OpenJurist

41 US 121 James Brander Hugh McKenna v. William E Phillips Henry Bell William Phillips Company Rodah Horton Nathaniel Terry

41 U.S. 121

16 Pet. 121

10 L.Ed. 909

JAMES S. BRANDER and HUGH L. McKENNA,
Plaintiffs in error,
v.
WILLIAM E. PHILLIPS and HENRY BELL, trading under the
firm of WILLIAM PHILLIPS & COMPANY, and RODAH HORTON
and NATHANIEL TERRY, Defendants in error.

January Term, 1842

1

ERROR to the Circuit Court for the Southern District of Alabama. The case, as stated in the opinion of the court, was as follows:

2

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 per cent. for commission, and the same amount for advances. In August 1834, Phillips & Company were indebted to Brander & McKenna, in the sum of $1315.57 for advances. On the 15th of the same month, John Williams, agent for Brander & McKenna, agreed to advance Phillips & Company the sum of $8000, on bills to be drawn between the 20th of April, and the 31st 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 the 15th of August 1834, and the 31st of 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 and 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 and Terry; and as the acceptances exceeded the proceeds of the cotton, this action was commenced on a bill due 4th June 1835, for $3000 drawn, by the defendants.

3

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 and Terry to be accommodation 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 recover 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.

4

The case was argued by Gilpin, for the plaintiffs in error; and by Crittenden, for the defendants.

5

Gilpin, for the plaintiffs in error.—The relation of Brander & McKenna with William E. Phillips & Company was strictly that of principals and agents or factors. The former had no interest of their own in the cotton forwarded. In performing this agency, the plaintiffs acted under two contracts, the nature and mutual obligations of which were well defined and understood. Their general contract as agents arose, by legal implication, from the course of trade which had existed between them and Phillips & Company for a series of years. They received their cotton, sold it, made payments and advances, and were allowed a certain commission. Their special contract, though relating to the same kind of business, was yet entered into for the particular benefit of Phillips & Company, and on particular terms. The object was, to induce advances from Brander & McKenna, to the amount of $8000, on a personal guarantee of certain individuals, independently of any security by shipments of cotton. To the extent of the probable security which such shipments would afford, they were already willing to make advances. This contract, therefore, could have no object but to secure them, if the whole proceeds of the cotton should not, in the end, cover the whole amount of the advances. Brander & McKenna, thus being agents and factors, possessed, for their security, all the means which the law gives to persons in that relation; to these means they had a right to resort, to obtain payment of all that was due to them, either under the general or the special contract.

6

Now, what, under such circumstances, are an agent's rights? In the first place, he has a lien on the whole property, to cover his whole liability; as well debts that he has actually paid, as debts for which he is bound to provide. On the 1st June 1835, the cotton on hand was not more subject to be appropriated to the liquidation of a bill of William E. Phillips & Company, which Brander & McKenna had then actually paid, than of one not yet due, which they had accepted. No principle is better settled than this, that an agent cannot be required to apply property in his dands to a debt due, if he has also incurred a future liability. The property may be held by him for the latter, as well as for the former. If not, what agent would ever make advances? When a principal sends forward goods to his factor, even though sufficient to meet advances then actually made, they are not more applicable to those advances, than to liabilites then incurred, but not actually due. This has been established by a current of authorities. Huber. Praelect. lib. 20, t. b, § 1, 3; Ex parte Deeze, 1 Atk. 229; Godin v. London Assurance Company, 1 Burr. 494; Kirkman v. Shawcross, 6 T. R. 16; Walker v. Birch, Ibid. 262; Stevens v. Robins, 12 Mass. 180; Jarvis v. Rogers, 15 Ibid. 414; Allen v. Megguire, 15 Ibid. 490; Jolly v. Blanchard, 1 W. C. C. 255.

7

If the property in the hands of the factor was subject to be applied by him to the latest of his liabilities as well as to the earliest, is there a different rule in regard to the proceeds of that property? There is certainly no reason why there should be. If it be right for the factor to have security upon the one, it is equally proper that he should have it upon the other. It is even more proper, because the object of the consignment is not merely to obtain advances, but also to have sales made at any time when the state of the market should render it expedient. If the factor's security were lessened by a sale; if the proceeds derived from the sale were held by him with a lien less effective for his security than the unsold property, sales would never be made, till the whole consignment was received. From the evidence in this case, it is apparent, that Brander & McKenna were to sell the cotton 'at their discretion;' their rights were not to be altered by the sale; the price they received for the cotton remained in their hands, exactly as if it had been the cotton itself. Their lien on the one did not differ from their lien on the other. Ex parte Dumas, 2 Ves. sen. 585; Kruger v. Wilcox, 1 Ambl. 252; Foxcroft v. Devonshire, 2 Burr. 936; Drinkwater v. Goodwin, Cowp. 251; Kinloch v. Craig, 3 T. R. 122, 768; Atkinson v. Elliott, 7 Ibid. 378; Hammonds v. Barclay, 2 East 227; Mann v. Shiffner, Ibid. 529; Haille v. Smith, 1 Bos. & Pul. 563; Houghton v. Matthews, 3 Ibid. 492; Cowell v. Simpson, 16 Ves. 280; Hudson v. Granger, 5 Barn. & Ald. 31; Bolley v. Merrill, 6 Greenl. 50; Bradford v. Kimberly, 3 Johns. Ch. 434; Brown v. McGran, 14 Pet. 495.

8

If, then, Phillips & Company could not themselves have directed the application of any portion of the cotton forwarded by them, or of its proceeds, to any particular liability which Brander & McKenna had incurred as their factors, the law will not certainly direct such an application. It will only do so in cases where a party might himself have done it. Brander & McKenna had the right, on the 4th of June, to appropriate the money, which was then in their hands as the proceeds of the cotton, to any liability due or to become due, which they had then incurred; Phillips & Company could not control the exercise of that right; the court therefore will not do so.

9

But suppose, that the receipt by Brander & McKenna of money derived from the sale of the cotton, in June, is to be considered as a payment to them; still they never appropriated that payment to the account arising under the special contract, nor were they bound so to appropriate it. The evidence shows, that they kept their account of the advances to the amount of $8000 under the special contract, separate and distinct from their general contract; in this separate account, they never gave a credit for the amount of these sales; it was rendered to Phillips & Company, and such a credit never was claimed by them; finally, one of the partners of that firm admitted, that the credit was properly applied to the general account, and although this admission was made after the dissolution of the partnership, yet it is not the less competent evidence of the fact. Wood v. Braddick, 1 Taunt. 104; Lacy v. McNeille, 4 Dow. & Ry. 7. Nor were they bound by law to apply it to the special account; Phillips & Company having directed no application, it remained with Brander & McKenna to make it to one or the other, at their own option; and especially might they so make it, as to provide for the debt which was least secured. Manning v. Westerne, 2 Vern. 606; Goddard v. Cox, 2 Str. 1194; Bodenham v. Purchas, 2 Barn. & Ald. 45; Peters v. Anderson, 5 Taunt. 601; Bosanquet v. Wray, 6 Ibid. 598; Kirby v. Marlborough, 2 Maule & Selw. 22; Simson v. Ingham, 2 Barn. & Cres. 65; Brewer v. Knapp, 1 Pick. 337; Dedham Bank v. Chickering, 4 Ibid. 314; Blackstone Bank v. Hill, 10 Ibid. 133; Hilton v. Burley, 2 N. H. 196; Cremer v. Higginson, 1 Mason 324 United States v. Wardwell, 5 Ibid. 85; Bainbridge v. Wilcocks, Bald. 538; Mayor of Alexandria v. Patten, 4 Cranch 320; Field v. Holland, 6 Ibid. 27.

10

Crittenden, for the defendant in error.—No agreement was made between the plaintiffs in error and William E. Phillips & Company, that they should make advances on cotton to be shipped to them from Alabama. In 1834, an agreement was made that bills should be drawn to the amount of $8000, to be also signed by certain persons, and which Brander & McKenna agreed to accept. No particular advance was made on any one of these bills; but as a bill or bills were drawn, cotton was to be shipped by William E. Phillips & Company, to furnish funds for payment. The contract of the drawers was, to furnish funds for the payment out of the proceeds of cotton, to pay the bills, when due. The circuit court of Alabama said, that if funds were so provided, they should be applied to pay the bills, as they became due; and they denied the right of the plaintiffs in error to hold funds in their hands, provided by the drawers of the bills for their payment, for the purpose of paying bills which might become due subsequently; and by leaving the bills due unpaid, subject the indorsers to liability. The jury have found, that when the bill on which this suit was brought became due, funds were in the hands of the acceptors, sufficient to pay them; and this is conclusive.

11

The bill on which this suit was instituted, was also signed by Horton and Terry, and was payable in nine months, according to the contract with Williams, the agent of Brander & McKenna. The funds in their hands when the bill became due, should have been applied to pay the bill, without specific or express instructions. The obligation to make this application, was implied by the circumstances. On the deposit of the money in the hands of another, particular orders for its application are not required. Implied orders are equivalent. In this case, the application on the funds to pay the first bill becoming due, was ordered by the bill itself.

12

There is another consideration in this case which the court will notice. The question here is one in which sureties are interested. The indorsers of the bill are called upon to pay a bill, for the payment of which ample funds were in the hands of the acceptor, when it became due; and it is asked to apply those funds to debts becoming due afterwards, with which they had no connection. Can the drawees of the bill withhold the funds in their hands, until the final adjustment of accounts between them and the drawers? This would be most inequitable, and against the express terms of the acceptance. The acceptance on the part of the drawees, was a contract to pay the bill when it should become due; the contract on the part of the drawers, was to furnish funds to enable them to pay it, when due. The contract of the latter has been performed; and shall the contract of the former remain unexecuted, to the injury of the other drawers, who had no other connection with the parties but upon the bill? This court have said, in other cases, that whenever there is an account between parties and rests; the application of funds in the hands of the party to whom money is due, is to be made to the period of the rests in the account. Outstanding items in the account are not to operate to prevent such appropriations. Cited, Bell v. Morrison, 1 Pet. 351.

13

The question in this case is only on the instructions of the court; were they correct, if the facts were so found by the jury? McLEAN, Justice, delivered the opinion of the court.

14

This is a case on error from the circuit court for the district of South Alabama. 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 per cent. For commission, and the same amount for advances. In August 1834, Phillips & Company were indebted to Brander & McKenna, in the sum of $1315.57, for advances. On the 15th of the same month, John Williams, agent for Brander & McKenna, agreed to advance Phillips & Company the sum of $8000, on bills to be drawn between the 20th of April, and the 31st of 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 the 15th of August 1834, and the 31st of 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 and 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 and Terry; and as the acceptances exceeded the proceeds of the cotton, this action was commenced on a bill, due 4th June 1835, for $3000 drawn by the defendants.

15

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 and Terry to be accommodation 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.

16

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.

17

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 and Terry, who were bound jointly with Phillips & Company, in certain bills amounting to $8000. 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 and 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 and 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.

18

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 accepled 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.

19

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 and Terry; and it may well be supposed, that their liability was incurred in virtue of this 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 guarantied. 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.

20

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.