In re AW Cowen & Bros.

• Decision Date: 05 April 1926
• Docket Number: No. 282.,282.
• Citation: 11 F.2d 692
• Parties: In re A. W. COWEN & BROS., Inc.
• Court: U.S. Court of Appeals — Second Circuit

11 F.2d 692 (1926)

In re A. W. COWEN & BROS., Inc.

No. 282.

Circuit Court of Appeals, Second Circuit.

April 5, 1926.

David W. Kahn, of New York City, for appellant.

Walter Fairchild, of New York City, for appellee.

Before HOUGH, MANTON, and HAND, Circuit Judges.

MANTON, Circuit Judge.

A. W. Cowen & Bros., Inc., was engaged in the manufacture of men's neckwear, and the appellee was a manufacturer of silks, when, on August 14, 1919, a contract was entered into between them for the manufacture, sale, and delivery of silks known as necktie brocade. It provided for 50 sets of six pieces each, or 18,600 yards, "to be delivered in sets as ready. Any sets that can be completed in 1919 to be delivered in 1919. Balance in 1920. Duplicate sets to follow the first sets." The contract further provided:

"Acceptance of Part Delivery. — Any delivery or portion thereof not made in accordance with this contract shall not affect any fulfilled parts thereof, nor entitle the buyer to reject subsequent deliveries."

While the contract bore the date of August 14, 1919, it was corrected to its present form on October 10, 1919, and was finally confirmed on October 24, 1919. The merchandise was of special warps; special designs and combinations of colors. It contemplated future delivery of five qualities of 36-inch silk necktie brocades. The first pieces began to come off the looms and were offered for delivery in February, 1920, but at the request of the bankrupt, delivery was withheld until the sets were completed. All the goods required to be manufactured and delivered by the contract were tendered during the year 1920. The 50 sets manufactured were all tendered and under the contract prices amounted to $69,520.50. The first delivery of the sets was tendered in August, 1920, and was refused by the bankrupt because it was claimed they were unmerchantable. The last deliveries were made on December 28, 1920. Others were delivered between these dates, some of which were accepted, and the others refused on the ground of unmerchantability. The contract described the requirements of the merchandise to make it merchantable.

Upon the refusal of the bankrupt to accept deliveries under the contract, the appellee caused the rejected goods to be sold at public auction, where they brought $28,472.71, and it is for the difference — $34,006.71 — for which this claim is presented. The appellant claimed that there were imperfections which destroyed, in part, at least, the merchantability of the silks tendered. The question before the referee was the sufficiency of this claim. He held that some of the sets were imperfect, and there was justification for the rejection of some tendered, and made an allowance of 10 per cent. for these imperfections, and allowed the claim for the balance due. This determination won the approval of the District Judge.

In the contract there is a provision for arbitration before the committee on arbitration of the Silk Association of America. The controversy was presented to that committee, and they found that some of the sets were unmerchantable, and suggested allowances on the purchase price. The proceedings before the committee for arbitration took two forms: First, an offer to adjust the claim before a board of conciliation; and, second, proceeding before the arbitrators. The first failed of fruition, and the second gave an allowance to the bankrupt of approximately $7,000 less than the full amount of the claim, but it failed because the Supreme Court of the state of New York set aside the award, on the ground of misconduct of the arbitrators in refusing to receive proper evidence. Bankruptcy having intervened meanwhile, the matter came before the bankruptcy court.

The evidence in the record discloses that there were defects found in the rejected sets, which were not merely unavoidable weaving defects, so trivial as not to affect the use of the merchandise; but they were very noticeable defects, which made it impossible for the full use of the merchandise as required by the bankrupt in its business, and so affected it as to make it unmerchantable. Indeed, all the witnesses who examined the merchandise here in controversy, including the experts called by the appellee, testified to defects and imperfections appearing which all of them say justified an allowance on the purchase price. They differed as to what the allowance should be and as to the extent of these defects, but the result is that the merchandise tendered by the appellee to the bankrupt was affected, not merely by slight imperfections which might be said to be found in pieces of silk produced by machinery, and which would not affect the use of the goods, but they were real and substantial defects and imperfections, which destroyed to some degree the use of the merchandise by the buyer, and which undoubtedly rendered them unmerchantable, and therefore worth less than the bankrupt had agreed to pay for them.

We know of no rule of law which justifies the position taken below that merchandise which is unmerchantable must be accepted by the buyer, if an allowance be granted on the purchase price. The goods tendered are either merchantable or unmerchantable, and if they be unmerchantable, it is not a delivery within the requirements of the contract. There is no applicable rule of law that permits recovery upon the theory of a substantial performance of the contract. Nor would any custom or usage that might exist change the character of the obligations of the parties as contracted. By the terms of the contract, the appellee represented that it had certain patents which it is claimed insured perfection of weave. The sale was one by sample. The representative of the bankrupt, when the contract was made, was furnished with samples from which he made selections, and the...