JAMES S. BRANDER, AND HUGH L. M`KENNA, PLAINTIFFS IN ERROR,
v.
WILLIAM E. PHILLIPS, AND HENRY BELL, TRADING UNDER THE FIRM OF WILLIAM PHILLIPS AND COMPANY, AND RODAH HORTON, AND NATHANIEL TERRY, DEFENDANTS IN ERROR.
Supreme Court of United States.
*123 The case was argued by Mr. Gilpin, for the plaintiffs in error; and by Mr. Crittenden, for the defendants.
Mr. Gilpin, for the plaintiffs in error.
*128 Mr. Justice M`LEAN delivered the opinion of the Court.
This is a case on error from the Circuit Court for the district of South Alabama.
Brander and M`Kenna, in 1833, 1834, 1835, were commission merchants at New Orleans; and acted as factors and agents of William E. Phillips and Company, of Huntsville, Alabama, in the sale of cotton, and made advances thereon. On all sales they were to receive two and a half per cent. for commission, and the same amount for advances.
In August, 1834, Phillips and Company were indebted to Brander and M`Kenna, in the sum of one thousand three hundred and fifteen dollars and fifty-seven cents, for advances. On the 15th of the same month. John Williams, agent for Brander and M'Kenna, agreed to advance Phillips and Company the sum of eight thousand dollars on bills, to be drawn between the 20th of April, and the 31st of July, 1835, by them, and any two of six persons named; among whom were R. Horton, and N. Terry, two of the defendants in error.
Between the 15th of August, 1834, and the 31st of July, 1835, several shipments of cotton were made to the plaintiffs by the defendants, and several bills were drawn by them, some jointly with Horton and Terry, and others without them; all of which were accepted by the plaintiffs.
These bills, including the advances previously made, amounted to the sum of twenty-nine thousand seven hundred and ninety-five dollars and sixty-five cents. The proceeds of the shipments of cotton to meet these advances, amounted to the sum of twenty-two thousand four hundred and sixty dollars and forty-three cents.
The plaintiffs applied the proceeds of the cotton to the liquidation of the bills drawn by Phillips and Company, to the exclusion of those drawn by them jointly with Horton and Terry; and as the acceptances exceeded the proceeds of the cotton, this action was commenced on a bill due 4th June, 1835, for three thousand dollars drawn by the defendants.
On the trial, the Court instructed the jury that, if they believed from the evidence that, at the maturity of this bill, Brander and M'Kenna had sufficient funds of Phillips and Company in their hands to pay it, and believed Horton and Terry to be accommodation *129 drawers and securities only, and knew this at the maturity of this bill; then, in the absence of any instructions from Phillips and Company, in regard to the application of the funds, Brander and M'Kenna were bound to apply them to pay this bill, and could not hold them to meet the payment of the bill drawn on them by Phillips and Company, which had been accepted, but was not then due. And that if, when this bill became due, the funds of Phillips and Company, in the hands of the acceptors, were sufficient to pay it; the bill was extinguished, and recovery could not be had on it.
To this instruction an exception was taken, and the plaintiffs in error contend, that they had a right to hold the cotton and its proceeds to meet all outstanding liabilities, which they had incurred on account of Phillips and Company; and that they had a right so to marshal the securities, in the absence of any express agreement on the subject, as to save themselves from loss.
Where a factor makes advances, or incurs liabilities on a consignment of goods, if there be no special agreement, he may sell the property in the exercise of a sound discretion, according to general usage, and reimburse himself out of the proceeds of the sale; and the consignor has no right to interfere. The lien of a factor for advances and liabilities incurred, extends not only to the property consigned, but, when sold, to the proceeds of the sale in the hands of the vendee, and the securities therefor in the hands of the factor. Drinkwater v. Goodwin, Cowp. 251; Haughton v. Matthews, 3 Bos. & Pull. 489; Brown v. M`Gran, 14 Peters, 495; Story on Agency, 380.
But the case under consideration does not turn upon this principle. The liabilities of the plaintiffs exceeded the proceeds of the property consigned: and the question to be answered is, whether they can claim a reimbursement from Horton and Terry, who were bound jointly with Phillips and Company, in certain bills amounting to eight thousand dollars. Other bills to a much larger amount, drawn by Phillips and Company, without security, were accepted by the plaintiffs, several of which were not due, when the bill in controversy became payable: and the instruction of the Circuit Court to the jury was, if at that time the plaintiffs had in their hands funds of Phillips and Company, of a sufficient amount to pay this bill, and they knew that Horton *130 and Terry were accommodation drawers, they were bound to pay it.
When the plaintiffs accepted this and the other bills, were they not aware of their respective amounts and the times they became due? And were they not bound to take up the bills at maturity? Of this there can be no doubt. The bills drawn subsequently to the one under consideration, amounted to fifteen thousand dollars, all of which were accepted by the plaintiffs. Were these acceptances made, to any extent, on the credit of Horton and Terry? This has not been contended. On what ground then can this action be sustained? The application of payments by the creditor, where no direction is given by the debtor, has no relation to the present case.
Had the bills become payable at the same time, on acceptances made on the same day, the plaintiffs might have insisted on applying the funds in their hands to the payment of the notes without securities. But this would have been a very different case from the one now before us. After having accepted the bill under consideration, payable at a time stated, the plaintiffs accepted other bills, payable at a more remote period. Now, the contract by the acceptors was, that they would pay these bills as they respectively became due. And this they were bound to do, so long as the funds of the consignors in their hands remained unexhausted. A bill became extinguished so soon as it was paid by the plaintiffs, with the funds of Phillips and Company. And this principle applies as strongly to those bills signed by the accommodation drawers, as to others.
Could the plaintiffs lay a foundation for a recovery against Phillips and Company, by showing payment of a bill drawn by them, out of their own funds? This would not be pretended. And yet this is the principle contended for in the present case. The liability of the accommodation drawers was as completely discharged, on the payment of the bill in question, as that of the principals.
The relation of factors which the plaintiffs bore to Phillips and Company, gave them no power to vary their acceptances. The cotton consigned was to meet the payments of the bills as they became due. This was known to Horton and Terry; and it may well be supposed that their liability was incurred in virtue of this *131 arrangement. But the plaintiffs, by appropriating the proceeds of the cotton to the payment of future liabilities, have violated their contract, endeavoured to defeat the just reliance of the sureties, and charge them with the payment of the bills which they guarantied. This the plaintiffs cannot do. It would be a great hardship, if not a fraud on the sureties. No lien can be regarded or enforced under such circumstances. The lien of a factor depends upon legal principles, founded on equitable considerations, and can be held valid on no other grounds.
We think that the instruction of the Circuit Court was correct; and the judgment is, therefore, affirmed.
This cause came on to be heard on the transcript of the record from the Circuit Court of the United States, for the southern district of Alabama, and was argued by counsel. On consideration whereof, it is now here ordered and adjudged by this Court, that the judgment of the said Circuit Court in this cause be, and the same is hereby, affirmed, with costs.