Where a merchant, in order to secure himself from loss, took
merchandise from a factor with a knowledge that the factor was
about to fail, the principal who consigned that merchandise to the
factor may avoid the sale and reclaim his goods or hold the
merchant accountable for them.
And where the purchase was made from the factor's clerk, who had
been left by the factor in charge of the business, this was an
additional reason for avoiding the sale, because a factor cannot
delegate his authority without the assent of the principal.
A factor or agent who has power to sell the produce of his
principal has no power to affect the property by tortiously
pledging it as a security or satisfaction for a debt of his own,
and it is of no consequence that the pledgee is ignorant of the
factor's not being the owner. But if the factor has a lien upon the
goods, he may pledge them to the amount of his lien.
Under any of these irregular transfers, a court of equity will
compel the holder to give an account of the property which he
holds.
Nor can a factor sell the merchandise of his principal to a
creditor of the factor in payment of an antecedent debt. Such a
transfer is not a sale in the legal acceptation of that term.
The power of a factor explained.
These principles of the common law are sustained by a statute of
the State of New York passed in April, 1830, 3 Revised Laws,
Appendix 111.
In the early part of the year 1841, there was a commercial firm
in the City of Richmond, Virginia, trading under the name of Martin
& Franklin, who were dealers in tobacco and manufacturers of
the article. There was at the same time a firm in Philadelphia,
composed of the persons named in the caption of this statement,
trading under the name of Heald, Woodward & Company. There was
also a firm in New York, trading under the name of Charles Esenwein
& Company, although consisting of Charles Esenwein alone, and
in Philadelphia there was also a commercial house, known by the
name of John A. Warner & Company, although consisting of John
A. Warner alone.
To the house of Charles Esenwein & Company in New York
Martin & Franklin were in the habit of consigning manufactured
tobacco for sale as their agents and factors.
Page 52 U. S. 210
In April, 1841, Martin & Franklin opened a correspondence
with Heald, Woodward & Co., which resulted in the latter
house's becoming the agents of the former for the purpose of
selling their manufactured tobacco in Philadelphia as agents and
factors.
In April, 1841, Martin & Franklin made the first shipment
upon a new account of Charles Esenwein & Co. in New York, and
continued, at intervals during the summer, to make more
consignments. Their practice was at each shipment to draw a draft
upon Esenwein & Co., payable in four months, for an estimated
portion of the proceeds of sale. Amongst other drafts were the
following,
viz.: :
1841, May 27, at four months, due September 30, for $800.
1841, June 12, at four months, due October 15, for 700.
1841, July 3, at four months, due November 6, for 300.
1841, July 29, at four months, due December 2, for 850.
These drafts were not paid by Esenwein & Co. at
maturity.
The tobacco shipped during the period when these drafts were
drawn was the following,
viz.:
Statement of Tobacco received by Charles Esenwein & Co.
from Messrs. Martin & Franklin, of Richmond, Va., to sell for
their account.
1841
Whole Half
Boxes Boxe
May 12. Received ex schooner
Manchester:
36 whole boxes T. P. Martin's 8's lump
34 " " " 16's lump
20 " " " 32's lump 90
June 7. Received ex schooner
Lynchburg:
20 whole boxes T. P. Martin's long 12's lumps
16 " " H. Wit & Son 16's lumps
26 " " T. P. Martin's 16's lumps 62
June 29. Received ex schooner
Manchester:
8 whole boxes T. P. Martin's 16's lump
56 half " " 32's lump 8 56
July 8. Received ex schooner
Leontine:
28 half-boxes T. P. Martin's 32's lumps 28
Aug. 15. Received ex schooner
Weymouth:
2 whole and 76 half boxes T. P. Martin's 32's 2 76
-----------
Received in all, boxes 162 160
In August, 1841, Esenwein was in embarrassed circumstances, and
sailed for Europe, leaving his business under the management of his
clerk, Engelbert Caprano.
On 3 September, 1841, the house of Charles Esenwein
Page 52 U. S. 211
& Co. failed. On the day before the failure, Esenwein &
Co. were indebted, amongst other persons, to the firm of John A.
Warner & Co. of Philadelphia, and Charles Conolly of New York.
At some short time before the failure, Warner went to New York and
got tobacco out of the store of Esenwein & Co., and in his
account with that house the following entries appeared as credits
to Esenwein & Co.:
1841
Sept. 2 By sundry notes . . . . . . . . . . . $11,977.69
" 2 sundries . . . . . . . . . . . . . . 27,010.46
" 2 sundries . . . . . . . . . . . . . . 2,654.98
" 2 S. Austin's note due Dec. 31-3 Jan. 1842 435.47
" 2 transfers of Loomis & Hale's account 120.59
" 2 " J. M. Brineler's account 203.00
" 2 " D. W. Warning's account 796.85
" 2 " S. Mayer's account 1,208.99
" 2 " J. Barber & Co.'s account 494.15
" 2 " A. Snowhill & Son's account 1,089.75
" 2 " A. Snowhill's account 125.53
---------- ----------
Amount carried over $97,444.20 $95,871.77
========== ==========
Amounts brought forward $97,444.20 $95,871.77
Sept. 2 By cash received Aug. 14 160.00
" 2 To net proceeds of tobacco 1,198.00
" 2 " " of cigars 45.70
" 2 To difference in bill tobacco,
Sept. 2, 1841 161.69
" 2 By balance 2,817.82
---------- ----------
$98,849.59 $98,849.59
1841
Sept. 2 To balance $ 2,817.82
When the failure took place, Caprano made an assignment to
Charles Conolly, and among other things assigned seventeen whole
boxes and twelve half-boxes of the tobacco which had been consigned
by Martin & Franklin, that being the whole amount of their
tobacco then on hand.
On 6 September, 1841, the following transaction occurred between
John A. Warner & Co. and Heald, Woodward & Co.
"In the account between these two firms, Warner & Co. have a
credit entered under date of September 6, as follows: 'Sept. 6.
Sundries, $22,441.52.'"
This transaction is in part explained in the answer of Heald,
Woodward & Co.
Page 52 U. S. 212
"The defendants, now and at all times, saving all exceptions for
further answer to said bill of complainants, say: "
"That in the month of September, A.D. 1841, they purchased of
John A. Warner, as before they have answered, a large quantity of
goods, and, among other things, two hundred and fifty-eight boxes
of tobacco, known by the name of Martin's tobacco, and no more,
this being the whole number of boxes or half-boxes of tobacco
either sold or delivered by said Warner to defendants about that
time, branded with the names or initials of complainant, or at all
answering the description in complainant's bill, or inquired about
therein; that of said tobacco there was redelivered to said Warner
before the filing of complainant's bill, or he failed to deliver,
one hundred and thirty-four boxes, as to which 134 boxes of
tobacco, the said contract of sale between said Warner and these
defendants was by mutual consent annulled and rescinded, leaving in
the hands of or under the control of these defendants, at the time
of filing of said bill, only one hundred and twenty-four boxes or
half-boxes of said tobacco, or the proceeds thereof, and which said
one hundred and twenty-four boxes were branded with the name or
initials of complainant, as defendants believe, though of this they
have no certain knowledge. And these defendants purchased the said
tobacco of said Warner about September 6, 1841, at the following
prices, to-wit, one hundred and six boxes thereof of lumps 8's,
12's, 16's, being 13,676 pounds at 12 cents per pound,
viz., $1,640.12; and eighteen boxes lumps 32's at 16 cents
per pound,
viz., $230.40; making together $1,870.52."
"And they further aver and repeat that they purchased the same
fairly and
bona fide of said Warner, and for full value,
and that they had no knowledge whatever at the time, that said
tobacco or any part thereof belonged to complainant, nor had they
any reason to believe or know it. And further, the defendants say
that the price paid by them for said tobacco is truly set forth and
alleged as above, and the same was received by them and sold by
said Warner to be placed by them to the credit of his account, and
in part payment of, and not as security for, a debt due these
defendants by said Warner, and which debt is not yet fully
paid."
On the return of Charles Esenwein from Europe, he obtained a
reassignment from Conolly of the seventeen whole and twelve half
boxes of tobacco which belonged to Martin & Franklin, sold
them, and remitted the proceeds to that house in Richmond.
On 13 September, 1841, Martin & Franklin wrote to Heald,
Woodward & Co. the following letter:
Page 52 U. S. 213
"Richmond, Sept. 13, 1841"
"MESSRS. HEALD, WOODWARD & Co., Philadelphia."
"Gentlemen -- I am just from New York, looking after our
tobaccos that we had shipped on consignment to Charles Esenwein.
Mr. E. Caprano, their clerk, that holds a power of attorney from
Esenwein & Co., handed me a memorandum of tobacco sold; amongst
those is John Warner & Co., of Philadelphia, 'sold them on 2
September, 250 boxes of our tobacco, 234 boxes branded Thomas P.
Martin and 16 boxes branded H. Wit & Son.'"
"We have enclosed the memorandum; it is not signed, but Mr.
Spear of New York will testify to the writing. His attorney
informed one of us Martin that it was sold for cash, which is not
likely, as the house failed on the next day, and we also observed
in the assignment made in Philadelphia that Messrs. Warner &
Co. are further secured in the first class made soon after. We wish
to beg the favor of you to get the opinion for us of some able
counsel, whether we can claim this tobacco, fraudulently taken from
us under the cover of a cash sale, evidently to secure themselves
at our loss. We had made drafts on them, of which about $2,000 has
been paid, and they have sold about half that amount to other
persons, for which they had heretofore charged a guarantee
commission. Any expenses you may have to pay will be cheerfully
allowed, by your obedient servants,"
"MARTIN & FRANKLIN"
"N.B. We have omitted mentioning, in the event the attorney
thinks as we do, you will set him about it at once on our account,
for which you will please be responsible for us."
"MARTIN & FRANKLIN"
To which letter they received the following answer:
"Philadelphia, Sept. 15-16"
"MESSRS. MARTIN & FRANKLIN."
"Gentlemen -- Your favor of the 13-15th inst. came duly to hand,
and in reply thereto we proceed to give you information in relation
to the tobacco sold by C. Esenwein & Co. of New York to Messrs.
Warner & Co. of this city."
"The latter house, we are told, loaned to Esenwein their notes
and cash to the amount of $50,000 and something over; they were
induced to make this loan in consequence of representations by
Esenwein that this amount would be sufficient to enable his house
to meet all their liabilities until he could have time to get to
Europe and remit home sufficient funds to return the loan. After
Esenwein had left the United States, Mr. Warner was satisfied in
his own mind that he had
Page 52 U. S. 214
been deceived by him, and in order to secure himself from ruin,
he proceeded to purchase a sufficient amount of property from the
attorney left by Esenwein in charge of his business. We were pained
to learn that you were among the sufferers, and that you will not
in all probability be able to recover any portion of the tobacco
which you state was sold to Mr. Warner, as we believe the whole
matter was arranged under the advice of eminent counsel engaged by
Mr. Warner both in New York and this city."
"We think, therefore, that any attempt made to recover the
tobacco would be attended with great expense and in the end prove
fruitless."
"Very respectfully, your obedient servants,"
"HEALD, WOODWARD & CO"
In April, 1842, Martin & Franklin filed their bill in the
Circuit Court of the United States for the Eastern District of
Pennsylvania against Heald, Woodward & Co. and Warner. They
alleged the shipment of the tobacco to Esenwein & Co.; the
drawing of the bills; that, with full knowledge of the insolvency
of Esenwein & Co., Warner had obtained possession of the
tobacco, knowing it to be the property of Martin & Franklin;
that shortly afterwards he transferred the said tobacco to Heald,
Woodward & Co., who also knew that it belonged to the
complainants; that at the time of this transfer, Heald, Woodward
& Co. were the agents and correspondents of Martin &
Franklin, and as such bound to protect their interests, and that
when the letter of 16 September was written, Heald, Woodward &
Co. had in their possession the tobacco which they knew to be the
property of the complainants. The bill then prayed for an account
&c.
The answers first filed by the respondents were objected to as
insufficient, and the exceptions sustained.
On 1 March, 1843, Warner filed a further answer. He alleged that
his purchase of the tobacco from Esenwein & Co. was
bona
fide and according to the usual course of dealings between
them, that the departure of Esenwein was publicly known, and was
for the purpose of obtaining a loan from his relatives in order to
carry on his business, that he had never applied for the benefit of
the insolvent law, but was then carrying on his business in New
York, that he sold the tobacco to Heald, Woodward & Co. in the
usual course of the dealings which had long existed between them,
and not for the payment of any preexisting debt, and that all
accounts between them were regularly balanced and settled from time
to time.
Page 52 U. S. 215
Heald, Woodward & Co. in their answer denied all agency
except for the tobacco which had been specially consigned to their
house.
On 11 April, 1843, the cause was referred to a master to take
depositions, and a commission to take testimony was issued to New
York. It is only necessary to give an extract from the deposition
of Charles Conolly, a creditor of the firm of Esenwein & Co.,
and to whom the assignment was made which has been already spoken
of.
He deposed as follows:
"After Mr. Esenwein left New York, Mr. Warner made purchases of
that house in that store; he got tobacco out of the store of
Esenwein after Esenwein left, but I could not swear that that
tobacco was there when Esenwein left New York for Europe. I do not
recollect the marks or numbers of any parts or quantities of them;
they were in boxes, in kegs, and in bales; it had, I presume, been
shipped from Virginia to Mr. Esenwein. I have, since that occurred,
heard him say whose brands they were; he mentioned various
manufacturers, among the rest were Martin & Franklin; I don't
recollect that he mentioned how much of it was Martin &
Franklin's brand. Tobias Beehler was in New York at the time Warner
got these goods. I did not see Mr. Warner getting them out; I saw
Mr. Beehler getting them out. I can't say with certainty whose
brands or marks were on the tobacco Beehler was assisting in
getting out. On the day I saw Mr. Beehler helping to get out those
goods, I did not see Mr. Warner in New York, and understood he had
left that morning or the day before; they were not to my knowledge
working night as well as day in getting out this tobacco; I presume
I made a great many particular remarks on the subject of taking
away that tobacco. I recollect making the remark that the
proceedings were wrong; it was in the forenoon that I saw Beehler
taking away the goods; I saw considerable quantities going out of
the store; the whole appearance of the store was wrong, it was
upside down, it was done in an unbusiness-like manner; in other
words, things were taken out harum-scarum on the day succeeding the
failure, or the next day after, and that I suppose occasioned the
remark."
On 25 September, 1848, the circuit court pronounced the
following decree:
"This cause having been heard and debated before the judges, by
counsel on both sides, on the 25th, 26th, 27th, and 28th of April
last, upon the bill, answers, and proofs taken in the cause, the
court does order and decree that the defendants do pay to the
complainant the sum of $2,869.14, with interest
Page 52 U. S. 216
from 25 September, 1848, this being the amount of such of the
bills of exchange accepted by Esenwein & Co. upon the tobacco
shipped to the said Esenwein & Co., as were paid by the
complainant, together with the charges of protest and reexchange by
them incurred and borne by reason of the nonpayment of such
acceptances by said Esenwein & Co., deducting therefrom the
balance which would have been payable to Esenwein & Co. by the
complainant if the said acceptances had been paid by said Esenwein
& Co., interest being charged for and against the parties
according to law."
"Per cur."
"R. C. GRIER"
"J. K. KANE"
From this decree, an appeal brought the case up to this
Court.
Page 52 U. S. 220
MR. JUSTICE WAYNE delivered the opinion of the Court.
We state such circumstances in this case as may be necessary for
the application of our opinion to other cases of a like kind.
Martin & Franklin were manufacturers of tobacco in Richmond,
Virginia. They were in the habit of shipping the article to Charles
Esenwein in New York as their agent and factor. In April, 1841,
they made the first shipment upon a new account to Esenwein, and at
intervals during the summer made other consignments to him. It was
their practice to draw upon Esenwein, payable in four months, for
an estimated portion of the proceeds of sale; among other drafts
were the following:
1841, May 27, at four months, due Sept. 30, for $800.
1841, June 12, at four months, due Oct. 15, for 700.
1841, July 3, at four months, due Nov. 6, for 300.
1841, July 29, at four months, due Dec. 2, for 850.
These drafts were not paid by Esenwein. The consignments during
the period when the drafts were drawn were one hundred and
sixty-two half, and one hundred and sixty whole boxes of tobacco.
Esenwein's entry of the consignment is, "statement of tobacco
received by Charles Esenwein & Co. from Messrs. Martin &
Franklin of Richmond, Virginia, to sell for their account."
The business relation between them in this transaction was that
of principal and factor, unaffected by any particular instructions
from the principals or by any right or power acquired by the
factor, beyond his general commission to sell the tobacco,
according to the usages of trade in the place to which it had been
sent for sale.
In August, 1841, Esenwein became embarrassed and sailed for
Europe. He left his business under the management of his clerk,
Engelbert Caprano. On 3 September, Esenwein
Page 52 U. S. 221
failed. Among his creditors was John A. Warner of Philadelphia.
A short time before the failure, Mr. Warner, between whom and
Esenwein there had been much previous dealing, went to New York. He
then obtained from Caprano, the clerk, from the store of Esenwein,
a quantity of tobacco, cigars, and other merchandise. The proof in
the case is that the tobacco was a part of the consignments which
had been made within the dates before mentioned by Martin &
Franklin to Esenwein. Warner says in his answer to the bill of the
complainant that the same was purchased by him for a full
consideration and price, in like manner as he had frequently
purchased from Esenwein, and that he did not know that the tobacco
belonged to Martin & Franklin. But he admits, "the insolvency
of Esenwein was believed." In his amended answer he says he
purchased the tobacco
bona fide, in manner as had been
before stated by him. That it was paid for after the purchase by
his paying and adjusting thirty thousand dollars of his own notes,
which he had loaned to Esenwein, by his paying and redeeming them.
Subsequently, in three days after Esenwein's failure, Heald,
Woodward & Co. of Philadelphia bought from Warner two hundred
and fifty-eight boxes of tobacco, known as Martin's tobacco. The
proof in the case is that it was a part of that which Warner had
obtained from Esenwein's clerk, which had been consigned to
Esenwein by Martin & Franklin, as already stated. They aver,
and there is no reason or cause to doubt it, that they purchased
from Warner fairly, and for full value; that they had no knowledge
whatever at the time that the tobacco or any part of it belonged to
the complainants, nor had they any reason to believe or know it.
Their contract, however, with Warner, was rescinded in part. They
received from him only one hundred and twenty-four boxes, instead
of the two hundred and fifty-eight which had been sold to them.
From some other dealing between Heald, Woodward & Co. and
Martin & Franklin the latter have drawn an inference of an
agency of the former for them in this transaction. We think there
was no such agency. At the same time, we will say that there was an
unbecoming and apprehensive reserve in their reply to the letter of
Martin & Franklin, making inquiries concerning their tobacco,
which Warner had received from the clerk of Esenwein, a part of
which Heald, Woodward & Co. had bought from Warner and was then
in their possession. It was, however, not a concealment from which
it can be inferred that Heald, Woodward & Co. meant to commit
either a legal or moral fraud upon their correspondent. It appears
that they had nothing to do with the transfer of the
Page 52 U. S. 222
tobacco to Warner, nor any other than a fair connection with him
in the sale of it by Warner to them.
From this statement, we have no doubt of the law of the case. It
may be applied, too, without any imputation upon the integrity of
either of the parties concerned. The defendants have misapprehended
the principles which govern the rights of themselves and the
plaintiff, but there is nothing in their proceedings which impairs
mercantile character. They have been much mistaken, without meaning
premeditated unfairness. If some temper had not been thrown into
the case at first, there probably would not have been any charge of
fraudulent intention. No one will be surprised from the proceedings
in the cause and the argument made upon it in this Court that its
merits were lost sight of in the effort made on the one side to
establish fraud and on the other to resist it.
The exact questions raised by the record are whether or not the
transfer of the tobacco to Warner divested the plaintiff's
ownership of it, and whether or not Warner's sale of a part of it
to Heald, Woodward & Co., for a full consideration, without any
knowledge upon their part of the plaintiff's interest when they
bought from Warner, gave to them a property in it.
Warner's account of dealings with Esenwein we believe to be
true. In his answer, however, he puts his right to retain the
tobacco upon a footing not applicable to it. He says he bought
without knowing that Martin & Franklin had any interest in the
tobacco, and that he believed Esenwein was the owner. His
inference, practically, was that he might therefore set off against
the price his liability for the notes which he had lent to Esenwein
as a debt due by Esenwein to him. This can only be done upon the
principle that where two persons equally innocent are prejudiced by
the deceit of a third, the person who has put trust and confidence
in the deceiver should be the loser. He discloses in his answer his
knowledge of a fact which takes him out of any such relation to the
plaintiff. It is his knowledge at the time of the delivery of the
tobacco to him of the failure of Esenwein.
In all of those cases in which it has been ruled that the buyer
who at the time of the sale knows nothing of the relation between
the factor with whom he deals and the principal by whom that factor
has been employed is protected by the law in case of a misadventure
occurring by the default of the factor, it is admitted that the
risk which a principal runs, through the inadvertence or misconduct
of his agent, may be avoided by the purchaser's having notice at
any time before the completion of the purchase or delivery of the
goods of the
Page 52 U. S. 223
agent's commission. Peake 177. Among the instances which the law
terms notice enough for such a purpose is the insolvency of the
factor known to the buyer.
Eastcott v. Milward, 7 Term
361;
ibid., 366. Warner says in his answer that at the
time he made his purchase, "the insolvency of Esenwein was
believed." Those are his words, and according to all that class of
cases asserting the principle under which his answer puts him, such
knowledge was sufficient to entitle the plaintiff to avoid the
sale.
Again, a transfer to him by way of sale by the clerk of Esenwein
of property trusted to the latter as a factor could not pass the
title or right in it from the real owner.
It made no difference that Caprano had been left to transact
Esenwein's business whilst he was in Europe. A factor cannot
delegate his trust to his clerk. The law upon this point is well
settled. It has been repeatedly ruled. The first example in the
first paragraph of Paley on Agency, upon the "execution of
authority," is if an agent be appointed to sell, he cannot depute
the power to a clerk or under agent, notwithstanding any usage of
trade, unless by express assent of the principal.
The utmost relaxation of the rule,
potestas delegata non
potest delegare, in respect to mercantile persons is that a
consignee or agent for the sale of merchandise may employ a broker
for the purpose when such is the usual course of business.
Trueman v. Loder, 11 Adolph. & Ell. 589. Or where the
usual course of the management of the principal's concerns in the
employment of a sub-agent has been pursued for a length of time,
and been recognized by the owners of property, they will be taken
to have adopted the acts of the sub-agent as the acts of the agent
himself.
Blore v. Sutton, 3 Meriv. 237;
Combes'
Case, 9 Co. 75-77; Roll.Abr. 330;
Palliser v. Ord,
Bunb. 166. Lord Eldon, in
Coles v. Trecothick, 9 Ves.Jr.
236, reprobates the notion that if an auctioneer is authorized to
sell, all his clerks are, during his absence, in consequence of any
such usage in that business. It was ruled by the Master of the
Rolls in
Blore v. Sutton, 3 Meriv. 237, that an agreement
for a lease, evidenced only by a memorandum in writing, entered in
the book of an authorized agent, signed by his clerk and not by the
agent himself, was not a sufficient agreement in writing, it not
being signed by an agent properly authorized, notwithstanding the
entry was shown in evidence to have been approved by, and that it
was made under the immediate direction of the authorized agent and
in the usual course of the business of his office. A factor cannot
delegate his employment to another so as to raise a privity between
that other and his principal.
Solly v. Rathbone, 2 Maule
& Selw. 299;
Cockran
Page 52 U. S. 224
v. Irlam, id., 301. The reason of the rule in all these
mercantile agencies is that it is a trust and confidence reposed in
the ability and integrity of the person authorized. An agent
ordinarily, and without express authority, or a fair presumption of
one, growing out of the particular transaction or the usage of
trade, has not the power to employ a sub-agent to do the business
without the knowledge or consent of his principal. The agency is a
personal trust for a ministerial purpose, and cannot be delegated,
for the principal employs the agent from the opinion he has of his
personal skill and integrity, and the latter has no right to turn
his principal over to another of whom he knows nothing. 2 Kent's
Comm. 633. No usage of trade anywhere permits a factor to delegate
to his clerk the commission trusted to himself. In this case, there
was a transfer of the plaintiffs' property to Warner by a clerk of
their factor. He knew when it was done that he was giving their
property to a creditor of his employer in payment of his debt, and
both himself and the purchaser knew that Esenwein was in failing
circumstances, or, as Warner expresses it, "that his insolvency was
believed." It must be admitted that such a transfer passed no
property in the thing transferred, and that it may be reclaimed by
the owner, as well from any person to whom it has been sold by the
first buyer as from himself. It is the case of property tortiously
taken from the owner or his agent, without any fault of the owner,
and as such cannot take away his right to it.
On either of the grounds already mentioned, the plaintiff would
be entitled to recover from the defendants in this case. But there
is a third, which shall be stated in connection with other points
respecting principals and factors, which it will not be out of
place to notice. A factor or agent who has power to sell the
produce of his principal has no power to affect the property by
tortiously pledging it as a security or satisfaction for a debt of
his own, and it is of no consequence that the pledgee is ignorant
of the factor's not being the owner.
Paterson v. Tash,
Str. 1178;
Maans v. Henderson, 1 East 337;
Newson v.
Thornton, 6 East 17; 2 Smith, 207;
McCombie v.
Davies, 6 East 538; 7 East 5;
Daubigny v. Duval, 5
T.R. 604; 1 Maule & Selw. 140, 147; 2 Stark. 539;
Guichard
v. Morgan, 4 Moore 36; 2 Brod. & Bingh. 639; 2 Ves.Jr.
213. When goods are so pledged or disposed of, the principal may
recover them back by an action of trover against the pawnee without
tendering to the factor what may be due to him and without any
tender to the pawnee of the sum for which the goods were pledged.
Daubigney v. Duval, 5 T.R. 604, or without any demand of
such goods. 6 East 538; 12 Mod.
Page 52 U. S. 225
514, and it is no excuse that the pawnee was wholly ignorant
that he who held the goods held them as a mere agent or factor.
Martini v. Coles, 1 Maule & Selw. 140, unless, indeed,
where the principal has held forth the agent as the principal. 6
Maule & Selw. 147. But a factor who has a lien on the goods of
his principal may deliver them over to a third person, as a
security to the extent of his lien, and may appoint such person to
keep possession of the goods for him. In that case, the principal
must tender the amount of the lien due to the factor before he can
be entitled to recover back the goods so pledged.
Hartop v.
Hoare, Str. 1187;
Daubigny v. Duval, 5 T.R. 604; 6
East 538; 7 East 5; 3 Chitty's Com.Law 193. So a sale upon credit,
instead of being for ready money, under a general authority to sell
and in a trade where the usage is to sell for ready money only,
creates to contract between the owner and the buyer, and the thing
sold may be recovered in an action of trover. Paley, Principal and
Agent 109; 12 Mod. 514. Under any of these irregular transfers,
courts of equity, as is now being done in this case, will compel
the holder to give an account of the property he holds.
But it was said, though a factor may not pledge the merchandise
of his principal as a security for his debt, he may sell to his
creditor in payment of an antecedent debt. No case can be found
affirming such a doctrine. It is a misconception, arising from the
misapplication of correct principles to a case not belonging to
anyone of them. The power of the factor to make such a sale, and
the right of the creditor to retain the property, has been
erroneously put upon its being the usual course of business between
factors to make a setoff of balances as they may exist in favor of
one or the other of them against the price of subsequent purchases
in their dealings. The difference between such a practice and a
sale for an antecedent debt must be obvious to everyone when it is
stated. In the one, the mutual dealing between mercantile persons
who buy and sell on their own account, and who also sell upon
commission for others, is according to the well known usage of
trade. Its convenience requires that such a practice shall be
permitted. But it must be remembered it is an allowance for the
convenience of trade, and for a readier settlement of accounts
between factors for their purchases from each other in that
character. It does not, however, in any instance bind a principal
in the transfer of merchandise if there been a departure from the
usages of trade or a violation of any principle regulating the
obligations and rights of principal and factor.
Again, it has been supposed that the right of a factor to sell
the merchandise of his principal to his own creditor in payment
Page 52 U. S. 226
of an antecedent debt finds its sanction in the fact of the
creditor's belief that his debtor is the owner of the merchandise
and his ignorance that it belongs to another, and if in the last he
has been deceived, that the person by whom the delinquent factor
has been trusted shall be the loser. The principle does not cover
the case. When a contract is proposed between factors or between a
factor and any other creditor to pass property for an antecedent
debt, it is not a sale in the legal sense of that word or in any
sense in which it is used in reference to the commission which a
factor has to sell.
See Berry v.
Williamson, 8 How. 495. It is not according to the
usage of trade. It is a naked transfer of property in payment of a
debt. Money, it is true, is the consideration of such a transfer,
but no money passes between the contracting parties. The creditor
pays none, and when the debtor has given to him the property of
another in release of his obligation, their relation has only been
changed by his violation of an agency which society in its business
relations cannot do without, which every man has a right to use and
which every person undertaking it promises to discharge with
unbroken fidelity. When such a transfer of property is made by a
factor for his debt, it is a departure from the usage of trade,
known as well by the creditor as it is by the factor. It is more --
it is the violation of all that a factor contracts to do with the
property of his principal. It has been given to him to sell. He may
sell for cash or he may do so upon credit, as may be the usage of
trade. A transfer for an antecedent debt is not doing one thing or
the other. Both creditor and debtor know it to be neither. That
their dealing for such a purpose will be a transaction out of the
usage of the business of a factor. It does not matter that the
creditor may not know, when he takes the property, that the
factor's principal owns it; that he believed it to be the factor's
in good faith. His dealing with his debtor is an attempt between
them to have the latter's debt paid by the accord and satisfaction
of the common law. That is, when, instead of a sale for a price, a
thing is given by the debtor to the creditor in payment, in which
we all know that, if the thing given is the property of another,
there will be no satisfaction. It is the
dation en
payement of the civil law as it prevails in Louisiana, which
is when a debtor gives and the creditor receives, instead of money,
a movable or immovable thing in satisfaction of the debt.
Courts of law and courts of equity, in a proper case before
either, will look at such a transaction as one in which both
principal and creditor have been deceived by the factor so far as
the deceit is concerned, but it will also be remembered in favor of
the principal that the creditor has acquired the principal's
Page 52 U. S. 227
property from his factor, with the creditor's knowledge, out of
the usual course of trade, and will reinstate him in his former
relation to his debtor, rather than that the creditor should be
permitted to keep the property of another, who is altogether
without fault, in payment of his debt. As to a factor's power to
bind his principal by a disposition of his goods, the common law
rule is
"that, to acquire a good title to the employer's property by
purchasing it from his agent, such purchase must have been either
in market overt and without knowledge of the seller's
representative capacity or from an agent acting according to his
instructions or from one acting in the usual course of his
employment, and whom the buyer did not know to be transgressing his
instructions,"
or that he had not such notice as the law deems equivalent to
raise that presumption.
"The reason of this is clear, for unless the transaction took
place
bona fide in a market overt, in which case a
peculiar rule of law in England steps in for its protection, an
agent selling without express authority must, that his acts may be
supported, have sold under an implied one. But an implied one
thereby always empowers the person authorized to act in the usual
course of his employment; consequently, if he sells in an unusual
mode, he could have no implied authority to support his act, and,
as he had no express one, his sale of course falls to the
ground."
Smith's Mercantile Law 111, 112.
The defendants are not within the compendious summary just
stated. There has been a transfer of property, which was consigned
to a factor for sale, by his clerk, to a creditor of his employer,
who knew his debtor to be in failing circumstances, just as well as
the clerk himself did; and of property, too, which the clerk knew
to be the property of the plaintiff, and which the creditor
bargained for knowingly out of the usual course of trade. Nor
should we omit to say, that Esenwein's opinion and disapproval of
what had been done by his clerk with his principal's tobacco are
significantly disclosed by the fact, that, upon his return from
Europe, he redeemed so much of it as had been assigned to Mr.
Conolly by his clerk in payment of a debt, and sold and remitted
the proceeds to his principals.
By the common law, the transfer of the plaintiff's tobacco to
Warner cannot be maintained. He is responsible to them for the
value of so much of it as was not transferred by him to Heald,
Woodward & Co. Heald, Woodward & Co. are responsible for so
much of it as Warner transferred to them, because Warner, having no
property in it, could not convey any to them. But Warner is
answerable to them for that amount, and he is replaced for the
whole as a creditor of Esenwein, just as he was before the
transaction occurred.
Page 52 U. S. 228
The application of these principles of the common law to these
parties, if it needed confirmation, would receive it from the
statute of New York of April, 1830, for the amendment of the law
relative to principals and factors or agents. The transfer to
Warner was a New York transaction. The third section of that act
very distinctly provides for those cases when the ownership by the
factor of goods which he contracts to sell shall be said to exist,
to give protection to purchasers against any claim of the factor's
principal. It is when he contracts for any money advanced or for
any negotiable instrument or other obligation in writing given for
merchandise upon the faith that the factor is the owner of it. The
concluding words of the section are, "given by such other person
upon the faith thereof." Three misconstructions of that act have
been prevalent, but they have been corrected by the courts of New
York. We concur with them fully. One was that the statute altered
the common law, so as to give validity to a sale made by the factor
for an antecedent debt due by him to the person with whom he
contracts; another, that the statute gave to a purchaser
protection, whether he knew or not that the goods which the factor
contracted to sell him were not the factor's, and belonged to his
principal; and the other that the concluding words, "upon the faith
thereof," related to the advance made upon the goods, and not to
the property which the factor had in them. Similar misconceptions
were prevalent, and perhaps still prevail, concerning the
corresponding section in the English Factor's Act, Geo. 4, ch. 94,
1825. The alterations of the common law in this particular by the
English and the New York statutes were suggested by practical and
experienced merchants in both countries to meet the exigencies of
internal trade and its extension between nations. They are believed
by their operation to be improvements in the law merchant. It may
be owing to a misapprehension of those acts that the defendants
denied to the plaintiffs their rights. Fortunately, the law secures
them, and the case settled now as it is may prevent other
controversies like it.
We shall direct the decree of the circuit court to be
Affirmed, and also order a decree to be entered against the
defendants that each of them shall pay to the plaintiffs the value
of the tobacco which the defendants respectively retained, with
interest upon the same as from the dates of the transfers of it to
them.
Order
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the Eastern
Page 52 U. S. 229
District of Pennsylvania and was argued by counsel. On
consideration whereof it is the opinion of this Court that there is
no error in the decree of the said circuit court "that the
defendants do pay to the complainants the sum of $2,869.14, with
interest from 25 September, 1848," and that the same should be
affirmed, with costs, and that the complainants are entitled to
recover from Warner & Co. $1,376.92 1/3 part of the aforesaid
sum of $2,869.14 with interest thereon from 25 September, 1848,
together with $_____ on account of the costs of the complainants in
this Court, and to have execution against them for the said several
sums, amounting to $_____, and also that the said complainants are
entitled to recover from the said Heald, Woodward & Co.
$1,492.21 2/3, the residue of the said sum of $2,869.14 with
interest thereon from 25 September, 1848, together with $_____ in
full of the balance of the costs of the complainants in this Court,
and to have execution against them for the said several sums,
amounting to $_____ Whereupon it is now here ordered, adjudged, and
decreed by this Court, that this cause be and the same is hereby
remanded to the said circuit court with directions to enter a
decree in conformity to the opinion of this Court and to proceed
therein accordingly.
