Czarnikow-Rionda Co. v. Fed. Sugar Ref. Co.

Citation255 N.Y. 33,173 N.E. 913
PartiesCZARNIKOW-RIONDA CO. v. FEDERAL SUGAR REFINING CO.
Decision Date18 November 1930
CourtNew York Court of Appeals
OPINION TEXT STARTS HERE

Action by the Czarnikow-Rionda Company against the Federal Sugar Refining Company. From a judgment of the Appellate Division (230 App. Div. 206, 243 N. Y. S. 352) affirming a judgment of the Supreme Court, entered upon a verdict directed in favor of plaintiff, defendant appeals.

Both judgments reversed, and a new trial granted.

CRANE and HUBBS, JJ., dissenting.

Appeal from Supreme Court, Appellate Division, First department.

Henry W. Taft, F. Sims McGrath, Catherine Noyes Lee, and James F. Warden, all of New York City, for appellant.

Garrard Glenn, of Charlottesville, Va., and James F. Dealy, of New York City, for respondent.

KELLOGG, J.

This action is brought to recover damages sustained by the plaintiff through the breach by the defendant of several contracts, entered into by the parties on the 15th day of September, 1919, the 8th of March, 1920, and the 21st of April, 1920. Under these contracts the defendant bound itself to deliver to the plaintiff, in stated installments, during the months of April to August, inclusive, in the year 1920, approximately 75,000 tons of ‘fine granulated sugar,’ or approximately 1,670,000 bags containing 100 pounds each. On March 27, 1920, and thereafter the plaintiff entered into contracts with various customers throughout the United States for the sale of fine granulated sugar, described, in all contracts but one, as ‘Eastern cane fine granulated sugar, Federal Sugar Refining Co. brand,’ to be delivered in installments during the months of May, 1920, to August, 1920, inclusive. The defendant made deliveries of granulated sugar, as directed by the plaintiff, consigned directly to the plaintiff's customers. Of those deliveries, out of a total of 1,670,000 bags, 29,691 bags contained discolored sugar, not ‘fine granulated.’ In many instances the plaintiff's customers elected to rescind their contracts and demanded the return of advance payments made; in others they made claim for damages. Judgments were had in many cases; in others settlements were made. As a result, the plaintiff was obliged to refund or pay its customers a sum in excess of $310,000. Its expenses in defending suits brought against it exceeeded $30,000. The plaintiff has recovered a judgment against this defendant for its breach, based upon its payments so made to customers, and its expenses incurred, including interest on the sums disbursed, which awards to it the sum of $442,484.03.

The question of law surviving to be answered here is this: Is the plaintiff entitled to damages for the defendant's contract breaches, in delivering a certain quantity of discolored sugar, not the ‘fine granulated sugar’ contracted for, measured by disbursements necessarily incurred in satisfying its own customers, for the non-delivery to them of an equal quantity of ‘Eastern cane fine granulated sugar, Federal Sugar Refining Co. brand,’ or merely ‘fine granulated,’ promised by its contracts with them; or is it entitled to no more than general damages?

The contract of September 15, 1919, is contained in two writings, Exhibits J and K. By the former, Czarnikow, as we shall call the plaintiff, acknowledges a sale to Federal, the defendant, of 38,500 tons of raw sugar, at 7 cents per pound, deliveries to New York to be made in specified installments during the months of April to July, 1920, inclusive. It bears the inscription: ‘This contract applies against refined contract number 4 dated September 15, 1919.’ Exhibit K. By the latter, Federal acknowledges a sale to Czarnikow of 35,000 tons of ‘fine granulated’ sugar, at 9.25 cents per pound, delivered at New York in similar installments, April to July. The reduction from 38,500 tons to 35,000 tons is accounted for by shrinkage in the refining process. The writing ‘Applies against Raw Sugar Contract AB-16 dated September 15, 1919.’ Exhibit J.

The contract of March 8, 1920, is expressed in six parts, Exhibits A, B, C, D, E, and F. By Exhibit A Czarnikow acknowledges a sale to Federal of 27,500 tons of raw sugar at 12 cents per pound, deliveries to be made in New York in specified monthly installments April to August, 1920, inclusive. ‘Applies against Refined contracts 5-6-7-8-9 dated March 8th, 1920.’ Exhibits B, C, D, E, F. The other exhibits acknowledge aggregate sales by Federal to Czarnikow of 25,000 tons of ‘fine granulated’ sugar at 15 cents per pound, deliveries to be made in New York in like installments during the same months. Each writing ‘Applies against Raw Contract No. AB-398, dated 3-8-1920.’ Exhibit A.

The contract of April 21, 1920, is in three writings, Exhibits G, H, and I. Czarnikow agrees to deliver to Federal, not later than June, 3,333 tons of raw sugar valued at 19 1/2 cents per pound; not later than July, 3,333 tons; and 10,000 tons not later than August; and to pay Federal, for refining, 2 cents per pound for the ‘fine granulated.’ Federal agrees to refine the raw sugar for 2 cents per pound for the granulated and deliver to Czarnikow at Yonkers, deliveries to begin within ten days after receipt by Federal of the raw sugar.

It is urged by Federal that the contracts of September 15 and March 8, like the contract of April 21, 1920, are ‘tolling contracts'; that is, contracts whereby Federal merely agrees to refine raw sugar for Czarnikow at 2 to 3 cents per pound for the refined, the title to the sugar remaining in Czarnikow meanwhile, and Federal becoming, during the manufacture, a mere bailee thereof. A reading of the contracts renders the argument doubtful, since it does not appear that Federal is to refine and redeliver the identical sugar delivered in the raw by Czarnikow, for the contracts are phrased to express sales of raw sugar by Czarnikow to Federal and sales by Federal of refined sugar to Czarnikow. However, we do not decide the point, for we consider that, in this instance, the same rule of damage must apply, whether the contracts be contracts of sale, on the one hand, or contracts to bail and manufacture, on the other.

The contract writing of September 15, 1919, Exhibit K, bears the heading ‘Export Contract,’ and engages Czarnikow ‘to export the goods,’ It appears that Czarnikow had never before sold to the domestic trade, having been engaged exclusively in the business of importing raw sugar and exporting the refined. However, in December, 1919, Federal writes Czarnikow, granting it permission to sell to the domestic trade, deliveries to be to the railroad at Federal's refinery at Yonkers, rather than at steamship piers in New York City. Czarnikow is to pay an additional $1.10 per bag on domestic sales, that being the government drawback which would come to Federal if the raw imported sugars were exported as refined sugars. In January Federal writes asking for prompt shipping directions. It asks also whether it shall use its own judgment in routing railroad shipments, to which suggestion Czarnikow expresses its assent. It is urged by Czarnikow that these letters constituted a modification of the contract of September 15th to permit sales to the domestic trade; by Federal that they did not, since Czarnikow made no promises thus to sell and gave no consideration. They were at the very least offers by Federal to modify the contract terms, which became effective as promises when Czarnikow accepted by giving directions for domestic shipments. The contract of March 8, 1920, likewise engages Czarnikow ‘to export the goods.’ It contains, however, a clause conferring upon Czarnikow the ‘privilege’ of making domestic shipments. The contract of April 21, 1920, omits to mention that the shipments shall be either export or domestic. This at least is clear: Federal, at the time of making its offer to modify the contract of September 15, at the time of contracting on March 8, 1920, and again on April 1, 1920, had in mind that Czarnikow might sell to the domestic trade. On the other hand, until May 18th, a month after the making of the last of its three contracts, it never knew that Czarnikow had contracted to sell to domestic customers. Again, it never knew, until this action was brought, the precise terms of the contracts between Czarnikow and its customers. The extent of its knowledge,then, at the time of contracting, was this: There was a possibility that Czarnikow might resell sugars sold to it by Federal, under contracts containing undisclosed terms, to domestic purchasers.

It is the general rule that a purchaser of goods on contract, who has contracted to resell them to his own customer, for a nondelivery by the original seller, is entitled only to general damages, for the reason that, by a resort to the general market, he might have replaced the undelivered goods and thereby have satisfied his customer. Hadley v. Baxendale, 9 Exch. 341; Grebert-Borgnis v. Nugent, 15 Q. B. Div. 85; Western Union Telegraph Co. v. Hall, 124 U. S. 444, 8 S. Ct. 577, 31 L. Ed. 479;Messmore v. New York Shot & Lead Co., 40 N. Y. 422. Where, however, there were special circumstances, made known to the seller at the making of the contract, from which it might reasonably have been foreseen that a nondelivery by the seller would in turn cause a breach of the buyer's contract with a customer, and the two contracts are in fact breached, the damages paid, and expenses incurred by the buyer in satisfying the customer may be taken as the measure of the damages which the original seller must pay to the original buyer. Hadley v. Baxendale, supra; Grebert-Borgnis v. Nugent, supra; Hydraulic Engineering Co. v. McHaffie, 4 Q. B. Div. 670; Sawdon v. Andrew, 30 L. T. (N. S.) 23; Messmore v. New York Shot & Lead Co., supra; Chapman v. Fargo, 223 N. Y. 32, 36,119 N. E. 76, 77, L. R. A. 1918F, 1049, Ann. Cas. 1918E, 1054;Delafield v. J. K. Armsby Co., 131 App. Div. 572, 116 N. Y. S. 71; affirmed, 199 N. Y. 518, 92 N. E. 1083;Booth v. Spuyten Duyvil Rolling...

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