John J. Joslin, Respondent, v. David Cowee, Appellant

John J. Joslin, Respondent, v. David Cowee, Appellant. (Argued December 2, 1872; decided January 28, 1873.) Where a vendor, having parted with his goods upon credit to a fraudulent vendee, who has transferred them with other property in trust for the payment of antecedent debts, upon discovery of the fraud accepts as security for the purchase-money a written assignment of the vendee’s claim, to any surplus remaining after payment of the debts, this is an unequivocal affirmance of the sale and subsequent transfer, and an abandonment of the right to reclaim the goods ; and the insertion of a clause in the assignment, declaring that the acceptance thereof shall not preclude the vendor from claiming and commencing proceedings to recover the goods, does not change the nature of the transaction. Such a clause is repugnant to the other parts of the instrument, and is inoperative. (Gboveb, J., dissenting.) Where a factor has been induced by fraud to part with the goods of his principal to an insolvent purchaser, who, before discovery of the fraud, has placed them in such a condition that it is difficult, if not impossible, to follow them, and where the factor acting in good faith, takes security for the price of the goods and thus affirms the sale, he is acting within the scope of his powers, and his principal is bound. Appeal from judgment of the General Term of the Supreme Court in the third judicial department, affirming a judgment in favor of plaintiff entered upon the report of a referee. (Reported below, 60 Barb., 48.) The action was brought to recover damages for the alleged conversion of thirty-one sacks of wool, part of a lot of fifty sacks, which the firm of Gay & Joslin- had placed in the hands of the firm of H. Rankin & Co. for sale on commission. The issues were tried by a referee, who found in substance that on the 17th of October, 1866, H. Rankin & Co. contracted to sell the fifty bales, containing in the aggregate upward of 10,000 pounds of wool, to the firm of Alden, Frink & Weston at sixty cents per pound on a credit of four months. That the wool was purchased by Alden, a member of the firm of Alden, Frink & Weston, with knowledge that his firm was insolvent, and with a preconceived design not to pay for the wool. That on the same day ten sacks of the wool were delivered to the purchasers, and on the 18th of October, 1866, twenty-one more sacks were delivered, and that on that day the purchasers, Alden, Frink & Weston, delivered their notes, dated October 17th, 1866, at four months for $6,481.99, the price of the fifty sacks, to H. Rankin & Oo., who received the notes without knowledge of the insolvency of the purchasers. That on the 19th of October, 1866, H. Rankin & Co. refused to deliver the residue of the wool. And on the same day Alden, Frink & Weston, by a bill of sale in writing, for the purpose of securing certain antecedent debts owing by them to the defendant and others, amounting to about $156,000, transferred to these creditors certain property and choses in action, embracing all the machinery, wool, cotton goods manufactured and in process of manufacture of every kind, and supplies contained in and about certain mills of Alden, Frink & Weston where they carried on the business of manufacturing knit goods. It was assumed on the argument that the wool in question had gone into one of those mills. The referee further found that on the evening of the nineteenth of October the defendant, on behalf of the transferrees, took possession of the assigned property under the bill of sale, and afterward retained such possession until it was sold by the assignees. That at the time the defendant thus took possession, nearly one-half of the twenty-one sacks of wool delivered on the eighteenth of October had not been opened, but that the rest of the wool was at various stages of manufacture into shirts and drawers; and that so much of it as had passed the first manufacturing process when the bill of sale was executed had been variously changed in form and quality, and increased in value and mingled with other material in like process of manufacture into shirts and drawers, and could not be identified, nor could the products of such wool be identified or distinguished from other like products. That on the next day, October twentieth, and after H. Rankin & Co. had been informed of the failure and insolvency of Alden, Frink & Weston, and had refused to deliver the residue of the.wool contracted to be sold, H. Rankin & Co. accepted from Alden, Frink & Weston a further assignment, transferring to them and to Gay & Joslin and Horace B. Silliman, any surplus which might arise from the sale of the property embraced in the bill of sale to the defendant and his associates after satisfying their claims. That at the time of the execution of this second instrument it was supposed by the parties to both instruments that a surplus would arise, and this expectation was not ascertained to be unfounded until the sixth of December following. The purport of this second instrument was to transfer to H. Rankin & Co., Gay & Joslin and Horace B. Silliman the expected surplus, as security for a debt owing to H. Rankin & Co. from the assignees amounting to $32,605.99, of a debt owing to Horace B. Silliman for $550, and of the notes for $6,481.99, which had been given for the fifty bales of wool of Gay & Joslin. It recited that the fifty bales had been sold by ,H. Rankin & Co., as commission merchants, for account of Gay & Joslin, and that only thirty-one bales had been delivered, and that the amount of the undelivered bales was to be applied on the notes, and concluded with a declaration that the acceptance of the instrument by Gay & Joslin should not preclude them from claiming and commencing proceedings to recover the wool sold and delivered, and that if they should recover the same their claim to the amount thereof should be extinguished. On the 22d of October, 1866, Gay & Joslin, by a written notice to the assignees under the first instrument (of whom the defendant was one), demanded the thirty-one bales, and signified their election to rescind the sale thereof which had been made by their factors, on the ground of the fraud of the vendee. On the 4th of March, 1868, Gay assigned his interest to the plaintiff, and on the fourth of June following the plaintiff again demanded of the defendant the' return of the wool, or of so much thereof as had come to his possession. The referee found for the plaintiff for the value of the thirty-one bales, and judgment was entered accordingly. John B. Gale for the appellant. There was not a prompt and complete rescission of the original sale, but it was ratified. (Mason v. Bovet, 1 Den., 69; Nichols v. Michael, 23 N. Y., 264; 28 id., 290; Hogan v. Meyer, 5 Hill, 389.) The sale to defendant by the fraudulent buyers was of the nature of a mortgage. (Leitch v. Hollister, 4 N. Y., 211.) Defendant is not liable for the wool consumed by Alden, Frink & Weston. (Silsbury v. McCoon, 3 N. Y., 379, 386.) A sale tainted by fraud is voidable. (Ash v. Putnam, 1 Hill, 203; Nichols v. Michael, 23 N. Y., 264, 267, 270; Stevinson v. Newnham, 16 Eng. L. and Eq., 401; Rowley v. Bigelow, 12 Pick., 307 ; Stevens v. Hyde, 32 Barb., 171.) H. F. Bulla/rd for the respondent. Ho title passed to Alden on the .purchase and plaintiff could reclaim his property. (Hall v. Naylor, 18 N. Y., 590, 591; 27 id., 139 ; 49 Barb., 315.) Plaintiff was not prevented from reclaiming the wool from Alden by the fact of his having .partly manufactured it and increased its value. (Silsbury v. McCoon, 3 N. Y., 379, 386; 3 Comst., 387, 389; Mason v. Bovet, 1 Den., 69, 74.) [MAJORITY — Rapallo, J.] Rapallo, J. It will hardly admit of question, that if Gay & Joslin had personally accepted the assignment of October twentieth, with knowledge of the fraud of Alden, Frink & Weston, such acceptance would have constituted an affirmance of the sale of the wool to them, and that the attempt to reserve a right to pursue and reclaim the wool would have been ineffectual. The assignment in terms recognizes the notes given for the contract price of the wool as subsisting obligations of Alden, Frink & Weston, and, for the purpose of securing their payment to Gay & Joslin, assigns to them part of the surplus expected to result from the sale of the property previously transferred to the defendant and others by the bill of sale of October nineteenth. That property embraced, according to the plaintiff’s theory, the very wool which is the subject of this action, and also a large amount of other property. The acceptance by Gay & Joslin of a lien upon the proceeds of all this property as security for the notes given for the wool would constitute an unequivocal affirmance, not only of the sale of the wool to Alden, Frink & Weston, but of the subsequent transfer thereof by that firm to the defendant and others. By stipulating for a portion of the proceeds of the sale to be made of the property by the defendant and his associates, Gay & Joslin would clearly have assented to such sale. The clause at the end of the instrument, which declares that the acceptance of it by Gay & Joslin shall not preclude them from claiming and commencing proceedings to recover the goods, is repugnant to every other part of the instrument and can have no operation. If the language had been that the acceptance by H. Bankin & Co. should not preclude Gay & Joslin from reclaiming the goods, those words might have been construed as a declaration that the acceptance by H. Bankin & Co. was conditional, and subject to approval or rejection by Gay & Joslin. But such is not the language. It speaks of the effect of the acceptance by Gay & Joslin. The provision attempts to expressly secure to Gay & Joslin the right, notwithstanding their affirmance of the sale by accepting from the fraudulent vendors security for the purchase-money, to follow the goods in the hands of the parties to whom these vendees had transferred them. This could not be done. The necessary consequence of the acceptance of security for the purchase-money was an irrevocable abandonment of the right to rescind the sale and reclaim the property. The only question, therefore, is whether the acceptance of this security by H. Bankin & Co. was binding upon Gay & Joslin. H. Bankin & Co. were the factors of Gay & Joslin, and in selling the wool as such factors had been defrauded. It was their duty, on the discovery of the insolvency of the vendors, to secure their principal if possible. They might have reclaimed the wool if it was to be found, but it appears from the findings of the referee that a large portion of it had been consumed in the manufacture of knit goods, and neither the wool nor its products could be identified. Under these circumstances the opportunity was presented to them of obtaining security for the notes, which security was then believed by all parties to be substantial. We think that, as factors, they had the right to accept this security for the benefit of their principal. To hold that a factor, on discovering that he has been induced by fraud to part with the goods of his principal to an insolvent purchaser, who has placed the property in such a condition that it is difficult if not impossible to follow it, has no power to protect his principal by obtaining security for the debt, would be to paralyze the hand upon which the absent principal must necessarily rely at a moment when immediate action may be most essential to his interests. It is the duty of a factor to do his utmost to protect his principal from loss, and in extraordinary emergencies he is authorized to assume extraordinary powers, even to the extent of deviating from the general instructions of his principal. (Story on Agency, § 193.) When, acting in good faith, in a case like the present, he obtains security for the price of the goods, he must be regarded as acting within the scope of his powers. His act thus becomes the act of his principal, and entails the same legal consequences which would have ensued if performed by the principal in person. ■ We are, therefore, of opinion that the acceptance by H. Rankin & Co., the factors of Gay & Joslin, of the assignment of October twentieth, operated as an affirmance of the sale of the wool, and precluded Gay & Joslin from afterward rescinding the sale and reclaiming the wool. •Exception was duly taken to the conclusion of law, that the right to rescind the contract was not waived by H. Rankin & Co., or Gay & Joslin or the plaintiff, by anything done by them or either of them. This exception was well taken, and the judgment must therefore be reversed and a new trial ordered, with costs to abide the event. All agree, except Gboveb, J., dissenting. Judgment reversed.