Carleton v. Lombard, Ayers & Co.

• Decision Date: 07 April 1896
• Citation: 149 N.Y. 137
• Court: New York Court of Appeals Court of Appeals
• Parties: I. OSGOOD CARLETON et al., Appellants, v. LOMBARD, AYRES & COMPANY, Respondent. [a1]

149 N.Y. 137

43 N.E. 422

CARLETON et al.

v.LOMBARD, AYERS & CO.

Court of Appeals of New York.

April 7, 1896.

Appeal from supreme court, general term, First department.

Action by T. Osgood Carleton and another against Lombard, Ayers & Co., a corporation, for alleged breach of contract to deliver plaintiffs a specified quality and quantity of petroleum.From a judgment of the general term, First department (28 N. Y. Supp. 1107), affirming a judgment for defendant, plaintiffs appeal.Reversed.

James C. Carter, for appellants.

B. F. Tracy, for respondent.

O'BRIEN, J.

The plaintiffs sought to recover damages in this action for the breach of an executory contract for the sale of goods.The defendant is a domestic corporation engaged in refining crude petroleum for sale and export, and both parties to the action were members of the New York Produce Exchange.On the 10th of January, 1887, the parties entered into a contract in writing, which, by its terms, was made subject to the rules of the exchange, whereby the defendant agreed to sell and deliver to the plaintiffs a large quantity of refined petroleum.The following is the material part of the contract, in which the kind, quantity, and price of the goods are specified, as also the time and place of delivery, in these words: ‘Fifty-five thousand cases, ten per cent., more or less, each case packed with two of their patent cans, with low screw tops or nozzles and brass labels, containing five gallons each of refined petroleum of their Stella brand, color standard white or better, fire test 76 degrees Abel or upwards, at eight and one-half cents per gallon, cash on delivery.To be delivered in yard, free of expense to vessel; to be ready not earlier than the twenty-fifth January, 1887, not later than the tenth of February, 1887, with twenty-five days to load.Brass labels one-half of one cent each.’It appears that before closing this contract the plaintiffs had received from the firm of Graham & Co., merchants at Calcutta, British India, an offer to purchase a like amount of refined petroleum of the same brand, color, test, and packing, to be shipped at the port of New York, not later than March 15, 1887, for their account and risk, on board the British ship Corby, bound for Calcutta.This offer the plaintiffs accepted on the same day that they entered into the contract with the defendant, and immediately after closing it.On or before March 1, 1887, the defendant delivered the oil, packed in the manner specified in the contract, to the plaintiffs, alongside the Corby, at its factory at Bayonne.The delivery by the defendant to the plaintiffs, and by the plaintiffs to their vendees in Calcutta, was thus accomplished by substantially the same act.The rules of the Produce Exchange, which were made part of the contract between the plaintiffs and the defendant, so far as material to the questions involved, were these: (1) The committee on petroleum were authorized and required to license duly qualified inspectors, members of the exchange, for the various branches of that business.(2) Buyers should have the right of naming the inspector, but must do so at least five days before the maturity of the contract.Failing in this, the seller might employ any regular inspector at the buyer's expense, and his certificates that the oil is in conformity with the contract shall be accepted.(3) When goods are delivered to vessel by buyer's orders, the acceptance of them by buyer's inspector shall be an acknowledgment that the goods are in accordance with the contract.The plaintiffs, under the rule, named the inspector, who on March 1, 1887, after the cargo was loaded on board the Corby, made and delivered to them a certificate in writing which certified that he had inspected the oil shipped on board the Corby, and stated therein the brand, color, test, and gravity of the same, which corresponded with the contract.The vessel started upon her voyage.The plaintiffs paid the defendant the purchase price of the oil, and then drew upon the parties in Calcutta to whom they had sold, for the price as between them, and their draft was paid.The vessel did not arrive at Calcutta till some time in June, and, when she began to discharge the cargo, it was found that the cans had become corroded from the inside by some foreign substance in the oil, and so perforated that they did not retain their contents.A large part of the oil was lost by leakage, and the whole cargo was pronounced unmerchantable, and finally sold at Calcutta for a small sum, for account of whom it might concern.When the condition of the goods was discovered by the consignees, during the discharge of the cargo from the ship, the plaintiffs were notified by cable of the situation and the condition of the oil.They laid these dispatches before the defendant, and a long correspondence by cable followed, in which the defendant participated, and of all of which it had knowledge.The purpose of it was to ascertain the defect, if any, in the oil, and to reach some amicable arrangement.In the end all parties seem to have become satisfied that a large loss had been sustained, and the parties in Calcutta, who had paid the plaintiffs for the property, called upon them to make good their contract.The plaintiffs in turn called upon the defendant to indemnify them from loss, and it then took the ground that it had, in all respects, performed its contract, and was not liable for the result.

In July, 1888, Graham & Co., in Calcutta, brought suit in the supreme court in New York, against the plaintiffs, to recover their damages.The complaint in the action, after alleging the legal obligation of these plaintiffs to deliver to them a merchantable article of refined petroleum at the port of New York, fit for export and transportation by sea, in a sailing vessel, to India, averred that in fact it was not a merchantable commodity, but on the contrary a very large portion of the cans so shipped contained petroleum imperfectly refined, containing water, acids, and other foreign substances, which would, in the course of transportation, corrode the cans, and should have been eliminated therefrom by proper refinement, and the presence of which rendered the article shipped unmerchantable and unfit for transportation.There were various other breaches of the contract alleged, not material to state.Notice was given to the defendant to come in and defend the action, and it complied with the notice.It participated in the preparation of the defense, the production of proofs, and at the trial was represented by counsel, and had every opportunity to resist the claim.The jury, however, rendered a verdict for the plaintiffs in the action, and against the defendants, who are the plaintiffs here, upon which a judgment was entered for nearly $50,000.The plaintiffs in this action, upon the refusal of the defendant to indemnify them, paid this judgment, and called upon the defendant to reimburse them, and upon its refusal this action was commenced, in March, 1891.

The complaint alleges, as did that in the prior suit, substantially, that the oil delivered by the defendant alongside the Corby, at Bayonne, was not in fact refined, merchantable petroleum, but, on the contrary, the cans contained a large proportion of oil imperfectly refined, and containing foreign substances, which would, in the course of transportation, corrode the cans, and which should have been eliminated by proper refinement, the presence of which rendered the goods unmerchantable and unfit for transportation; that in consequence of this defect the cans, with few exceptions, had become corroded and perforated by the action of the contents, so that they would not and did not retain it, and hence could not be delivered, as an article of merchandise or commerce, at the port of destination; that these defects were latent and of a hidden nature, and such as could not have been discovered by inspection, or any examination that was practicable for the buyers to make at the time and place of delivery.The pleading then states with considerable detail the correspondence by cable after the arrival of the Corby at Calcutta, the defendant's connection with it, the action brought against them by the Grahams, the issues therein, the verdict and judgment, and the payment of the same by the plaintiffs, who were defendants in that action.The action having been brought to trial, a verdict was directed in favor of the plaintiffs, but the judgment was reversed at the general term upon a construction of the contract unfavorable to the plaintiffs, and upon exceptions taken at the trial, and a new trial was ordered.On the new trial the plaintiffs' complaint was dismissed on the rulings of the general term made when the first judgment was before it for review.On the second appeal that court adhered to its former ruling, and affirmed the judgment.

The property which was the subject-matter of the contract between the parties was not in existence at the time it was made, but was thereafter to be produced by refinement of the crude material through a manufacturing process by the defendant.It was therefore a contract by a dealer with a manufacturer, and is subject to the rules and principles that apply to executory contracts for the sale and delivery of goods when the parties occupy these relations to each other.It is a conceded fact in the case that the oil delivered by the defendant to the plaintiffs alongside the Corby was of the kind and quality described in the written contract.In quantity, brand, color, and fire test, it corresponded with the terms of the contract.But it is claimed that, while all this is true, yet there was a latent or hidden defect in the article so delivered, the result of improper refinement or manufacture, not discernible upon inspection, which rendered the oil unmerchantable,and unfit for transportation by sea in a sailing vessel, and that this defect was...