Texpor Traders, Inc. v. Trust Company Bank

• Decision Date: 12 September 1989
• Docket Number: 87 Civ. 9224 (BN).
• Citation: 720 F. Supp. 1100
• Parties: TEXPOR TRADERS, INC., Plaintiff, v. TRUST COMPANY BANK and Oxford Industries, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

720 F. Supp. 1100

TEXPOR TRADERS, INC., Plaintiff, v. TRUST COMPANY BANK and Oxford Industries, Inc., Defendants.

87 Civ. 9224 (BN).

United States District Court, S.D. New York.

September 12, 1989.

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Chapman, Moran, Hubbard & Zimmermann, by Victor L. Zimmermann, Jr., of counsel, Stamford, Conn., for plaintiff.

Otterbourg, Steindler, Houston & Rosen, P.C., by Kurt J. Wolff and Diane B. Kaplan, of counsel, New York City, for defendants.

OPINION, FINDINGS OF FACT AND CONCLUSIONS OF LAW

NEWMAN, Senior Judge of the United States Court of International Trade, sitting as a District Court Judge by designation:

INTRODUCTION

This is an action for breach of contract regarding the sale of certain cotton sweatshirts and refusal to honor a letter of credit relating to such sale. Plaintiff Texpor Traders, Inc. ("Texpor") the seller, seeks damages of $36,612., plus interest and costs from defendants Oxford Industries, Inc. ("Oxford") the buyer, for nonpayment of delivery on shipment No. 10881 ("second shipment") and from Trust Company Bank ("TCB") for refusal to honor a letter of credit issued in favor of Texpor by the Bank on behalf of Oxford.

Oxford, contending the merchandise was defective, counterclaims for $61,036.40 paid to Texpor under the letter of credit for shipment No. 10882 ("first shipment") and $163,265.95 for lost profits on confirmed customer orders and potential customer orders (for both shipments) that Oxford claims it was unable to deliver because of defects in the merchandise.

The court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(a)(1) (1982), and as set forth in the contract agreement, the law of New York governs this action.

For the reasons set forth below, plaintiff's claim for breach of contract is dismissed. Oxford's counterclaim is sustained for $7,836.65 in compensatory damages ($61,036.40 paid by Oxford on the first shipment minus $33,100 Oxford recovered on the resale of the first shipment and $20,099.75 it recovered on the resale of the second shipment) plus $111,112.78 for consequential damages in the form of lost profits.

Plaintiff's claim against the Bank is also dismissed. Under the facts in this case, plaintiff did not strictly comply with the requirements of the letter of credit; hence, the bank was justified in its refusal to honor the letter of credit.

FINDINGS OF FACT

1. Texpor is a corporation duly incorporated under the laws of Connecticut. As of March 30, 1987 Texpor maintained its principal place of business at 1412 Broadway, New York, N.Y. 10018 and had been in business for approximately only one year.

2. Oxford is a corporation, incorporated under the laws of Georgia with its principal place of business in Atlanta, Ga. Oxford has been in business for over twenty-five years. As of March 30, 1987 Oxford maintained a sales office in the Empire State Building on 34th Street in New York City.

3. Trust Company Bank is a state chartered trust company under the laws of Georgia with its principal place of business in Atlanta, Ga.

4. On September 11, 1986 Oxford submitted purchase orders Nos. 10876, 10877, 10880, 10881 and 10882 to Texpor under which Oxford agreed to purchase and Texpor agreed to sell a quantity of one hundred per cent French terry or knit cotton sweatshirts, pursuant to the terms and conditions set forth within the above cited purchase orders. Purchase order Nos. 10882 and 10881 state in pertinent part:

All goods not merchantable or not in compliance with the specifications set forth ... may be rejected by the Buyer and returned or held at Seller's expense.... Any complaint, claim, notice of defect, or notice of breach, whether with respect to quality, quantity, or any other defect or breach, shall be considered timely if made by the Buyer within thirty (30) days after Buyer discovers or learns of such defect or breach.

* * * * * *

Time is of the essence of the respective obligations of the parties hereunder, including Seller's obligation to ship goods or to have goods ready for shipment on the dates specified herein.

See Plaintiff's Exhibit Nos. 2-3 hereinafter "PX "n" (emphasis added).

5. All of the sweatshirts under these purchase orders were part of a single line of clothing or program at Oxford called the "Robert Stock Program." Further, Casimir Taxier ("Taxier"), president of Texpor, was aware that the purchase orders constituted a single, indivisible program at Oxford. The Robert Stock Program was ultimately discontinued and all customer orders cancelled as a result of Texpor's failure to deliver conforming goods to Oxford.

6. Each purchase order specified that the sweatshirts, whether French terry or knit, were to be "first grade goods," see PX 1-3, and contained the seller's express warranty that "all goods ... will be of first quality and merchantable and fit and sufficient for the purposes intended by the buyer." Id.

7. Taxier was aware that the garments to be produced in accordance with the purchase orders were intended for resale in both top quality department stores, such as Saks Fifth Ave.,¹ and specialty retail stores and boutiques.

8. Before giving Texpor the written purchase orders, Oxford provided Texpor with specification sheets and size grades, and requested that Texpor provide prototype samples. The initial samples did not meet Oxford's specifications and required corrections. The corrected samples were approved by Oxford's purchasing Agent, Renee Nesbitt Baird ("Baird").

9. Baird made two visits to Portugal, the first in December, 1986 and the second on January 26, 1987 to check Texpor's production facilities. On her first visit, Baird did not see the factory where the garments were actually under production. There were two factories where the goods were being manufactured, and Baird only visited one of them. Instead, six finished garments from shipment No. 10882 were brought to her for inspection and she found them to be of acceptable quality. See Defendant's Exhibit R at 50, 57 hereinafter "DX "A". On her second visit, Baird again viewed several garments, but this time from shipment No. 10881. Id. at 60-61. By that time all the garments from shipment No. 10882 had already been forwarded to the United States. The remaining production under shipment No. 10881 had already been packed and was awaiting shipment. Thus, no one from Oxford ever saw shipments Nos. 10882 and 10881 until their arrival in Georgia on January 29, 1987 and February 12, 1987, respectively.

10. In connection with the purchase orders, Oxford arranged for TCB to issue an irrevocable letter of credit in favor of Texpor in the amount of $242,448.25. This letter of credit was later amended four times, presumably to accommodate Texpor's delay in delivery of the first and second shipments, the last amendment extending the latest shipping date for the second shipment to February 10, 1987. See PX 4.

11. On January 20, 1987 Texpor shipped garments under purchase order No. 10882 (first shipment) to Oxford and issued invoice No. 101 for 6,620 sweatshirts of lot No. 24-7005. On January 29, 1987 Oxford received the merchandise and Texpor received payment in full that very date under the letter of credit for $61,036.40. Since payment for the first shipment was made on the same day, Oxford had no time to inspect the goods prior to payment.

12. On February 3, 1987 Texpor shipped garments to Oxford under purchase order No. 10881 and issued invoice No. 102 for 3,450 sweatshirts (second shipment) in the total amount of $36,612. Texpor, to date, has not received payment for this shipment. TCB refused to honor the letter of credit, insisting that documents presented by plaintiff-beneficiary Texpor did not comply with the requirements of the letter of credit.

13. From January 29, 1987 to February 4, 1987 Oxford conducted routine quality audits of the first shipment, see DX D(1)-(9), and from February 12, 1987 (immediately upon receipt of the second shipment) to February 25, 1987 Oxford conducted routine quality audits of such second shipment.

14. These quality audits revealed defects in most of the sweatshirts, defects ranging from improper stitching and holes in the fabric to soiled or dirty garments and lack of uniformity in fabric weight and color. Some of the audits even bear the auditor's note that the garments received were damp and had an "odor." See, e.g., DX D(1), (8). Following the audits, the sweatshirts were replaced in their bags, boxed up, and classified as "irregulars." Trial Transcript at 141, 154 hereinafter "Tr. X".

15. Claudette Hayes ("Hayes"), the quality audit supervisor at Oxford, notified Karen Hilton ("Hilton"), Oxford's merchandise manager, informing her of the problem. Hilton reviewed the audits, and in turn, notified Baird that she had observed "a lot of shading within the sweatshirts, a lot of bad stitching, and that the goods were wet and had an "odor." Tr. 165. Additionally, Hilton sent samples of the defective goods to Baird in Oxford's New York office.

16. Baird testified in her deposition that the merchandise Oxford received under purchase orders Nos. 10882 and 10881 did not conform to the quality of the production samples that Taxier had shown her in Portugal during her visits to the factory in December, 1986 and January, 1987. DX R at 65 (Deposition of Renee Nesbitt Baird).

17. The court finds that the quality audits conducted by Oxford on the first and second shipments constitute statistically valid random samples and thus are representative of the defects in the shipments as a whole. Hayes served as a supervisor of quality audits at Oxford for five years and has conducted hundreds of audits. Tr. 70-71. She testified that, relative to the first shipment, three auditors sampled fifty shirts from each color representing six of the styles and thirty-two shirts from the remaining three styles. See DX C at 2. For the second shipment, four auditors sampled eighty shirts from...