Smith v. Jefferson Bank

GOODE, J.

(after stating the facts).

1. A matter left somewhat obscure by the evidence is how the Mound City Company got the eggs from the railway company without the original bills of lading, if, in point of fact, this happened. There is testimony that such an incident was not unusual, and as the parties have laid no stress on it, we will lay none.

Several instructions given for the plaintiffs proceeded on the theory that the evidence afforded a basis for a finding that the eggs were turned over by the Mound City Company to the defendant bank to pay or secure an antecedent debt owed to that institution. Other instructions submitted the issue of whether the bank took the drafts on Rowland & Company with the bills of lading attached, not as an innocent purchaser for value without notice of the ownership of plaintiffs, but merely for collection. An attentive perusal of the record has not disclosed any substantial evidence tending to establish either of those hypotheses. . When the drafts were negotiated to the bank on July 18th, the Mound City Company was not indebted to that institution but had a considerable balance to its credit. It is true that the checks drawn by the company on that day against its account, left an overdraft at the close of business which was settled by note; but this indebtedness accrued after the negotiation of the bills of lading. What the testimony shows without conflict is that on July 18th, the Mound City Company wanted to' draw on the bank, or obtain cashier’s checks from it, to meet outstanding liabilities amounting to about $12,000, and so notified the bank’s officers. On account of this request for credit, the bank inquired what deposit would be made that day by the Mound City Company to cover the cashier’s checks requested by it, and Johnston, the secretary of the company, showed between ten and eleven thousand dollars of bills receivable, mostly secured by bills of lading and including the two drafts on Rowland & Company for the eggs in controversy, which were to he deposited. The deposit was made and the hank extended the credit and issued to the Mound City Company its cashier’s checks, which were used by the company in meeting its current liabilities. It is certain that the bank bought the Rowland & Company drafts on the faith of the bills of lading and placed the proceeds to the credit of the Mound City Company, as it had done in many previous instances. The only question in the case is whether there were any circumstances which gave notice to the bank of the possible insolvency of the Mound City Produce Company, or that the eggs were not its property. If the bank had bought the drafts secured on the eggs, with knowledge that the Mound City Company did not own the eggs, was insolvent and was going to appropriate the money received instead of turning it over to plaintiffs, the latter might follow the eggs, or what the bank got for them, into its hands. Such a transaction would have amounted to a conversion of the property by the Mound City Company, to which the bank would have been a party; and this is the more true because the eggs had been consigned to Redfearn to be sold for cash on delivery. [Warner v. Martin, 11 How. (U. S.) 209; Miller v. Schneider, 19 La. Ann. 300; 92 Am. Dec. 535; Benny v. Rhodes, 18 Mo. 147; 59 Am. Dec. 293; Benny v. Pegram, 18 Mo. 191; 59 Am. Dec. 298; Hoffman v. Kramer, 123 N. C. 566; Girard v. Taggart, 5 Serg. & R. 19; 9 Am. Dec. 327; 2 Clark & Skyles, Agency, sec. 882.] But what circumstances were there to suggest to the bank that the Mound City Company did not own the eggs, or was in failing circumstances? The company handled its own as well as consigned produce; and it has been expressly decided that in such a case a purchaser from a factor is not put on inquiry as to the title of the particular goods. [Crocker v. Jones, 3 Mo. App. 486.] We find no suspicious circumstance to put the bank on inquiry. It allowed the company to overdraw its account the very day it bought the Rowland drafts; which argues strongly that the bank believed it was solvent and acting in good faith. The cause of the failure was that plaintiffs refused to honor accommodation drafts to the amount of $5,500, which the Mound City Company had drawn on them; but the evidence is that the bank knew nothing of this refusal until the 19th, and had no reason to anticipate such an event, even if it knew, or had reason to believe the drafts were for accommodation ; as to which there is but little, if any, evidence. Through a period of a year or more very many drafts drawn by the Mound City Company on plaintiffs and discounted by defendant, some of them for more than $1,500, had been honored by plaintiffs. The testimony is that the first intimation defendant’s officers had of disaster to the Mound City Company, was on the 19th, when they were notified that these drafts had been dishonored; and there was no circumstance to impeach this testimony. In truth, nearly $6,700 of the cashier’s checks issued by defendant on July 18th to the Mound City Company, were used by said company to take up accommodation paper drawn on plaintiffs, much, or all, of which they had honored. The theory that the bank permitted the company to overdraw on the 18th, knowing it was insolvent and in order to maintain its credit until the $5,500 of accommodation drafts were paid, is a surmise unsupported by any evidence. We find no testimony going to establish the allegation of the petition that plaintiffs’ eggs were appropriated by the defendant bank pursuant to a fraudulent scheme between defendant and the Mound City Company or Johnston, its secretary. While it is the law that slight circumstances will uphold the inference of fraud, it is also the law that fraud must be proved and cannot be presumed in legal actions, and that the burden of proof is on the party alleging fraud. [Funkhouser v. Lay, 78 Mo. 458; Garesche v. McDonald, 103 Mo. 1, 15 S. W. 379; Hardwicke v. Hamilton, 121 Mo. 465, 26 S. W. 342.]

The only fact we are pointed to by plaintiffs’ counsel as indicating that the drafts on Rowland & Company for the eggs in controversy Avere taken by the bank for collection and not purchased, is the testimony of Johnston that, if a draft came from Predonia or Kansas City payable to the Mound City Company, it would turn the same over to defendant and if defendant could not collect it, the Mound City Company would get no final credit for it; that the bank would give credit Avhen the draft Avas deposited and if it proved uncollectible, would call on the Mound City Company for reimbursement; or, in other words, would charge the item back to the Mound City Company. That testimony had no reference to drafts drawn by the Mound City Company itself ag’ainst the product consigned by it to eastern dealers, and negotiated to the bank with bills of lading attached. None of the evidence tends to contradict the positive testimony of the bank’s officers, of Johnston and. of Redfearn himself, that the drafts drawn on Rowland & Company for the eggs in controversy were actually sold to the bank on the 18th, and the proceeds deposited to the Mound City Company’s credit and paid out on that day in the form of cashier’s checks which were used by the company in settlement of its obligations to others.' The submission of issues relating to defendant’s having taken the Rowland drafts to pay or secure a debt owing to it by the Mound City Company or for collection, was harmful error.

2. Treating the transaction as one of good faith between the bank and the Mound City Company, and the discount by the bank of the Rowland & Company drafts as a bona fide sale and not a pledge to secure an antecedent debt or a transfer for collection, the question arises whether the bank acquired title to the eggs in the transaction. The bills of lading were prima facie negotiable and carried the title to the property covered by them. [R. S. 1899, sec. 5053.] But the eggs belonged to plaintiffs and had been consigned to Redfearn. Hence, for the Mound City Company to pass the title, it must have had authority from plaintiffs to do so; or, if it had not, plaintiffs must have ratified the sale. According to all the testimony, Redfearn was the only agent of plaintiffs in St. Louis who had express authority to handle its produce, either by sale or reconsignment. It is denied that the Mound City Company or Johnston its secretary, had been expressly or impliedly authorized to act for the plaintiffs. Redfearn was president of the Mound City Company and the evidence goes to show controlled its affairs; and Johnston, the secretary of the company, acting in its name, had repeatedly, through the entire period of Redfearn’s agency and with his knowledge and approval, sold or reconsigned plaintiffs’ produce and remitted for the same in the exact manner in which the eggs in controversy were handled. Therefore it is apparent that plaintiff’s contention that the title to the eggs remained in them, notwithstanding the reconsignment to Rowland :& Company and the sale of the drafts, with bills of lading attached, to defendant (assuming these transactions to have been bona fide) stands on the theory that no one but Redfearn, or, in his absence, Gunn or W. P. Johnson, had the right to handle the eggs; the Mound City Company and H. H. Johnston, its secretary, having no such right. In mercantile law it is considered that a factor occupies a quasi fiduciary relation to his principal who has reposed confidence in his skill and discretion; and hence the factor cannot delegate his authority to another, unless the principal expressly or by conduct confers on him the power to delegate. [2 Clark & Skyles, Agency, sec. 840; Loomis v. Simpson, 13 Iowa 532; McMorris v. Simpson, 21 Wend. 610; Campbell v. Reeves, 3 Head 226.] Now it is conceded that plaintiffs bad consented to Gnnn and W. P. Johnson acting in lieu of Redfearn when the latter was absent; but it is said they had never done so with respect of the Mound City Company, as a corporation; and there being no proof of an express authority to Redfearn to substitute the company for himself in handling plaintiffs’ goods, we must look to the circumstances to see if such authority had been conferred by plaintiffs’ conduct. The learned trial judge submitted this issue to the jury and the jury’s finding is conclusive that no authority was conferred, unless the evidence is wholly the other way. We have given the substance of the evidence bearing on this issue. It strongly inclines to prove that by a uniform course of business extending through many months, plaintiffs had acquiesced in the sale or reconsignment of their produce by the Mound City Company in its own name, in precisely the manner in which the goods in question were reconsigned, except that there is testimony that Redfearn had not authorized the reconsignment of the cars by the Mound City Company, whereas he had authorized the reconsignment of the other cars. The effect of plaintiffs’ testimony in this connection is that they were under the belief throughout the period of these dealings, that Redfearn, or in the few instances when he was absent, Gunn or W. P. Johnson, was handling their produce and using the Mound City Company’s drafts to pay them; and under the belief, too, that when the transaction appeared to have been conducted in the name of the Mound .City Company, it had been done under the direct supervision of Redfearn. Plaintiffs swore they had never given power to the company to handle their St. Louis shipments, and professed ignorance of the fact that said company had ever done this except when Redfearn himself reconsigned or sold the produce, reported the affair in the name of the company and paid plaintiffs in its paper. This testimony of the plaintiffs raised an issue of fact for the jury. Redfearn had no right to delegate to the company authority to handle plaintiffs’ goods; that is, to substitute the company in place of himself as plaintiffs’ agent, without plaintiffs’ knowledge and consent. Therefore if the company and not Redfearn reconsigned the eggs in controversy and sold defendant drafts secured on them, the transaction was not binding on plaintiffs unless authorized by the previous course of dealing; there being no question of estoppel raised by the defendant against plaintiffs. Two instructions granted for defendant submitted this branch of the case correctly. Another advised the jury that the requisite authority to the Mound City Company might be shown by circumstances; but the court refused in said instruction to tell the jury that if they found the authority to exist, the verdict should be for defendant. In view of our conclusion that there was no evidence to impeach the bank’s title as a bona fide purchaser of the bills of lading for value, and none to show the transaction was to secure a debt owing by the Mound City Company, or merely to have the bank collect drafts, we hold the court erred in modifying the last mentioned instruction so as not to authorize a verdict for defendant if the jury found from the circumstances that the Mound City Company was empowered to reconsign the eggs and draw against them. The defendant was entitled to a verdict if the Mound City Company’s authority was deduced from facts as much as if it was positively proved; provided the. transaction was an honest sale of the drafts.

3. When plaintiffs received the Mound City Company’s paper with drafts on itself for the eggs in question, they received Avit-h the drafts a letter dated July 18th signed by the Company, stating that the two drafts had been drawn to cover two like drafts drawn by it against plaintiffs’ eggs, specifying the number of cases and the dates of shipment and indentifying the eggs in controversy. The letter further said that the Mound City Company was unable to dispose of the eggs in St. Louis for a satisfactory price and, therefore, had forwarded them to New York. Now this letter put plaintiffs in possession of certain facts regarding the handling of the eggs, and with knowledge of these facts they kept the drafts and deposited them to their credit in the Fredonia. Bank. Defendant says this was a ratification of the sale by the Mound City Company. But plaintiffs swore that when they used the drafts they were ignorant both of the insolvency of the Mound City Company and of the fact that Redfearn had not reconsigned their eggs. J-Tence they insist there was no ratification of the reconsignment of the eggs. Plaintiffs could not expect to keep the drafts and repudiate the sale. But if, when they made use of the drafts, they were in ignorance of any material fact which had occurred in connection with the disposition of their eggs, no ratification resulted from their conduct. In view of Redfearn’s testimony that he neither reconsigned nor directed the re-consignment of the property, plaintiffs’ testimony that they believed he had, and other evidence tending to show they had no such belief, the question of ratification is not, to be determined as a conclusion of law from consistent testimony, but presents an issue of fact. Plaintiffs’ belief that the eggs had been sold by their authorized agent when, in fact, they had been sold by another party, if that belief existed, was such a misunderstanding as would prevent their use of the draft from ratifying the acts of the Mound City Company. It is obvious that plaintiffs could not ratify what said company had done as their agent unless they knew the company had assumed to act in that capacity. [Hyde v. Larkin, 35 Mo. App. 366; Steunkle v. Railroad, 42 Mo. App. 73; Case v. Hammond Packing Co., 105 Mo. App. 168, 79 S. W. 732.] We find adjudications that retention by the owner of property of the proceeds of an unauthorized sale, in ignorance of the fact that it was unauthorized, does not ratify the sale. [Thacker v. Pray, 113 Mass. 291, 18 Am. Rep. 480; McGlassen v. Tigerall, 44 Pac. (Ariz.) 1088; Chicago Edison Co. y. Fay, 164 Ill. 534.]

Aside from the proposition just discussed, it is insisted that as the drafts on itself sent by the Mound City Company in payment for the eggs, were dishonored, plaintiffs’' use of them constituted no payment for the property unless plaintiffs, intended to accept them as payment. The court instructed the jury to that effect in one of plaintiffs’ instructions; a charge which introduced a misleading issue into the case. It may be granted that the drafts did not constitute payment for the eggs so as to prevent plaintiffs from proceeding against the Mound City Company in assumpsit for the value of the property, or in tort against said company, or any one else, guilty • of converting it. That is to say, did not compel plaintiffs to look to the drafts for payment. [Selby v. McCullough, 26 Mo. App. 66; Johnson-Brinkman Com. Co. v. Bank, 116 Mo. 558, 22 S. W. 813.] What the answer pleads as a defense in connection with the acceptance of the drafts is not that the drafts paid for the eggs and therefore precluded plaintiffs from recovering their value in this action; but that, by retaining and using the drafts, plaintiffs ratified what the Mound City Company had done with the eggs if it had been given no prior authority. In other words, that plaintiffs ratified the reconsignment of the eggs and the sale to defendant of the.exchange drawn against them on Rowland & Company, so that defendant acquired title to the property and is not liable as for a conversion of it. A subsequent ratification relates back to the unauthorized act and is equivalent to previous authority, unless to so hold would prejudice intervening rights of third parties. [Cook v. Tullis, 18 Wall. (U. S.) 332.] Therefore if plaintiffs ratified the Mound City Company’s disposition of the eggs, defendant’s title is as perfect as it would have been if it had dealt with Redfearn himself. [Alexander v. Wade, 106 Mo. App. 141, 80 S. W. 19; Turner v. Railroad, 51 Mo. App. 501.] The point presented is one of some difficulty on the adjudged cases in this State, and is whether a ratification will be implied as a legal conclusion against plaintiffs, there being no element of estoppel present; for defendant was not induced to take any step which would result to its prejudice by plaintiff’s acceptance of the drafts remitted to it for the eggs. Ratification of an unauthorized act performed by an agent is somewhat akin- to an election between inconsistent remedies. It has been held that if a party mistakenly supposes he has two effective remedies for an injury when, in truth, he has not, and under the misapprehension adopts the wrong remedy, but forthwith abandons it before the right of any third party intervenes, he will not be cut off from his true remedy on the ground that he elected, at first, against it. As, for instance, if after a sale of goods which is voidable for the fraud of the vendee, the vendor mistakenly brings an attachment suit against his vendee, but immediately dismisses the case, he does not thereby so far ratify the sale as to preclude him from treating it as void and replevying the goods. [Johnson-Brinkman Co. v. Railroad, 126 Mo. 344.] The effect of the decisions just cited and kindred ones, is that a party shall not be deprived of his right remedy by the previous adoption of a Avrong one, if permitting him subsequently to pursue the right one, will injure no1 one. It is not our opinion that those cases establish the rule that ratification of an unauthorized act of a party who assumed to be another’s agent, depends solely on estoppel. A party may be estopped by his conduct to deny the authority of one who Avrongly assumed to act for him, even though he never intended to ratify what was done. Bnt the general doctrine is that ratification depends on the assent of the party represented to accept Avhat was done in his behalf and a decision to abide by it. It has been declared by high authority that ratification has nothing to do with estoppel (Justice Holmes, 5 Har. Law Review, 19). And again it has been said to be a purely voluntary act on the part of a principal, not at all depending, in general and when no harm will result to others, on the principal’s neglect to inquire about the facts before he apparently adopts what was done in his name. Subject to some exceptions Avhich do not concern us in this case, ratification binds the principal to third parties just as though the agent had acted by authority. [1 Story, Agency (2 Ed.), sec. 244; 1 Am. and Eng. Ency. Law (2 Ed.), 12, 14, and citations in note 7.] Whether or not a ratification is to be implied is commonly a question for the jury. But where the facts looked to as proving it are undisputed, whether they suffice to prove it or not, may be a legal question. Assuming that plaintiffs knew the Mound City Company and not Redfearn had disposed of their eggs, and were aAvare of all the circumstances of the transaction, the deposit of the drafts sent them in payment, to their credit in the Eredonia Bank Avithout remonstrance, ratified what the Mound City Company had done and thereby validated the sale. Indeed they had no thought of rejecting the sale until they learned the failing condition of the Mound City Company, of Avhich they claim to have been unaware until notified by Gunn. But their long support of the credit of that company by honoring its accommodation paper and their refusal to honor a large amount of such paper a day of two before, taken in connection Avith Redfearn’s visit to them with reference to the latter paper, go to prove knowledge of the insolvency when they accepted the drafts; though, of course, they expected the drafts to1 be paid before a crash came. Defendant’s counsel argue that ignorance by plaintiffs of the Mound City Company’s insolvency is not a material fact on the issue of ratification, because plaintiffs were bound to inquire into its solvency before accepting the drafts and took the risk of loss if they did not. We do not accede to that proposition. Plaintiffs’ knowledge of facts which should have warned them of the previous state of the company, is a circumstance from which a jury might conclude, either that plaintiffs knew the company was insolvent when they took the drafts, or intended to assent to the sale of the eggs whether it was solvent or not. [Tiffany, Agency, p. 73; Combs v. Scott, 12 Allen, supra.] The burden of proving an implied ratification and that the act of the principal relied on to establish it was done with knowledge of all the material facts, is on the party who seeks to bind the principal. [Moore v. Ensley, 112 Ala. 228.] That is to say, as ratification consists in an intention to stand by what was done without previous authority, if the intention is to be implied from actions supposed to reveal it, it must appear that such actions were done intelligently and not under a mistake. A party for whom another has assumed without authority to sell property, might well accept the usurping agent’s check, with the purpose of standing by the sale, if he believed the agent was solvent, though he would repudiate the transaction if he. knew the check was worthless. And if he accepted the check supposing the agent was solvent when he was not, he might afterwards repudiate the sale provided no third party would be prejudiced; as, for instance, by being prevented from taking steps to collect from the agent. If such prejudice would result, a ratification by estoppel would arise; being imputed by legal fiction for the sake of justice. Our conclusion is that the question of ratification in this case is one of fact and not of law. If it be found that plaintiffs, with sufficient knowledge of what had been done to enable them to1 exercise an intelligent choice between rejecting and approving the sale of their eggs by the Mound City Company, retained said company’s drafts on itself sent in payment for the eggs, they thereby ratified the sale of the eggs to defendant and defendant’s subsequent sale of them and retention of the proceeds did not constitute a tortious conversion but were lawful acts, affording plaintiffs no ground of recovery. [Beall v. January, 62 Mo. 434; Ames v. Tucker, 8 Mo. App. 95; Cochran v. Chitwood, 59 Ill. 53; Eadie v. Ashbaugh, 44 Iowa 519; Lythgoe v. Vernon, 5 Hurlst. & N. 179; Sanders v. Peck, 87 Fed. 61; Clor v. Kelly, 63 N. Y. Supp. 339; Frank v. Jenkins, 22 Ohio St. 603; Leavitt v. Fairbanks, 92 Maine 523.]

4. We take up now the exceptions saved to the admission of testimony.

a. The record is not very clear as to whether or not the letters said to have been written by Eedfearn to plaintiffs at different times, regarding various cars of produce sold in St. Louis, had been lost or destroyed so as to make secondary evidence of their contents admissible. We incline to the opinion that a sufficient showing was made. As we understand, either Babb or Smith swore that a great deal of plaintiff’s correspondence was destroyed every thirty days and, further, that Babb had collected all the letters he could find relating to the dealings between plaintiffs, Eedfearn and the Mound City Company, and had turned them over to his attorney who had delivered them to defendant’s attorney. As the case has to be retried and proper proof of the loss or existence of the letters can be made, it is unnecessary to dwell on this point.

b. The telegram sent by Gunn in the name of the Fredonia Produce Company to Eowland & Company and the latter’s response, could not have prejudiced the defendant. They contain no statement of facts which were not testified to by witnesses. Plaintiffs’ telegram, says nothing which can be construed as a self-serving declaration, except that the eggs belonged to them, a fact to which they both testified, (c) Redfearn’s telegram to plaintiffs dated July 23, 1904, and the letter Gunn wrote them July 19, 1904, were very prejudicial and should not have been admitted. As to defendant they were hearsay and incompetent. It was also incompetent for Smith to testify that he learned from Gunn’s letter that the Mound City Company had drawn against the eggs without Redfearn’s knowledge. As to whether the eggs were handled in the usual course of business and whether their reconsignment by the Mound City Company was directed by Redfearn, there were issues of fact. According to Johnston, Redfearn ordered the reconsignment. Letters which passed between plaintiffs and third parties containing statements that the transaction was without Redfearn’s knowledge, were not competent. It is said these letters and telegrams wmre admissible to show plaintiffs did not ratify what the Mound City Company had done, but repudiated it. No one denied that plaintiffs rejected the company’s action after they learned it was insolvent and that its drafts would not be paid. The question wras whether plaintiffs had already ratified wliat the company had done; and these letters, in so far as they bore on that issue in plaintiffs’ favor, were hearsay. They tended, too, to create an impression against the Mound City Company’s prior authority to represent plaintiffs and against the good faith of the defendant. They Were inadmissible on any theory of the case that occurs to us. [Fountain v. Railroad, 114 Mo. App. 676, 683, 90 S. W. 335; Bain v. Clark, 39 Mo. 252.]

The judgment is reversed and the cause remanded.

All concur.

Case Details

Case Name: Smith v. Jefferson Bank

Court Name: Missouri Court of Appeals

Date Published: Oct 30, 1906

Citation: 120 Mo. App. 527

Court Abbreviation: Mo. Ct. App.