B. & M'K., merchants at New Orleans, were the factors of P.
& Company of Huntsville, Alabama, and made advances on cotton
shipped to them. In August, 1834, P. & Company were indebted to
B. & M'K. one thousand three hundred and fifteen dollars, and
Williams, the agent of B. & M'K., agreed with P. & Company,
that B. & M'K. would advance eight thousand dollars on bills to
be drawn between 20 April and 31 July, 1835, by P. & Company
and any two of six persons named, among whom were Horton &
Terry, two of the defendants in this suit. Before July 31, 1835,
several shipments of cotton were made to B. & M'K., by P. &
Company, and several bills were drawn by them jointly with Horton
& Terry, and by others without them, all of which were accepted
by B. & M'K. These bills, with the advances before made,
amounted to twenty-nine thousand seven hundred and ninety-five
dollars, and the proceeds of the shipments were twenty-two thousand
four hundred and sixty dollars. B. & M'K. applied these
proceeds to the liquidation of the bills drawn by P. & Company,
to the exclusion of those drawn by them jointly with Horton &
Terry, and as these bills exceeded the proceeds of the cotton, they
brought an action on a bill drawn June 4, 1835, by P. & Company
and Horton & Terry, amounting to three thousand dollars. The
circuit court instructed the jury that if they believed from the
evidence that at the maturity of the bill, B. & M'K. had
sufficient funds of P. & Company to pay the bill, and Horton
& Terry to be accommodation drawers, and securities only, then,
in the absence of any instructions from P. & Company in regard
to the application of the funds, B. & M'K. were bound to apply
them to pay the bill, and could not hold them to pay a bill drawn
on them by P. & Company only, which had been accepted by them,
and was not then due.
Held that the instructions of the
circuit court were correct.
When a factor makes advances, or incurs liability on a
consignment of goods, if there be no special agreement, he may sell
the property in the exercise of a sound discretion, according to
general usage, and reimburse himself out of the proceeds of the
sale, and the consignor has no right to interfere. The lien of the
factor for advances and liabilities incurred extends not only to
the property consigned, but, when sold, to the proceeds in the
hands of the vendee, and the securities therefor in the hands of
the factor.
The acceptors of the bill of exchange having, when the bill
became due, funds of the drawers in their hands sufficient to pay
the same, the liability of the accommodation drawers was as
completely discharged on the payment of the bill as that of the
principals.
Page 41 U. S. 122
The case, as stated in the opinion of the Court, was as
follows:
Brander & McKenna, in 1833, 1834, 1835, were commission
merchants at New Orleans, and acted as factors and agents for
William E. Phillips & Company, of Huntsville, Alabama, in the
sale of cotton, and made advances thereon. On all sales they were
to receive two and a half percent for commission, and the same
amount for advances. In August 1834, Phillips & Company were
indebted to Brander & McKenna in the sum of $1,315.57 for
advances. On the 15th of the same month, John Williams, agent for
Brander & McKenna, agreed to advance Phillips & Company the
sum of $8,000, on bills to be drawn between 20 April and 31 July
1835 by the them and any two of six persons named, among whom were
R. Horton and N. Terry, two of the defendants in error. Between 15
August, 1834 and 31 July, 1835, several shipments of cotton were
made to the plaintiffs by the defendants, and several bills were
drawn by them, some jointly with Horton & Terry and others,
without them, all of which were accepted by the plaintiffs. These
bills, including the advances previously made, amounted to the sum
of $29,795.65. The proceeds of the shipments of cotton to meet
these advances amounted to the sum of $22,460.43. The plaintiffs
applied the proceeds of the cotton to the liquidation of the bills
drawn by Phillips & Company, to the exclusion of those drawn by
them jointly with Horton & Terry, and as the acceptances
exceeded the proceeds of the cotton, this action was commenced on a
bill due 4 June 1835, for $3,000 drawn, by the defendants.
On the trial, the court instructed the jury that if they
believed from the evidence that at the maturity of this bill,
Brander & McKenna had sufficient funds of Phillips &
Company in their hands to pay it, and believed Horton & Terry
to be accommodation
Page 41 U. S. 123
drawers and sureties only, and knew this at the maturity of this
bill, then, in the absence of any instructions from Phillips &
Company in regard to the application of the funds, Brander &
McKenna were bound to apply them to pay this bill, and could not
hold them to meet the payment of a bill drawn on them by Phillips
& Company, which had been accepted, but was not then due. And
that if, when this bill became due, the funds of Phillips &
Company in the hands of the acceptors were sufficient to pay it,
the bill was extinguished and recovery could not be had on it. To
this instruction, an exception was taken, and the jury having given
a verdict for the defendants, the plaintiffs prosecuted this writ
of error.
Page 41 U. S. 128
McLEAN, JUSTICE, delivered the opinion of the Court.
Brander & McKenna, in 1833, 1834, 1835, were commission
merchants at New Orleans and acted as factors and agents of William
E. Phillips & Company, of Huntsville, Alabama, in the sale of
cotton and made advances thereon. On all sales they were to receive
two and a half percent for commission and the same amount for
advances. In August, 1834, Phillips & Company were indebted to
Brander & McKenna in the sum of $1,315.57 for advances. On the
15th of the same month, John Williams, agent for Brander &
McKenna, agreed to advance Phillips & Company the sum of $8,000
on bills to be drawn between 20 April, and 31 July, 1835, by them
and any two of six persons named, among whom were R. Horton and N.
Terry, two of the defendants in error. Between 15 August, 1834, and
31 July, 1835, several shipments of cotton were made to the
plaintiffs by the defendants and several bills were drawn by them,
some jointly with Horton & Terry and others without them, all
of which were accepted by the plaintiffs. These bills, including
the advances previously made, amounted to the sum of $29,795.65.
The proceeds of the shipments of cotton to meet these advances
amounted to the sum of $22,460.43. The plaintiffs applied the
proceeds of the cotton to the liquidation of the bills drawn by
Phillips & Company, to the exclusion of those drawn by them
jointly with Horton & Terry, and as the acceptances exceeded
the proceeds of the cotton, this action was commenced on a bill,
due 4 June, 1835, for $3,000 drawn by the defendants.
On the trial, the court instructed the jury that if they
believed from the evidence that at the maturity of this bill,
Brander & McKenna had sufficient funds of Phillips &
Company in their hands to pay it, and believed Horton & Terry
to be accommodation
Page 41 U. S. 129
drawers and sureties only, and knew this at the maturity of this
bill, then in the absence of any instructions from Phillips &
Company in regard to the application of the funds, Brander &
McKenna were bound to apply them to pay this bill, and could not
hold them to meet the payment of the bill drawn on them by Phillips
& Company, which had been accepted but was not then due. And
that if, when this bill became due, the funds of Phillips &
Company in the hands of the acceptors were sufficient to pay it,
the bill was extinguished and recovery could not be had on it. To
this instruction an exception was taken, and the plaintiffs in
error contend that they had a right to hold the cotton and its
proceeds to meet all outstanding liabilities which they had
incurred on account of Phillips & Company, and that they had a
right so to marshal the securities, in the absence of any express
agreement on the subject, as to save themselves from loss.
Where a factor makes advances or incurs liabilities on a
consignment of goods, if there be no special agreement, he may sell
the property, in the exercise of a sound discretion, according to
general usage, and reimburse himself out of the proceeds of the
sale, and the consignor has no right to interfere. The lien of a
factor for advances and liabilities incurred extends not only to
the property consigned, but, when sold, to the proceeds of the sale
in the hands of the vendee and the securities therefor in the hands
of the factor.
Drinkwater v. Goodwin, Cowp. 251;
Houghton v. Matthews, 3 Bos. & Pul. 489;
Brown v.
McGran, 14 Pet. 495; Story on Agency 380.
But the case under consideration does not turn upon this
principle. The liabilities of the plaintiffs exceeded the proceeds
of the property consigned, and the question to be answered is
whether they can claim a reimbursement from Horton & Terry, who
were bound jointly with Phillips & Company, in certain bills
amounting to $8,000. Other bills to a much larger amount, drawn by
Phillips & Company without security, were accepted by the
plaintiffs, several of which were not due, when the bill in
controversy became payable, and the instruction of the circuit
court to the jury was if, at that time, the plaintiffs had in their
hands funds of Phillips & Company of a sufficient amount to pay
this bill, and they knew that Horton
Page 41 U. S. 130
& Terry were accommodation drawers, they were bound to pay
it. When the plaintiffs accepted this and the other bills, were
they not aware of their respective amounts and the times they
became due? And were they not bound to take up the bills at
maturity? Of this there can be no doubt. The bills drawn
subsequently to the one under consideration amounted to $15,000,
all of which were accepted by the plaintiffs. Were these
acceptances made to any extent on the credit of Horton & Terry?
This has not been contended. On what ground, then, can this action
be sustained? The application of payments by the creditor, where no
direction is given by the debtor, has no relation to the present
case.
Had the bills become payable at the same time, on acceptances
made on the same day, the plaintiffs might have insisted on
applying the funds in their hands to the payment of the notes
without securities. But this would have been a very different case
from the one now before us. After having accepted the bill under
consideration, payable at a time stated, the plaintiffs accepted
other bills payable at a more remote period. Now the contract by
the acceptors was that they would pay these bills as they
respectively became due. And this they were bound to do so long as
the funds of the consignors in their hands remained unexhausted. A
bill became extinguished as soon as it was paid by the plaintiffs
with the funds of Phillips & Company. And this principle
applies as strongly to those bills signed by the accommodation
drawers as to others.
Could the plaintiffs lay a foundation for a recovery against
Phillips & Company by showing payment of a bill drawn by them
out of their own funds? This would not be pretended. And yet this
is the principle contended for in the present case. The liability
of the accommodation drawers was as completely discharged on the
payment of the bill in question as that of the principals. The
relation of factors which the plaintiffs bore to Phillips &
Company gave them no power to vary their acceptances. The cotton
consigned was to meet the payment of the bills as they became due.
This was known to Horton & Terry, and it may well be supposed
that their liability was incurred in virtue of this
Page 41 U. S. 131
arrangement. But the plaintiffs, by appropriating the proceeds
of the cotton to the payment of future liabilities, have violated
their contract, endeavored to defeat the just reliance of the
sureties, and charge them with the payment of the bills which they
guaranteed. This the plaintiffs cannot do. It would be a great
hardship, if not a fraud, on the sureties. No lien can be regarded
or enforced under such circumstances. The lien of a factor depends
upon legal principles founded on equitable considerations, and can
be held valid on no other grounds. We think that the instruction of
the circuit court was correct, and the judgment is therefore
Affirmed.
Order
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the Southern
District of Alabama and was argued by counsel, on consideration
whereof it is now here ordered and adjudged by this Court that the
judgment of the said circuit court in this cause be and the same is
hereby affirmed with costs.
