In re People

• Decision Date: 19 March 1929
• Citation: 165 N.E. 829,250 N.Y. 410
• Parties: In re PEOPLE, by PHILLIPS, Superintendent of Insurance. In re CASUALTY CO. OF AMERICA. Claim of E. W. BLISS CO.
• Court: New York Court of Appeals Court of Appeals

250 N.Y. 410

165 N.E. 829

In re PEOPLE, by PHILLIPS, Superintendent of Insurance. In re CASUALTY CO. OF AMERICA. Claim of E. W. BLISS CO.

Court of Appeals of New York.

March 19, 1929.

Application of the People, by Jesse S. Phillips, Superintendent of Insurance, for an order to take possession of the property and liquidate the business of the Casualty Company of America. From an order (222 App. Div. 304, 226 N. Y. S. 175) affirming (one of the justices dissenting) an order of the Special Term, which confirmed the referee's report allowing the claim of the E. W. Bliss Company, the Superintendent of Insurance appeals.

Reversed, and rehearing ordered.Appeal from Supreme Court, Appellate Division, First department.

Charles B. McLaughlin and Clarence C. Fowler, both of New York City, for appellant.

Eli J. Blair, and George W. Field, both of New York City, for respondent.

KELLOGG, J.

The claim sets up a contract between the E. W. Bliss Company and the Santo Manufacturing Company; the execution, by the Casualty Company of America, of a bond in the penal sum of $50,000 for the faithful performance of the contract by Santo Company; the nonperformance by Santo Company of its contract undertaking to machine finish a stipulated quantity of forgings for Russian shrapnel shells; the performance by Bliss Company of all obligations imposed upon it by the contract; the incurrence of damages by Bliss Company in excess of $150,000; the institution of liquidation proceedings by the state superintendent of insurance against the Casualty Company; the entry into possession of all its assets and affairs by such superintendent; a demand for an allowance of the claim against the Casualty Company in the sum of $50,000. The claim was filed with the state superintendent of insurance, who made answer denying its allegations and setting up certain affirmative defenses. The issues were sent to a referee to take proof and report. All the allegations of the claim were established without dispute, with one exception. That Bliss Company, on its part, had fully performed all the conditions and obligations imposed upon it by the contract, expressly or by implication, was vigorously controverted. After various hearings, the referee reported that, while Bliss Company had performed on its part, Santo Company had breached the contract to the damage of Bliss Company in a sum exceeding $135,000. He recommended that the claim be allowed against the Casualty Company in the sum of $50,000. The report was confirmed at Special Term. The order of the Special Term, confirming the report, was affirmed at the Appellate Division.

The contract between Bliss Company and Santo Companywas expressed in writings. These consisted of a letter written by Santo Company to Bliss Company, containing offers, and a letter accepting the offers, written on August 4, 1915, by the latter to the former. The letter by Santo Company read, in part, as follows: ‘We agree to machine finish one hundred and twenty-five thousand (125,000) three-inch (3?) Russian shrapnel bodies, using forgings furnished by you, in accordance with your drawings and specifications. We will grease and pack the finished cases in ordinary shipping boxes of your design and specifications, and will deliver them f. o. b. New York or Brooklyn, at the price of one dollar and eighty cents ($1.80) each, or if delivery is called for by you to some other point we will allow freight to Brooklyn, N. Y. * * * It is understood that the forgings furnished by you will be of steel that will readily yield the following physical properties: tensile strength not less than 125,000 lbs. per sq. in. Elastic limit not less than 82,000 lbs. per sq. in. Elongation 2? not less than 10%. * * * Deliveries to be as follows: September 20,000; October 30,000; November 35,000; December 40,000.’ The contract, shortly after its making, was altered to increase the number of forgings to be machined from 125,000 to 150,000 and slightly to vary the specifications as to monthly deliveries. The contract stipulation that deliveries of all machine finished forgings would be completed before December 31, 1915, remained unchanged.

On August 20, 1915, Bliss Company and the Vickers Company, Limited, of England, entered into a formal contract, whereby the former agreed to supply the latter, for a stipulated price, with 925,000 three-inch Russian shrapnel bodies, according to specifications agreed upon. These specifications were identical with those governing the contract between Bliss Company and Santo Company, with the one exception that the tensile strength, elastic limit, and elongation provided for by the Vickers contract was slightly less than the similar physical properties provided for by the contract with Santo Company. While the formal Bliss-Vickers contract was not executed until after the making of the Bliss-Santo contract, negotiations therefor had been in progress long previously thereto, and the latter contract was clearly made in view of the former and to further its performance.

Prior to December 31, 1915, Santo Manufacturing Company had failed to make substantial performance of its contract obligations. In February, 1916, Bliss Company, with the consent of the Casualty Company, extended the time for performance to April 30, 1916. On or about May 1st it notified Santo Company that it would receive from it no forgings, which had been machine finished by it after May 13th. On that date all shipments ceased. The number of forgings which had been machine finished and shipped was 46,876. It thus appears that Santo Company had then finished and delivered less than one-third of the number of forgings which it had undertaken to machine.

On the hearing before the referee, abundant testimony was given by the appellant to establish the following facts: The forgings, furnished by Bliss Company to Santo Company, with respect to tensile strength, elastic limit, and elongation, in general largely exceeded, in some instances by over 100 per cent., the contract terms specifying the required minimum of such physical properties. The forgings were of chrome alloy rather than carbon steel. From these circumstances, there resulted an extraordinary hardness of the constituent metal, making it difficult, if not impossible, for Santo Company to machine finish the forgings. Tools employed by Santo Company to do the machine finishing broke under the strain of cutting. Not only did the tools consistently break, but the lathes themselves were destroyed. Other difficulties attended the work. The forgings had been unequally tempered by Bliss Company; they were alternately hard and soft. When a cutting tool struck a hard spot the forging would jump back, with the result that the tool barely scratched the surface. On the rebound, the tool would strike deeply into a succeeding soft spot and tear up the forging. Such were the difficulties in the way of correct machine finishing that prior to February, 1916, Santo Company had finished only a small quantity of the forgings. In that month it secured permission from Bliss Company to submerge the forgings in baths of lead heated to 1,200 degrees Fahrenheit. This method of heat treatment resulted in greatly softening the metal, so that it became more readily machinable. In consequence, Santo Company was enabled greatly to accelerate and increase its deliveries to Bliss Company. However, difficulties still attended the machine finishing. These facts were established without dispute. Upon the subject of machinability, the only evidence offered by Bliss Company was to the effect that a large quantity of forgings taken from the same lot as were those supplied to Santo Company had been successfully machine finished by Bliss Company.

It is the settled rule of the common law that, where a manufacturer contracts to supply an article manufactured or produced by him, to be applied to a particular purpose, an implied, term or warranty on his part that the article shall be reasonably fit for the purpose enters into or attends the contract. Jones v. Just, L. R. 3 Q. B. Cas. 197; Hoe v. Sanborn, 21 N. Y. 552, 78 Am. Dec. 163;Gaylord Mfg. Co. v. Allen, 53 N. Y. 515;Carleton v. Lombard Ayres & Co., 149 N. Y. 137, 43 N. E. 422;Bierman v. City Mills Co., 151 N. Y. 482, 45 N. E. 856,37 L. R. A. 799, 56 Am. St. Rep. 635;Heath Dry Gas Co. v. Hurd, 193 N. Y. 255, 86 N. E. 18,25 L. R. A. (N. S.) 160;Kellogg Bridge Co. v. Hamilton, 110 U. S. 108, 3 S. Ct. 537, 28 L. Ed. 86.

In Hoe v. Sanborn, supra, it was held that a manufacturer who undertook to supply saws to be incorporated in circular saw mills manufactured by another impliedly warranted that the metal of the saws would be sufficiently hard to perform the work designed to be accomplished by the mills.

The implication of a warranty of fitness is not peculiar to the law of sales; it arises in cases of bailment. Thus one who lets property for hire impliedly warrants that it is suitable for the purpose for which it is hired and is liable for the damages which may result from its unsuitability. Williston on Contracts, § 1041; Vogan & Co. v. Oulton, 81 L. T. Rep. (N. S.) 435; Hyman v. Nye & Sons, L. R. 6 Q. B. D. 685; Fowler v. Lock, L. R. 7 Common Pleas, 272; Hoisting Engine Sales Co. v. Hart, 237 N. Y. 30, 142 N. E. 342, 31 A. L. R. 536. One who lets a horse and carriage to another, that he may take a particular journey, impliedly warrants that they are suitable for the purposes of the trip, and is liable if, through the restiveness of the horse or the breaking of the carriage, the person hiring them is injured. Hyman v. Nye & Sons, supra; Fowler v. Lock, supra. A dealer who supplies sacks for bagging peas, in order that they may be unloaded from a ship, is liable for damages if the sacks, in the course of being hoisted, break, and a bystander is injured. Vogan & Co. v. Oulton, supra. One who hires out a crane for the purpose of lifting heavy pipes impliedly warrants its...