Enterprise Manufacturing Co. v. Oppenheim, Oberndorf & Co. ( 1911 )

This suit was brought by The Enterprise Manufacturing Company, a corporation doing business in Augusta, Georgia, against Oppenheim, Oberndorf and Company, co-partners, of the City of Baltimore, claiming one hundred thousand dollars damages for the alleged breach of a contract for the purchase by defendants from the plaintiff of one million seven hundred and fifty thousand yards of cotton goods.

The plaintiff owns and operates a cotton mill, and the goods it manufactures are known to the trade as "grey goods." There is some sale for these goods as they come from the mill unbleached, but their principal and most extensive use is for printing and dyeing to be made up into various garments. Purchasers of these goods for the latter purpose, are known in the trade as "Converters," and such purchasers ship such goods for that purpose to a "finishing mill" or "print mill," usually somewhere in New England, and when thus "finished," or "processed," the goods are shipped to the purchaser or to his customers, who make them up into shirts or other garments. The defendants are both "converters," selling the processed goods to other persons who are their customers, and also shirt manufacturers, doing a large business both in Baltimore and New York.

Woodward, Baldwin and Company are large dry goods commission merchants in Baltimore, who sell the products of many Southern cotton mills, and had for twenty-five years represented the plaintiff in that way, and they had during that period sold large quantities of plaintiff's goods to the defendants. The contract sued on in this case was as follows:

"Date, 7/15/ — 7.

Sold to Oppenheim, Oberndorf Company, Baltimore Md., By W.B. Co.: —

Quantity, 1,750,000 yds.

Grade, Plain sheetings, soft-twisted yarns.

To count, 52x44 picks to square inch.

Weight, not lighter than 5 yards to pound.

To be 36 inches wide.

Cuts to run D.C. yards each.

Bales to contain yards.

Price, 5 3/4.

Terms, 2%, 10, 60 ex.

Delivery, 350,000 yds., monthly, equal weekly, Nov, Dec., '07, Jny., Feb., Mch., '08.

Freight prepaid to Blchy.

Shipping directions Later.

Accepted, seller Accepted, buyer,

S. BALDWIN, JR. O.O. Co."

(Record, page 36.)

And in executing it, Woodward, Baldwin and Company acted for the plaintiff, their undisclosed principal.

The declaration contained the common counts, and a special count setting out the contract. This count alleged that defendants actually received and accepted from the plaintiff 350,195 yards of the goods manufactured for them and had paid on account thereof $10,371.45, leaving a balance due thereon of $9,791.04. It then alleged that on December 21, 1907, the original contract was modified by providing that deliveries should not begin until January, 1908, and that the monthly deliveries should be reduced from 350,000 to 250,000; that in accordance with such modification, it manufactured the further quantity of 1,045,648 yards of said goods, and tendered the same at the proper times to the defendants, who refused to accept or pay for the same, and on December 23, 1907, notified the plaintiff that they rescinded said contract, whereupon the plaintiff discontinued the manufacture of goods under the contract though ready and willing to perform said contract, and though it had incurred large expense in preparing to do so. It then alleged there was due the plaintiff the full contract price for the goods manufactured and tendered as above stated, in addition to the balance of $9,791.04 for the goods delivered, and also a large sum for profits lost by reason of the cancellation of said contract. The defendants pleaded the general issue, and a special plea of set off, alleging a breach of the same contract by the plaintiff in the delivery of several instalments of goods, not "firsts" such as the defendants had contracted for, and not proper or merchantable goods under said contract, but which the defendants paid for assuming that they would be proper deliveries under said contract, and without having had an opportunity, in the reasonable conduct of their business, to inspect said goods or to discover the defects which were disclosed when examined, but that as soon as these defects were discovered they cancelled said contract and demanded payment of the loss sustained by reason of said improper deliveries, to the amount of $15,000. The issues were properly joined on all the pleadings, and at the close of the testimony which was voluminous, the plaintiff offered six prayers, and the defendants offered eleven. The Court rejected all the plaintiff's prayers, and also rejected the defendants' tenth and eleventh prayers which were based upon their plea of counter-claim or set-off, and granted the defendant's first prayer, that under the pleadings there was no evidence legally sufficient to entitle the plaintiff to recover, and therefore their verdict must be for the defendant.

The modification of the original contract was brought about in this way. That was made in July, 1907, when the market for "grey goods" was steady and prices firm. In October, 1907, a financial panic was impending, threatening general disaster, and especially to those interested on a large scale in the manufacture and conversion of cotton goods. The defendants had at that time, numerous contracts similar to the present, many of which were made through Woodward, Baldwin Company, who were familiar with existing market conditions. Sometime in November, Mr. Oppenheim informed Woodward, Baldwin Company that his customers all over the country were cancelling their contracts and that it would be a great hardship for him to have to take that lot of goods according to the original deliveries, and requested them to endeavor to arrange for an extension of deliveries, or if possible for buying out the contract. They took up this matter with the plaintiff, and failing to secure the buying out of the contract, endeavored to have the monthly deliveries cut in half, but failed in this also. The plaintiff, while declining this proposition, offered "to hold back twenty per cent. of monthly deliveries until times become normal again. This is the best we can do to help buyer." This was not satisfactory to defendants, and Woodward, Baldwin Company so wrote the plaintiff, saying: "We ourselves know that we cannot afford to crowd him, and are quite sure if you were on the spot that you would feel as we do. We are satisfied you will do everything to alleviate this position which is possible." This was on December 11th, 1907. On the 17th of December plaintiff offered to make no delivery for December and thereafter to deliver monthly 250,000 yards until the contract was completed, and on December 21, 1907, defendants accepted this modification, and on the same day Woodward, Baldwin Company so notified plaintiff by letter, "thanking them for the accommodation." It will be noted that the modification thus made had exclusive reference to the extension of time and reduction in quantity of monthly deliveries, and left the character of goods the same, though by a previous agreement, the width of the goods had been changed from 36 to 37 inches, the weight per yard remaining the same, and the price changed from 5 3/4 cents to 5 7/8 cents per yard. The negotiations for the final modification of the contract were conducted on all sides in the broad and liberal spirit which characterises the conduct of men accustomed to deal in large transactions, and mindful of the wisdom of mutual concessions in time of financial stringency or panic.

On October 1st, 1907, before the approaching panic had been taken into account by the parties, the defendants gave shipping instructions to the plaintiff directing the first weekly instalment of goods to The Southbridge Printing Co., Mass., and the balance, until otherwise instructed, to S.H. Green Son, Clyde, R.I.; but later, about October 12th, they were instructed to ship first instalment also to S.H. Green Son. On November 2nd, these instructions were revoked until further notice. In the meantime, however, on October 25th, 1907, an invoice of 79,771 yards had been shipped as ordered to S.H. Green Son. Three invoices were ready for shipment, on November 5th, 12th and 20th, respectively, but were held for shipping instructions. On November 22nd, the invoice of November 5th, 65,920 yards, was ordered shipped to the U.S. Finishing Co., Pawtucket, R.I., and arrived there about December 5th. On the 27th, the invoice of November 12th, 51,462 yards was also ordered to Providence, R.I., and was received in the print mill on December 23, 1907, and on the 27th also the invoice of November 20th, 62,756 yards, was ordered shipped to Pawtucket and was received and put into process about December 13th. Prior to December 23rd 1907, when defendants cancelled the contract, a fifth instalment had been invoiced to defendants, but never left Augusta, for want of shipping instructions. The record of goods invoiced therefore stands thus:

"(1) Oct. 25th, 1907, 79,771 yds. $4,592.82, shipped Oct. 25th to S.H. Green Son.

(2) Nov. 5th, 1907, 65,920 yds. $3,795.34, shipped Nov. 25th to U.S. Finishing Co.

(3) Nov. 12th, 1907, 51,462 yds. $2,962.92, shipped Nov. 30th to U.S. Finishing Co.

(4) Nov. 20th, 1907, 62,756 yds. $3,613.18, shipped Nov. 30th to U.S. Finishing Co.

(5) Nov. 30th, 1907, 90,286 yds. $5,198.22, never left Augusta."

The second, third and fourth instalments were converted and have been paid for. The first was never converted and was held subject to plaintiff's disposal, and the fifth remaining at Augusta was embraced in the cancellation.

There was never any complaint as to the grade of the goods, viz.: "Plain sheetings, soft-twisted yarns" — none as to the number of strands to the square inch either in the warps or in the filling — none as to the width of the sheeting, nor as to the number of yards to the pound — none as to the making up in double cuts. It is conceded that the contract in question called for what are known as "firsts" in the trade, "seconds" never being deliverable unless specified in the contract. They not only sell for less than "firsts" but they are unfit for converting and for making shirts, and are never used for that purpose.

But in weaving such goods as those in question various imperfections sometimes occur. These imperfections are variously described in the testimony as "run threads," or "drop threads," "thick and thin places," "misweaves." "knotted filling," "scratch ups," "holes" and "oil stains." A drop thread is a broken thread not caught up, and leaving a vacancy in the cloth. "Thick and thin places" speak for themselves, places where the uniformity of the body of the cloth is not preserved and the goods are humpy and uneven. These may all be classed as misweaves generally. "Knotted filling" leaves kinks in the cloth. "Scratch ups" is one of the most serious defects and is described by Mr. Verdery, the plaintiff's president, to be "a break of several threads and the weaver tries to pull them together again with a little comb." He said that was one of the most serious defects when the goods go to the bleachery for printing; that two or three such "scratch ups" in a piece of 50 or 60 yards would justify throwing it out as "seconds;" and that this was true also of misweaves, loose threads, thick and thin places, and oil stains.

Otis G. Lynch, a former superintendent of the plaintiff testified that "scratch ups" ought not to be found in "firsts." and if found in any quantities the goods were "seconds;" that there was no fixed percentage of defects which would render goods "seconds," and that "the mills were not expected to put up any bad goods."

For the protection both of the manufacturer and the purchaser, and especially where the goods are for conversion, a careful system of inspection for defects in these grey goods is necessary at the mills when and as they are made, and according to all the testimony, when the goods are to go to a converter from the manufacturer, this is the only inspection practicable; the converter never makes an inspection before processing the goods, unless specially ordered by the purchaser, or unless upon opening the bales, defects are discovered so numerous and serious as to require notice to be given to the purchaser. The mills provide inspectors for that purpose. When the goods come from the looms, they go to the brusher, and from him to the measurer, and they are made into cuts, single or double as may be required. The bolts are then placed on a table, opened and turned over, examined yard by yard, separating them into "firsts," and "seconds;" the "firsts" going all into one pile, and the "seconds" all into another pile. If they are to be branded they then go to the branding room; if not, they are put up at once. They are then weighed on the scales, and are folded by a machine in the same room, and are numbered. "Firsts" and "seconds" cannot be intermingled unless the inspector has been negligent in his duty. If the mill is able to make first class goods, all depends upon the accuracy of the inspector. The defects in grey goods are magnified in processing, and depreciate the value of the finished goods very greatly. When grey goods are shipped by purchasers to the print mills they are stored in bales just as they arrive until they are ordered into process, whether for a month, or a year, or two years.

The first invoice reached the print mills about November 11th, 1907, but were never ordered into process. Two of the bales in that invoice were subsequently sent to Baltimore for examination, after the cancellation, as were 103 pieces out of other bales but the rest of this invoice remains at the print mill subject to the plaintiff's order. The second invoice arrived at the print mill about December 5th, 1907, had already been ordered into process, and were put in process soon after their arrival. The third and fourth invoices were shipped from Augusta about November 30th, 1907. Both had been ordered into process, and were put in process soon after their arrival. The fourth was received about December 13th, 1907, and the third on December 23, 1907, or possibly a day or two earlier but were put in process on the 23rd, inst. The fifth invoice, as heretofore noted, never left Augusta, and remains subject to plaintiff's order.

On December 23rd, defendants cancelled the contract for the defects alleged to have been just discovered in the goods, and on that day called up the print mills and learned the goods in the second, third and fourth invoices had all gone into process.

It would serve no useful purpose to go in detail into the evidence as to the existence of the alleged defects in the goods delivered under the contract. The integrity of none of the witnesses is fairly open to question, and their testimony throughout is characterized by caution and frankness.

Such witnesses for the plaintiff as Mr. Verdery, Mr. Lynch, Mr. Donohue, Mr. Gerald, Mr. Fish and others, all acknowledged experts, and most of them disinterested, testified that they inspected large quantities of the goods manufactured for defendants, but not delivered, and found them all to be "Firsts." But it was from the goods alone that were actuallydelivered that the defendants could judge of their course in regard to cancelling the contract, and it is from the evidence as to those goods alone that we must reach our conclusion upon that question.

During the course of the trial, large quantities of the grey goods unprocessed, from the first shipment, and also from five bales of the third shipment which were inadvertently omitted when the rest of that shipment was put in process, as well as large quantities of finished goods from the second and fourth shipments were examined by both plaintiff's and defendants' witnesses. Elaborate tabulations were made by defendants' expert witnesses of the various defects found in these goods showing the average number of specific defects to each piece examined, misweaves ranging as high as 45 in 129 pieces, thick fillings as high as 30, thick and thin places as high as 22, knotted fillings as high as 6, holes as high as 3. In another lot of grey goods "scratch ups" ranged from 7 to 1 per piece. These will suffice as illustrations, and it was admitted by Mr. Verdery, the plaintiff's president, and testified by Mr. Summerfield Baldwin, Jr., one of plaintiff's witnesses, that none of the four shipments thus examined complied with the contract.

Upon this state of facts two questions arise:

(1) Did the failure of the plaintiff to deliver "Firsts" as required by the contract give the defendants the right to rescind the entire contract; and,

(2) If such right of rescission resulted from the plaintiff's breach of contract in the delivery of the four instalments actually made, was the right of rescission lost by reason of the use made of the goods by the defendants in the second, third and fourth shipments, or by any other act on their part?

The first of these questions must be regarded as settled in this State. The sale in this case was of a certain described article, "Plain Sheetings — Soft-twisted yarns;" an article known in the trade as "Firsts;" a different article from that known in the trade as "Seconds," and known by the vendor to be designed for a use to which "Seconds" cannot be put.

In Columbian Iron Works v. Douglas, 84 Md. 64, CHIEF JUDGE McSHERRY said: "If the sale is of a described article, the tender of an article answering the description is a condition precedent to the purchaser's liability, and if this condition be not performed, the purchaser is entitled to reject the article. * * * It can make no possible difference whether the failure of the plaintiff to secure what he contracted for, grew out of the fraud of the defendant, or out of an accident unmixed with bad faith."

In Pope v. Allis, 115 U.S. 363, the Supreme Court said: "When the subject matter of the sale is not in existence, or not ascertained at the time of the contract, an undertaking that it shall, when existing, or ascertained, possess certain qualities, is not a mere warranty, but a condition, the performance of which is precedent to any obligation upon the vendee under the contract; because, the existence of these qualities, being part of the description of the things sold, becomes essential to its identity, and the vendee cannot be obliged to receive and pay for a thing different from that for which he contracted."

In Norrington v. Wright, 115 U.S. 188, recognized as a leading case in this country, the Supreme Court held that in a contract for the sale and purchase of 5,000 tons of iron rails, with subsidiary provisions for shipments in different months, and for payment upon each delivery, the seller's failure to ship the required quantity the first month, gives the buyer the same right to rescind the whole contract that he would have had if it had been agreed all the goods should have been delivered at once, and that case has been approved and followed in Salmon v. Boykin, 66th Md. 550, and in later cases in this Court.

The principle involved in Norrington v. Wright, supra, has been recognized and applied in McGrath v. Gegner, 77 Md. 331,Balto. City v. Schaub, 96 Md. 534, and Webster v. Moore,108 Md. 595. In each of these cases it was held that under contracts providing for monthly deliveries and monthly payments, a vendor could rescind the contract for non-payment for any one instalment or delivery. In the last case the buyer had paid for the first two instalments, but refused to pay for the third instalment, alleging that goods inferior to those described in the contract had been delivered in all three shipments, and it was held that the seller had a right, on such refusal to pay, to rescind the contract as to future deliveries.

It is quite clear upon principle that there can be no valid distinction between the exercise of the right of rescission by the vendor for the failure of the vendee to pay for an instalment delivered, and the exercise of the same right by the vendee upon failure of the vendor to deliver an instalment of goods conforming to the article described in the contract. Mutuality is an essential ingredient of the law of contract, unless expressly excluded, and if this right is more valuable in one than in the other of the two above supposed instances, it is in the latter rather than in the former.

This doctrine is applicable to failure in delivery of, or payment for, any instalment under the contract, whether the first, or any later one, the rights of the parties being the same as to any unperformed part of the contract, as if that part had been the whole contract. Cleveland Rolling Mills v. Rhodes,121 U.S. 264; Pakas v. Hollingshead, 184 N.Y., 24; 3 L.R.A., N.S., 1042.

The right of rescission sought to be exercised by the defendants was an incident of the contract under the facts in this case.

(2) Did the defendants lose this right by any act or conduct of theirs, either by the use of the goods delivered under the second, third and fourth shipments, or otherwise?

It has not been lost unless it has been waived intentionally, for in this case we have discovered no element of estoppel which would produce the same result as waiver. The contract required the plaintiff to pay the freight to the print mills. The goods in the first shipment which went to the mills, but were never processed, have always, since rescission, been subject to plaintiff's order, while those in the fifth invoice, which never left Augusta, have always been in their control and possession. The second, third and fourth shipments, which were put in process, have been paid for at the full contract price as "firsts," when they were in fact "seconds," and the plaintiff had been benefited instead of injured thereby. It was not induced to continue manufacturing goods under the contract, to its detriment, and did so at its own risk after notice of cancellation. It cannot be contended, as in Delamater v.Chappell, 48 Md. 253, that the use of the goods in the second, third and fourth shipments was an acceptance, indicating a waiver of the right to rescind. The circumstances of the two cases are radically different and forbid such an inference. The evidence in the case is conclusive that the only inspection made in such cases is that made by the plaintiff at its mill, and that the defendants had the right to rely upon that inspection until they were made acquainted by the print mill, as the result of processing the goods, with the defects of which they had neither previous knowledge nor means of knowledge.

In 29 A. E. Enc. L. 1091 waiver is defined as follows: "A waiver is the intentional relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right. A waiver, strictly so called, is the result of an intentional relinquishment of a known right."

In Norrington v. Wright, supra, the plaintiff instead of shipping 1,000 tons in February, and 1,000 tons in March, as stipulated in the contract, shipped 400 tons in February and 855 in March. "The defendants, immediately after the arrival of the March shipments, and as soon as they knew that the quantities shipped in February and March were less than the contract called for, clearly and positively asserted the right to rescind, if the law entitled them to do so. Their previous acceptance of the single cargo of 400 tons shipped in February was no waiver of this right, because it took place without knowledge, or means of knowledge that the stipulated quantity had not been shipped in February. The price paid by them for that cargo being above the market value, the plaintiff suffered no injury by the omission of the defendants to return the iron; and no reliance was placed on that omission in the correspondence between the parties."

In Pope v. King, 108 Md. 46, JUDGE BRISCOE called attention to the fact that the use of a building erected under a contract on the owner's land under circumstances which negative the intention of the owner to accept the work, does not constitute an acceptance of the work; and the analogy between that case and the present is too obvious to require explanation. Acquisition of title to the thing used, does not necessarily imply acceptance under a contract, of work performed on the thing used, where the use is not inconsistent with non-acceptance.

No good could be accomplished by consuming time in minute examination of the evidence as to prompt action on the part of the defendants after discovery of the alleged defects. Under all the circumstances of this case, we are of opinion that the defendants acted with reasonable promptitude after discovering the defects, and that such abstention as appears from immediate action, is properly attributable to a due regard for the rights of the plaintiff, and a purpose to be as fully as possible correctly informed, before actual cancellation of the contract.

Finding no error in the rulings of the learned Court below the judgment will be affirmed.

Judgment affirmed with costs to the appellees above andbelow.