300 F. 635 | S.D.N.Y. | 1924
(after stating the facts as above). The first point concerns the character of the transactions; the second, the putative estoppel. The trustees do not claim except by estoppel, any goods shipped on consignment, nor the petitioner any goods sent- direct to customers, which in the nature of things would not come to the trustees’ possession. This leaves only shipments sent on those of Dudley’s orders which contained prices. All fish shipped on orders to Eastport containing prices were shipped direct to customers and are out of the suit. It follows that the only fish in controversy are those shipped to Dudley on orders to California which contained prices. The first question is whether these fish were sold to Dudley, or sent to them on consignment, as concededly were those which came upon orders which contained the word “consignment.”
Until the end of the year 1918 there can be no question that, so far as the records show, Seacoast sold no goods to Dudley. It was only in the year 1919 that any goods were shipped 'to them directly at all. Up to that time it had been the uniform practice for Dudley to close contracts with customers, to advise Seacoast of the quantities and prices, for Seacoast to fill the orders by direct shipments to the customers, and to invoice or bill the goods to Dudley, who would at their option either pay at once, or after the customers had paid them. Since Dudley guaranteed the accounts and got a commission of 5 per cent., together with their expenses, no element was lacking to create the relation of del credere factor, though the parties did not use, and perhaps did not know, that phrase. The discount of 1J4 Per cent, for payment within 10 days was consistent with such a relation because of Dudley’s guaranty. It made no difference whether Dudley paid at once the discounted price and recouped the full price later, or waited till the customer paid and then themselves paid the full price. The trustees do not claim that these transactions were sales.
In 1918 the California plant was set up, and for trade reasons it was thought best to do the selling in a somewhat different way. In 1919, Whitmarsh, who was then the president of Seacoast, told Break
If nothing more had happened the trustees’ first claim of title would not exist, but some time in December, 1922, another practice came into vogue, the significance of which I must determine. Beginning on December 23, 1922 (Exhibit 93), there are a series of orders from Dudley for California goods at fixed prices. These were filled by shipments to Dudley, and part of them remained on hand when the receivers were appointed. The trustees say that these were sales; the petitioner, that they, too, were consignments. The trustees rely upon the form of the orders; the petitioner, upon the testimony of the officers of Dudley and upon the invoices and books. Gibson, of Dudley, said that about January 1, 1923, Nicholas, of Seacoast, asked him to put prices in the California orders to be shipped on consignment, because they depleted Seacoast’s inventory and the company wanted something near the market price to, show in their place. In fact, with some exceptions which I shall consider, there were, after December 23, 1922, no shipments to Dudley from California on orders which do not contain prices, and there had been none before that time which contained prices. The practice, therefore, in general bears out Gibson’s testimony.
The exceptions are five orders after December 23, 1922 (Exhibits 102, 124, 126, 127 and 128), which contain neither the price, nor the word “consignment,” and two (Exhibits 125 and 129) which contain “consignment” and nothing more. Nobody tries to explain these orders, and I do not know why they were so made out. Concededly Exhibits 125 and 129 were not sales; they are important only as evidence to argue that the “price orders” were. I agree that, occurring as they do-in the period in question, they show that the practice was not uniform, and they must be accounted for on the theory of an occasional relapse into the earlier ways. But it is not surprising that there should have been two such lapses among so many. After all, the addition of the prices was not very important under Gibson’s version. The five which had neither price nor consignment upon them are in any aspect incomplete, as much so as sales as they are as consignments. The trustees argue that they should win as to these under the burden of proof, but I think not. If they were not consignments they were egregious exceptions in a course of trade extending over many years and covering hundreds of parcels. The probabilities seem to me enormously in favor of their being what all the rest were.
Exhibit 89 is even more baffling, and I do not profess to explain it any more than Gibson could. It was an order for five kinds of fish,
Except for the form of the California orders, the trustees have no evidence at all to support their case that I can find. It was extremely unlikely that so radical a change in the relations of the parties would have been made without some notice of it in the numerous documents. Nor can I conceive a reason why Seacoast should at the same time continue to consign goods from Eastport and to sell them from California. In 1923 nearly 4,500 cases were sent from Eastport on consignment. The number sent on “price orders” from California was, it is true, immensely more numerous than that, but that scarcely accounts for treating them differently. There is not a shadow of reason suggested in the whole confused record for supposing that Seacoast should wish to treat Dudley as a buyer. I cannot see why Breaker should have personally wanted to do so. Apparently his indebtedness was becoming more than he could bear without this. There is no proof that he thought the market was rising.
Coming, then, to the petitioner’s documentary proof, I attach more weight to the accounts, though rendered' on the eve of bankruptcy or afterwards, than the trustees will agree to do. It is true that they have much less importance than if they had not been so long delayed, but some were drawn up by the accountants on May 31, 1923, while business was going on. At least they show how these outside men interpreted the books, and they are in addition good admissions against the trustees, since they were rendered by them as receivers.
Again, the trustees seem to me to fail to recognize the full force of the stock books. In these the contested shipments were entered precisely as consignments had been entered before December, 1922; i. e., for the account of Seacoast. I may admit with the trustees that the firm would have entered the shipments somewhere in its books, and that it might have mingled them all in one book; but I confess it seems to me curious that sales and consignments should be entered indiscriminately for the account of the company, when on no possible theory was that proper for the sales.
I find, therefore, that in the cases under dispute the transactions were not sales, but consignments to Dudley as del credere factors. So considered, it is plain that the agreement was entirely legal as to Dudley’s creditors. Ludvigh v. Amer. Woollen Co., 231 U. S. 522, 34 Sup. Ct. 161, 58 L. Ed. 345. Indeed, that case was much stronger for the trustee, because the bankrupt might charge such prices as he pleased, and keep as his commission the difference between the invoice and the sale price. In short, the profit of the transaction was his, and so was the risk. With the utmost deference, it has always been hard for me to see why the case was not a sale; but, since it was not, the case at bar certainly cannot be invalid as against the factor’s creditors. Indeed, once I have found, as I have, that the situation is that of del credere factor, it scarcely seems worth while to go further.
The law might, of course, make goods liable to the debts of any bailee to whom the owner entrusted them. The possibility of-raising a fictitious credit by' such means undoubtedly exists, and with it of harm to creditors. Yet this has never been so, and it would obviously destroy the basis upon which enormous transactions take place daily. In a sense there seems little difference between selling goods with a purchase-money mortgage; and leaving them in a factor’s possession to sell. But, wisely or not, an owner may safely do as much if he do not aid the factor in falsely representing the goods as his. The line is drawn at the passage of title, and the owner does not begin to lose any of his rights until he becomes privy to some deceit by the factor.
Miller Rubber Co. v. Citizens’ etc., Co. (C. C. A. 9) 233 Fed. 488, 147 C. C. A. 374, was a case where the contract was held to be a fraudulent cover for a sale, because the factor was allowed to mix the goods with his own, and because the principal gave him stationery by which he might represent them as his own. These circumstances were thought enough in the case of automobile tires to make the contract fraudulent. In the case at bar there are no such circumstances. It is argued that Dudley was allowed to mingle the goods with its own, but that is true only figuratively. The fish were in warehouses, and were stored un
Further, it is urged that Dudley sold the goods in its own name. So they did, and so Seacoast doubtless knew that they did. If a question had arisen as to Dudley’s power to sell, no doubt these circumstances might have been relevant in favor of the buyer; but it is impossible to see how they can be relevant as respects creditors. If a factor sells his principal’s goods in his own name with his principal’s knowledge, it is.no fraud upon his creditors for the principal to reclaim such oí the goods as the factor has not sold. The representation cannot go further than the goods in respect of which it is made, which by hypothesis are sold at the time of the representation. The principal’s implied consent involves no representations to creditors of the character of the factor’s interest in other goods.
Taylor v. Fram (C. C. A. 2), 252 Fed. 467, 164 C. C. A. 389, was also quite a different case. The Circuit Court of Appeals did not hold that the agreement was fraudulent per se, but that the parties made no effort to live up to it, and that for that reason it was no more than the cover for an effort in effect to sell the goods and keep a secret lien upon them in the seller’s favor. The agreement at bar was lived up to in all respects, except that in 1923 Dudley had filed no accounts of its sales until bankruptcy. That was, indeed, slack, very slack, business; but, while this was probably due to Breaker’s control of both parties, it was in no sense because the arrangements were not’ bona fide. It would have been absurd for Seacoast intentionally to accept as a buyer a firm which was showing itself doubtful as a factor. When such a one begins to exhibit symptoms of financial decrepitude, the principal would be the last of all to step into the position of creditor.There was nothing whatever to be inferred from the delays in submitting the accounts and in remitting for the sales made, except that Breaker was abusing his position as president of Seacoast by allowing Dudley to remain in default.
The trustees chiefly rely, not on these considerations, but upon certain misrepresentations made in financial statements to the banks on which Dudley got very large loans in January, 1923. The theory' of the estoppel is this. It had been the earlier custom of Dudley in making up such statements to show the advances which it had made as factor and the amounts which it had received in payment. The difference was properly enough an asset of its own. In Breaker’s statements of 1920, 1921, and 1922 he did not follow this course, but, on the contrary, put in as a part of Dudley’s assets all the sums due upon Seacoast’s fish which had been sold through them, including, I assume, both that delivered direct by Seacoast, and that delivered by Dudley from consigned shipments. In so doing he represented to the banks that these accounts from customers were Dudley’s assets. This took place with the privity of Seacoast, and by their failure to dissent, or advise the creditors, the company became estopped to claim, as to its own, not only the proceeds of those accounts, but the goods on consignment as well.
I have, of course, assumed in the foregoing that Seacoast was privy to Breaker’s frauds, and that they were frauds. In fact, Seacoast was not so privy. Assuming that Breaker was engaged in a deceit upon the banks, he did it for Dudley, and as their agent. While so acting, he was in no sense the agent of Seacoast. Perhaps that- is not the claim. Rather it seems to be that the knowledge — i. e., the knowledge of his own deceits — which he got when he perpetrated them is to be imputed to Seacoast, and Seacoast’s inaction is to be construed as an acquiescence in the results though these were for the immediate benefit of Dudley. The petitioner is wrong in supposing that such a situation is analogous to that where the agent is engaged in defrauding his principal. Breaker was defrauding the banks, if he was defrauding any one; certainly he was not defrauding either Dudley or Seacoast. But the trustees’ argument is equally erroneous. Breaker committed the fraud, as I have said, while acting as agent for Dudley; his act was not within the scope of any authority he had from Seacoast, and was not done for its sake. Ret me suppose that, because he was also president of Seacoast, that company is charged with notice that Dudley was committing a fraud on its own creditors. Seacoast did not for that reason become privy to that fraud. To present the case more clearly, let me consider the statements of 1920' and 1921, separately, when Whitmarsh was still president of Seacoast, and let me suppose that he had learned that Breaker was issuing these fraudulent statements to Dudley’s banks. Would Seacoast be responsible for the truth of those statements because Whitmarsh did not undeceive the banks? Clearly not. Seacoast owed no duty to Dudley’s creditors; any matters between them were res inter alios acta.
Had the representations been for the benefit of Seacoast, and had Seacoast taken any advantage of them, it would be another matter. But all that Seacoast could get was a possible interest as creditor in the assets of a debtor, who, if one choose to, say so, was insolvent. I
Therefore I hold that the petitioner is entitled tó recover the cases in question; that is, all those which were shipped to Dudley on “consignment orders,” or “price orders.” The practice on this motion was anomalous; exceptions should have been filed to the 'report, and the exceptions noticed for argument. However, no point was raised of the irregularity, and I can proceed directly on the petition, answer, and evidence. Therefore the petitioner may take its decree, notwithstanding the report.
In conclusion, I wish to add a word as to the discourteous tone of parts of the petitioner’s brief towards the referee. It is not within permissible- bounds to speak of the finding of a judicial officer as “nonsense,” nor is it, in my judgment, mannerly for counsel to treat so contemptuously an opinion which has gone against them. Besides, I may perhaps be allowed to add, it is never effective with the judge before whom the appeal comes up.
Settle order on notice.