Court Opinion

ID: 8802092
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:35:55.148401+00
Date Added: 2024-06-11T17:03:56.734616
License: Public Domain

HOUGH, Circuit Judge
(after stating the facts as above). Appellants herein urge that four propositions be resolved in their favor: (1). That the custom or usage of selling commercial paper with option *634of return be recognized and accepted; (2) that Hathaway & Co. be held to have promised repayment to the Corn Exchange Bank from their own funds, if the option was exercised and paper returned; (3) that such a payment as Hathaway made to the bank is as matter of law an advance on account of the principal; and (4) that to the extent of such payment they are entitled to a general lien upon all Claflin’s. property in their possession. As no explicit contract, oral or written, stated any of these points as between Claflin and Hathaway, their legal relations depend wholly on establishment of the custom pleaded-.
[1] Usage is ordinarily regarded as the evidence of custom, though the words are often used synonymously. But “strictly speaking, custom is that length of usage which has become law. It is a usage which has acquired the force of law, and ignorance of the law will not excuse. A general custom is the common law itself, or a part of it.” Walls v. Bailey, 49 N. Y. 471, 10 Am. Rep. 407. Usage is invoked to give meaning to a contract, on the assumption that the parties contracted in reference thereto; yet, since there can be no intent without knowledge (actual or imputed) of what was intended, not only must proof be given showing that the usage relied upon exists, but the relation of the parties concerned must be shown to be such that knowledge of the usage in question may be inferred, and further that intent to be bound thereby may also be established by reasonable inference.
[2] As was said in Adams v. Otterback, 15 How. 545, 14 L. Ed. 805, to give usage “the force of law * * * requires an acquiescence and a notoriety, from which an inference may be drawn that it is known to the public,” and, if to the public, then by fair presumption to that member of the public who must be held to have contracted in the light thereof. Yet a custom may be good and lawful without more than a small fraction of the world knowing anything of it; indeed, most customs or usages affect only a particular business,' yet are nevertheless binding if certainty, continuity, reason, legality, and acquiescence are duly established.
[3] Under some circumstances the customs of those engaged in a business wholly different from that of the persons sought to be affected cannot be recognized as against said persons without showing actual knowledge thereof, for assent can be implied only from knowledge of the custom which it is claimed authorizes it. Great Western, etc., Co. v. White, 118 Fed. 410, 56 C. C. A. 388, and cases cited. But if one employs another to work in and after the method of transacting that other’s business, then (though ignorant of such method) he may be presumed to have intended the business thus requested, to be performed according to usage. Walls v. Bailey, supra; Gleason v. Morrison, 20 Misc. Rep. 320, 45 N. Y. Supp. 684.
In this instance Hathaway was employed as a note broker to sell Claflin paper, and such brokerage is a well-known and independent occupation, quite capable of developing, sustaining, and enforcing its own customary business methods. A majority of this court consider the evidence submitted as fairly establishing (within the rules above laid down) that during the whole time of Hathaway’s business *635connection with Claflin there was a custom or usage of selling commercial paper with an option of return. That majority of the court further deem it proven as matter of fact that on June 11, 1914, Hathaway intended to become, and did become, personally responsible to the Corn Exchange Bank for the repayment to that bank of the price of any paper returned under the recited option. Both these findings are of fact, and render unnecessary consideration of decisions wherein it was sought to hold note brokers in invitum to similar liability. Union Trust Co. v. Whiton, 97 N. Y. 172; Commercial Bank v. Waters, 45 App. Div. 441, 60 N. Y. Supp. 981, affirmed 167 N. Y. 583, 60 N. E. 1109; Monticello Bank v. Bostwick, 71 Fed. 641. But we do not find sufficient evidence of any custom (or part of a custom) whereby brokers, on selling paper with option, superadd to the undoubted liability of their principals (in respect of a return) their own promise to repay in the first instance. From this finding of fact, it follows that no custom required or justified the act of Hathaway in assuming personal responsibility to the Corn Exchange Bank.
[4] As for such action, there were certainly no explicit contractual arrangements, to which Claflin was a party; appellants insist that a note broker is but one species of factor; and therefore entitled to that general lien, or lien in respect of the general balance of account, allowed to all factors as the result of an ancient custom which unquestionably has long since hardened into a part of the law. As put in Nagle v. McFeeters, 97 N. Y. 202, once establish the status of factor and “the law implies or infers the lien from the relation [of] the parties.” Walker v. Burch, 6 T. R. 258. And this contention is thought to gain support from establishment of the option custom, to which lien would certainly be a convenient, and is said to be a necessary, adjunct.
It is not denied that the rather modern occupation of note or bill broking seems to respond to old definitions of the word “factor.” He is (if notes are goods) “a person to whom goods are consigned for sale by a merchant * * * at a distance from the place of sale.” Baring v. Corrie, 2 B. & A. 143. He is a mercantile agent (if notes are merchandise) to whom in the ordinary course of business is intrusted the possession of goods; and it is the fact of possession, which has always especially distinguished a factor from a broker. See In re Rabenau, 118 Fed. 471; Howland v. Woodruff, 60 N. Y. 80; United State v. Villalonga, 23 Wall. 42, 23 L. Ed. 64; Ommen v. Talcott, 188 Fed. 403, 112 C. C. A. 239; Jenks, English Civil Law, § 536. This resemblance is superficial and misleading, and the argument rests upon a hasty identification with the “goods, wares and merchandise” of historic law (always chattels) of what are evidences of indebtedness, actual or inchoate, and mere choses in action.
It is to be observed that a special lien upon the notes received back by Hathaway from the bank does not advance the matter. It may be assumed that any agent has a lien on movable property in his possession and belonging to his principal in respect of expenses incurred in relation to that particular property. Hammonds v. Barclay, 2 East, 227; Houghton v. Matthews, 3 Bos. & P. 494; Muller v. Pondir, 55 *636N. Y. 340, 14 Am. Rep. 259. But since the property here in question is negotiable paper, it is indifferent whether Hathaway now owns, or has a lien upon, the nine notes returned; those notes may he enforced against all parties liable thereupon; the brokers have all the rights of legal owners, whatever their technical appellation.
The claim is that virtute officii, or by legal implication from their employment, note brokers have that general lien upon all their principal’s property, on hand for a general balance of account, which is the essential and peculiar characteristic of a factor. Upon authority there is nothing shown, or known to us, holding that a note broker is a factor; and it is both old and recent law that where a lien is claimed on a general account “it is to be taken strictly” (Houghton v. Matthews, supra), and where such lien is asserted under circumstances not previously recognized as conferring the same “we should be anxious to tread cautiously and on sure grounds before we extend beyond the limits of decided cases” (Matter of Heinsheimer, 214 N. Y. 368, 108 N. E. 636, Ann. Cas. 1916E, 384, and cases cited). The business of such brokers has not “a character known to. the law with certain prescribed duties, but the employment is one which deperids entirely on the course of dealing.” Foster v. Pierson, 4 L. J. Exch. N. S. 125. The privilege now contended for has been demanded in Grant v. Taylor, 35 N. Y. Super. Ct. 351; but the court said:
“If there be a usage giving to persons engaged in * * * selling bills or notes, a lien for a general balance against their customer, such usage should be proved. It will not be presumed to exist in the absence of an express agreement.”
And in this case there was no express agreement, and no established usage is proven.
It is urged upon us that Bank v. Levy, 1 McMullen (Law) 431, and Hodgson v. Payson, 3 Har. & J. (Md.) 339, contain expressions which recognize a factor’s lien under circumstances said to be analogous to the present. In both cases a lien was granted, but in each the person asserting the same had at the request of his principal indorsed paper belonging to tire principal, and (from somewhat imperfect reports) we are of opinion that the lien accorded was based, not upon the character of employment, but upon the fact of indorsement by request. See as to general lien, and the hostility of the law thereto, Mechem on Agency (2d Ed.) vol. 2, p. 1276; Jones on Liens (3d Ed.) § 422; Kent’s Commentaries, vol. 2, pp. 634-636.
Considering the reason and history of the matter, a lien was not granted for the primary purpose of benefiting the agent who came to be known as a factor, but of assisting the principal, who, being at a distance, was obliged to confide the sale of his goods to some one upon the ground. The owner did not part with title, but he could not exercise immediate supervision of sales, and he ordinarily preferred to let the goods stand responsible for expenses and advances rather than to deposit with his factor agent cash in advance. The practice was thought to promote confidence in and liberality on the part of factors (Story on Agency [9th Ed.] § 378), and what most merchants *637preferred came to be obligatory upon all; such is the common origin of much of what we loosely call the common law.
It was for the advantage, not of the principal alone, but of commerce generally, that the factor’s lien should be recognized, as it long has been. ' But every improvement in communications, each advance in business ease, has rendered less necessary and desirable the creation of liens which nowadays are commonly useful to the agent alone, and then upon the insolvency of his principal, and are obviously detrimental to that class, always the largest and most to be regarded, who can and do deal with the principal only in the relation of debtor and creditor.
It is never more necessary to go behind titles, to get at substance, than when a new claim of right is made under an ancient name. It rather befogs the matter to dwell upon the similarities or differences between bill brokers and commission merchants — between dealers in commercial paper and mercantile factors. The name is nothing; what appellants want is not to be dubbed factors, but to have the right to a general lien annexed to one part of their business. Therefore the vital inquiry is whether that business, as the evidence shows it, was so conducted, in accordance with the rules of agency (of which factor-age is but a subdivision), as to impose a lien under'judgments of authority, or merit one by analogy thereto.
[5] That no lien is imposed by authority we have stated; but further it may well be doubted whether Hathaway’s act, if performed by an undoubted factor, and in respect of chattels, would have been within the scope of such factor’s authority as inferred from his employment. It is not true as matter of law that the lien urged upon us arose from paying over the proceeds of option sale to Claflin, which is the manner of pleading it; that lien arose, if at all, the moment Hathaway assumed liability on the option, and one test of the lien’s worth is to ask whether such unrequested assumption was either an expense of sale, or an advance upon what the broker had for sale. “Expenses and advances” are words (in this connection certainly) of such simple meaning as to require no exposition, and it is obvious that Hathaway’s contribution of his own financial worth to the option privilege, was neither an expense of sale, nor an advance upon the property committed to his care. What was neither expense nor advance has never been admitted as a matter for which any factor (virtute officii) could demand indemnity from his principal. If indemnity cannot be demanded, lien certainly fails.
The circumstances under which agents generally may demand reimbursement from principals were summarized in Frixione v. Tagliaferro, 10 Moo. P. C. 196; it must be shown that the agent’s loss arose from the fact of agency, that the act productive of loss was within the scope of the agency, and was not attributable to the agent’s default or laches. The scope of even a factor’s authority has its limits (Commercial, etc., Bank v. Heilbronner, 108 N. Y. 439, 15 N. E. 701); those limits are the accomplishment of the principal’s wishes, by means explicitly or impliedly agreed upon beforehand. Nothing explicit being pretended, the implication here demanded is of an act commer*638dally undesirable, and without analogy in the relation of a factor to his merchandise.
As appellants’ asserted lien is in our opinion unsupported by authority, possesses merely a specious resemblance to a factor’s lien, would be of doubtful validity if claimed for one employed by the name of “factor,” and if allowed here would tend to confer on note brokers as a class privileges injurious to the business community as a whole, the order under review is affirmed, with costs.

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