author: Cbane, J.

text:
    Best Building Company, Inc., Appellant, v. Employers’ Liability Assurance Corporation, Ltd., et al., Respondents.
    Insurance (liability) — contract— negligence — contract measures liability of insurer in absence of fraud or bad faith — ■ insurer may not be held liable for negligence in failing to settle case where policy gave it the option to settle or defend.
    The contract of the parties to a policy of liability insurance must measure the liability in the absence of fraud or bad faith, and where there was nothing in the policy whereby the insurance company obligated itself to settle if an opportunity presented itself, but it was given the option to settle or to try the action as it preferred, the company may not be held liable for alleged negligence in failing to settle a case where there was a possibility of so doing and where as a consequence a verdict has resulted against the insured for more than the amount of the policy.

      Best Building Co. v. Employers’ Liability Assur. Corp., 220 App. Div. 810, affirmed.
    (Argued February 24, 1928;
    decided March 27, 1928.)

      Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered June 21, 1927, unanimously affirming a judgment in favor of defendant entered upon an order of the court at a Trial Term which granted a motion to set aside a verdict in favor of plaintiff and for a dismissal of the complaint.

      William Otis Badger, Jr., and Paul D. Compton for appellant.
    Though under the policy provisions the insurance company had an option to settle or defend the tort action, it was bound to exercise the option with due care, and having acted negligently in electing to try the action rather than settle it, the insured can now recover the amount lost by it through the company’s negligent conduct. (Douglas v. U. S. Fid. & Guaranty Co., 127 Atl. Rep. 708; McAleenan v. Mass. B. & I. Co., 219 N. Y. 563; Levin v. New England Casualty Co., 233 N. Y. 631; Auerbach v. Maryland Casualty Co., 236 N. Y. 247; Brunswick Realty Co. v. Frankfort Ins. Co., 99 Misc. Rep. 639; Brown & McCabe v. London Co., 232 Fed. Rep. 298; Brassil v. Maryland Casualty Co., 210 N. Y. 235.)

      Walter L. Glenney for respondent.
    The defendant insurance company failed in no duty which it owed the plaintiff. (Auerbach v. Maryland Casualty Co., 236 N. Y. 247; Streat Coal Co., Inc., v. Frankfort Gen. Ins. Co., 237 N. Y. 60; Levin v. New England Casualty Co., 101 Misc. Rep. 402; 233 N. Y. 631.)
   Cbane, J.

The defendant insured the plaintiff against loss arising from the liability imposed by law for damages on account of bodily injuries accidentally suffered by an employee. An accident happened which resulted in a judgment against the plaintiff for $16,000. The defendant, according to the terms of its policy, undertook the defense for the plaintiff, and has paid, or is willing to pay, the sum of $10,000, the extent of its policy liability. The plaintiff has sued the defendant for its negligence in failing to settle the claim and asks to recover the excess of- the judgment over the face of the policy, that is, the $6,000 less the $2,000 which the plaintiff alleges it was at all times willing to contribute. The facts regarding the proposed settlement are these:

During the course of negotiations the accident case could have been settled with the injured employee for $8,500. The defendant, insurance company, offered $6,500. The plaintiff was given no notice of either offer. It alleges that if notice had been given to it, the difference of $2,000 between the two offers would have been readily paid by it, and the injury case settled. As the insurance company did not increase its offer, or meet the injur'ed employee’s demand, the case was not settled, and the plaintiff claims and alleges that the failure to settle was due to the defendant’s negligence in handling the case, and particularly in its failure to notify the plaintiff of the offers which had been made by both sides. The question is directly raised whether under the terms of these accident policies as they now read the insurance company is liable for negligence in failing to settle a case when there was a possibility of so doing. That the insurance company in the handling of the litigation or in failing to settle is liable for its fraud or bad faith is conceded and has been repeatedly stated in all the cases bearing on the subject. So also it has been held by this court that the company is not liable on its contract for a failure to settle; a contract imposes upon it no such duty. (Auerbach v. Maryland Casualty Co., 236 N. Y. 247; Streat Coal Co., Inc., v. Frankfort General Insurance Co., 237 N. Y. 60.) In the latter case this court said: Defendant, however, was privileged at its own cost to settle any claim or suit. It was not obligated so to do, neither was it required to consult plaintiff in regard thereto. * * * In the absence of fraud, negligence or bad faith, alleged and established it is not the duty of the court to read into contracts conditions or limitations which the parties have not assumed. Negligent acts on the part of defendant to the injury of plaintiff are not charged in the complaint.”

In the Auerbach case this court said: There are no allegations in the complaint to the effect that the insurance company was negligent either in investigating the facts connected with the accident, or in the defense of the action, not a suggestion that it was guilty of fraud or misrepresentation in any way.”

Thus, these two cases seem to have reserved this question of negligence in failing to settle the claim.

On the other hand, the Supreme Court of New Hampshire, in Douglas v. United States Fidelity & Guaranty Co. (81 N. H. 371), has held that a recovery may be had for a negligent failure to settle where the facts were similar to those in this case. That court said:

“ The cases relied upon do not consider the question involved here. They were all actions upon the contract, and were brought upon the theory that the duty to settle was absolute. The question of care or negligence in exercising the right to elect is not considered in any of them. But they do state, in the course of the discussion, that the insurer has an option to settle or not as it chooses. The fact that the right of election is vested solely in the insurer, does not dispose of the present case. Exclusive authority to act does not necessarily mean the right to act arbitrarily. Our law upon the subject is based upon the broad proposition that in all its dealings with the defense to Elliott’s claim the defendant was bound to act as a reasonable man might act under the same circumstances. * * *
The fundamental question is, does or does not the insurer owe to the insured a duty in the matter of a settlement? If it does not owe such a duty, it is not liable either for a failure to act or for the manner of action. It may refrain from completing a settlement for any reason, however essentially dishonest, and still there would be no liability. If, as the cases roundly state, it has an exclusive and absolute option, no one can question its motives for the exercise or non-exercise of the privilege. No case has gone that far. All acknowledge a liability for fraudulent conduct, or lack of good faith, in refusing to settle. But they are silent as to any reasoning which would sustain such liability and at the same time deny responsibility for negligent conduct.”

While there is much force in the reasoning of this opinion, yet I am inclined to the belief that the contract of the parties must measure the liability in the absence of fraud or bad faith. There are circumstances when implied obligations may be reasonably inferred from the language used (Brassil v. Maryland Casualty Co., 210 N. Y. 235), but there is no implied obligation in the insurance policy in this case that the company must or will settle according to the offer made. In the Auerbach case we said: “ There is nothing in the policy by which the insurance company obligated itself to settle, if an opportunity presented itself. It was given the option to settle, if it saw fit to do so, or to try the action, as it preferred. It, however, was under no legal obligation, either express or implied, to compromise or settle the claims prior to the trial. * * * The insurance company, in refusing to settle the actions, did what it had the legal right to do under the terms of the policy.”

• We may ask what would constitute negligence in the failure to settle a case, as distinguished from bad faith. Even when there was little likelihood of recovery, many reasonable persons would think it wise to settle rather than to take any chance with a jury. In most of the accident cases, disputed questions of fact arise. Is the insurance company to determine at its peril whether reasonable-minded men would believe. the plaintiff’s witnesses in preference to its own? Again, even on conceded facts, as frequently happens, a serious question of law arises as to the nature or extent of liability, if any. Is a jury to say that the insurance company was guilty of negligence in choosing to try out such a question in the courts rather than to settle? These questions suggest the wisdom of adhering to the contract of insurance which the parties have made. If the insurance company is to be obligated to make a settlement under any given circumstances, it must be a matter to be dealt with between the insured and the insurer, or else regulated by - the Legislature.

Although this court wrote no opinion in the case of Sehencke Piano Company v. Philadelphia Casualty Company (216 N. Y. 662), it apparently decided that there was no liability for negligence in failing to settle a claim under an accident policy. In that case a judgment in the accident case was recovered for $10,143.93. The case could have been settled for $2,500. The company refused to settle because the insured would not pay part of the amount. Thereafter, the insured sued the company for the amount which it was obliged to pay over $5,000, the face of the policy. The complaint alleged negligence in these words: That the defendant herein refused and neglected to settle said action, and for its own benefit and against the wishes of _ the plaintiff herein arbitrarily and unreasonably refused to settle said claim and suit within the policy limit stated in said policy.”

Our note in the memorandum recital of our decision calls attention to this complaint as alleging negligence and lack of due diligence. As a verdict was directed against the plaintiffs’ contention of negligence, this court must have decided the point.

For the reasons here stated, the judgment appealed from should be affirmed, with costs.

Caedozo, Ch. J., Pound, Andeews, Lehman, Kellogg and O’Beien, JJ., concur.

Judgment affirmed.


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    The People of the State of New York, Appellant and Respondent, v. Jennie L. J. Starke-Belknap et al., Respondents and Appellants, Impleaded with Others. The People of the State of New York, Appellant and Respondent, v. The New York Central Railroad Company et al., Respondents and Appellants, Impleaded with Others.
    Real property — title — academic question — damages — Court of Appeals will express no opinion as to validity of title where question has become unimportant — measure of damages for wrongful use and occupation of lands.
    1. No opinion will be expressed by the Court of Appeals as to the validity of a claim of title to real property based upon a grant made by the King of England, where by reason of decisions in other actions upholding the validity of later patents the validity of the earlier grant has become unimportant.
    2. Upon a claim for the reasonable value of the use and occupation of lands by defendant railroad company from the time of a former judgment of ejectment it was error to limit the recovery of damages to the rental value of the lands as they were before the railroad company had filled and otherwise improved them. The damages should have been measured by the rental value of the lands in the condition in which they have been during the continued possession by the wrongdoer after the judgment of ejectment.

      People v. Starke-Belknap, 218 App. Div. 849, modified.

      People v. New York Central R. R. Co., 218 App. Div. 849, affirmed.
    (Argued February 14, 1928;
    decided March 27, 1928.)
    Cross-appeals, by permission, from judgments of the Appellate Division of the Supreme Court in the second judicial department, entered December 27, 1926, which unanimously affirmed judgments entered upon a dismissal of the complaint by the court on trial at Special Term but awarding damages to defendant Starke-Belknap against defendant New York Central Railroad Company upon her claims for affirmative relief.

      Albert Ottinger, Attorney-General (Eugene L. Brisach and Anson Getman of counsel), for plaintiff, appellant and respondent.

      Talbot M. Malcolm and Earl A. Darr for Jennie L. J. Starke-Belknap, respondent and appellant.

      George H. Walker, Frederick L. Wheeler and Alex S. Lyman for New York Central Railroad Compan y$ respondent and appellant.
   Per Curiam.

Three appeals are before us: an appeal by the People in both actions from the judgments dismissing the complaints; an appeal in both actions by the defendant, the New York Central Railroad Company, from the judgments dismissing its claim for relief against its co-defendant, Starke-Belknap; an appeal in action No. 1 by the defendant Starke-Belknap from the judgment whereby her claim for damages against her co-defendant, the New York Central Railroad Company, was limited to the rental value of her lands unfilled and unimproved.

As to the first of these appeals, the People concede that judgments rendered by this court since the actions were begun, forbid the annulment of the patents granted to the defendants under a resolution of the Commissioners of the Land Office acting as the representatives of the State (Matter of Benedict v. Lunn, 244 N. Y. 373; Matter of City of N. Y. (Upper N. Y. Bay) 246 N. Y. 1). We are asked, however, to express an opinion upon the validity of the claim of title made by the defendant Starke-Belknap as against the People of the State by virtue of a grant made by the King of England to the predecessors in title of that defendant in 1697. This we may not do. The claim of title under that grant would be material only if the later patents were annulled. The later patents standing, the earlier grant is unimportant, so far as it has relation to any interest of the State. Its validity has already been adjudged as between the two defendants (Starke-Belknap v. N. Y. C. R. R. Co., 197 App. Div. 249; affd., 234 N. Y. 630).

As to the second of the appeals, the railroad company is concluded by the bar of a former judgment (Starke-Belknap v. N. Y. C. R. R. Co., supra).

As to the third of the appeals, which is confined to action No. 1, the defendant Starke-Belknap was erroneously limited in her recovery of damages to the rental value of the lands as they were before the railroad company had filled and otherwise improved them. The damages should have been measured by the rental value of the lands in the condition in which they have been during the continued possession by the wrongdoer after the judgment of ejectment.

In action No. 1, the judgment of the Appellate Division and that of the Special Term should be modified by directing a reassessment of the damages upon the claim of the defendant Starke-Belknap against the defendant railroad company, and as modified affirmed, with costs to both defendants against the plaintiff, and with costs to the defendant Starke-Belknap against her co-defendant.

In action No. 2, the judgment should be affirmed with costs.

Cardozo, Ch. J., Pound, Crane, Andrews, Lehman, Kellogg and O’Brien, JJ., concur.

Judgment accordingly.


author: O’Brien, J.

text:
    New York Canners, Inc., Appellant, v. Lewis M. Milbourne et al., Respondents.
    Sale — warranty — evidence — action for breach of warranty in sale of canned goods — erroneous admission of evidence showing that no complaints had been received as to goods sold to others • — ■ erroneous admission of testimony as to variation of temperature in localities to which goods w;ere shipped — evidence that workman was directed to put machine in order erroneous, in absence of testimony that he performed his work.
    1. In an action for breach of warranty in a sale of canned goods, alleged to have spoiled by reason of the caps of the cans being improperly fastened, it was error to admit evidence showing that no complaints had been received concerning defects in goods sold to others than plaintiff. Those sold to others were different goods and could not have been packed at exactly the same time as were those sold to plaintiff.
    2. It was also error to admit testimony as to variation of temperature in localities where the goods were shipped, based not upon actual knowledge of witnesses but upon probabilities and their understanding of usual weather conditions. Even if accurate reports had been produced such evidence would demonstrate nothing in the absence of proof of conditions under which the goods had been transported and stored.
    3. Evidence that immediately before the canning of the goods in question an employee of the corporation that owned the capping machine was directed to put it in order is incompetent in the absence of evidence that the employee fully performed the work that he was employed to do.

      New York Canners, Inc., v. Milbourne, 217 App. Div. 714, reversed.
    (Argued February 14, 1928;
    decided March 27, 1928.)
    Appeal from a judgment of the Appellate Division of the Supreme Court in the fourth judicial department, entered May 18, 1926/ affirming a judgment in favor of defendants entered upon a verdict.

      Carroll M. Roberts and John F. Connor for appellant.
    Defendants were permitted to testify over plaintiff’s objection that other sweet potatoes packed by them in 1920 were sold to various persons from whom no complaints were received. The reception of this evidence was reversible error. (Altkrug v. Whitman Co., Inc., 185 App. Div. 744; Bloom’s Son Co. v. Haas, 130 Mo. App. 122; Hill v. Hanan & Son, 62 Tex. Civ. App. 191; Elmberg Co. v. Dunlap Hardware Co., 267 S. W. Rep. 258; Barton v. Kane, 17 Wis. 37; Winter-Loeb Grocery Co. v. Boykin, 203 Ala. 187; Pratt v. N. Y. C. & H. R. R. R. Co., 77 Hun, 139; Ward v. Kalbfleish, 21 How. Pr. 283; Esch v. Chicago, Milwaukee & St. Paul R. Co., 72 Wis. 229.) Defendants were permitted over plaintiff’s objection to introduce testimony as to the variations in temperature at the various cities to which the potatoes were shipped by the plaintiff without any proof that the potatoes in question were subjected to such variations in temperature or that such variations in temperature would cause canned sweet potatoes to turn black and spoil. (Civ. Pr. Act, § 305.) The defendants were erroneously permitted to give testimony tending to place the blame for the spoilage of the potatoes upon the Continental Can Company and its employees. (Eiseman & Co., Inc., v. Fruchtman, 211 App. Div. 543.)

      Erwin E. Shutt for respondents.
    The appellant’s exception to the admission of evidence that respondents received no complaints as to potatoes sold out of the pack to other customers is not well taken. (Buckly v. Westchester Lighting Co., 93 App. Div. 436; Link v. Sheldon, 136 N. Y. 1; Resch v. Columbia Machine Works, 176 App. Div. 780; Wightman v. Campbell, 161 App. Div. 49; 217 N. Y. 479; Fisher v. Ritchie & Co., 174 App. Div. 604; Beyer v. Isaacs, 104 App. Div. 12; Gall v. Gall, 114 N. Y. 109; Holmes v. Moffat, 120 N. Y. 159; Malcomson v. Monaton Realty & Invest. Co., 154 App. Div. 694.) Objections made to the admission of evidence as to the working of respondents’ sealing machine are not well taken. (Webster v. Moore, 108 Md. 572.)
   O’Brien, J.

The action is for a breach of warranty in the sale of canned sweet potatoes. For the purpose of distribution to customers, plaintiff purchased 1,650 cases from defendants at their canning factory at Kingston, Md. On October 12, 1920, 650 cases were shipped by defendants to one of plaintiff’s factories at Albion, N. Y., and on October 25, 1,000 cases to another of its factories at Irving, N. Y. Of the potatoes delivered by defendant at Albion 150 cases were on November 26, 1920, transferred by plaintiff to its factory at Irving and on April 23, 1921, ten cases were shipped from Albion to Buffalo. On December 22, 1920, 140 of the 150 cases transferred from Albion to Irving were shipped from that point to Boise, Idaho, and on other dates during that winter large quantities were shipped from Irving to several points in western and northwestern States. No potatoes delivered by defendant at plaintiff’s Albion factory proved to be bad except some of those which remained at Irving from November 26 to December 22 and some of those which had been sold at Buffalo. No complaint is made concerning any of the 650 cases sold direct to purchasers from Albion except those 10 cases. About sixty per cent of the potatoes delivered by plaintiff from its Irving factory to the west proved upon examinanation a few months later to have turned black and to be unfit for consumption. The same is true in respect to those sold at Buffalo. Plaintiff’s theory is that a machine in defendants’ factory improperly fastened the caps of the cans thereby allowing air to enter and spoiling the contents. An important issue relates to the condition of that machine.

Evidence was produced by plaintiff to the effect that the machine is a delicate one, frequently out of order and requiring' supervision and testing at short intervals by an expert. Every hour or less, by filing the coverings of the seams of cans selected at random, the mechanic in charge tested its efficiency and accuracy of operation. Testimony tends to show that many cans, the contents of which were spoiled, were improperly sealed. Yet the evidence on this point is not so conclusive as to compel the jury to infer that improper sealing caused the potatoes to assume the defective condition in which they were discovered. Although positive opinion was expressed by witnesses that such a cause produced that effect, the jury was not, of course, bound by it. One of plaintiff’s witnesses, an expert capping machine operator, confessed that he did not know what effect the entrance of air into the can would produce. Another expert, one engaged in laboratory research for the canning industry, first testified that air will spoil canned sweet potatoes and turn them black and that in the cans where the potatoes were spoiled air did enter and discolor the contents. Later he admitted that air in contact with the starch and sugar in the bottom of the can will cause fermentation and that fermentation is accompanied by swelling but that no fermentation and no swelling were found in the cans which he examined. From this evidence the jury could have found that, in the absence of fermentation, no air entered the cans and that the condition of the potatoes resulted from causes other than improper sealing. The issue of fact may be treated as a close one and, since that is so, any error in the admission of evidence may have improperly influenced the jury to render a verdict for defendant and will require reversal of the judgment. We find three such errors.

Evidence was admitted for the purpose of showing that no complaints were received concerning defects in any potatoes sold by defendant to others than plaintiff. Those sold to others were, of course, different potatoes and could not have been packed at exactly the same time as were those sold to plaintiff. The packing began late in September and ended October 8th. Only about 2,600 cases were packed, or about three hundred or four hundred per day. During each day many cans might have been improperly capped. Most of the cans were correctly sealed. At least forty per cent of those received by plaintiff remained good. The fact is possible that the cans shipped to Irving and later sent-to the west and the ten cases transhipped from Albion to Buffalo were improperly capped at times when the machine may have been inaccurately adjusted. -The cap of a can could be examined only by filing the seam, and comparatively few were ever so tested. This is not a case where different lots of a product are shown to have been mixed at the same time, packed in the same way and stored under similar conditions.

The admission of evidence relating to variation in temperature in the western and northwestern localities where the potatoes were shipped was also error. It was not based upon actual knowledge of witnesses but upon probabilities and upon the witnesses’ general understanding of usual weather conditions. Even if accurate reports had been produced by those having knowledge of the subject, such evidence would demonstrate nothing in the absence of proof of conditions under which the potatoes had been transported and stored.

Defendant proved that the capping machine was owned by the Continental Canning Company and that, immediately before the canning of the potatoes began, an employee of that company was directed to put the machine in order. This was incompetent in the absence of evidence that the employee fully performed the work that be was thus employed to do.

The judgments should be reversed and a new trial granted, with costs to abide the event.

Cardozo, Ch. J., Pound, Crane, Andrews, Lehman and Kellogg, JJ., concur.

Judgments reversed, etc.


author: Kellogg, J.

text:
    Franklin Sugar Refining Company, Respondent, v. Stanislaus Lipowicz et al., Appellants.
    Contracts — sale — Statute of Frauds — sufficiency of memoranda of sale under Statute of Frauds of Pennsylvania — action in this State to recover difference between contract price and market price at date of refusal to accept delivery- — -parol proof proper to explain trade expressions contained in memoranda of sale - — ■ necessity of resort to parol proof to ascertain prevailing trade differentials does not render memoranda incomplete under Statute of Frauds — disregard of differentials by court in reckoning damages immaterial.
    1. Contracts of sale, made in the State of Pennsylvania, evidenced by memoranda which bound the purchaser to buy a given quantity of fine granulated sugar in barrels at a stated price per pound, or an equivalent amount of other sugars in other packages at the same rate plus or minus a differential for the particular assortment, which was definitely ascertainable by a reference to the sugar market and the differentials prevailing therein at the moment, are valid and the memoranda sufficient under the Statute of Frauds of Pennsylvania as interpreted by the courts of that State.
    2. In an action brought in this State to recover the difference between the contract price and the market price at the time of refusal to receive deliveries of sugar, it was proper to resort to parol proof to explain the expressions “ bbls ” and “ Basis 22% ” contained in the memoranda of sale. Moreover for the purposes of the Statute of Frauds, the memoranda must be regarded as incorporating the explanatory words.
    3. An argument that, while the memoranda would have satisfied the Statute of Frauds if “ Basis 22% ” indicated a flat price of twenty-two and one-half cents per pound for all grades of sugar, they were nevertheless insufficient since a resort to parol proof to ascertain the prevailing trade differentials would be required, cannot be sustained. Where parties have contracted to buy and sell without naming a price, a memorandum which fails to express a contract price may be sufficient to satisfy the Statute of Frauds. Where the parties have agreed upon “ current rates ” as the price, a memorandum so specifying, if otherwise complete, will satisfy the statute. So, also, where, as here, the memoranda expressed an agreed price for granuMed sugar'and-pricesfor other grades and packages were t'o be ascertained! by' applying: Various differentials to the granulated price, which at any given time: werd well’ established! facts of the' sugar market,, the necessity' tiff a- recourse to that market for their ascertainment did! not render the memoranda incomplete: (Franklin ¡Silgan* Skfinintf Co.-

    v. Howell, 274 Penn. St. 190; Franklin Sugar Refining Co'. V.- ifm& Milling & Grocery Co., 278 Penn. St. 105; Franklin Sugar Refining Co. v. John, 279 Penn. St. 104, distinguished.)
    4. The fact that the court in reckoning the damages disregarded the differentials is immaterial where from the evidence it may be presumed that they did not change between the date of the contracts and the date of the breaches thereof.

      Franklin Sugar Refining Co. v. Lipowicz, 220 App. Div. 160, affirmed.
    (Argued January 16, 1928;
    decided March 27, 1928.)
    Appeal from a judgment, entered March 29, 1927, upon an order of the Appellate Division of the Supreme Court in the fourth judicial department, reversing a judgment in favor of defendants, entered upon a verdict directed by the court and directing judgment in favor of plaintiff.

      Frank G. RaicKle and Carlos C. Alden for appellants.
    The writings offered by plaintiff do not satisfy the requirements of the Statute of Frauds either of New York or of Pennsylvania. (Pers. Prop. Law, § 85; Pennsylvania Sales Act, § 4; Williston on Sales [2d ed.], §§ 73, 75, 87, 103; Stone v. Browning, 51 N. Y. 211; 68 N. Y. 598; Franklin Sugar Refining Co. v. Howell, 277 Penn. St. 190; Franklin Sugar Refining Co. v. Kane M. & G. Co., 278 Penn. St. 105; Franklin Sugar Refining Co. v. John, 279 Penn. St. 104; Wilson v. Lewiston Milling Co., 150 N. Y. 314; Ward v. Hasbrouck, 169 N. Y. 407; Brauer v. Oceanic Steam Nav. Co., 178 N. Y. 339.) The Statute of Frauds of Pennsylvania should be applied and the decisions of the Pennsylvania courts should be received as controlling. (Blanchard v. Russell, 13 Mass. 1; Manhattan Life Ins. Co. v. Johnson, 115 App. Div. 429; Bath Gas Light Co. v. Rowland. 85 App. Div. 563; 178 N. Y. 631; Franklin Sugar Refining Co. v. Howell, 274 Penn. St. 190; Franklin Sugar Refining Co. v. Kane M. & G. Co., 278 Penn. St. 105; Franklin Sugar Refining Co. v. John, 279 Penn. St. 104; Scudder v. Union Nat. Bank, 91 U. S. 406; Riley v. Bancroft’s Estate, 51 Neb. 864; Wilson v. Lewiston Mill Co., 150 N. Y. 314; Porter v. Wormser, 94 N. Y. 431; Crane v. Powell, 139 id. 379; Daniels v. Rogers, 108 App. Div. 338; Throop Grain Cleaner Co. v. Smith, 110 N. Y. 83; Daniels v. Rogers, 108 App. Div. 338; Goetschius v. Brightman, 245 N. Y. 186.)

      Joseph F. Abbott and Adelbert Moot for respondent.
    The Statute of Frauds contained in the Uniform Sales Act of Pennsylvania is not a defense to this action. (Downer v. Chesebrough, 36 Conn. 39; Daniels v. Rogers, 108 App. Div. 338; Marie v. Garrison, 13 Abb. N. C. 210; Emery v. Burbank, 163 Mass. 326; Marvel v. Marvel, 70 Neb. 498; Obear v. First National Bank, 97 Ga. 587; Wolfe v. Burke, 18 Colo. 264; Heaton v. Eldridge, 56 Ohio St. 87; Producers’ Coke Co. v. Hoover, 268 Penn. St. 104; Manufacturers’ Light & Heat Co. v. Lamp, 269 Penn. St. 517; Franklin Sugar Refining Co. v. Howell, 274 Penn. St. 190; Franklin Sugar Refining Co. v. Lykens Mercantile Co., 274 Penn. St. 206; American Products Company v. Franklin Quality Refining Co., 275 Penn. St. 332; Franklin Sugar Refining Co. v. John, 279 Penn. St. 104.) The contracts sued on were definite and certain when the terms are explained by trade usage. The memoranda thereof were sufficient to satisfy the Statute of Frauds contained in the Uniform Sales Act as adopted in New York. (Mesibov, Glinert & Levy v. Cohen Bros. Mfg. Co., 245 N. Y. 305; Nicoll v. Pittsvein Coal Co., 269 Fed. Rep. 968; Humphrey v. Dale, 7 E. & B. 266; E. B. & E. 1004; Atkinson v. Truesdell, 127 N. Y. 230; Franklin Sugar Ref. Co. v. Egerton, 288 Fed. Rep. 698; Straesser Arnold Co. v. Franklin Sugar Ref. Co., 8 Fed. Rep. [2d] 601; Milliken-Tomlinson Co. v. Am. Sugar Ref. Co., 9 Fed. Rep. [2d] 809; Franklin Sugar Ref. Co. v. Mullen Co., 12 Fed. Rep. [2d] 885; Whitman & Co. v. Namquit Worsted Co., 206 Fed. Rep. 549; 221 Fed. Rep. 49; Terry v. International Cotton Co., 136 Ga. 187; King Collie Co. v. Richards, 76 Okla. 6; Daniel v. Maddox, 194 Ga. 1063; Gallaspy v. Ingersoll, 84 So. Rep. 510.)
   Kellogg, J.

The complaint sets forth memoranda of contracts between the plaintiff Franklin Sugar Refining Company and the defendant Stanislaus Lipowicz, purporting to obligate the latter to buy from the former a quantity of sugar; a refusal by Lipowicz to receive certain deliveries of sugar; an assignment by Lipowicz to the defendant Union Liberty Company of his sugar business; an assumption by that company of the debts of Lipowicz incurred in the business; an agreed price for the sugar of 22.50 cents a pound; a market price for the sugar, at the time of the refusal, of 5.20 cents a pound; a consequent damage to plaintiff of 17.30 cents per pound for every pound of undelivered sugar, for which amount, in the aggregate, the complaint demands judgment. The answers set up that the . contract memoranda, signed on behalf of Lipowicz, were insufficient to satisfy either the Statute of Frauds of the State of Pennsylvania or the New York Statute of Frauds.

'The issues joined were tried before a judge and jury. At the conclusion of the trial the parties, both plaintiff and defendant, moved the trial judge for the direction of a verdict. The judge, deeming that the Statute of Frauds of the State of Pennsylvania was controlling, and that, therefore, the case of Franklin Sugar Refining Co. v. Howell (274 Penn. St. 190) must be followed, directed a verdict for the defendants. The Appellate Division, upon an appeal to it, held that the Statute of Frauds of the State of New York, not of the State of Pennsylvania, was controlling; that the memoranda were sufficient to satisfy the New York-statute. Accordingly it directed judgment in favor of the plaintiff, against the defendants Lipowicz and Union Liberty Company, for the sum of $41,113.43, a sum representing the aggregate loss of the plaintiff, calculated at the rate of 17.30 cents per pound of undelivered sugar, with interest from the date of the refusal by Lipowicz to receive it.

The Statute of Frauds of the State of Pennsylvania provides: A contract to sell or a sale of any goods or choses in action of the value of five hundred dollars or upwards shall not be enforceable by action unless * * * some note or memorandum in writing of the contract or sale be signed by-the party to be charged or his agent in that behalf.” (Sales Act of May 19, 1915, P. L. 543, section 4.) The wording of the Statute of Frauds of the State of New York is identical, with the exception that in the New York statute the words fifty dollars ” appear in the place of the words five hundred dollars.” (Personal Property Law [Cons. Laws, ch. 41], section 85.) Orders for sugar, set forth in the memoranda signed on behalf of Lipowicz, were accepted at Philadelphia, Pa. Deliveries of sugar were to be made to Lipowicz at Philadelphia, Pa. The contracts, therefore, if any such were proven, in respect to the place of origin and place of performance, were Pennsylvania contracts. Enforcement of the contracts is now sought in the courts of the State of New York. In this situation, which statute applies?

The principle is, that whatever relates merely to the remedy and constitutes part of the procedure is determined by the law of the forum, for matters of process must be uniform in the courts of the same country; but whatever goes to the substance of the obligation and affects the rights of the parties, as growing out of the contract itself, or inhering in it or attaching to it, is governed by the law of the contract.” (Pritchard v. Norton, 106 U. S. 124, at p. 129.) The Supreme Court of the State of Pennsylvania, in regard to the Statute of Frauds of that State, has said- Statutes, such as the one with which we are dealing, do not provide mere rules of evidence but are limitations upon the judicial authority to afford remedies.” (Manufacturers L. & H. Co. v. Lamp, 269 Penn. St. 517.) It has held that, in an action upon a contract of sale, facts showing a compliance with the provisions of the Statute of Frauds must be asserted in the statement of claim and that, in the absence of such allegations, they may not be shown by proof offered at the trial. (Mason-Heflin Co. v. Currie, 270 Penn. St. 221.) In several other jurisdictions it has been definitely held that the Statute of Frauds of the State where the contract is made, rather than the statute of the State where suit is brought, is determinative of the question of enforcibility. (Franklin Sugar Ref. Co. v. Holstein Harvey’s Sons, Inc., 275 Fed. Rep. 622; Houghtaling v. Ball, 19 Mo. 84; 20 Mo. 563; Jones v. National Cotton Oil Co., 31 Tex. Civ. App. Reports, 420; Canale & Co. v. Pauly & Pauly Cheese Co., 155 Wis. 541; Cochran v. Ward, 5 Ind. App. 89; 51 Am. St. Rep. 229; Halloran v. Schmidt Brewing Co., 137 Minn. 141; Matson v. Bauman, 139 Minn. 296.) These decisions find support in the writings of many learned authors. (2 Wharton, Conflict of Laws, sec. 690-f; Thayer, Preliminary Treatise on Evidence, p. 390; Goodrich on Conflict of Laws, p. 173; 32 Yale Law Journal, p. 311.) The theory seems to be that while a contract not recorded by a writing may be valid, a statute which makes it unenforcible is substantive, rather than; remedial, since without enforcibility there is no contract obligation. The contrary view that a Statute of Frauds concerns, not substance, but procedure, and, therefore, that the enforcibility of a contract must be determined by the law of the forum rather than by the law of the place of its making, is held by many others. (Browne on Statute of Frauds, sec. 115-a, note; Williston on Sales, secs. 70-b, 71; Smith on the Law of Frauds, sec. 378; Straesser-Arnold Co. v. Franklin Sugar Ref. Co., 8 Fed. Rep. [2d] 601; Buhl v. Stephens, 84 Fed. Rep. 922; Leroux v. Brown, 12 C. B. 801; Townsend v. Hargraves, 118 Mass. 325; 9 Amer. Law Review, 434.) In view of the conflict of authority upon the subject we shall assume, without deciding, that the appellants are correct in their contention that the Statute of Frauds of the State of Pennsylvania, the law of the contract, rather than the statute of the State of New York, the law of the forum, is determinative of the issues. Nevertheless we do not agree, for reason which we shall later give, with the contention that the Pennsylvania statute, as interpreted by the courts of that State, requires a reversal of this judgment.

There were seven memoranda containing orders for sugar which were signed on behalf of the defendant Lipowicz. In five of these memoranda, orders were expressed for a given number of bbls. or equivalent.” Each of these five memoranda contained the provisions Assortment to be furnished the seller by buyer ” and In the event assortment is not furnished promptly seller reserves the right to ship such grades as he has available at the time of shipment.” In two of the memoranda the particular assortments desired were stated. In all seven memoranda there appeared the unintelligible phrase Basis 22|.” It was established by undisputed testimony that, according to universal usage in the sugar trade, the expression bbls ” means fine granulated sugar in barrels containing 350 pounds; that the expression “ Basis 22J ” means a basic price of 22|$i per pound for granulated sugar. Without further explanation, therefore, it conclusively appears that the memoranda bound Lipowicz to take a given quantity of granulated sugar in barrels at 22|^ per pound or an equivalent amount of sugar in other assortments at the basic price of 22^. Further explanation of “ Basis 22| ” was required and given. It appeared that the grades of sugar are so numerous, and the containers therefor so varied, that there are upwards of forty possible assortments which a buyer might specify. Each of these assortments has its distinctive price. Nevertheless, whatever the assortment may be, it is the trade custom to name only the basic price, to wit, the price for fine granulated sugar in barrels. There obtains in the sugar trade a system of differentials which expresses the price variations, for particular assortments, from the price for fine granulated. Knowing the price of the latter, and adding to or deducting therefrom the appropriate differential, traders will know with certainty the price of a particular assortment. These differentials are subject to alteration, although alterations are rarely made. When made, all sugar refineries concur therein, so that always, at any given time, a known schedule of differentials, definite, certain and common to the entire sugar trade, prevails and rules the market. Fully explained, therefore, the memoranda bound Lipowicz to buy a given quantity of fine granulated sugar in barrels at 22\l per pound, or an equivalent amount of other sugars in other packages at the same rate plus or minus a differential for the particular assortment, which was definitely ascertainable by a reference to the sugar market and the differentials prevailing therein at the moment.

It was proper to resort to parol proof to explain the expressions bbls ” and Basis 22 J.” Moreover, for the purposes of the Statute of Frauds, the memoranda must be regarded as incorporating the explanatory words. (Wigmore on Evidence, sec. 2464; Williston on Sales, sec. 102.) A memorandum recording the sale of eighteen pockets of hops, at 100s ” is subject to the explanation that 100s,” according to trade usage, means one hundred shillings per hundredweight. (Spicer v. Cooper, 1 Gale & D. 52.) So may it be explained that in a memorandum for the sale of one hundred and fifty casks, of one ton each, best E F F X madder 12| ” the figure 12J, according to trade usage, means 12J cents per pound. (Dana v. Fiedler, 12 N. Y. 40.) In Salmon Falls Mfg. Co. v. Goddard (14 How. [U. S.] 446) there was considered a memorandum which recorded the sale of “.300 bales S. F. drills * * * 71, 100 cases blue do. * * * 81.” Parol evidence to show that “ 71 ” meant 71 cents per yard and that “ 8f ” meant 8| cents per yard was held admissible. It was also held that the memorandum was sufficient to satisfy the Statute of Frauds and that, as explained by trade usage, the memorandum should be given effect. In Dale v. Humfrey (E. B. & E. 1004; 96 Eng. Common Law Reports) it was said by Cockburn, C. J.: “I am of opinion that, where, either by any rule of law, or by the usage of any trade, the terms of a contract acquire a particular meaning, the contract must be taken to express that meaning, as much as though it had been set forth in extenso; and I hold that this obtains as much for the purpose of satisfying the statute as for that of establishing the contract independently of the statute.”

The argument is made that, while the memoranda would have satisfied the Statute of Frauds if “ Basis 221 ” indicated a flat price of 221 ^ P pound for all grades of sugar, they were nevertheless insufficient since, under the explanation given, a resort to parol proof to ascertain the prevailing trade differentials would be required. It is true that an agreement, in order to be obligatory, must be sufficiently definite to enable a court to place upon it an exact meaning. (Williston on Contracts, sec. 37.) Nevertheless an agreement for the sale of goods which specifies no price and, therefore, requires a recourse to a market for the ascertainment of a reasonable price, is a valid contract. (Id. sec. 41.) As such agreements are sufficiently definite to be obligatory it would seem that a memorandum which faithfully recorded their express terms, without more, should be sufficiently definite to satisfy the statute. Otherwise the anomalous result might follow that a valid contract would prove unenforcible although all its express terms were reduced to writing. That result would defeat the statute, which requires only that “ a note or memorandum in writing of the contract ” be signed. (Personal Property Law, sec. 85.) Williston says: “ The law will imply an obligation to pay a reasonable price and the memorandum need be no more definite than the contract itself was. The law will make the same implication in regard to the memorandum that it does in regard to the promise.” (Williston on Sales, sec. 103.) Browne says: “ It is obvious that the statute will be satisfied by a statement as to what the parties stipulated was the price to be paid, although they mentioned no specific sum.” (Browne on Statute of Frauds, sec. 378.) It has been held that an order for goods on moderate terms ” is a sufficient memorandum to satisfy the statute. (Ashcroft v. Morrin, 4 Mann. & G. 450.) In that case Tindal, C. J., expressed himself with illuminating brevity. The. entire opinion reads: The order here is, to send certain quantities of porter and other malt liquor, on moderate terms.’ Why is not that sufficient? This is the contract between the parties.” So here, the parties agreed upon a price of 22|j¿ per pound for granulated sugar in barrels with additions or deductions for other grades and packages, to be determined by trade differentials well established in the sugar market. The agreements were sufficiently definite to constitute valid contracts. Each agreement was recorded in a memorandum which correctly stated all the contract terms. In the words of Tindal, C. J., " Why is not that sufficient? This is the contract between the parties.”

In Hoadley v. M’Laine (10 Bing. 482) the defendant had delivered to the plaintiff a memorandum in writing, reading as follows: “ Sir Archibald M’Laine orders Mr. Hoadly to build a new, fashionable, and handsome landaulet, with the following appointments ”— (here followed a detailed description of the vehicle) — “ the whole to be ready by the 1st of March 1833.” The price was not mentioned. Nevertheless, it was held that the memorandum was sufficient to satisfy the Statute of Frauds. Tindal, C. J., said: “ It is clear that a contract for the sale of a commodity, in which the price is left uncertain, is, in law, a contract for what the goods shall be found to be reasonably worth. * * * What is implied by law is as strong to bind the parties as if it were under their hand.” Bosanquet, J., said: “ Now the statute of frauds requires a note or memorandum of the terms of the bargain: but that is all: a party is not bound to go beyond what he has agreed on and signed. * * * Now that statute requires no more than that the bargain, such as it is, should be reduced to writing.” In Argus Co. v. Mayor, etc., of Albany, (55 N. Y. 495) the common council of a city passed a resolution designating the plaintiff “ to publish all the city advertising at the legal rates, and all printing and binding at current rates.” The contract, which was not by its terms to be performed within one year, was unenforcible under the Statute of Frauds unless evidenced by a written memorandum. It was held that the entry of the resolution in the minute book and the signature of the clerk at the end of the day’s minutes constituted a memorandum of the contract. It was further held that the Statute of Frauds was satisfied, although prices for printing and binding were not definitely stated but were to be done “ at current rates.” It was said by the court: “Nor does the fact that the rates for printing and binding are not expressed, but reference is made to something outside the contract, and which must be established by parol testimony, invalidate the contract.”

These decisions seem conclusive upon the issues now presented. Where parties have contracted to buy and sell without naming a price, a memorandum which fails to express a contract price may be sufficient to satisfy the Statute of Frauds. Where the parties have agreed upon current rates ” as the price, a memorandum so specifying, if otherwise complete, will satisfy the statute. In either case recourse to the general market may be had to determine the reasonable price or the current rates which control. In our case, the memoranda expressed an agreed price for granulated sugar. Prices for other grades and packages were to be ascertained by applying various differentials to the granulated price. These differentials, at any given time, were well established facts of the sugar market. The necessity of a recourse to that market for their ascertainment would no more render the memoranda incomplete than would the necessity of a similar recourse, to ascertain current rates or market price, render incomplete the memoranda relied upon in the cases cited. Unless, therefore, the Pennsylvania decisions interpreting the Pennsylvania Statute of Frauds, applicable here under our assumption, express a doctrine peculiar to that State, we think the memoranda relied upon were amply sufficient.

We do- not find, upon careful investigation, that the Pennsylvania decisions support a peculiar or contrary view. The leading case is Franklin Sugar Ref. Co. v. Howell (supra). In that case this same plaintiff sued to recover upon contracts evidenced by memoranda, identical in all material particulars with the memoranda here involved. The decision made was based upon the pleadings. There the plaintiff relied upon a written price list, stating sugar differentials, which was issued by it to customers. The express admission was made by the plaintiff that there was “ no custom of the trade (averred) which would make the price list a part of the contract obligation, * * * and even if such a custom existed it would be insufficient to bring in the price list except as to the meaning of ‘ basis 22.50 ’ and ‘ assortment.’ ” The court said: Assuming all this to be true, it does not meet the difficulty, for this particular list is not signed by plaintiff, either directly or by reference, and the custom alleged does not carry it into the sales memoranda so as to make it a part thereof.” It thus appears that the plaintiff based its case upon a written schedule setting forth, not the differentials generally prevailing in the sugar market, but a particular set of differentials, formulated by the plaintiff. Of course if the parties had made a particular stipulation as to price, that stipulation, unidentified by signature or by reference, and capable of identification only by parol evidence, could not be employed for the purpose of supplying terms to the written memoranda which were absent therefrom. Moreover, if special prices were a part of the bargain, the general market would not have expressed the prices agreed upon. In our case, the plaintiff places reliance upon a system of differentials which was common to the entire sugar market. Thus, the witness Buchanan, after stating that a system of differentials prevailed, was asked: “Was that confined to the Franklin Sugar Refining Company or did all refiners have that system of differentials? ” Hi's answer was: All sugar refiners.” The Howell case was explained, as we have explained it, in American Sugar Ref. Co. v. Colvin, Atwell & Co. (286 Fed. Rep. 685) and in Franklin Sugar Ref. Co. v. Egerton (288 Fed. Rep. 698). In each of these cases, as well as in the case of Franklin Sugar Ref. Co. v. Mullen Co. (12 Fed. Rep. [2d] 885), it was held that memoranda similar to those now in question were sufficient to satisfy the Statute of Frauds of the State of Pennsylvania. Two other Pennsylvania cases (Franklin Sugar Ref. Co. v. Kane M. & G. Co., 278 Penn. St. 105, and Franklin Sugar Ref. Co. v. John, 279 Penn. St. 104) are relied upon by the appellants. The first case arose upon the pleadings and, like the Howell case, is distinguishable and upon the same grounds. In the second case it was merely held that the question, whether there were fixed differentials obtaining in the market, was a question upon which the jury should have been permitted to pass. The Pennsylvania cases, therefore, so far as they have been exhibited to us, express no doctrine peculiar to Pennsylvania law. Consequently, our view, that the memoranda in this case are sufficient, remains unchanged.

It is said that the court erred in reckoning damages on the basis of the difference between contract price and market price for granulated sugar without regard to the differentials for other grades which Lipowicz had the option to demand. Of course, if the differentials had changed between the date of the contracts and the date of the breaches, there would be force in the argument. However, the witness Buchanan testified in 1925 that the differentials had last been altered “ in connection with the 1920 business.” These memoranda were executed in May, 1920, or subsequently thereto in the same year. They involved “ 1920 business.” Presumably, therefore, no alteration in differentials took place between that time and the date of the breaches in December, 1921. That being the case, it was immaterial that the court in its reckoning disregarded the differentials. For, it is a self-evident fact that the difference between 22| cents, the contract price for granulated, and 5.20 cents, the market price therefor, must be precisely the same as the difference between 22J cents, plus or minus a differential, and 5.20 cents, plus or minus the same differential. We think, therefore, that the damages were correctly estimated.

The judgment should be affirmed, with costs.

.Cardozo, Ch. J., Pound, Crane, Andrews, Lehman and O’Brien, JJ., concur.

Judgment affirmed.


author: Pound, J.

text:
    Moses Rosenthal, Appellant, v. Frank G. Brown et al., Copartners under the Firm Name of Brown, Friedlander & Co., Respondents.
    Contract —■ brokers — conversion — agreement authorizing brokers to buy or sell securities carried or borrowed for customer does not cover the purchase of cotton futures — stipulation on confirmation slips that marginal business may be closed without notice — strict performance may be waived by promise to give time to put up additional margin — new consideration not required to support such a waiver — action to recover for closing out of plaintiff’s account without proper notice — erroneous dismissal of complaint — finding that plaintiff did not act in reasonable manner to protect his account unsustained by evidence.
    1. A written agreement by which, plaintiff authorized defendants, his stockbrokers, “ when, in the exercise of your judgment, it may be necessary for your protection, to sell or buy any securities which you may be carrying or have borrowed for me,” without prior notice or demand or call of any kind, does not cover the case of the purchase of cotton futures on plaintiff’s account to enable defendants to deliver cotton which plaintiff had sold short.
    2. A stipulation on the confirmation slips that all marginal business might be closed without notice may be affected by subsequent promises not based on an actual pecuniary consideration. Strict performance may be waived.by any agreement, declaration or course of conduct on the part of the broker which leads the customer to believe that time will be given him to put up additional margin, and no new or independent consideration is required to support such a waiver.
    3. Where, therefore, in an action to recover for the closing out of plaintiff’s account without proper notice to him, it appeared that plaintiff had, through defendants, sold cotton on contracts for future delivery on a margin and been notified by defendants to put up more margin before publication of the government report the next morning, but that in a telephone conversation defendants’ margin clerk had told him that it “ would be all right if he got it around before twelve o’clock,” and that the next morning plaintiff with bonds and cash arrived at defendants’ office at 11:10 o’clock and was informed that he had been sold out, notice of their intention so to do on or before 10:45 o’clock having been left at plaintiff’s office at about 10:30 o’clock, in face pf a finding that the notice was not reasonable, a dismissal of the complaint was error. Defendan ts’ promise to give plaintiff until noon to put up the additional margin was a definite extension of time and they were bound to give reasonable notice of their intention to retract.
    4. No evidence sustains a finding that plaintiff did not act in a reasonable manner to protect his account with defendants.

      Rosenthal v. Brown, 222 App. Div. 763, reversed.
    (Argued February 16, 1928;
    decided March 27, 1928.)
    Appeal from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered December 19, 1927, affirming a judgment in favor of defendants entered upon a dismissal of the complaint by the court at a Trial Term.

      William R. Dorman and Charles Bates Dana for appellant.
    As to the contracts in question on October seventh and October eighth, an express definite agreement was made. (Blaine v. Thomas, 103 App. Div. 600; Small v. Housman, 208 N. Y. 115.) A broker intending to close out cotton contracts or stocks of his customer must give the customer reasonable notice of the time and place of such closing. (Peschke v. Wright, 93 Misc. Rep. 154; Mayer v. Monzo, 221 N. Y. 442; Fairchild v. Flomerfelt, 79 Misc. Rep. 42.)

      B. F. Norris and George S. Franklin for respondents.
    In purchasing cotton for plaintiff’s account on October 8, 1924, defendants were acting within the terms of a written contract between plaintiff and defendants. (Smith v. Craig, 211 N. Y. 456.)
   Pound, J.

Plaintiff traded in cotton futures and stocks on the New York Cotton and Stock Exchanges. Defendants, his brokers, were members of the New York Cotton Exchange and the New York Stock Exchange. The action is for conversion in that plaintiff claims that defendants on October 8, 1924, closed out plaintiff’s account without proper notice to him. He had, through them, sold cotton on contracts for future delivery on a margin. They closed him out by buying cotton on contracts for future delivery on Ms account to protect themselves from loss. Defendants rely entirely on an agreement dated August 21, 1924, wMch reads as follows:

“ Brown, Friedlander & Co.,
“ 27 William Street,
New York.
“August 21 st, 1924.
“ Messrs. Brown, Friedlander & Co.:
“ Dear Sirs. * * * I agree that all transactions with you are subject to the rules and customs of the New York Stock Exchange and its clearing house (or such other Exchange or place where such business is usually transacted); and I consent that when, in the exercise of your judgment, it may be necessary for your protection to sell or buy any securities which you may be carrying or have borrowed for me, such sale or purchase may be made on the New York Stock Exchange or such other Exchange or place where such business is then usually transacted, or at public auction or private sale without advertising the same and without prior notice to me and without prior demand or call of any kind upon me, it being understood that a prior demand or call or prior notice of the time and place of such sale or purchase shall not be considered a waiver of your right to sell or buy said securities as hereinbefore provided. * * *
“ Yours truly,
“ MOSES ROSENTHAL.”

The confirmation slips on purchase and sale of cotton contained the words: “It is further understood that on all margmal business Brown, Friedlander ’& Co. reserve the right to close without notice transactions where margins are near exhaustion.”

The agreement relied on does not cover the case. The word “ securities ” in its broadest sense, includes not only bonds and other promises to pay money but also evidences of property such as corporate stocks. (Century Dict.) There is greater doubt whether it includes contracts for the delivery of cotton on a future day. (Smith v. Craig, 211 N. Y. 456, 460.) Stocks are obviously securities within the meaning of the parties, although they are not evidences of debt, and in the view of the defendants contracts for the future delivery of cotton might also be included in the term as thus used. The language is, however, maladroit as applied to the purchase of cotton futures on plaintiff’s account to enable defendants to deliver the cotton which plaintiff had sold short. They were carrying plaintiff’s contracts, but they did not sell them, as appears by the following history of the case. They must, therefore, rely on their right to close marginal business without notice, reserved on the confirmation slips.

On October 7, 1924 (the day before the alleged conversion), plaintiff had sold for future delivery, through the agency of defendants, as brokers, 350,000 pounds of cotton worth $91,852.50. Plaintiff, of course, had no cotton to deliver. He had on deposit with the defendants, according to their claim, only $1,800 as security for his obligation to deliver the 350,000 pounds of cotton.

All transactions had between plaintiff and defendants were, by the terms of the agreement of August 21, 1924, subject to the rules of the New York Cotton Exchange.

According to the rules of the New York Cotton Exchange, as is commonly known, each sale of cotton requires an actual delivery of the amount sold; each member of the Exchange is required to guarantee the fulfilment of such a contract. The consequence is that, if this plaintiff failed at any time to purchase 350,000 pounds of cotton to deliver, in accordance with his contracts, defendants would be obliged to make the delivery and assume any loss that might be incurred. Defendants’ claim is that plaintiff empowered defendants to purchase cotton when necessary in their discretion for his account for delivery in compliance with his existing contracts of sale, without any notice being given to plaintiff. This was to enable the defendants to avoid risk of loss due to insufficient margin.

The current daily market price of future cotton is affected by the United States government report on the cotton crop which is published every two weeks. One of these reports was due on October 8, 1924. On October 7 defendants informed plaintiff that he must put up a further margin before the government report. The report is made public at eleven o’clock in the morning, Eastern standard time. Both parties seem to have assumed that this would be at twelve o’clock, Daylight saving time, which had been operative during the summer months. The report came out at eleven o’clock.

Plaintiff did not put up any additional margin. Defendants bought, cotton for plaintiff’s account before the government report came out, and closed out his account. They claim the right thus to close the account under the agreement dated August 21,1924, quoted above which is inapplicable thereto.

Plaintiff relies on a special agreement not to close him out before twelve o’clock. His narrative in substance is as follows: On October 7 he telephoned to defendants. Hammer, their representative through whom he dealt, said: “You know the report is coming out tomorrow at twelve o’clock and they think you better put up a further margin before the Government report.” Nugent, the margin clerk, then told him $3,000 would be all right if he got it around before twelve o’clock. Hammer said all right and plaintiff said: “ I will be down tomorrow before the report, or before twelve o’clock.”

Plaintiff lived in Bensonhurst, Brooklyn. On the morning of October 8 he secured from his safe deposit vault $6,500 in bonds and cash and started for his place of business in Newark. At 10:25 a. m. he telephoned Hammer to inquire the condition of the market. He was then told that a mistake had been made about the hour of the government report and that they were going to sell him out. He came to the office of defendants as rapidly as he could, arriving at 11:10 and was notified that he had been sold out. A notice was left at plaintiff’s office in Forty-second street at about 10:30 on the same morning threatening to close out plaintiff’s account on or before 10:45 a. m. today,” but plaintiff did not receive this notice until after he had left defendants’ office.

The jury answered certain questions submitted to them by the trial court as follows:

“ Question- 1: Did the plaintiff, either through the agreement he signed or through the several confirmatory statements he received from the defendants or through both of these sources, know that the defendants claimed the right to sell out all marginal accounts without notice, for the purpose of protecting their interests?
Answer: Yes.
“ Question 2: Did the defendants on October 7, 1924, inform the plaintiff that the additional margin they demanded to protect plaintiff’s account would be received by them until 12 o’clock noon (Oct. 8)?
Answer: Yes.
Question 3: Did the defendants telephone the plaintiff’s home on the evening of October 7, 1924, and on the morning of October 8, 1924?
Answer: No.
“ Question 4: Did the defendants make reasonable efforts to notify the plaintiff before closing out of the plaintiff’s account, of their intention so to do?
" Answer: No.
“ Question 5: Did the plaintiff on October 8, 1924, act in a reasonable manner to protect his account with the defendants?
“ Answer: No.”

And thereupon the trial court dismissed the complaint.

If defendants had no right to close the transaction, as they sought to do by purchasing cotton on plaintiff’s account, they were Hable to the plaintiff for damages, (Campbell v. Wright, 118 N. Y. 594; Rogers v. Wiley, 131 N. Y. 527, 536; Matter of Mills, 139 App. Div. 54, 61; Barber v. Ellingwood, 144 App. Div. 512.) In this ease there was notice on the confirmation slips that all marginal business might be closed without notice but a stipulation permitting' such transactions to be closed without notice may be affected by subsequent promises, not based on an actual pecuniary consideration. If the broker waives the right to exact strict performance, and gives time and indulgence to the customer, he cannot recall this waiver at his own option without giving notice to the customer, to the end that the latter may have an opportunity of protecting the account. Good faith wifi not permit the broker, after having once waived the right to close the account without notice upon default of payment at the prescribed time, suddenly to stop short and insist upon closing the account when the other party is not prepared to put up the margin. Strict performance in such cases may be waived by any agreement, declaration or course of conduct on the part of the broker which leads the customer to believe that time wiU be given-him to put up additional margin, and no new or independent consideration is required to support such a waiver. (Toplitz v. Bauer, 161 N. Y. 325, 333.)

The defendants’ promise to give plaintiff until noon on October 8, 1924, to put up the required margin was a definite extension of time. While not an irrevocable contract, it could not be totally ignored to the prejudice of plaintiff. "When the defendants by their promise led plaintiff to befieve that he had nothing to fear if ho put up the required amount before that hour, they wero bound, at least, to give reasonable notice of their intention to retract this promise. (Toplitz v. Bauer, supra; Small v. Housman, 208 N. Y. 115.) It is hard to say what would be reasonable notice in the circumstances but here the jury found that the notice was not reasonable, and it was, indeed, practically concurrent with the closing of plaintiff’s account and no notice at all.

No evidence sustains the finding that plaintiff did not act in a reasonable manner on October 8 to protect his account with defendants. He acted as a reasonable man might have done although an overcautious man might have been in greater haste to put up his margin before eleven o’clock and before defendants changed their minds.

The judgments should be reversed and a new trial granted, with costs to abide the event;

Cardozo, Ch. J., Crane, Andrews, Lehman, Kellogg and O’Brien, JJ., concur.

Judgments reversed, etc.


author: O'Brien, J. Cardozo, Ch. J.

text:
    John M. Brennan, Appellant, v. National Equitable Investment Co., Inc., Respondent.
    Contract — rescission — rescission nullified by subsequent acceptance of benefits growing out of contract — rescission of purchase of stock on ground of fraud and commencement of action to recover purchase price — acceptance and retention of dividends thereafter declared an abandonment of rescission and reaffirmation of contract — quaere whether equity may grant relief, in cases of accident or mistake, against ratification that is merely thoughtless or inadvertent.
    1. An assertion of rescission is nullified by the subsequent acceptance of benefits growing out of the contract claimed to have been rescinded.
    2. Where, therefore, after having rescinded a purchase of stock on the grounds of misrepresentation and fraud, tendered a return of the stock and brought this action at law to recover the purchase price, plaintiff accepted and retained dividends and not until service of a reply to a supplemental answer nearly three years after verification of the complaint did he disclose any intent to look upon the dividends as anything except dividends nor express a disposition to credit them to defendant, his retention of the dividends must be held as matter of law to constitute an abandonment of rescission and a reaffirmation of the contract.

      3. The question is not here whether equitable jurisdiction in eases of accident or mistake is broad enough to give relief against a ratification by conduct that is merely thoughtless or inadvertent.

      Brennanv. Nat. Equitable Investment Co., 221 App. Div. 658, affirmed.
    (Argued February 20, 1928;
    decided March 27, 1928.)
    Appeal from a judgment, entered November 17, 1927, upon an order of the Appellate Division of the Supreme Court in the first judicial department, reversing a judgment in favor of plaintiff entered upon a verdict and directing a dismissal of the complaint.

      Joseph Sterling and Aaron Dipper for appellant.
    Waiver of a rescission is a matter of intention and the question of the rescinding party’s intention is an issue of fact for the jury. (Clark v. Kirby, 243 N. Y. 295; Alsens A. P. C. Works v. Degnon Cont. Co., 222 N. Y. 34; Whipple v. Prudential Ins. Co., 222 N. Y. 39; Schoenbrun v. Tubby, 225 N. Y. Supp. 290; Travelers Insurance Co. v. Pomerantz, 246 N. Y. 63; Black on Rescission & Cancellation [1st ed.], § 615; Lord Construction Co. v. Edison Co., 234 N. Y. 411; Harris v. Egger, 226 Fed. Rep. 389.) Acceptance of dividends in the surrounding circumstances without exercise of any other act of dominion was not so inconsistent with plaintiff’s declared intention as to constitute an affirmance as a matter of law. (Weigel v. Cook, 237 N. Y. 136; Bloomquist v. Farson, 222 N. Y. 375; Travelers Insurance Co. v. Pomerantz, 246 N. Y. 63; Genet v. Delaware & Hudson Co., 170 N. Y. 278; Joslyn v. Cadillac Automobile Co., 177 Fed. Rep. 863; Landis v. Wintermute, 40 Wash. 673; Davis v. Forman, 229 Mo. 27; Black on Rescission & Cancellation, § 611; Gravenhorst v. Zimmerman, 236 N. Y. 22; Shoenbrun v. Tubby, 225 N. Y. Supp. 290; Matter of Young v. Crescent Development Co., 240 N. Y. 244.)

      Jay Leo Rothschild for Joseph Manzella, amicus cwrice.

      A. 0. Dawson, W. W. Ahrens and J. K. Watson for respondent.
    By accepting and retaining dividends on the stock involved in this action after the commencement of the action the plaintiff, as a matter of law, ratified his purchase of the stock. (Clark v. Kirby, 243 N. Y. 295; Schenck v. State Line Telephone Co., 238 N. Y. 308; Harris v. Egger, 226 Fed. Rep. 389; Alsens A. P. C. Works v. Degnon Contr. Co., 222 N. Y. 34; Whipple v. Prudential Insurance Co., 222 N. Y. 39; Lord Construction Co. v. Edison Portland Cement Co., 234 N. Y. 411; McNaught v. Equitable Life Assur. Society of U. S., 136 App. Div. 774; Cobb v. Hatfield, 46 N. Y. 533; Davis v. Levering, 168 App. Div. 78; Corporation Funding & Finance Co. v. Stoffregen, 264 Penn. St. 215.) The plaintiff by failing at the time of his alleged rescission to tender the return of the dividends received by him during the period that he held the stock, while demanding the return of the entire purchase price, failed to make a complete tender of restoration of all the benefits received by him under the contract of sale and so failed to show a complete rescission, and judgment for the defendant has, therefore, properly been granted. (Vail v. Reynolds, 118 N. Y. 297; Price v. Stout, 84 App. Div. 334; Gould v. Cayuga County Nat. Bank, 86 N. Y. 75; Loomis v. Pease, 234 Mass. 101; Marten v. Burns Wine Co., 99 Cal. 355.)
   O'Brien, J.

Plaintiff purchased stock in defendant corporation under such circumstances as amount, so he alleges, to misrepresentation and fraud. For a short time dividends were disbursed but then their payment was suspended. He rescinded his contract of purchase, tendered return of his stock and brought this action :at law on his rescission to recover the purchase price. After the institution of the action, payment of dividends was temporarily resumed and plaintiff accepted -and retained them. In his reply to the supplemental answer he alleges that such moneys were fraudulently paid out of capital and that he accepted them not as dividends but as a partial return of the purchase price of the stock and that upon the trial he would offer them as credit to defendant. Evidence tends to prove that before the resumption of dividends a representative of plaintiff and of other stockholders notified some of defendant’s officers ■that dividends had not been earned, that if declared they could be paid only out of capital and that he would advise stockholders, including plaintiff, to accept them not as such but as moneys on account to reimburse them partially for their losses on purchase of their stock. It tends further to show that plaintiff was so advised by this representative and that he did not regard the dividend checks, although they were plainly labeled as such, as anything more than partial restitution of money which he claims had been stolen from him. The fact is that, after the rejection of his tender of the stock and after the institution of this action he accepted and cashed these dividend checks and retained their proceeds until he credited them to defendant on the trial. Plaintiff’s judgment, entered upon the verdict, was reversed and the complaint dismissed. The reason stated by the Appellate Division for reversal is that, by the acceptance and retention of the dividends, plaintiff treated the contract as in existence and so defeated his claim of rescission. We agree with the result.

The rule is thoroughly established that an assertion of a rescission is nullified by the subsequent acceptance of benefits growing out of a contract claimed to have been rescinded. This rule is specially applicable to contracts for the purchase of stock claimed to have been fraudulently sold. When, with knowledge of the facts, the purchaser accepts dividends, he will be held to have waived the fraud and to have ratified his purchase. (Black on Rescission [1st ed.], sec. 347.) He cannot by words cancel his contract and then continue to assert rights and benefits under it. (Gravenhorst v. Zimmerman, 236 N. Y. 22, 38.) Declarations of rescission followed by acts which negative them must be regarded in such a light as to require the inference of an abandonment of the declared act. Generally, the issue is one of fact, whether the commission of certain acts shows an intent to waive a rescission. (Whipple v. Prudential Ins. Co., 222 N. Y. 39, 46; Gravenhorst v. Zimmerman, supra; Clark v. Kirby, 243 N. Y. 295, 302.) Waiver is rarely established as a matter of law but an intent contrary to apparent acts must be disclosed. A duty to speak is imperative as matter of law where conduct, accompanied by silence, would be deceptive and beguiling. (Lord Const. Co. v. Edison P. C. Co., 234 N. Y. 411, 416.) Intent can not remain concealed in one’s bosom with the expectation that such a mental reservation can become the decisive factor in litigation. It must be communicated. Sometimes words are sufficient but when the intent is to reaffirm a rescission it must be manifested by some act consistent with the idea of rescission. When the acts performed are inconsistent with the claim of repudiation then there is an election to confirm and adopt the contract but when these acts are trivial in comparison with the entire subject-matter of the transaction, they will not be held as matter of law to amount to a confirmation of the contract. (Weigel v. Cook, 237 N. Y. 136, 140, 141.) One claiming fraud may rescind his purchase and sue to get his money back, or he may keep his purchase and sue to recover damages for fraud. He cannot do both. (Clark v. Kirby, supra.) In an action in equity for a rescission of a purchase of bonds, the coupons may be cashed for the benefit of the party against whom the action is brought (Bloomquist v. Farson, 222 N. Y. 375, 381), for then the act is not inconsistent with the plaintiff’s position. In such an action, he has not pretended to rescind. He brings the action for that express purpose. Kley v. Healy (127 N. Y. 555) does not touch the situation. One who has been defrauded may be excused in certain circumstances from the tender of money. A common instance is where the amount so paid is one that might be retained in any event irrespective of the outcome of the litigation. (3 Williston, Contracts, 1530; Brocklehurst & Potter Co. v. Marsch, 225 Mass. 3, 10.) The rule has relation to the formality of tender preceding or accompanying the announcement of rescission. It does not mean that even after rescission has been announced and the time for tender has gone by, the victim of the fraud may continue to deal with the subject-matter of the transaction as if it were his own. There is then a ratification by conduct irrespective of his professions. (Brown v. Foster, 108 N. Y. 387, 391; Schenck v. State Line Tel. Co., 238 N. Y. 308, 313.) When moneys are paid as dividends, a shareholder is not at liberty to avoid the effect of his acceptance by a notice not assented to by the company that he will take them as something else. (Fuller v. Kemp, 138 N. Y. 231, 238.)

Plaintiff’s intention to retain the dividends is plain. His complaint and his silence for years removes the question of intent from the domain of the jury. He rescinded his contract and tendered return of the stock in August, 1923. He received his first dividend after rescission in October and did not verify his complaint until November 22. In that pleading he alleges payment of $9,080 for his stock and the relief which he demands is a judgment for $9,080. No allegation or mention is made of receipt by him of any money, either in the form of dividends or otherwise, subsequent to bis rescission and, consequently, no offer to credit them to defendant. He received other dividends as late as October, 1925. The supplemental answer was not served until nearly three years after the verification of the complaint, and not until the reply to that answer did plaintiff disclose any intent to look upon the dividends as anything except dividends nor did he before that time express a disposition to credit them to defendant on the trial. Defendant cannot be bound by the threat made by one who represented or claimed to represent a large body of stockholders. Plaintiff’s attitude for years was apparently so perfectly free from ambiguity that no question of fact exists. His retention of the dividends paid to him subsequent to his discovery of the alleged fraud and subsequent to the institution of his action on rescission must be held as matter of law to constitute an abandonment of rescission and a reaffirmation of the contract.

The judgment should be affirmed, with costs.

Cardozo, Ch. J.

(concurring). I concur in the conclusion that the plaintiff ratified the purchase by the acceptance of the dividends.

Our decision will, however, be misleading unless a question which may seem to be here, but which is excluded by the record, is explicitly reserved.

The question is not here whether equitable jurisdiction in cases of accident or mistake is broad enough to give relief against a ratification by conduct that is merely thoughtless or inadvertent (cf. Standard Oil Co. v. Hawkins, 74 Fed. Rep. 395, 399; Adair v. Brimmer, 74 N. Y. 539, 554; Trustees, etc., v. Bowman, 136 N. Y. 521). Without asserting at this time that such jurisdiction exists, I am unwilling by anything now said to negate or discredit it. For the purpose of this appeal, I prefer to assume that relief will be granted against the consequences of mistake, whether it be characterized as one of fact or law, if there was lacking an intent to ratify, if the absence of this intent was obvious to the other party to the transaction, if no prejudice will be wrought by undoing the apparent choice and if discovery of the mistake is followed by a prompt return of any benefits received (3 Williston, Contracts, § 1591). On the record before us, not all these conditions can be held to have been satisfied. The plaintiff has not tendered a return of the dividends collected pendente lite, and he has not shown that his conduct will not prejudice the defendant. He does not effect the needed readjustment by a mere credit of the payments in reduction of the verdict. With the defendant insolvent and in the hands of a receiver, the allowance of such a credit is the allowance of a preference, for the moneys, if returned, would be assets belonging to the defendant in which all the creditors would share. There has been a failure to supply the data upon which an equitable readjustment could be accomplished, if the other conditions essential to relief against mistake were taken as established.

The judgment should be affirmed with costs.

Pound, Crane, Andrews, Lehman and Kellogg, JJ., concur with O’Brien, J.; Cardozo, Ch. J., concurs in memorandum in which all concur:

Judgment affirmed.