Opinion
No. 38183.
January 14, 1952.
1. Sales — divisible contract — conduct of parties.
Although an order given and accepted for forty automatic washers may have been originally deemed an indivisible contract yet when the machines were shipped in three separate installments, and separate bills of lading were issued for each installment and separate drafts were drawn for the purchase price of each, so that the contract was treated by the parties thereto as divisible, the acceptance by the purchasers of defective machines under the two first shipments did not preclude them from rejecting the subsequent shipment of similarly defective machines.
2. Sales — machines with serial numbers removed.
The removal of the factory serial numbers of the machines above mentioned which abrogated the manufacturer's guaranty certificates, and thereby reduced the value thereof to retail dealers to such an extent as to amount to a defect in quality, entitled retailers to reject all of them, and the fact that when shipped by three separate installments the purchasers accepted two of such installments does not preclude them from rejecting the third, likewise defective.
Headnotes as approved by Kyle, J.
APPEAL from the circuit court of Warren County; R.B. ANDERSON, Judge.
Vollor, Teller Biedenharn, for appellants.
The test to be applied in determining whether or not a contract is divisible is announced in the case of Ganong Chenoweth v. Brown, 88 Miss. 53, 40 So. 556, 117 Am. St. Rep. 731, wherein it was held: "Whether a contract is entire or divisible cannot be determined by a single term, phrase, or sentence, though the same be large enough to include such meaning, unless throughout the whole agreement, the surrounding circumstances, and good sense and justice of the case it definitely appears that it was the intention of the parties to the contract that it should be entire and indivisible."
This principle of law was reaffirmed in the case of Clark v. Till, 177 Miss. 891, 172 So. 133. The contract here in question is clearly severable and by its nature susceptible of division and apportionment. The consideration was not single or entire as to the whole purchase, but on the contrary the price to be paid was fixed as to each machine involved. A unit price of $158.00 for each machine was agreed upon. The washers were shipped in separate installment shipments. The first installment shipment (seven machines) was paid for by sight draft and was in every respect a separate deal. The original agreement was for the purchase of forty machines for immediate shipment. This agreement was subsequently modified and changed by the acts of the parties. An installment of other merchandise was shipped by appellee and the cost thereof charged against the deposit credit held by it. The shipment of merchandise in the instant case comprised in all four shipments, three shipments of washers and one of other merchandise.
It was held in First National Bank in Meridian v. Pearson, 10 So.2d 178, 188, that: "Where there is a purchase of different articles at different prices at the same time, the contract would be separable as to each article, unless the taking of the whole was rendered essential either by the nature of the subject matter or by the act of the parties."
The record does not disclose in detail the other merchandise shipped in the second installment shipment, but does disclose that the total cost thereof was $1,056.00. The contract of sale herein involved the purchase of different articles at different and separate prices. The consideration to be paid was $158.00 per machine and there is certainly nothing in the record to indicate that the parties to the contract intended it to be entire. When the whole agreement is considered, together with the surrounding circumstances and good sense and justice of the case, the contract is clearly divisible.
The annotations contained in 2 A.L.R. 643 treat of the rights and remedies of the parties to contract for the sale of goods under entire and divisible contracts and we invite the Court's attention thereto and respectfully submit that the authorities therein cited touching upon the questions here involved clearly sustain the position of appellants.
Referring to the annotation last mentioned, on page 654 thereof, under subhead B of the heading "Where Effect of Breach by Seller Involved", the right of buyer to reject articles tendered is fully treated. Under subhead B, page 662, aforementioned, we find the following statement: "And the same fact that the buyer saw fit to accept an installment of goods in quality inferior to the requirements of the contract does not affect his right to rescind the contract, where subsequent installments are tendered which are likewise of inferior quality." (See note 47 thereunder for authorities)
In the instant case the seller breached its contract with appellants, and, as aforestated, despite its flagrant breach, insists that the appellants be required to accept further installments of defective merchandise.
In 55 C.J. 446, par. 432 (3), the following general statement appears: "The acceptance of a part of the goods waives defects as to the part accepted, but does not waive defects as to the remainder, unless the contract is entire. So where goods are delivered in installments, the acceptance of one installment which does not comply with the contract requirements, while a waiver of defects as to the part accepted, is not a waiver of the buyer's right to reject subsequent installments which also fail to comply with such requirements."
In our further search of the authorities we do not find a Mississippi decision more clearly announcing the rule of law applicable to the facts in the instant case than in the case of Red Star Milling Co. v. Moses, et al., 169 So. 785. The precise question involved in this case was, it is true, not present in the Red Star Milling case but the announcement of law therein contained is peculiarly applicable to the facts of the case at bar. Chief Justice Smith, speaking for the Court, stated: "According to the weight of authority, the acceptance by the buyer of an installment defective in quality is not, of itself, alone, equivalent to an assent to receive subsequent installments of `similarly inferior goods'. 2d Williston on Contracts, Rev. Ed. Sec. 741."
In 46 Am. Jur. 462, par. 277, there is set out the following statement: "Moreover, the acceptance of prior installments defective in quality does not preclude the buyer from rescinding the contract for the default of the seller in the quality of subsequent installments."
For support of this last quoted statement in American Jurisprudence the author cites Red Star Milling Co. v. Moses, supra.
Dabney Dabney, for appellee.
The principal authority relied on by appellants is the case of Red Star Milling Co. v. Moses, et al., 169 So. 785, which has no applicability here, for in that case the merchandise was not discovered to be defective until it had been opened. That of itself excused the buyer from accepting further shipments. He had a right to expect and demand future compliances with the contract. But in the case at bar, the buyer (appellants) knew after the first seven washers were accepted that all the others had the serial tags removed along with the guarantee certificates.
All American Sales, Inc., an Illinois Corporation, as plaintiff, filed suit in the County Court of Warren County against R.P. Chatham, Jr., and H.D. Kinnebrew, doing business as Chatham-Kinnebrew Service Company, defendants, for the sum of $1,305.15 alleged to be due to the plaintiff as damages for failure to accept 18 Thor Automagic washers, which had been shipped to the defendants by the plaintiff as a part of a purchase order for 40 Thor Automagic washers given to the plaintiff several weeks prior to the date of said shipment. The defendants had declined to accept said machines because the factory serial numbers and the manufacturer's guarantee bond had been removed therefrom prior to the shipment of the machines to the defendants. The case was tried in the county court before a jury, and a verdict was returned for the defendants. Judgment was entered in favor of the defendants, and plaintiff's motion for a new trial was overruled. The plaintiff thereupon appealed the case to the circuit court, and upon the hearing of the appeal the circuit court reversed the judgment of the county court and rendered judgment for the plaintiff. From that judgment the defendants prosecute this appeal.
Sam Stamler, President of the All American Sales, Inc., testified in answer to interrogatories propounded to him that the plaintiff received an order from the defendants on September 10, 1947 for 40 Thor Automagic washers which were to be delivered to the defendants at the price of $158 per unit; that the machines were shipped to the defendants during the month of November, 1947 in three separate installments, and that 22 of the machines were accepted and paid for by the defendants, but the last 18 were rejected and were returned to the plaintiff after the defendants had refused to accept the same; and that the defendants had refused to pay for the machines thus rejected. Stamler testified further that the 18 machines, which the defendants had refused to accept, were later sold on the open market in Chicago for the sum of $1,791, which represented a loss to the plaintiff of approximately $60 per unit on the machines thus rejected.
Stamler admitted that the factory serial numbers and the manufacturer's guarantee certificates had been removed from the machines prior to the shipments of same to the defendant; but Stamler stated that he had discussed this matter with Chatham on the telephone at the time Chatham placed the order for the 40 Automagic washers, and that Chatham understood that there would be no serial numbers or guarantee certificates on the machines. Stamler stated further that the machines were shipped to the defendants in the same condition as they were in when the plaintiff received them.
Roger P. Chatham, Jr., testified that the order for the 40 Automagic washers was placed with the plaintiff by telephone call on August 11, 1947; that Sam Stamler, the president of the plaintiff corporation, stated to him at that time that he had the machines in stock and would ship the same promptly; that on September 9, Stamler called Chatham and asked for a deposit of $300 on the machines, and that on September 12, 1947, Stamler called him again and asked for an additional deposit of $2,000. These amounts were forwarded to the plaintiff immediately. Chatham testified further that he had a telephone conversation with Stamler on October 14, 1947, and learned at that time that the plaintiff did not have the machines in stock. He then asked that the money which he had deposited with the plaintiff be returned to him. Stamler refused to return the deposit but agreed to ship other merchandise to the defendants which was to be charged against the deposit, and other merchandise of the value of $1,056, was shipped to the defendant during the month of October.
Chatham testified that on November 7 the defendants received a shipment of seven Thor Automagic washers at the railroad depot in Vicksburg. The machines had been shipped under a bill of lading with sight draft attached. Chatham paid the draft and the machines were delivered to him. He found that the factory serial numbers and manufacturer's guarantee certificates had been removed from the machines. He stated that he had had no prior knowledge that the plaintiff intended to ship to him machines from which the factory serial numbers and the manufacturer's guarantee certificates had been removed. He stated that he had bought merchandise from the plaintiff on prior occasions, and that such serial numbers and guarantee certificates had never been removed from any other merchandise. Chatham stated that he called Stamler on the telephone and told him that he could not accept any more machines in that condition, and asked Stamler to return to him the balance of the money which he had on deposit with the plaintiff. Stamler refused to agree to return the money which the defendants had on deposit; and Stamler stated to Chatham that the remaining 33 machines called for in the order had been shipped.
Chatham testified that the other machines arrived in Vicksburg on November 10. One shipment contained 15 Thor Automagic washers and the other shipment contained 18 Thor Automagic washers. Chatham made an inspection of the machines at the railroad depot in Vicksburg and found that the factory serial numbers and the guarantee certificates had been removed from them. Chatham accepted the shipment of 15 machines, and stated as his reason for doing so that the plaintiffs still held about $1,244 of the defendants' money, which had been placed on deposit with the plaintiff in September, and that he thought that was the only way the defendants could protect themselves on the deposit. Chatham rejected the other shipment of 18 machines. Chatham testified that the defendants sold the machines which they had accepted at a reduced price.
A copy of the Thor guarantee bond, which ordinarily accompanied each machine, was offered in evidence as an exhibit to Chatham's testimony. Under the terms of the guarantee agreement the factory agreed to replace defective parts which might be returned to the factory within the period of one year from the date of the sale to the retail purchaser. And it was expressly provided in the guarantee bond that the guarantee should not apply to any Thor Automagic household appliance, if the serial number thereon had been altered, defaced or removed; and the guarantee bond required that the enclosed registration card be properly filled in at the time of the original sale and promptly returned to the Thor factory. Chatham testified that without such guarantee certificate the factory would not be liable for the replacement of defective parts, and that in cases where sales were made without such guarantee certificate the retail dealer would be required to assume responsibility for the replacement of defective parts.
The only material conflict in the testimony was that Stamler testified that the matter of the removal of the factory serial numbers and the factory guarantee certificates from the machines was discussed by him with Chatham in the telephone conversation which they had at the time when the order for the machines was placed, and that Chatham understood that there would be no factory serial numbers or guarantee certificates on the machines when they were shipped. Chatham denied this, and stated that he had no knowledge that the serial numbers and guarantee certificates had been removed from the machines, or were to be removed from the machines, which he proposed to purchase. This issue of fact was settled by the verdict of the jury in favor of the defendants. And it is clear from the record that the removal of the factory serial numbers and the guarantee certificates from the machines prior to the delivery of the machines to the purchasers affected materially the value of the machines and their salability on the retail market. The defendants sold the machines which they accepted at a loss, and the plaintiff sold the machines which were returned to it at a loss; and this notwithstanding the fact that there was a brisk demand for Thor Automagic washers among retail dealers at that time.
It is clear that the learned circuit judge was of the opinion that the contract to purchase the 40 machines was an entire or indivisible contract, and that since the defendants had accepted a part of the machines, notwithstanding the fact that the factory serial numbers and the factory guarantee certificates had been removed from them, the defendants could not refuse to accept the others. (Hn 1) If all of the washers had been shipped at one time and under one bill of lading, we would be inclined to hold, under the rule laid down in the case of Kanson Hat Cap Mfg. Co. v. J.D. Blakeney Son, 142 Miss. 851, 108 So. 139, and in the case of S.P. Nelson Sons v. Wilkins Parks, 151 Miss. 492, 118 So. 436, that the contract was an entire contract and not divisible. That in fact seems to have been the intention of the parties at the time the order was placed for the machines. But the parties themselves, after the order had been given and accepted, treated the contract as divisible. The machines were shipped by the plaintiff in three separate installments, and separate bills of lading were issued for each installment, and separate drafts were drawn by the plaintiff for the purchase price of the machines included in each installment. The first installment was received by the defendants and paid for on November 7; the second installment was received and paid for a few days later; and the third installment was rejected and was returned by the carrier to the plaintiff. Since the contract was treated by both parties as divisible, the appellee is in no position now to contend that the contract was an entire contract and not severable, and that the appellants by accepting the first installment were thereby precluded from refusing to accept the other installments.
"Even if the contract would not ordinarily be deemed severable, the parties may by their conduct so treat it as to show that they regarded it as severable in fact. And where the delivery is to be in installments, the fact that the buyer has accepted one installment will not preclude him from refusing to accept a second installment which in fact does not conform to the contract." Mechem on Sales, Vol. II, p. 1215, par. 1398.
In the case of B.R.C. Bottle Co. v. Peaslee-Gaulbert Co., 189 Ky. 28, 224 S.W. 468, it was held that when a contract for the sale of merchandise has been considered and treated by both parties as severable, it may be properly so treated by the court. In the case of Brown Bag Filling Mach. Co. v. United Smelting Aluminum Co., 93 Conn. 670, 107 A. 619, the Court, though of the opinion that the contract was entire, held it divisible, since the parties treated it as divisible.
(Hn 2) It cannot be doubted that the removal of the factory serial numbers and guarantee certificates from the washers prior to the delivery of same to the appellants reduced the value of the machines as articles of merchandise and imposed an additional burden upon the retail dealers, who undertook to sell the same to their customers. The machines thus delivered to the appellants were defective in quality, and the appellant had a right to reject all of the machines. And we do not think that the appellants by accepting the first two installments of the defective machines under the circumstances stated above bound themselves to accept the remaining installment likewise defective in quality.
"In contracts to buy and sell if the buyer receives and accepts some installments of inferior goods, this is not ordinarily equivalent to an assent to receive subsequent installments of similarly inferior goods." Williston on Contracts, Revised Edition, Vol. 3, p. 2103, par. 741.
In 46 Am. Jur., p. 462, Sales, par. 277, the effect of the acceptance of prior installments upon the right of the buyer to complain of defects in the quality of subsequent installments is stated as follows: "The acceptance of installments which comply with the contract in quality does not affect the right to reject subsequent installments which in quality do not meet the requirements of the contract. Moreover the acceptance of prior installments defective in quality does not preclude the buyer from rescinding the contract for the default of the seller in the quality of subsequent installments." In the annotation entitled "Contracts for Sale of Goods as Entire or Divisible" in 2 A.L.R., pp. 643, 662, the annotator says: "The fact that the buyer saw fit to accept an installment of goods in quality inferior to the requirements of the contract does not affect his right to rescind the contract, where subsequent installments are tendered which are likewise of inferior quality."
In United States Printing Co. v. H.O. Wilbur Co., 98 Ill. App. 20, the Court held that a contract for the sale of a designated number of wrappers of a certain brand, to be shipped in installments, is severable in the sense that the acceptance of one installment of poor quality does not bind the buyer to accept the balance of the same quality. In the case of Russell v. Clark, 112 Me. 160, 91 A. 602, the Court held that the purchaser of a quantity of lumber of different dimensions, at designated prices per thousand feet, is entitled to rescind the contract, when the seller tenders, as in compliance therewith, lumber of a poorer grade than the contract permits, although the purchaser had previously received under the contract lumber of this grade.
In the case of Red Star Milling Co. v. Moses, 176 Miss. 634, 169 So. 785, this Court held that acceptance by the buyer of an installment of flour defective in quality was not in itself equivalent to an assent to receive subsequent installments of similarly inferior flour.
For the reasons stated above the judgment of the circuit court reversing the judgment of the county court is reversed by this Court and the judgment of the county court in favor of the defendants is reinstated.
Reversed and judgment rendered for the appellants.