Frankfort Distilleries, Inc. v. Burns Bottling MacHine Works, Inc.

Parke, J., delivered the opinion of the Court. The Burns Bottling Machine Company was engaged in the manufacture and sale of machines to put labels on bottles. The company made a machine called the “Powell Labeling Machine,” after its designer. One of these machines was in operation by the Frankfort Distilleries, Incorporated, and placed the metal labels on the front of the styles and sizes of bottles which were used in the business.

The machines were built in adjustment with the particular bottles and labels to be used, and were not otherwise salable. The Frankfort Distilleries desiring a similar machine which would, in a single operation, simultaneously place a metal label on the front and a paper label on the back of every bottle, the manufacturer agreed to make, and the distilleries agreed to buy, one Powell Labeling Machine for $4,500, to be paid thirty days after its acceptance. The additional terms of the contract were that the machine was: “To apply front and back labels on Four Roses and Antique % pints, pints and quarts, similar to machine now installed at Boyer Warehouse. To be equipped with 220 Volt, 60 cycle, 3 phase, splash proof motor.

The above machine subject to acceptance and approval of Mr. S. C. Miller.” The plaintiff offered evidence tending to prove that the machine was built conformably to the specifications of the contract and was delivered and set up in March, 1935. There was further proof that it worked satisfactorily in labeling empty bottles, as was contemplated when the order was given, and that S. C. Miller, the president of the buyer, never formally approved and accepted the machine, and declined personally to inspect the machine and to observe it in operation. The buyer, however, used it to label filled bottles and, so, some adjustments and added equipment for this purpose were made, and there is testimony that the machine as thus operated worked efficiently. It was not until after a demonstra ¹⁶ tion with filled bottles in May, 1936, that the buyer finally decided not to keep the machine.

After this test, the machine was hauled by the buyer to the factory of the seller, which declined to accept its return. The testimony on the part of the plaintiff is largely denied. The witnesses offered by the defendant tended to show that the machine in controversy was delivered in March, 1935', and proved unsatisfactory in a brief test with filled bottles, and was immediately returned to the maker for alterations. After remaining in the shop of the seller for improvement, it was returned to the buyer by the seller during the last part of August or the first part of September, and again put in operation to determine if it would simultaneously put a metal label on the front, and a paper label on the back of filled bottles.

There is further testimony tending to show that neither in these trials, nor in subsequent use and tests after corrective alterations had been undertaken by the seller, did the machine simultaneously label the filled bottles with a metal label on the front and a paper label on the back in a manner satisfactory to officials of the buyer, who had been delegated by it and S. C. Miller, its president, to conduct the tests and observe its results. The final test was conducted on May 14th, 1936, and the following day the buyer rejected the machine and attempted to return it to the seller. S. C. Miller testified that he was not present at any of the times the machine was used or tested, and that his action in the matter was based on the reports of his subordinates. There is much conflicting testimony, and contradictions will be found even among the witnesses who respectively testified on the part of the plaintiff and of the defendant.

These differences of fact ultimately present questions for the determination of the jury on proper instructions with reference to the legal rights of the parties as they exist accordingly as the jury may find the issues of fact. It is not controverted that the contract was a conditional one. So, the delivery of a machine in accordance ¹⁷ with the stipulations of the contract was not sufficient to bind the buyer unless it was accepted and approved by S. C. Miller. The mode of this acceptance and approval was not specified, so it might be made in any manner which would be sufficient in law.

Again, the acceptance and approval did not contemplate nor involve a promise on the part of S. C. Miller, and, therefore, it was not necessary that the acceptance and approval of Miller be communicated to the seller before the condition would be fulfilled. New v. Germania Fire Ins. Co., 171 Ind. 33, 39, 41 , 85 N. E. 703 . However, the decision of Miller, who was the president of the buyer, whether or not he would accept and approve the machine, must be held to have been intended to be made within a reasonable time.

Furthermore, the machine had to be designed and built with reference to the particular labeling service which it was to perform in the business of the buyer at whose establishment the machine was to be delivered and operated. In order, therefore, for the arbiter to determine whether or not the machine possessed the operative fitness and mechanical utility to be accepted and approved by him, it was necessary that he not only inspect the machine but also observe it while working, and see the results obtained by its operation. So much is reasonably necessary and consequently required by good faith. In the selection of a third party, who is here the chief executive officer of the buyer, the contracting parties contemplated that this third party should act according to his own individual judgment on such facts in relation to the machine and its operation and capacity as are within his own powers of observation and comprehension.

In the formation of his conclusion, the arbiter may inform his judgment from every available source, but, in respect of those matters which are ascertainable by his own inspection and open to his own observation, he is generally bound to make such personal inspection and observation. An arbiter, no more than an agent, may delegate to another the duty which he is chosen to discharge. If such were not the rule, the ¹⁸ judgment exercised would not be that of the arbiter, but of a stranger, who was not within the contemplation of the parties to the contract. Mechem on Agency (2nd Ed.), secs. 305-310; Wilson v. York & Maryland Line R. Co., 11 G. & J. 58 ; Lynn v. Balto. & O. R. Co., 60 Md. 404, 415 ; Pope v. King, 108 Md. 37, 44-47 , 69 A. 417 ; City of Baltimore v. Ault, 126 Md. 402, 427-429 , 94 A. 1044 .

Here the matter involved is not one of taste or fancy but the efficiency, capacity and fitness of a specially built piece of machinery that is designed to operate similarly to a machine formerly built by the seller for the buyer, and to accomplish a specific purpose.' The only limitation upon the arbiter is that he fairly and honestly test the machine and its output, and express his judgment in good faith. Lynn v. Balto. & O. R. Co., 60 Md. 404 ; Balto. & O. R. Co. v. Brydon, 65 Md. 208 , 219-222, 611, 3 A. 306 , 9 A. 126 ; Canton Lumber Co. v. Liller, 107 Md. 146, 172-177 , 68 A. 500 ; Hughes v. Model Stoker Co., 124 Md. 283, 289-291 , 92 A. 845 ; Devoine Co. v. International Co., 151 Md. 690, 693-697 , 136 A. 37 . In the decisions cited, the condition upon which the sale of the material (ice, coal, lumber or imported preserved cherries) or the structure or apparatus (furnace) depended was that it would be found and accepted as satisfactory either by the buyer, an agent of the buyer, or a third party. In all these instances, the disapproval Was after an examination or inspection of the goods and chattels sold.

If such had not been the case, it could not have been contended that a vital term of the contracts had been performed as contemplated. Furthermore, if the arbiter designated had refused to approve the quality or utility of the subjects of the contracts without having himself made an examination, inspection, or observation of their quality and utility, but had depended upon the opinion of others in matters which were within his own competency and opportunities, it could not be well denied that he had acted arbitrarily and capriciously, and hence, in bad faith. In the appeal of Aetna Indemnity Co. v. ¹⁹ George A. Fuller Company, 111 Md. 321 , 73 A. 738 , 74 A. 369 , the certificate furnished by the architects was not based upon a personal examination and inspection of the work done, and it was held properly excluded. The court said in the course of its opinion: “We are not to be understood as charging these architects with actual fraud, or with any fraudulent purpose; but it was their duty to make such a personal examination of the work done in completing the contract as would have enabled them to give a proper certificate, such as would have been admitted in evidence, and when they neglected that duty it operated as injuriously upon the rights of the plaintiff as an absolute refusal in bad faith to give any certificate whatever.” At page 344 of 111 Md., 73 A. 738, 745, 74 A. 369 .

As was stated in City of Baltimore v. Ault, 126 Md. 402, 429 , at pages 434, 435, 94 A. 1044 , 1052: “To constitute bad faith it is not necessary, however, that the decision of the person to whose judgment the matter is submitted shall be the result of a malicious and deliberate purpose to defraud or deprive a party to the agreement of the benefit of the