Leverick v. Meigs

Woodworth, J. The first question arising in this cause is, whether the defendants are liable on the ground of negligence, in taking the bills remitted to the plaintiff ? In examining this question, the defendants will be considered as factors and agents, without reference to the effect produced by a guaranty of the sales. Where the factor’s power is general, it has been held, that he must exercise a sound and honest judgment, in those matters which are left to his digcretion. He will not be responsible, if he appear to have acted to the best of his abilities, and not to have been guilty of breach of orders, gross negligence, or fraud. (Moor v. Mourgue, Cowp. 480. Liotard v. Graves, 3 Caines, 238. 1 John. Cas. 175. Van Alen v. Vanderpool, 6 John. 72. 1 Campb. 598. 1 Com. on Con. 236. 1 Livermore, 342.) It is not sufficient, however, that he has not been guilty of fraud, or such gross negligence as would carry with it the badges of fraud. He is required to act with reasonable care and prudence, in his employment, and exercise his judgment after proper inquiry and precautions. If ordinary diligence would have enabled him to learn the discredit or insolvency of the party, he will not be discharged from responsibility to his principal. (1 Gall. 361. 3 Campb. 291. 1 Livermore, 355.) When a factor’s power is limited, he must strictly adhere to his orders, and generally must, at his peril, pursue them literally. (3 Caines, 238. 1 Com. on Con. 236. 1 Livermore, 368.) A brief examination of the facts will determine, whether the defendants can be protected according to the principles thus laid down. As a general proposition, I apprehend that where a factor is directed to remit in bills, if he procure such as are drawn by persons of undoubted credit at the time, it is a compliance with the duty he has to perform. The person on whom the bill is drawn, rests in the discretion of the drawer. The law presumes he has effects of the drawer in his hands. If the factor has no cause to doubt the fact, he — 660 — may take the bill consistently with the duty he owes his prin-. cipal, and will not be liable on the ground of negligence, although it should afterwards turn out that the drawee was not of known responsibility. In such a case, it is not required of the factor first to ascertain whether the person on whom the bill is drawn is in good credit. Where the principal and factor reside at a distance from each other, it cannot be reasonably expected that the latter will have it in. his power to obtain information, so as to decide with safety. A merchant in Savannah cannot be supposed to possess knowledge, beyond a very limited extent, of the credit of individuals in the city of New-York. The utmost diligence in making inquiries would be to no purpose. The consequence of such a doctrine would be, in most cases, to prevent a remittance. A factor would be unwilling to incur the risk. If the acceptor was in bad credit when he accepted the bill,, and it was subsequently protested for non-payment, the factor would become liable, unless the amount could be collected of the drawer. Such strictness is not intended by a principal, requesting his factor to remit funds from a distant place. It would necessarily produce delay and embarrassment, and be found an inconvenient rule in practice, that ought not to be sanctioned. The case before us is of a different character. The bill was drawn by Sea Butler, as partners, on Thomas C. Butler, one of the firm, and ac - cepted by him. One partner carried on business at Savannah—the other at New-York. There were two establishments. Was this fact known to the defendants when they purchased the bill 1 There is no direct evidence of their knowledge; but, frote-all the testimony, I think the presumption is, that they knew Thomas C. Butler was a partner. Some of the witnesses ex nined speak of him in that character. From the testimony of others, it is matter of plain inference. Rea, alone, conducted business at Savannah, The witnesses have reference to the credit and concerns1 of the firm, as managed by Rea at that place. They attribute the failure óf Rea & Butler to the failure of Thomas C. Butler. It appears, therefore, highly probable, that this fact was of general notoriety. But, if not, enough is shown to have, put the defendants on inquiry. — 661 — In Burrill v. Phillips, (1 Gal. 36) Mr. Justice Story observes, “ In order to affect the factor with the imputation of negligence, it is sufficient if he have notice of facts which ought to put a person of ordinary prudence on his guard.” The same doctrine was held by Lord Ellenborough, in Simpson v. Swan, (3 Campb. 291.) If there was negligence in not making inquiry, the defendants must abide the consequences arising from that omission. The question then is, whether they have shown that Rea fy Butler were of undoubted credit, when they purchased the bill. So far as respects the firm of Rea <$• Butler doing business at Savannah, I think the evidence satisfactorily shows the house was in good credit. It is true, that two or three witnesses doubted the general credit, on account of the standing of Thomas C. Butler in New-York. There seems to be no question but that the house at Savannah was doing business to advantage. The defendants’ witnesses speak only of this concern; they knew nothing of Butler’s affairs ; but the plaintiff proved that, at the time, he was doubted, and in bad credit, and shortly after failed. From this statement it is obvious, that the real credit or solvency of the house could not be established, by shewing that Rea was in good credit at Savannah / or that that portion of the concern conducted by him, had yielded a profit. At the time these favourable opinions were entertained, he was insolvent, in consequence of his connexion with Butler. The question whether Rea & Butler were in good credit, cannot be answered satisfactorily, without ascertaining the standing of Butler in New- York„ If that was had, the other partner is affected by it. Immediately after the intelligence of Butler’s failure, Rea also failed. If then the defendants elected to purchase a bill of this firm, they necessarily became bound to prove the credit and solvency of both partners, to exonerate themselves from' the mpi.nation of negligence. If they cannot do this, they are clearly liable. There is no hardship in this doctrine— If they were not satisfied as to the credit of Butler, they were not bound to purchase ; if they could not obtain bills drawn by persons in good credit, they were not bound to re- • mit. The instruction of a principal to his factor, to remit in — 662 — bills, does not subject the latter to liability for a breach of orders, until good bills can be obtained. A contrary doctrine would, unnecessarily, increase the hazard of the principal. It would break in upon the rule, believed to be universal, that the factor who remits, cannot protect himself in case-of a failure, unless the drawers were, at the time, considered responsible. I am, therefore, of opinion that the defendants assumed the risk of Butler’s solvency. But, on another ground, I think the defendants liable. They acted in pursuance of particular instructions, and were bound to pursue them strictly. ■ The plaintiff’s letter of January 9th, 1819, directed the defendants to negotiate-the paper received for his- shipments, in such way that he-might receive the funds in Mew-York, either in bills, ora draft at short sight, on some good house, in time to meet his note given at 90 days. The defendants’ letter of January 20th, 1819, acknowledges the receipt of the plaintiff’s letter of the 9th. They enclosed the first bill on Butler, for $743,28. On the 27th January, the plaintiff again wrote to the defendants, in which he requests them to procure a good draft on Mew-York. At this time he had not received the letter of January 20th. On the olh February, the defendants wrote, inclosing the second bill, for $1384,78. They had not then received the plaintiff’s letter of January 27th ; it was not acknowledged, nor had sufficient time elapsed for its arrival. The defendants must then be governed by the letter of January 9th. On looking at the directions, it will be seen, that the plaintiff . wished to provide for his note of 90 days. It was, therefore, important that the acceptor should be of undoubted credit; if he was, the bill at 60 days might be discounted immediately after acceptance, and the object in view attained; but if the acceptor was doubtful, delay was the inevitable consequence, however unquestionable the drawers might be. He determined, therefore, to be explicit on this point, and required the draft to be on a good house in Mew-York. This has. been wholly disregarded. It does not appear that any inquiry was made by the defendants respecting Butler ; their wib nesses knew nothing of his standing; the plaintiff proves he — 663 — Was not entitled to credit. Here was gross negligence, á departure from orders, and thereby an assumption of the risk of Butler’s credit. On this ground the plaintiff is entitled to recover. The next inquiry is, whether the defendants are liable by reason of the guaranty of the sales. Under date of January 20th, 1819, the defendants say, 61 we have concluded to guaranty our sales at 1 1-4 per cent.” What is the legal effect of such a contract ? By an agreement, called del credere, a factor, for an additional premium, beyond the usual commission, when he sells the goods of his principal, becomes bound to pay the price at all events. In Grove v. Dubois, (1 D. & E. 115,) Lord Mansfield observes, “ it is an absolute engagement to the principal from the broker, and makes him liable in the first instance ; there is no occasion for the principal to communicate with the underwriter, though the law allows the prim cipal, for his benefit, to resort to him as a collateral security.” A broker with such a commission may set off a loss upon a policy, happening before a bankruptcy, to an action by the assignees of the bankrupt for premiums on policies, underwritten by him, and for which he had debited the broker. The same doctrine is laid down in 5 Com. Dig. (C.) 55. It is said the factor becomes liable in the same manner as if he were himself the purchaser of the goods, and was debited for them by the principal as such. (1 Com. on Con. 253. 1 Livermore, 209.) In Wienholt v. Roberts, (2 Campbell, 587) Lord Ellenborough considered the broker, with a del credere commission, as the owner of the policy ; and he being answerable to the insured for the loss, the amount might be set off in an action brought against him, by the underwriter, for premiums. So also in Houghton v. Matthews, (3 Bos. & P. 485,) the doctrine is recognized, that where a factor sells under a del credere commission, he is to be considered, as between himself and the vendee, as the sole owner of the goods. In Morris and others v. Cleasby, (1 Maule & Sel. 576,) it was held that a broker who pays to his principal the price of goods, sold by him for the principal, under such commission, is entitled to set off the amount against the purchaser. — 664 — The effect of the commission is, in several particulars, to place the factor in a new relation, as to his principal. It is true, he is a debtor, but the principal still retains the right, at an7 time before payment, to resort to the purchaser as collateral security. It is a rule for the protection of the principal. A general factor may wait to receive instructions as to the mode of remitting the net proceeds, and is not liable to an action until a default, on his part, in remitting or paying the proceeds according to the orders of his principal. (Ferris v. Paris, 10 John. 285.) The only difference between a factor, acting under a del credere commission, or without one, is as to the sales made. In the former case he is absolutely liable, and may correctly be said to become the debtor of his principal; but it is not strictly correct to say he is placed in the same situation, as if he had become the purchaser himself; for, as we have seen, the principal, notwithstanding this liability, may exercise a control, not allowable between creditor and debtor. When the principal appears, the right of the factor to receive payment ceases. This shows that the effect of the commission is not to extinguish the relation between principal and factor, but applies solely to a guaranty that the purchaser shall pay. It is not a contingent liability, I admit, so as to require legal measures to be exhausted against the purchaser, before the factor is bound, but an engagement to pay on the day the purchase money becomes due. Although the factor is absolutely liable, he is not bound to pay $ until the money becomes due from the purchaser. It may, therefore, be more correctly laid down, that the factor under a commission, becomes a debtor to his principal, with the limitations I have stated. The case of Baker and others v. Langhorne, (6 Taunt. 519,) accords with this distinction. Gibbs, Chief Justice, says, “ I think the mistake in Grove v. Dubois was, to suppose that he, who was only liable in the second instance, on the failure of the original debtor, could, in any case, be considered as the original debtor himself. Unless the factor, by his engagement to guaranty, becomes a debtor absolutely, so that the sale made to the purchaser places the factor in the same situation as — 665 — if he had been the real purchaser of the goods himself, the doctrine contended for by the plaintiff cannot be supported. It is only on this ground that he can be bound tó guaranty the remittance. This arises from the general principle, that the debtor- is bound to make payment to his creditor, arid consequently, if he remits in bills which turn but of nó avail, it is no payment. It does not discharge a precedent debt, unless it be so expressly agreed between the parties. (2 John. Cas. 441. 1 Salk. 124. 1 Esp. Cases, 8.) The commission del credere does not make the agent cease to be á factor» He may be considered as a factor, who has sold for cash. Beyond the engagement that the purchaser shall pay at the time agreed on, he is bound by no other law than a factor Without á del credere commission. Independent of authority, I do not perceive how any Well founded doubts can arise ás to the meaning of these expressions. A principal, knowing that his factor would hot be answerable for the solvency of the purchasers, if hé acted with due caution and prudence, does not request him to purchase the g'oods himself, but to guaranty thé sales to others, or, in other words, to bind himself that the purchasers shall priy according to the terms of purchase. It is impossible, I apprehend, to mistake the intention of the parties to such a contract. It has reference only to that portion of the factor’s duty, which relates to sellings How then can it be applied to another distinct duty of the factor, to remit according to his instruction's ? I very much question, whether any merchant in this country ever considered that a guaranty of sales had any connexion with the remittance afterwards» But it has been.urged, that this doctrine has the sanction of authority. After an attentive consideration of the cases, I have arrived at a different conclusion. It is supposed that the case of M'Kenzie et al. v. Scott, (6 Brown Par. Ca. 280,) is decisive on this point. There the factor sold corn, rind took bills from the purchasers, which he endorsed to the banker at the place of sale ; and having re ceived the banker’s bill, payable to the factor’s order on a — 666 — house in London, at 75 days, endorsed and transmitted it t° his principal, who got it accepted. The acceptors and the drawer failed. It was held that the factor was answer-Mile ^°r the amount of the bill. The • editorial note by Tomlins is, “ the factor being personally liable, under his commission del credere, to satisfy his principal the price of the goods sold.” It was argued on various grounds, that the appellants were not liable ; particularly that they only became bound to warrant the solvency of the purchasers; that the remittance of the money is a transaction different and distinct; that it is sufficient, if the factor remit by the bills of a house in good and undoubted credit at the time. The respondent insisted that the factors were absolutely liable, in the first instance, for the payment of the price ; that it was at any rate clear, from the whole circumstances of the case, that such was the nature and extent of the guaranty ; that, by endorsing the bills, and the repeated engagements subsequently, as well as by reason of fraud and breach of faith in obtaining delay of payment, under an express assurance to pay, they were liable. The House of Lords ordered the appeal to be dismissed, but no reasons for the' dismissal are given. It cannot be pronounced on what point the cause was decided. The case, however, discloses enough to warrant the decision, if no question had bees raised as to the effect of the del credere commission. I will only notice one fact : The respondent wrote to the appellants, saying he was much surprised, that they did not send a remittance. They forwarded á draft payable 75 days after date. This Was not authorized by the respondent. Admitting that a request to remit money in the hands of a factor will justify the transmission of a draft on persons in good credit, the principal is' not bound to' accept a bill payable at a future period, unless by consent. In this case, there ,was no allusion to bills payable at a future day. If an order to remit money may be satisfied by transmitting a draft on sight, it is no authority to make the principal risk the solvency of the acceptor for 75 days. On this ground I apprehend, the decision is warranted, independent of the del credere commission. If the doctrine now contended for — 667 — had been settled in .ñPKenzie v. Scott. some notice would _ have been taken of it in Lucas and others, assignees of Doorman v. Groning, (7 Taunt. 164.) In the last case, goods were consigned to a house in Hamburgh, to sell on a commission del credere. T he consignees purchased, with the proceeds, bills on London, which they specially endorsed and remitted to the defendant, and advised the consignor they were bought for his account and debited to him. The bills being disoaored, a jury found that the consignees were not authorized to purchase bills for the account and risk of the consignor. The Court held the verdict to be right. The question was, whether the bills were remitted upon the account and at the risk of the consignor. No notice is taken by the Court or counsel, that the factors were bound to pay their constituent, in the same manner as if they were themselves the purchasers. If this doctrine had been settled in bPKenzie v. Scott, it would at once have been an answer to the defence that the bill was at the risk of the consignor ; but the cause was decided on other grounds. It is evident, the Court did not recognize the doctrine that a guaranty of the sales is equally so of the remittances. I am, therefore, of opinion, that the defendants are not liable upon the guaranty; but being chargeable with negligence, and having deviated from instructions by drawing on a person not in good credit, the plaintiff is entitled to judgment. Savage, Ch. J. The quest! on in this case is, whether the defendants have made themselves liable for the amount of the bills, with which they attempted to make remittance. To determine that question, it is proper to enquire, 1st, whether they, as factors, used due diligence in transacting the plaintiff’s business; and 2d, whether they are liable on their guaranty. 1. The general duty of a factor is, to procure and communicate all necessary information to his principal relating' to the state of the market ; to execute faithfully and. promptly his employer’s orders ; and consult his interest in all matters referred to the factor’s discretion ; and to be — 668 — Punc*:ua* ™ aP his accounts and correspondence. (1 Livermore, 68.) The factor’s contract, is to sell and render an account. . • He ought not to remit at his own risk ; nor unless in compliance with instructions. (17 Mass. Rep. 148, 15.0. 10 John. 286.) The factor is bound to exercise that degree of diligence which a prudent man exercises in his own affairs, and if the debt he lost, the loss falls on the principal. The same degree of care and diligence is required, in making remittance, when instructed so to "do. The instructions of the principal are at all times to be strictly pursued. When the relation of principal and factor commenced in this case, does not appear. The defendants, on the 24tK December, 1818, inform the plaintiff, that they have sold some butter and gin, at 60 and 90 days ; and on the 2d Jan. 1819, that they have not been able to exchangé it for bills on New-York, though they intended to do this. They assure him that the paper taken by them is undoubtedly good, though it could not be discounted, as the banks were fearful of a demand for specie, On the 9th January, 1819, the plaintiff approves the acts of "the defendants, and adds, “ I will thank you to negotiate the papers received for gin and butter, in" such á way that I may receive the proceeds here, either in the bills you have mentioned, or á draft at short sight, on some good house, in time to meet my note, given for those articles', at 90 days.” It was the duty of the defendants, under these instructions, to enquire into the standing, .pot only of the drawers of the bills, but also of the drawee. The weight of testimony in the case is certainly in favour of the defendants, as to the standing of "the house of Rea & Butler at Savannah. But it is shewn, by five witnesses, that the credit of Thomas C, Butler was very suspicious for several months before his failure ; ’ and two of them say, that he never was in "good credit. The defendants do not contradict this testimony ; and it is argued' by their counsel, that it is enough "for "them to enquire into the standing of the drawers ; and that they ar$ not bound to know that of the drawee. — 669 — it appears to me, however, that after being cautioned, as they were, to procure drafts upon some good house, they ought to have shewn that they enquired into the standing of Butler, and were informed that it was good. The plaintiff told them why he wanted drafts on a good house—it was to meet the payment of his note at 90 days. He did not want a draft which must ultimately be prosecuted and collected at Savannah, and then again remitted. The defendants have not shewn any diligence, in endeavouring to carry into 'effect the object which the plaintiff had in view. They do not shew, that they made any enquiries as to the solvency of Thomas C. Butler. In the case of Rundle v. Moore, (3 John. Cas. 36) the Court said,. “ If the defendants, as the agents or factors of the plaintiffs, have, through mistake or design, disobeyed jheir instructions, they are undoubtedly responsible.” Having come to the conclusion, that the defendants are liable on the ground of negligence in not pursuing their in* ptructions, it seems to be unnecessary to examine the other point in the cause, to wit, whether they were liable on their guaranty; but having looked ipto the cases cited, I have no hesitancy in giving my opinion on that point. In all actions founded upon contract, we must see what the contract is, before we determine upon the liability, or -the rights of the parties, In this case, the defendants, after stating that the paper which they had already taken for the plaintiff was undoubted, add—“ And we are willing, in all Cases, to add our guaranty to our sales, for the usual commission for so doing.” The plaintiff answers—“ I should wish you to guaranty the sales of rny different shipments, which •are made at a credit, at the usual commission ;” and mentions one and a fourth per cent, which is agreed to by the defendants, in their next letter. This is the whole contract, and from these letters we must ascertain the meaning of the parties.' The plaintiff urges sales for cash, when practicable, and surely did not expect to pay the one and a fourth per cent, for cash sales. Not one word is to be found in this contract about remitting; but the defendants evidently meant to guaranty the paper which they "took for goods sold. That — 670 — the plaintiff so understood it, I think is clear; for he wishes them to guaranty the sales made at a credit. Now there is precisely the same hazard in remitting money, whether paid down or at the end of 60 or 90 days; but the plaintiff’s claim presents this singularity, that the defendants are liable for the sales at a credit, but not for the cash sales, provided the money is lost in remitting, without the fault of the defendants. It is said that the defendants acted under a commission del credere, and that it has been adjudged that a factor, acting tinder such a commission, is liable at all events. What is the precise import of those words, it is not necessary to inquire. They are said to signify the same as the English word guaranty; and if so, then we come back and ask, what did the defendants guaranty ? They did not, in terms, consider themselves as acting under a del credere commission. Had they done so, their liability must have depended upon the nature and extent of such an engagement. Where parties fairly enter into sucha contract, and when the nature; and extent of the responsibility is understood by the parties thus contracting, there is no hardship in enforcing it. The parties, however, must make their own contracts, and having done so, in this instance, it is the duty of the Court to declare the effect of it. It is clear that, in this case, the solvency of the purchasers only was intended to be guarantied. > Sutherland, J. concurred. Judgment for the plaintiff.