W. 972, 50 Am. Rep. 562; Collins v. Cooley (N. J. Eq.) 14 Atl. 574; Tennessee Coal, I. & R. Co. v. Sargent, 2 Ind. App. 458, 28 N. E. 215. Cf. Standard Horseshoe Co. v. O'Brien, 88 Md. 335, 41 Atl. 898; Tootle v. Petrie, 8 S. D. 19, 65 N. W. 43.

10 Veasey v. Doton, 3 Allen (Mass.) 380, 381; Morrison v. Koch, 32 Wis. 254, 261.

11 Matthews v. Bliss, 22 Pick. (Mass.) 48, 52; Smith v. Countryman, 30 N. Y. 665, 681; Roseman v. Canovan, 43 Cal. 110; Croyle v. Moses, 90 Pa. 250, 35 Am. Rep. 654; Firestone v. Werner, 1 Ind. App. 293, 27 N. E. 623. See, also, Burnett v. Hensley, 118 Iowa, 575,

92 N. W. 678.

12 Belcher v. Costello, 122 Mass. 189; Homer v. Perkins, 124 Mass. 431, 26 Am. Rep. 677; Holbrook v. Connor, 60 Me. 578, 11 Am. Rep. 212; Lyons v. Briggs, 14 R. I. 222, 51 Am. Rep. 372; Watts v. Cummins, 59 Pa. 84; Buschman v. Codd, 52 Md. 207; O'Donnell & Duer Brewing Co. v. Farrar, 163 Ill. 471, 45 N. E. 283; Barrie v. Jerome, 112 Ill. App. 329; Vodrey Pottery Co. v. H. E. Horne Co., 117 Wis. 1, 93 N. W. 823; Greene v. Société Anonyme (C. C.) 81 Fed. 64; Han