U.S. Supreme Court
Warner v. Martin, 52 U.S. 11 How. 209 209 (1850)
Warner v. Martin
52 U.S. (11 How.) 209
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. chanroblesvirtualawlibrary
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.
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 chanroblesvirtualawlibrary
& 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.:
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
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 & Fraarles Conolly, and among other things assigned seventeen whole boxes and twelve half-boxes of the tobacco which had been consigned by Martin & Fraarles 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. chanroblesvirtualawlibrary
"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: chanroblesvirtualawlibrary
"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
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. chanroblesvirtualawlibrary
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
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."
"R. C. GRIER"
"J. K. KANE"
From this decree, an appeal brought the case up to this Court. chanroblesvirtualawlibrary