
    Hugh F. McLachlin and ano., Resp't, v. James E. Brett, App'lt.
    
    
      (Court of Appeals,
    
    
      Filed April 19, 1887.)
    
    Set off—Right to, lost, as against goods obtained of agent if principal DISCLOSED BEFORE DELIVERY OR PAYMENTS.
    Defendants had for some years been buying lumber of H & Co., and the latter were largely indebted to them, which it was expected would be arranged by the sale of a quantity of shooks consigned to the former to be sold on commission. While the shooks remained unsold, defendants contracted with H & Co. for the sale and delivery of a large quantity of lumber, but before it arrived the former were informed that the lumber was owned by other parties, and that H & Co. were acting as agents. Feld, that the contract was executed, and, as defendants bad knowledge that H & Co. were not the owners of the lumber when they accepted the lumber, tliejr could not offset the amount due from H & Co. in an action, brought for its value by the real owners.
    
      Appeal from judgment of supreme court, general term, • first department, affirming judgment in favor of plaintiffs.
    
      Esek Cowen, for app’lt; Edward C. James, for resp’t.
    
      
       Affirming 34 Hun, 478.
    
   Finch, J.

The material facts in this case are substantially undisputed. For some years previous to 1875 the defendants had been in the habit of purchasing lumber in Canada of Hall & Co., dealing with that firm as owners- and in their own name. In the process a large indebtedness had accrued in favor of the defendants, which the parties, expected would be reduced by the sale of a quantity of shooks consigned by Hall & Co. to the defendants, to be sold by them on commission. While the shooks remained unsold, and the indebtedness referred to stood unbalanced or unaffected by their proceeds, and on or about September 23, 1875, the defendants made a contract with-Hall & Co. for the sale and delivery to them of 600,000 feet of specified lumber, upon a credit of three months. The order was very soon increased to 900,000 feet, which at the agreed price would have amounted to more than the outstanding debt, irrespective of the proceeds of the unsold shooks. This contract of purchase and sale was made binding by telegrams and letters which sufficiently manifested the terms of the agreement. That agreement was, of course, executory, and remained to be performed, the respective parties having only the right to compel performance, or recover damages for a breach. Before any of the lumber arrived at New York, and before title to any of it had vested in the defendants, the latter were, in substance, informed that the lumber shipped and on the way was not the property of Hall & Co., but was owned by other parties for whom Hall & Co were acting as agents. While some criticism is expended upon the manner and tenor of this notification, we deem it quite sufficient to charge defendants with a knowledge that Hall & Co. were not the owners-of the lumber with which they were proposing to fulfill their contract. The defendants accepted the lumber with this-knowledge. It turns out that the insolvency of Hall & Co., and a seriously diminished return from the sale of the shooks, has left a portion of the debt due from Hall & Co. unpaid, which balance the defendants claim to offset in this action brought by the real owners of the lumber; and whether that offset should be allowed or rejected, as the courts below have determined, is the principal question presented by this appeal.

The reasoning of the learned counsel for the appellants is founded substantially upon the validity and binding force of the executory contract of purchase and sale at its date. He answers the authorities, which deny the right of offset when notice of an agency and different ownership is given, “before the contract is completed” (Moore v. Clementson, 2 Camp. N. P., 22); “before they are delivered or paid for” (Barb. Set-Off, 135, 136); before the factor “delivers goods in his own name” (Rabone v. Williams, 7 Term R., 360); “by something which transpired before the contract was completed” (Hogan v. Shorb, 24 Wend., 463); by insisting that they relate to cases in which the sale and delivery are concurrent acts and there is no contract without the delivery; and he claims that in the present case the rights of the parties were fixed when the contract itself was made; that the right of set-off at once accrued; and when the principal sued, and took the benefit of his agent’s contract, he was liable also for its burdens.

We think the error in this reasoning lies in the assumption that the defendant obtained a right of set-off at the moment the contract was made. We are unable to admit that proposition. The contract was executory. While it remained such, it created no debt due to Hall & Co. against which there could be a set-off. Out of that contract a debt due from the defendant might or might not arise, and until it did there was nothing upon which a counter-demand could be applied. The defendant was not at once liable for the purchase-price of the lumber. Until its delivery or tender in accordance with the contract terms, the vendee was not bound to pay or give his note; and, until those conditions performed created a debt, there was none so existing as even to raise the question of off-set. If the vendors did not perform, the vendees would owe them nothing for the lumber, but, on the contrary, would merely have a further claim for breach of the contract. At the date of the contract, the added fact- must be noted that the real claim of the defendant was unknown and unliquidated, and could not be finally ascertained until the proceeds of the shocks were determined by a sale.

The debt was only liquidated in part. It was subject to reduction by the property already received from Hall & Co., but the proceeds of which were unknown. The right of offset, therefore, did not and could not arise at the date of the contract, and sprang up, if at all, at the date of delivery. But before that, notice of another ownership intervened. When the lumber came, and the vendee saw that the vendor, on a contract made with him as owner, was seeking to perform as agent, and instead of fulfilling his own obligation was substituting performance by another, such vendee could refuse the substituted performance in any case where his rights or interest would be injuriously affected by the change. Brett & Co. had been long dealing with Hall & Co. as owner, and in the process mutual accounts had been steadily debited and credited, and applied one upon the other. When the purchase was made, the balance, so far as ascertained, was largely against the vendor, and may have been made either as to quantity or price for that very reason. In such a case the vendees undoubtedly had a right to refuse to come under obligations to the new creditor, and did not break their contract with Hall & Co. if they stand upon such refusal. But being at liberty to refuse, and to demand performance by Hall & Co., under the existing circumstances and relations in strict accord with their contract, they were also at liberty to accept the lumber, with the necessary consequence that the whole purchase-price should become due to the real and disclosed owner, and none of it to Hall & Co., except as agents for that owner. And so it follows that the authorities stand upon just principles when they assert that the set-off is lost if the principal is disclosed before the goods are delivered or the payment made. The vendee is not then acting in the dark, and has his liberty of action remaining, at least, where his interests may be affected by the change of creditors, and so can have no equity to use the goods of one man to pay the debt of another. If he refuses, as he may, his contract relation with his vendor remains, and all his rights and remedies under it. But if he accepts he cannot complain that his rights are changed and harmed, since the acceptance is his free and voluntary act, made with full knowledge, and without being misled.

Certain questions of evidence remain to be briefly considered. One of the defendants was asked whether he ever knew or supposed or suspected that Hall & Co. were not the principals in the transaction. The question was certainly too broad. It could not have been truthfully answered in the negative, for the witness admits that he heard of plaintiff’s claim directly from .them in April, 1876. Indeed, he was permitted to answer that he knew of no such agency before February of that year, which covered the material portion of the time. He was also asked who he understood to be the owner of the lumber at the time of the sale and delivery The facts as to the notice given were proved. His understanding or misunderstanding of them could not alter what they disclosed. The letter of February 10,1876, was not objected to because written by Cooper. When offered, it was shown to the witness, and he was asked: “Is that the signature of Brett, Son & Co. by Cooper?” and answered, “It is.” The objection was “immaterial and incompetent, and as being subsequent to this lumber transaction.” There was no suggestion that the letter was not that of the firm, or was written without their knowledge or authority, which appears to be the present ground of complaint.

Other questions we have examined, but need not discuss. The judgment should be affirmed, with costs.

All concur.  