CONTRACTS - SALES - EFFECT OF REASONABLE BELIEF IN BUYER'S INSOLVENCY ON SELLER'S DUTY TO PERFORM

The plaintiff ordered goods from the defendant, for immediate delivery, terms $1,500 down, balance covered by notes of three and six months. The check given for the down payment was dishonored because of insufficient funds but was subsequently honored. On investigation the defendant discovered that there were unpaid judgments outstanding against the plaintiff, some of which were upwards of three years old. Inferring that the plaintiff was insolvent, the defendant refused to deliver the goods unless cash was paid therefor and when plaintiff refused this offer defendant attempted to return the down payment.

Held, plaintiff's affairs were in such condition that any reasonable business man would be justified in believing him to be insolvent. A reasonable belief in the buyer's insolvency is sufficient to excuse the seller from performing a contract to sell goods on credit. Leopold v. Rock-Ola Mfg. Corp., (C. C. A. 5th, 1940) 109 F. (2d) 611.