First Nat. Bank v. Boyce

• Decision Date: 09 September 1879
• Citation: 78 Ky. 42
• Parties: First National Bank of Louisville v. Boyce.
• Court: Kentucky Court of Appeals

78 Ky. 42

First National Bank of Louisville v. Boyce.

Court of Appeals of Kentucky.

September 9, 1879

1. There is no substantial difference between the effect of a pledge made by a factor and one made by a pledgee.

2. Although a factor has no right to pledge the goods of his principal, yet the amount sought to be recovered of an innocent pledgee of the factor by the consignor must be reduced by the sum due from him to the factor.

3. If the pledgee has acted in good faith, the measure of damages is the actual loss sustained by the consignor, and therefore, the amount due to the factor by the consignor must be deducted from his demand against the pledgee.

4. Although warehouse receipts are negotiable, the holder of them takes no better title than if the goods were held by him. Such receipts represent the property to which they refer, and their negotiability serves only to cut off any defense the warehouseman may have.

APPEAL FROM JEFFERSON COURT OF COMMON PLEAS.

MESSRS BARR, GOODLOE & HUMPHREY AND LOUIS N. DEMBITZ FOR APPELLANTS.

1. The judgment is erroneous, because of the provisions of the warehouse act.

2. Independent of that act, upon the principles of common law the appellant is entitled to a reversal.

3. Before the appellee can recover, he must tender to appellant as pledgee, the $2,994 due by him to Smyser, Milton & Co. for advances upon the goods consigned to him. (Ray v. Sweeney, 14 Bush, 10; 2 Strange, 1178; 4 Burrows, 2046; 5 D. & E., 604; 3 Esp., 182; 6 East, 538; 4 Rawle, 195; 3 Bing., 139; 7 East, 5; 15 Ibid, 38; 2 Kent, 628; 6 East, 17; 1 M. & S., 140, 484; 15 East, 44; Queiroz, v. Trueman, 3 Barn. & Cress., 342; Story on Bail., 326; Story on Agency, 113; 6 Met., 741; 11 Howard, 209; 7 N. H., 446; 4 John., 115; Donald v. Suckling, L. R., 1; Q. B., 585; L. R., 3 Ex., 299; 3 M. G. & S., 54; E. C. L., 399; 5 Ibid, 914; 22 Pick., 40; 12 N. H., 239; English Factors' Act of 1825; 96 U.S. 321; 36 N.Y. 365; 2 M. & Selw, 398; 2 Met., 531; 7 Mon., 455; 1 Met., 115; 2 Met., 433; Starkie's Ev., 1492.

MESSRS. BARRETT & BROWN FOR APPELLEE.

1. A factor receiving goods for sale cannot pledge them for his own debt (2 Strange, 1178; 6 East, 17; Ibid, 538; 7 Ibid, 5; 5 D. & East, 604; 1 Maule & Selw., 140; 6 Ibid, 1; 2 Brod. & Bing., 639; 5 Vesey, 211; 2 Maule & Selw., 298; 3 Barn. & Cress. 342; 2 Mass. 379; 1 Mason, 446; 1 McCord, 1; 11 Howard, 209; 2 Kent's Com., 625; Story on Agency, sec. 113; Ibid on Bailments, sec. 326; Newcomb v. Basket, 14 Bush 658; Ferguson v. Northern Bank Ky. 14 Bush, 555; 7 Mon., 213; 1 J. J. Mar., 393; 4 Ibid, 26; 7 East, 5; 1 Dana, 110.

OPINION

HINES JUDGE:

Appellee, a manufacturer of flax bagging in Munice, Indiana, shipped bagging at various times to Smyser, Milton & Co., commission merchants in the city of Louisville, to be sold on his account and proceeds remitted as required. Smyser, Milton & Co. having advanced to appellee, on current account, $2,994, and having 840 rolls of the bagging unsold, placed it in the warehouse of J. W. Stine & Co., and took receipts therefor in their own name. These receipts they indorsed to appellant to secure a present loan of $3,360. Subsequent to the negotiation of this loan, Smyser, Milton & Co. became insolvent, and executed a deed of assignment, for the benefit of all their creditors, to Jacob L. Smyser, to whom appellee tendered the amount of $2,994, due from him to Smyser, Milton & Co., and demanded his bagging. The assignee failing to deliver the bagging, appellee made demand of appellant, accompanied by a notification that the assignee acknowledged the correctness of the amount tendered to him, and requested appellant to deliver the bagging to appellee. Appellee made no tender to appellant of the amount due Smyser, Milton & Co., nor of the amount advanced by appellant to Smyser, Milton & Co. on the warehouse receipts, and on the refusal of appellant to deliver the bagging, this action was instituted by appellee against appellant for the full value of the bagging.

The answer claims, first, that appellant received the warehouse receipts in good faith, and without knowledge that any other than Smyser, Milton & Co. had any interest in the bagging, and it was therefore entitled to hold the property for the loan; and, second, that appellee is a non-resident of Kentucky, having no property in this State except the interest in the bagging, and asking to have the $2,994, due by appellee to Smyser, Milton & Co., set off against any recovery that appellee might have in the action. A demurrer was sustained to this answer, a judgment rendered against appellant for the full value of the bagging, that was fixed by the court at $4,200.

Two questions will be considered: First, whether a factor, independent of the warehouse act of this State, has power to make valid pledges; second, whether that act enlarges the power of the factor under such circumstances as here shown.

It may be conceded that in England, prior to the passage of the Factors' act, in 1825, it was generally held that a factor could not pledge, for his own debt, goods consigned to him for sale. This rule in America has not, in its fullest sense, been followed; nor has it been uniformly adhered to in England.

The case of Queiroz v. Trueman (1824), 3 Barnwall & Cresswell, appears to confine the consignor's right of recovery, against the pledgee of the factor, to the value of the goods, less the amount paid by the factor to the consignor. In that case, plaintiffs shipped to Caumont, a commission merchant, certain cottons to be sold on their account. Caumont delivered the cotton for sale to the defendants, who made large advances on the cotton to Caumont; and defendants having sold it, settled with Caumont's assignee in bankruptcy, deducting the amount of advances. Plaintiffs brought an action in assumpsit to recover the value of the cotton. Abbott, C. J., in delivering his judgment, says:

" The money advanced in this case was for Caumont's use, and not for the plaintiff's; the defendants then have received the proceeds of the goods and have not paid them over to the principals. Caumont, in the first instance, had no authority to pledge, nor did he derive any from the correspondence. The plaintiffs are therefore entitled to a verdict for the net proceeds of the goods, deducting such charges as Caumont was entitled to make, and also the sum which he remitted on account of these goods; that leaves a balance of £ > > > > > 2,611 15s. 5d. due the plaintiffs."

It will be observed, that although it is said that Caumont had no authority to pledge for the advances made by defendants, they were permitted to reduce plaintiffs' recovery by the amount paid to them by Caumont on account of these shipments.

In the application of the principle established in that case it can make no difference that the action was in assumpsit. All forms of action have been assimilated by the Code. It is only required that the petition state facts sufficient to constitute a cause of action under any form of proceeding at common law, and whether it be in assumpsit or in trover, any defense, whether at law or in equity, may be pleaded and relied upon.

It does not appear that the pledge of a factor is tortious to such an extent as to render it void ab initio, at least to the extent of his lien.

In Story on Agency, section 113, it is said:

" Factors have no incidental authority to barter the goods of their principal, or to pledge such goods for advances made to them on their own account, or for debts due by themselves; although they may certainly pledge them for advances lawfully made on account of their principal, or for advances made to themselves, to the extent of their own lien on the goods."

Section 326, Story on Bailments, reads:

" In America the general doctrine that a factor cannot pledge the goods of his principal has been frequently recognized. But it does not appear as yet to have been carried to the extent of deeming the pledge altogether a tortious proceeding, so that the title is not good in the pledgee, even to the extent of the lien of the factor; or, so that the principal may maintain an action against the pledgee without discharging the lien, or at least without giving the pledgee a right to recoup the amount of the lien in the damages."

At the close of that section, in brackets (eighth edition), is the following:

" Later decisions have, however, fully settled the law that a pledge by a factor of his principal's goods is wholly tortious, and the owner may recover their whole value of the pledgee without any reduction or recoupment for his claim against the factor."

In support of this statement, the editor cites four cases, three of which, we think, have no bearing on the question. The first is that of Hoffman v. Noble, 6 Met., 74. That was not the case of a factor. There a purchaser of certain wines at auction obtained possession of them by fraudulent representations, and transferred them to an innocent purchaser for value, and it was held that the purchaser took a title that was not defeasible. The second, Warner v Martin, 11 Howard (U.S.C.), is where the clerk of the factor delivered to the defendant the goods of the plaintiff in satisfaction of a debt owing by the factor to the defendant, he at the time knowing that the factor was insolvent. Stress is placed by the Court upon the proposition that the factor cannot delegate to his clerk authority to sell, and upon the fact that the defendant knew of the factor's insolvency; that no money passed; that the purchase was not made in the due course of business, and that the recovery by plaintiff would leave the defendant in as good an attitude as he was prior to the transfer of the property to him. The third case cited, Holton v. Smith, 7 N....