A CUSTOMER BUYING ON CREDIT MUST KEEP HIS CREDIT GOOD.
Question.—If a bill of lumber is sold on credit and before delivery to the customer the seller considers he has good reason to question the purchaser’s ability to settle when the bill is due, can the seller withhold the delivery and demand either better terms or cash without making him liable for the non-fulfillment of the contract?
Reply: A man who has bought goods on credit is bound, as the courts phrase it, “to keep his credit good.” If he does not do that the seller need not ship the goods; if he has shipped them and then finds that the buyer has not kept his credit good, he may stop the goods and take them back into his own possession at any time before they have actually been delivered to the buyer or his agent. In making his decision the seller must, of course, take his own risks. He has entered into a contract and he must fulfill it or pay the resulting damages unless he has a legal excuse for refusing to go on with it. It is not sufficient that, as the question says, “the seller considers he has good reason to question the purchaser’s ability to settle”; nor that the seller has good grounds for believing that the buyer’s credit is impaired. It is not a question of any man’s belief, but a question of fact. The goods must be shipped unless the buyer is actually insolvent. This does not mean that he must have made an assignment or gone into bankruptcy or made any other public acknowledgment of the fact that he is insolvent. It means he has become unable to pay his debts as they fall due. The seller must be able to show that at least one debt has fallen due against the buyer and that he has not paid it promptly. Of course, it must be a debt the validity of which the buyer himself does not dispute upon any tenable ground. If he has paid his debts as they fell due he has “kept his credit good,” no matter what any one may suspect as to the future; if he has failed to pay any just debt promptly he has not kept his credit good. If the seller has no right to refuse delivery of the goods altogether he has no right to demand better terms than his contract gives him.
Opinion No. 67.