Schenuit v. International Finance Corp.

P’attisoh, I., delivered the opinion of the Court. The appellee, the International Finance Company,. brought suit in this case against the appellant, Frank GL Schenuit, trading as the Schenuit Rubber - Company, to recover the aggregate amount of certain invoices of tires sold to the appellant by the Delion Tire and Rubber Company, which invoices were assigned by the latter company to the appellee. The declaration consists of six of the common counts and two special counts. The first of the special counts was for goods sold and delivered by the 'Delion Company to the appellant and assigned by it to the plaintiff; and the second, for money found to be due from the defendant to the Delion Company on account stated between them, which it had assigned to the plaintiff.

To the declaration, the defendant first pleaded “never indebted as alleged” and “never promised as alleged,” and later filed in addition thereto a plea of set-off, containing, the common counts and two special counts. The case, when tried by the court sitting as a jury, resulted in a verdict and judgment for the plaintiff. From that judgment the appeal in this case is. taken. In the trial of the case five exceptions were taken, one- to the court’s rulings upon the prayers and the others to the rulings on the evidence.

The tires above mentioned were manufactured and sol'd under a written contract made by the Delion Company wit) ⁴⁰⁵ the appellant, dated June 15th, 1922. The contract was to go into effect August 1st, 192-2, and was to end on the first-day of August, 1923, though, by its provisions, it could be renewed “at the end of the term for one year, and every year thereafter for a yearly term” so long as it was mutually agreeable. , It was, however, within the power of either of the parties thereto, if he or it so desired, to terminate the contract before the term expired upon giving the other party sixty days notice in writing; but as expressed in the contract, if it went over, the term should be understood “to run from year to year.” It was during the second year of the contract, and while it was still in force, that the invoices mentioned were, in the month of December, 1923, assigned by the Delion Company to the appellee, the International Finance Company. The contract between the parties contained, among others, the following provisions: “That the party of the second part (the Schenuit Rubber Company) will furnish all the necessary equipment such as moulds, rings, cores, etc., as specially designed for the manufacture of his double grip cord tires at his own expense and maintain the same in repair. “The party of the first part (the Delion Company) will manufacture for the party of the second part his double grip cord tires out of the same materials as it manufactures Delion cord tires at this date, the same to be manufactured at its plant at Fifth and Eager Streets, Baltimore, Maryland, and to be the same quality as- Delion cord tires in materials and workmanship. “The party of the first part agrees to manufacture and deliver at its plant in Baltimore, Maryland, and the party of the second part agrees to purchase at least five thousand (5,000) tires during the twelve months term of this contract, and to purchase and take as minimum four hundred fifty (450) tires per month of the several sizes. The party of the first part will make and deliver a maximum of two thousand (2,000) tires per month, if the party of the second part desires ⁴⁰⁶ the same to be made, the minimum amount to be manufactured and taken by the party of the second part being four hundred and fifty (450) per month and the maximum being two thousand (2,000) per month. “The party of the first part will sell to the party of the second part upon terms of payment, as follows: “The party of the first part will pay for all goods manufactured in any month and sold hereunder on the 10th of the month following, but in order that the parties hereto may be helpful to each other in handling their mutual credits, the party of thé first part agrees to take the trade acceptances or notes of the party of the first part, payable sixty and ninety days after date to the extent that it may be able to discount said notes either through its own bank or that of the party of the second part in the City of Baltimore, Maryland. “All tires manufactured and sold under this contract are sold under the manufacturers’ standard warranty clause approved by the Tire Manufacturers’ Division of the Rubber Association of America, Inc., and are warranted to be free from defects in workmanship or materials.” Under the above stated contract, tires were made and sold1 by the Delion Company to the appellant, and as a rule settlements were made therefor weekly by the appellant giving to the Delion Company trade acceptances for the amount then owing by him, payable in sixty days thereafter.

These were assigned by the Delion Company to the appellee, the International Finance Company. In arriving at the amount owing the D’elion Company, at the time of such weekly settlement, the amount then known to be owing the appellant by the Delion Company on account of defective tires sold him was deducted from the amount owingi by him for tires sold -to such time and not paid for by him. The written contract, which warranted the tires free from defects in workmanship and materials, provided no method ⁴⁰⁷ for ascertaining the extent of such defects in the tires or the loss to the appellant caused thereby, hut as appears from the evidence, the parties orally agreed at the time of the execution of the written contract that the distance a tire was warranted in its use thereunder was ten thousand miles and it was upon that basis that the adjustments were made. A tire, though defective in construction or1 in the materials used, which had gone that distance, was not regarded by them as defective within the meaning of the contract and no allowance was made therefor, but for one found to he defective, for the causes stated, that had not gone so far, an allowance was made, that is to say, if it had gone five thous- and miles there was an allowance to the appellant of one-half of the purchase price, or, if it had gone less than five thousand miles, or more than five thousand miles and less than ten thousand miles, an allowance in like proportion .was made.

When tires sold by the appellant to bis customers were returned to him by them, because defective, they were examined by the appellant to ascertain if the defect complained of was one of construction or one caused by tbe use of defective materials, and if found to be defective from either of said causes, they were set aside by him and thereafter examined and passed upon by an employee of the Delion Company, and the extent of the defect and the loss to the appellant was ascertained. It was by such method that the adjustments in regard to defective tires were made, apparently with no disagreement between the parties, until a short while prior to December, 1923, when, it seems, the appellant could no longer1 get the Delion Company to act upon his. claims for defective tires, in consequence of which no trade acceptances were thereafter given, in as much as the amount to be allowed the appellant for defective tires had not been agreed upon. Thereafter, commencing' with December 6th, 1923, the invoices for tires sold by the Delion 'Company to the appel ⁴⁰⁸ lant, without any allowance thereon to him for defective tires, were assigned to the appellee. These assignments of invoices, numbering six in all, dated December 6th, 7th, 8th, 11th, 12th, -and 13th, 1923, and amounting in the aggregate to- $3,514.44, represented the last sales of tires made by the Delion Company to- the appellant, and closed the dealings between them.

Thereafter, on, December 27th, 1923, the Delion Company was adjudicated a bankrupt. The first formal notice to the appellant of these assignments was sent by the appellee to- him through the mail on December 23rd, 1923, and received by him, as .shown by post office receipt, on the 24th day of December, 1923. . This, however, was not the first notice that the appellant had of these assignments, for, as he- says, when the Delion Company failed to send him the weekly trade acceptances, as they had been doing, he called upon its vice-president at its office to ascertain why they had not done so, and was told' that the company was assigning the invoices to- the appellee, to whom they had previously been assigning the trade acceptances, without deducting therefrom any allowance to him for defective tires, although he had sent to- them his claims therefor. He thereupon went to the International Finance Company’s office -at Washington, and there saw Mr. Herrell, its president, and explained fully to- him the way he and the Delion Company had been handling the trade acceptances, with all of which Herrell was at the time fully familiar.

He then asked what wo-uld happen to the credits to which he was entitled for defective tires, and Herrell replied: “That will lie your funeral and yo-u had better watch your step * * * that is your hard luck, we are going to- continue to discount them.” The witness was further asked, “Was there anything discussed, or did you tell Mr. Herrell anything about the written contract, or did he tell ,yo-u -anything about it, in other words, did he know of the existence of this contract, and if so, how did you know he knew it ?” Ans. “I told Mr. Herrell about the -contract because I wanted to know whether ⁴⁰⁹ they (the Delion Company) were going to continue production, and Mr. Herrell said they were putting up the money because they had a mortgage on the property and they were going to continue tO' find out whether Mr.' Price could take it over, and he advised me to' continue dealing with the Delion Company because they were going to pull out of the W'-oods, as he called it.” The conversation above referred to1 occurred, as stated by Schenuit, weeks before the Delion Company was adjudicated a bankrupt, and, as he says, Herrell at the time knew, and had for sometime known, of the Delion Company’s financial difficulties. Mr. Herrell, when upon the stand, admitted that Schenuit called upon him at his office in Washington at the time stated by the appellant, but he was not able to recall the conversation related by Schenuit in relation to’ the assignment of the invoices, though he could not say it did not occur, hut he had no recollection of it; that, as he recalled, the conversation was in regard to the purchase by the appellant of bonds held by the International- Bank against the Delion Company that be might get control or possession of that company, and did not recall his saying anything about the adjustment of his claims for defective tires. The invoices were not paid by the appellant at the time they were claimed to- be due and payable because, as stated by the defendant, the plaintiff’s assignor, the Delion Company, was indebted to’ him in a larger sum than the aggregate amount of invoices, on account of defective tires for which no adjustment and allowance had been made. As shown by the evidence, the defects complained of were in what is called the bead of the tire and, when used, the tire would break at the rim.

As stated by the appellant and corroborated by others, such defect in the tire could not he discovered until after it had been used; consequently the defect, though existing at the time when the tire was made, would not be disclosed until after the sale of the tire by the appellant- and after its use by the purchaser. In some instances ⁴¹⁰ a break in tbe rim, resulting from such defect would, in tbe use of the tire, occur much sooner than in others, and it was only when tbe break occurred that tbe appellant could make such defect known to tbe assignor of tbe appellee and claim therefor a reduction in tbe purchase price of tbe tire. It is disclosed by tbe evidence that tbe appellant bad from time to time made demands for losses suffered by him on account of defective tires. Some of these were made, but not allowed, before tbe assignment of tbe invoices, others were for losses caused thereby, where tbe defects were not discovered or disclosed until after tbe assignments.

In addition thereto a further claim was made by him for losses resulting from defects yet to be disclosed, either in tbe unsold tires or in those which bad not, at tbe time of tbe trial, been used for tbe distance hereinbefore named as tbe basis for tbe ascertainment of such defects. Tbe court, sitting as a jury? allowed appellant’s claims for such defects in tires filed and made by him before tbe date of tbe assignment; and excluded those losses resulting from defects discovered after tbe assignment, but which existed at tbe time of tbe assignment, including those discovered prior to tbe trial and proven therein to exist. Tbe prayers granted tbe plaintiff were in accord with the action of tbe court in excluding tbe above mentioned claims of tbe defendant, thereby declaring the law to be that tbe defendant was not entitled to any credit or allowance for defective tires that bad not been adjusted or agreed upon by the parties, or which bad not matured, at tbe time of the assignment and notice thereof to tbe defendant, notwithstanding tbe same “may have arisen out of dealings or transactions between tbe said Delion -Company and tbe defendant occurring prior to said assignment or assignments and notice thereof to tbe defendant,” under tbe above mentioned contract made by them. Tbe defendant offered three prayers: By tbe first tbe court was asked to state tbe law to be “that tbe defendant is entitled, to a deduction of tbe plaintiff’s claim in such amount ⁴¹¹ as the court shall find the defendant should be allowed * * * for defective workmanship, or