FRAUD. LAIDLAW US. ORGAN.* It is not Fraud, in the purchase of merchandise, for the vendee to refrain from communicating to the vendor intelligence of extrinsic circumstances exclusively within his own knowledge, and which may affect the value of the same. THE circumstances of this case were these: Organ purchased of Laidlaw & Co., through Girault, one of the firm, the agents of Boorman & Johnson, of New York, a quantity of tobacco lying at New Orleans. The purchase was made soon after sunrise on the morning of Sunday, the 19th of February, 1815, before the news that a treaty of peace had been signed with Great Britain, and which greatly increased the value of the tobacco, had reached New Orleans, and before Girault was advised of the fact, but when it was known to Organ. The negotiation for the sale had been pending several days. Organ did not disclose his information; but although Girault asked if any news enhancing the value of the article had been received, and no answer was given, it is stated in the bill of exceptions, that Organ neither asserted nor suggested to Girault anything calculated to impose upon him with regard to said news, or to induce him to believe that it did not exist. Upon these facts, the Court below charged the jury to find for the plaintiff Organ. MR. CHIEF JUSTICE MARSHALL delivered the opinion of the Court. The question in this case is, whether the intelligence of extrinsic circumstances, which might influence the price of the commodity, and which was exclusively within the knowledge of the vendee, ought to have been communicated by him to the vendor? The Court is of opinion that he was not bound to communicate it. It would be difficult to circumscribe the contrary doctrine within proper limits, where the means of intelligence are * 2 Wheat. Rep. 123; 4 Cond. Rep. 77. Laidlaw vs. Organ. equally accessible to both. But at the same time, each party must take care not to say or do anything tending to impose upon the other. The Court thinks that the absolute instruction of the judge was erroneous, and that the question, whether any imposition was practised by the vendee upon the vendor, ought to have been submitted to the jury. For these reasons the judgment must be reversed, and the cause remanded to the District Court of Louisiana, with directions to award a venire facias de novo. Venire de novo awarded. "Such," says Mr. Verplanck, "is the law, as authoritatively laid down by the highest judicial tribunal of the United States, and pronounced by a judge, whose character and genius would do honor to any country, or any station. But it is much to be regretted that the decision is stated in this brief and general manner, unaccompanied by the reasoning or authority upon which it was founded, and without any statement of the extent to which the doctrine is applicable, or any suggestion of the limitation which might be necessary to guard it from abuse." This question has been discussed by the most eminent jurists of ancient and modern times, with great unanimity of sentiment as to the requisitions of morality, but with no little diversity of opinion as to the rule of law. Cicero, in his treatise De Officiis, states the case of a corn merchant of Alexandria, arriving at Rhodes, in a time of great scarcity, with a cargo of grain, and with knowledge that a number of other vessels with similar cargoes, had already sailed from Alexandria for Rhodes, and whom he had passed on the voyage. He then puts the question, whether the Alexandrian merchant was bound in conscience to inform the buyers of that fact, or to keep silent, and sell his wheat at an extravagant price; and he answers it, by saying, that in his opinion, good faith would require a frank disclosure of the fact. "Pothier," says Chancellor Kent (and he may be regarded as laying down the doctrine of the civil law), "contends that good faith and justice require that neither party to the contract of sale, should conceal facts within his own knowledge, which the other has no means, at the time, of knowing, if the facts would materially affect the value of the commodity. But he concludes, that although misrepresentation orfraud will invalidate the contract of sale, the mere concealment of material knowledge which one party has, touching the thing sold, and which the other does not possess, may affect the conscience, but does not destroy the contract: for that would unduly restrict the freedom of commerce; and parties must, at their own risk, inform themselves of the value of the commodities they deal in. He refers to the rules of morality laid down by Cicero; and he justly considers some of them as being of too severe and elevated a character for practical application, or the cognisance of human tribunals." Kent's Com. V. 2, 491. In England, no case of a precisely similar nature appears to have been adjudicated; but no doubt exists that Judge Marshall has correctly stated the law of Westminster Hall. It has been so recognised, and its exceptions and limitations defined by the most distinguished Chancellors and most approved elemen Laidlaw vs. Organ. tary writers. The doctrine was much discussed in the great case of Fox vs. Mackreth, 2 Brown, C. C. R. 400, where Mr. Mansfield, counsel, urged the Court to enforce the rules of absolute morality; and declared that he knew of no case in which a mere technical morality had been applied. But the Lord Chancellor (Thurlow) replied: "Without insisting upon a technical morality, I do not agree with those who say that where an advantage has been taken in a contract, which a man of delicacy would not have taken, it must be set aside. Suppose, for instance, that A knowing that there is a mine in the land of B, of which B is ignorant, purchase the land without disclosing that fact, the contract is binding. "The Court will not correct a contract merely because a man of nice honor would not have entered into it; it must fall within some definition of fraud; the rule must be drawn so as not to affect the general transactions of mankind." This illustration is referred to with approbation by Lord Eldon, in the case of Turner vs. Harvey, Jacob Rep. 169, and its limitation defined. "A very little is sufficient to affect the application of that principle. If a word, if a single word be dropped which tends to mislead the vendor, the principle will not be allowed to operate." The strictness with which this limitation is applied by the courts, may be seen from the following case, which came before Lord Ellenborough at Nisi Prius, and is reported in 1 Starkie, 352, Hill vs. Gray. "This was an action of assumpsit to recover the sum of £1,000 for a Claude, which had been sold by the plaintiff to the defendant. "It appeared that a person of the name of Butt had been employed by the plaintiff to sell the picture in question: the defendant, being desirous of purchasing it, pressed Butt to inform him whose property it was, which the latter refused to do. In the course of the treaty, Butt being at that time employed in selling a number of pictures for Sir Felix Agar, the defendant, misled by circumstances, erroneously supposed that the picture in question was also the property of Sir Felix Agar. Butt knew that the defendant labored under this delusion, but did not remove it, and the defendant, under this misapprehension, purchased the picture. The plaintiff offered to prove, by the testimony of the most eminent artists, that the picture was a genuine Claude, and of great value, and it appeared, that after the sale had been completed, and the defendant had been informed that the picture was not the property of Sir Felix Agar, he had objected to the payment, not on the ground of any deception that had been practised with respect to the ownership, but on the ground that the picture was not a genuine Claude. "Lord Ellenborough: Although it was the finest picture Claude ever painted, it must not be sold under a deception. The agent ought to have cautiously adhered to his original stipulation, that he should not communicate the name of the proprietor, and not to have let in a suspicion on the part of the purchaser, which he knew enhanced the price. He saw that the defendant had fallen into a delusion, in supposing the picture to be Sir Felix Agar's, and yet he did not remove it. I take it for granted, that you will be able to prove by the judgment of the first professional artists, that this is a genuine picture of Claude, and it would not be possible to go further. In Italy the fact might admit of other proof, as where a picture has been long preserved in a particular cabinet; here Laidlaw vs. Organ. it can only be proved by the concurrent judgment of artists as to its similitude. This case has arrived at its termination; since it appears that the purchaser labored under a deception, in which the agent permitted him to remain, on a point which he thought material to influence his judgment. I am of opinion that the contract is void."" A case somewhat similar in its circumstances to that of Laidlaw and Organ, came before the Circuit Court of Pennsylvania, and is reported by Justice Baldwin, Blydenburgh and Burns vs. Welsh, Bald. Rep. 331; in which the doctrine there laid down, is cited and approved. "When," the judge then goes on to say," the means of acquiring knowledge are equal to both parties, he who first receives it, may avail himself of his activity, or of accident; but if he makes use of any circumvention or art to conceal the fact from the other party, it will invalidate the contract. The buying and selling of merchandise being for mutual profit, the law exacts only good faith; one is not bound to impart to another his views of speculation, his opinion of the effect of news or events, the bearing of the rise of one article on another, or the result of his mercantile skill and knowledge, fairly acquired, and not unfairly concealed. An unfair concealment, is where means or pains are taken to keep the other party in ignorance of material facts; when a fact is asserted, not true, or true to the letter, but not to the sense, not according to the common meaning and acceptation of the words used, and calculated to impose upon or deceive, representing a fact to be one way, but concealing circumstances which bear directly upon it, in a contrary way: in a word, any declaration which induces another to buy or sell in the confidence of its truth, in the ordinary acceptation of the words used in reference to the transaction, is a fraudulent suppression if the assertion is not strictly true, as so understood, although it may be true in another sense different from its ordinary import." The rule to be deduced from an examination of all the cases, is probably that stated by Chief Justice Shaw in Matthews vs. Bliss, 22 Pick. 53, to wit; where one party is informed of facts materially affecting the value of the subject of sale, of which the other is ignorant, and uses studied efforts to prevent him from coming to the knowledge of the truth, or makes any, though slight, false and fraudulent suggestion or misrepresentation, then the transaction is tainted with turpitude, and alike contrary to the rules of morality and of law. The perusal, however, of Mr. Verplanck's Essay, has left upon our minds the abiding impression that the law of contracts might have been made to approximate more closely to the law of morality; that fraud should have deprived every transaction of its vitality in a court of justice, and that the principles governing the contract of insurance and which have led the courts to repudiate even contracts of sale, where there has been concealment of a matter, going to the essence of the agreement, as concealment of a purchaser's insolvency, should have been applied to the entire range of business transactions. The two canons proposed by Mr. Verplanck, are the following: "Whenever any advantage is taken in a purchase or sale, from the suppression of any fact (not of an opinion or inference), necessarily and materially affecting the common estimate which fixes the present market value of the thing sold, and in regard to which, the sale alone conclusively proves that it Laidlaw vs. Organ. was presumed by the losing advantage is gained by fraud. "There is nothing dishonest or unfair, either in using superior sagacity as to probabilities, or in applying greater skill and better knowledge as to those facts which do not necessarily enter into the common calculations of those who fix the current price, and concerning which no confidence express or implied is reposed." party that no advantage would be taken; such On the other hand, |