Citation. 242 N.Y. 425, 152 N.E. 250 (Court of Appeals of New York, 1926)
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Company 1 agreed to sell company 2 certain goods. A provision in their agreement conditioned company 2's acceptance of the goods on a third-party experts' approval of the goods.
Synopsis of Rule of Law.
Unless a third party's approval of a transaction "has been withheld dishonestly and in bad faith, and the defendant is a party to that bad faith through control of the expert or collusion with him, there may be no recovery."
Facts.
On August 12, 1920, the Plaintiff, Van Iderstine Co., Inc. (the "Plaintiff"), entered into a contract with the Defendant, Barnet Leather Co. (the "Defendant") to sell 15,000 vealskins for delivery at the "beginning of the week of August 16th". The Defendant's acceptance of the skins was contingent on approval by the Defendant's agent. A second contract was entered into by the parties on September 10, 1920 for the sale of 6,000 vealskins, delivery to be made in September. This delivery was also subject to the Defendant's agent's approval. On or about August 16, 1920, the Defendant's agent inspected 15,000 veal skins and justifiably rejected 3,500 of them. In October of 1920, the Plaintiff notified the Defendant it was ready to deliver 3,500 conforming skins. The Defendant, however, refused delivery. At around the same time, the Defendant's agent rejected all 6,000 of the skins covered by the September 10, 1920 contract. The Plaintiff brought suit and the jury sided with the Plaintiff.
Issue.
As a matter of law, is a condition of satisfaction waived if a buyer's expert agent unreasonably rejects the seller's goods?
Held.
The court recognized that the parties' stipulated inspection by the Defendant's agent was a condition. As such, unless the condition was waived or excused, it "must be fulfilled before the buyer can be compelled to accept the skins tendered." The court concluded that as to the 3,500 skins that the Defendant refused in October of 1920, the condition was waived as a matter of law. The court also recognized that if the Defendant's agent's refusal to accept the 6,000 skins covered by the September 10, 1920 contract was in bad faith, the condition is also waived. Further, the issue arises as to whether the Plaintiff can recover against the Defendant, if the Defendant's agent "unreasonably withheld" consent after the Plaintiff attempted to deliver skins that conformed with the specifications in the contract.
• The court recognized that in the situation before it, the Defendant's agent's refusal to sign off on the goods, would not have allowed the Defendant, the buyer, to obtain property without payment. Instead the contract's terms "merely permit[ ] him to refuse to accept the goods because he stipulated not merely for goods of a certain quality but for goods of that quality approved by a particular expert." Further, "[t]o compel [the Defendant] to accept and pay for the goods without such approval is to impose liability upon him which he had not agreed to assume, and gives compensation to the seller for goods not delivered in full compliance with contract." The court concludes "[u]nless the certificate has been withheld dishonestly and in bad faith, and the defendant is a party to that bad faith through control of the expert or collusion with him, there may be no recovery under the second cause of action."
Discussion.
The court's rationale for it is decision is very interesting for a pre-Uniform Commercial Code decision. If observes: "The plaintiff's obligation is only to deliver certain goods, and by express stipulation there may be no delivery without approval of a third party. It has done nothing for which it might legally or equitably expect compensation until delivery is made. If approval is withheld the plaintiff cannot perform; it loses the profit which it might have otherwise made by delivery of goods at a contract price higher than the then prevailing market price. It assumed this risk. It still retains the goods and may sell them at market price. The defendant should not be required to pay the contract price unless the plaintiff performs according to contract 'subject to the approval' of the third party."
