Distillers Distributing Corp. v. Sherwood Distilling Co.

• Decision Date: 06 March 1950
• Docket Number: No. 6025.,6025.
• Citation: 180 F.2d 800
• Parties: DISTILLERS DISTRIBUTING CORP. v. SHERWOOD DISTILLING CO.
• Court: U.S. Court of Appeals — Fourth Circuit

180 F.2d 800 (1950)

DISTILLERS DISTRIBUTING CORP. v. SHERWOOD DISTILLING CO.

No. 6025.

United States Court of Appeals Fourth Circuit.

Argued January 13, 1950.

Decided March 6, 1950.

Morris Rosenberg, Baltimore, Md., for appellant.

Wilson K. Barnes, Baltimore, Md. (William Hoffenberg and Anderson & Barnes, Baltimore, Md., on brief), for appellee.

Before PARKER Chief Judge, SOPER, Circuit Judge, and WARLICK, District Judge.

PARKER, Chief Judge.

This is an appeal by plaintiff from a judgment for defendant in an action for breach of warranty against excess "outage", or deficiency of content, made in connection with a sale of neutral grain spirits in barrels. Plaintiff, the buyer of the spirits, alleged that, in making the sale, the defendant's broker used language which, when construed in the light of the custom of the trade, amounted to a warranty against excess outage. The case was heard without a jury by the trial judge, who held that the language used did not amount to a warranty because not used when the sale was closed but in the prior negotiations. Without passing upon the meaning of the language relied upon as a warranty or determining the other questions in the case, he directed that the case be dismissed and entered judgment for defendant on the ground that the language relied upon as a warranty did not enter into and become a part of the contract of sale.

For a proper understanding of the case, it is necessary to bear in mind that, under the revenue laws of the United States, when distilled spirits are manufactured they may be placed in a warehouse without payment of the excise tax imposed on manufacture, if a bond be given that the tax will be paid when they are withdrawn. In such case, the tax follows the ownership of the spirits and must be paid by him who is the owner at the time of withdrawal. The spirits are gauged when placed under bond and also at the time of withdrawal; and the tax of $9 per gallon must be paid, not only on the spirits in the containers at the time of withdrawal, but also on any deficiency then appearing in excess of the standard amount determined pursuant to regulation under what is known as the "Carlyle formula".

In this case it appears that the seller, the Sherwood Distilling Company, had something in excess of 1200 barrels of spirits in warehouse under bond which it desired to sell. In a telephone conversation on March 30, 1948, it authorized a broker to sell them, fixing a price of $1 per gallon and stating that they "were in very good cooperage and that the outage was very slight". In a letter to the broker the following day, describing the spirits and stating that samples were being sent, they were offered for sale subject to confirmation at $1 per gallon, and it was said that they were "in very good cooperage subject to being on hand". The broker, in a letter of April 2, 1948, offered them to plaintiff at the price of $1 per gallon, regauged at time of delivery, and stated, "I am also advised that the goods are in first class cooperage, and the loss through evaporation has been slight". A sample of the spirits accompanied the letter, and the offer was made "subject to confirmation". There was evidence to the effect that the language used with respect to cooperage meant, under the custom of the trade, that the outage would not exceed that permitted by the Carlyle formula.

Plaintiff did not accept the offer at the price contained in the letter, but continued negotiations looking to the purchase of the spirits, and on April 14 a sale and purchase thereof was agreed upon at a price of 85 cents per gallon. No formal written contract covering the sale was signed, but the broker sent telegrams to the seller and buyer, confirmed by letters, setting forth the price and approximate quantity of the spirits and some other details such as the proof and the dates of barreling, but containing no warranty as to cooperage, or against excess outage. The buyer testified, however, that he relied upon the statements with regard to these matters contained in the letter of the broker as well as upon similar statements made by the broker verbally over the telephone and that he would not have purchased the spirits otherwise. There is evidence, also, that upon the seller's learning that there was excess outage in one 165 barrel lot of the spirits sold, he requested the broker to communicate this fact to the buyer and secure a waiver with regard thereto as a condition of sale.

When the spirits were regauged it was found that the outage, apart from that as to which a waiver had been obtained, was far in excess of what was allowed under the Carlyle formula; and plaintiff, as the owner of the spirits, was required to pay a tax of more than $18,000 on account of this excess outage. This suit was instituted to recover the amount so paid as damages resulting from breach of warranty.

It is well settled in Maryland, as elsewhere, that a warranty need not be made in formal language, but that any statement of fact made by the seller with respect to the quality or condition of goods offered for sale, which is relied upon by the buyer in purchasing them, constitutes a warranty and will be enforced as such. 55 C.J. 679 and cases cited. The rule was well stated by the Court of Appeals of Maryland in Osgood v. Lewis, 2 Har. & G. 495, 518, 18 Am.Dec. 317, quoted with approval by the Supreme Court of the United States in Shippen v. Bowen, 122 U.S. 575, 581, 7 S.Ct. 1283, 1285, 30 L.Ed. 1172, as follows:

"`An affirmation of the quality or condition of the thing sold, (not uttered as matter of opinion or belief,) made by the seller at the time of sale, for the purpose of assuring the buyer of the truth of the facts affirmed, and inducing him to make the purchase, if so received and relied on by the purchaser, is an express warranty. And in case of oral contracts, on the existence of these necessary ingredients to such a warranty, it is the province of the jury to decide, upon considering all the circumstances attending the transaction.'"

See also White Automobile Co. v. Dorsey, 119 Md. 251, 258, 86 A. 617; Greer v. Whalen, 125 Md. 273, 93 A. 521; Rittenhouse-Winterson Auto Co. v. Kissner, 129 Md. 102, 98 A. 361. The rule thus stated has been incorporated in the Uniform Sales Act, which has been adopted in Maryland. It is thus stated in Flack's Annotated Code of Maryland, Art. 83, sec. 30, viz.: "Any affirmation of fact or any promise by the seller relating to the goods is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the goods, and if the buyer purchases the goods relying thereon."

And we think it equally clear that to constitute a warranty it is not necessary that an affirmation as to the quality or condition of goods offered for sale be repeated at the time that the sale is closed. It is sufficient if it was made, as here, in the negotiations leading up to the sale. Where a contract is not reduced to a formal instrument, in which prior negotiations are deemed merged, its terms must be determined by consideration of all that was said leading up to the agreement; and a description of goods sold, made by the seller and relied upon by the buyer, may not be ignored because made in connection with an offer which was not accepted but which was a part of the negotiations leading up to what was accepted. See A. L. I. Restatement of Contracts, sec. 228 and Comment a, also sec. 240, illustration 7. The question is discussed by Prof. Williston in his work on sales in sections 209 and 210 as follows: "There seems no reason to distinguish a case where the seller makes a statement in regard to goods at the time of the sale, a little while before that time, or a long time before, if the statement was originally made with reference to a possible sale, or was expressly or impliedly adopted as the basis for subsequent negotiations. Affirmation may induce the sale as fully when the buyer buys after considerable further negotiations, as when he buys immediately. ...