Czarnikow-Rionda Co. v. Federal Sugar Refining Co.

Martin, J. The judgment appealed from herein represents the amount which the plaintiff paid in settlement of seven claims, three of which were, reduced to judgment, all growing out of a breach [207] of contracts to deliver fine granulated sugar. Every question here under consideration has been considered in prior litigations upon which this action is based, with the exception of the damages recoverable herein. The plaintiff entered into a contract with the defendant, the technical nature of which is disputed by the defendant, but in substance to deliver to plaintiff fine granulated sugar. That the sugar delivered was not fine granulated sugar has been held by four different courts and has been proved herein by overwhelming evidence. The greater part of this voluminous record consists of testimony on that subject which is now either admitted or in any event so firmly established that it cannot be successfully disputed. The authority of Frank C. Lowry, general sales manager, to act for the defendant is also so clearly established by the record that there can be no serious dispute on that subject. The complaint is based on a breach of warranty regardless of whether the contract be determined as an ordinary barter or what in the sugar trade is known as a “ tolling contract.” Prior to the year 1919 the plaintiff confined its activities in the refined sugar trade to export business and domestically was interested in the sale of raw sugar only. The rise in the price of refined sugar in the latter part of the year 1919 and early part of 1920, however, attracted plaintiff’s attention, and it then entered into the contracts here under consideration. By the terms of these contracts the, defendant was to ship fine granulated sugar to customers designated by plaintiff. Although the defendants agreed to ship fine granulated sugar, it was discovered upon inspection that the sugar shipped was not the grade of sugar that was to be delivered in compliance with the contracts. The sugar was then rejected and the contracts rescinded. The buyers filed claims against the plaintiff and several commenced actions. Three of these actions were disposed of by trial and the other claims were settled. In the actions which were tried it was conclusively established that the sugar delivered was not as contracted for and that there was a breach of warranty. The defendant was given an opportunity to defend these actions and at first joined with the plaintiff, but afterwards refused to take part in the defense or to complete the settlements which it had not only consented to but advised the plaintiff to make. The issues are fully stated in the opinion of the trial justice, and it is unnecessary to repeat each issue and the reasons for reaching a determination thereon. The only question now requiring our consideration appears to be the question of damages. The evidence established beyond doubt that the defendant [208] knew that the conti acts were made as a basis for subcontracts. The arrangements were in writing and próvided for shipment to plaintiff’s various customers. The defendant suggested that it arrange for the routing so that the customers would receive the sugar direct fiom the defendant. The plaintiff was entitled to receive the sugar contracted for, and upon discovery that it was not as warranted, had a right to rescind the contracts. In Standard Casing Co. v. California Casing Co. (233 N. Y. 413) the court said: “ Title passes upon shipment, though subject to the right of rescission upon the discovery of defects.” The rule of damages in such a case was stated in Carleton v. Lombard, Ayres & Co. (19 App. Div. 297; affd., 162 N. Y. 628). This court therein said (at p. 304): “ The only other question is as to the measure of damages. It is well settled that the plaintiffs were entitled to recover an amount sufficient to compensate them for what they had lost in consequence of a breach of their contract by the defendant. That would be an amount that would put the plaintiffs in the same position that they would have been in had the contract been complied with. “ Now, if this contract had been complied with, this Graham suit would never have been brought, and the plaintiffs would not have been compelled to pay that judgment, and would not have been compelled to defend that lawsuit. What the plaintiffs were entitled to recover, therefore, was the amount of the judgment they had to pay and their legal expenses in defending that lawsuit, this last becoming an item of damage because of the fact that the defendant had notice of the lawsuit and did take part in its defense. * * * When the court came to charge the jury it said to them: ‘ If the plaintiffs, however, have made out a case within the rules laid down by me, they are entitled to a verdict at your hands, as follows: ’ Then stating the plaintiffs’ claim, being the amount of the judgment in the Graham case, and interest thereon, cash expenditures by them in defending the Graham case and interest, and cash expenditures by them prior to the commencement of the Graham case, making a total of * * *. “ It seems to us * * * that the only objection taken was as to the rule of damage adopted by the court and as to the charge that the plaintiffs were to recover the amount paid in the defense of these actions which had been actually paid. We think it clear that the court adopted the proper measure of damages and that the exception of the defendant was not well taken.” In Mack v. Snell (140 N. Y. 193) it was said: “ In respect to the judgment for the defendant on his counterclaim, we perceive no [209] legal error. It represents the value of the contract to the defendant in case the plaintiffs had performed, measured by the difference between the price agreed to be paid by the defendant for the shears, and their market value if made according to the contract. The claim that as the title to the shears manufactured was in the defendant, the value of the materials should have been deducted, is not presented by any finding or exception, and it cannot be affirmed upon this record that the materials, in the condition in which they then were, were of any value to the defendant.” When the buyers who purchased from plaintiff examined the sugar and found it was not as warranted, they were also within their rights in rescinding the contracts and suing for damages. (Standard Casing Co. v. California Casing Co., supra.) With reference to the claims settled, it was established not only that there was a breach of warranty but that the settlement in each case was advantageous to the defendant and was acquiesced in by Mr. Lowiy who represented the defendant and had full authority to do so The plaintiff is entitled to recover the amount it paid to its buyers or customers in payment of the judgments obtained against it and the additional sum paid in settlement of the claims made by other buyers. In addition the plaintiff is entitled to reimbursement for counsel fees and expenses incurred in defending the actions brought against it for breach of warranty. In Lord & Taylor v. Yale & Towne Mfg. Co. (230 N. Y. 132) it was said: “ The rule is that ‘ If a paity is obliged to defend against the act of another, against whom he has a remedy over, and defends solely and exclusively the act of such other party, and is„ compelled to defend no misfeasance of his own, he may notify such party of the pendency of the suit and may call upon him to defend it; if he fails to defend, then, if liable over, he is liable not only for the amount of damages recovered, but for al reasonable and necessary expenses incurred in such defense.’ (Inhabitants of Westfield v. Mayo, 122 Mass. 100, 109; Consolidated Hand-Method Lasting Machine Company v. Bradley, 171 Mass. 127; Boston Woven Hose & Rubber Company v. Kendall, 178 Mass. 232.) ” The rule of damages to be applied to these actions was considered by this court in Lamborn v. Czarnikow-Rionda Co. (221 App. Div. 737). Mr. Justice Finch there said: “ A plaintiff who establishes a cause of action is entitled to recover all the damages of which the wrong complained of is the proximate cause. If it appears that [210] the special damage claimed was fairly within the contemplation oí the parties when the contract was entered into, there is no reason why it should not be recovered.” In that same opinion, speaking for this court, he also said: “ By reason of the breach of warranty upon which the plaintiffs’ cause of action is based, the plaintiffs have been compelled to defend these various actions. That in two of the actions the complaint was finally dismissed does not make the cost of defending the same arise any the less out of the breach of warranty. * * * The plaintiffs are obliged, however, to defend the suits of their vendees against them and the counsel fees incurred were an additional item caused by reason of the breach of warranty, which are recoverable by the plaintiffs in addition to their general damage. If the plaintiffs prove a breach of warranty and that the resales were within the contemplation of the parties, the plaintiffs are then damaged not only the difference in value of the goods hut the expense of defending the suits against them.” The referee in Wall Commission Co. v. Czarnikow-Rionda Co. wrote a very interesting opinion, giving consideration to many of the issues which are now before us for review. That case was affirmed in 208 Appellate Division, 726. We are of the opinion that the proper measure of damages was applied in this case and that the judgment and order should be affirmed, with costs. Dowling, P. J., and O’Malley, J., concur; Finch and McAvoy, JJ., dissent.